In the face of the contraction of investment banking business and the decline in revenue and net profit, the transfer of more than 100 people or the first step of CITIC Securities' "self-help", how to do a good job in the role of "gatekeeper" in the follow-up needs to be answered as soon as possible.
Miao Ye Sun Yige / from Shanghai
The investment banking business has tightened, the revenue and net profit have declined, and the "hard" China Securities Regulatory Commission has ...... After the "baptism" of the capital market in the past year, the life of CITIC Securities, the "first brother" of the brokerage, is not very easy.
On April 7, it was reported in the market that CITIC Securities had recently transferred more than 100 headquarters investment bank equity business personnel to alleviate the personnel pressure brought about by the IPO slowdown. The transfer will not affect the salary level of employees, but CITIC Securities has implemented the last elimination system, and if the employee assessment continues to fail to meet the standard, he will face salary reduction or persuasion.
"At present, the investment banking business of securities companies is generally facing challenges, and diversion or layoffs are not new. According to a person familiar with the matter, behind the transfer of CITIC Securities' investment banking personnel is the sharp decline in its investment banking business last year.
According to the annual report, in 2023, CITIC Securities' investment banking business will achieve a net income of 6.293 billion yuan, a year-on-year decrease of 27.28%.
In addition, there is also an announcement issued by the Shenzhen Stock Exchange on the evening of March 22, because the content of Liangang Optoelectronics and its sponsor CITIC Securities in replying to the inquiry letter is not clear enough and the issues involved are not fully explained, it was decided to start on-site supervision of CITIC Securities to further consolidate the "gatekeeper" responsibility of the sponsor.
After the announcement, CITIC Securities' share price opened sharply lower, falling 4.88% to 19.5 yuan per share in a single day, the largest one-day decline since September 16, 2022. As of April 10, CITIC Securities closed down 2.75% at 18.41 yuan per share, with the latest total market value of 272.8 billion yuan. Since March 11, CITIC Securities has fallen by nearly 15%.
At the 2023 annual results conference, when faced with how to implement the relevant regulatory requirements of "strict supervision and strict management", Zhang Youjun, chairman of CITIC Securities, responded that he would effectively implement the "gatekeeper" responsibilities of intermediaries.
As a head brokerage, being "beaten" by the official may be just the beginning.
Encountering a "famine year for investment banking"
"This year is not a small year for investment banking, it is clearly a year of famine for investment banking. In the face of the current Great Depression in the IPO business, some investment bankers said.
Relevant data show that in the first quarter of this year, a total of 31 companies achieved initial listing, lower than the level of 86 in the same period last year, IPO raised a total of 22.368 billion yuan, lower than the amount of 96.137 billion yuan raised in the same period last year, and 80 companies terminated (withdrawn) IPO, more than 47 in the same period last year.
The siphon effect of CITIC Securities' investment banking business has always been obvious. However, since the China Securities Regulatory Commission issued a document in the second half of last year to tighten the IPO and refinancing policies in stages, the pace of IPO issuance has slowed down significantly, the number of new shares listed has plummeted, and the investment banking business performance of securities companies has generally been poor, and CITIC Securities has not been an exception, directly shrinking by 27%.
In fact, the pressure on CITIC Securities' investment banking performance in 2023 is mainly due to the "Waterloo" of A-share IPOs. Wind data shows that the number of new A-share listings in 2023 will decrease from 428 in 2022 to 313, and the scale of new IPO issuance will be 356.539 billion yuan, a year-on-year decrease of 39.26%.
Even so, CITIC Securities still occupies a leading position in the industry and has a relatively high market share.
"Securities companies with strong risk control capabilities have more business opportunities and high-quality project resources under strict supervision of the market, which is more development opportunities for CITIC Securities. In response to the "strict supervision and strict management" of the recent IPO, Yang Minghui, general manager of CITIC Securities, said that the relevant policies to improve the quality of listed companies and strengthen the supervision of listed companies have also brought incremental business opportunities to the investment banking business.
However, it is undeniable that the sharp decline in the scale of CITIC Securities' IPO underwriting in 2023 is also one of the main reasons for the shrinkage of its investment banking business income.
According to the disclosure, in 2023, the lead underwriting scale of CITIC Securities' A-share IPO will drop by 78.04% year-on-year, shrinking from 227.88 billion yuan in 2022 to 50.033 billion yuan. After falling 14.7% to 58 in 2022 compared to 2021, the number of IPO projects will decrease by 41.38% year-on-year in 2023.
"Judging from the business performance so far in 2024, it is likely to continue to shrink this year. A brokerage analyst said that the China Securities Regulatory Commission issued a series of documents on March 15, focusing on listing standards and quality issues of listed companies, which will limit the pace of A-share IPOs, and it is unlikely to speed up in the short term, and it will be difficult to recover to the high speed in 2021 in the medium and long term.
In addition, from the perspective of the IPO income structure of investment banks, the commission of the over-raised part is the most generous, and its income is also considerable. However, with the reduction of the scale of new IPO issuance, the amount of over-raised funds available to investment banks has been greatly reduced or even disappeared.
Since the first quarter of this year, only 18 brokerages have "opened" their IPO underwriting business, and the number has been directly discounted compared with the same period last year. These brokerages earned a total of only 1.411 billion yuan in IPO underwriting and sponsorship fees in the first quarter, a year-on-year decrease of 77%.
Due to the large scale of over-offering that CITIC Securities was able to share in the past, the impact of the reduction of the scale of IPO fundraising on its income has become more and more significant.
For the development of CITIC Securities' investment banking business this year, Yang Minghui said that he will take the initiative to adapt to the new situation, one is to improve the quality of customer projects, focusing on the financing customers of the real economy, the second is to continue to optimize the business structure, increase the development of incremental business, and the third is to enhance the international service capability.
Can you be a good "gatekeeper"?
The "downhill" of CITIC Securities' investment banking business is also inseparable from the impact of market policies to a large extent.
The constraints of the "827 New Deal" on the refinancing business have caused the refinancing scale of A-shares to encounter a "slimming storm" in 2023, and the overall scale will shrink by as much as 39.8%. Although CITIC Securities still maintained a certain combat effectiveness in refinancing, achieving a slight increase of 0.62%, the weak growth could not fill the financial gap caused by the decline in its IPO business.
As for this year's investment banking business, from the current point of view, it is not optimistic. On March 15, the China Securities Regulatory Commission issued four major documents in succession, one of which was the "Opinions on Strictly Controlling the Access to Issuance and Listing to Improve the Quality of Listed Companies from the Source (Trial)", and the strong regulatory signal has been upgraded significantly.
As the "first brother" of investment banking, CITIC Securities must deal with a more rigorous project screening and review mechanism, which undoubtedly increases the difficulty and potential risks of its investment banking business.
Since 2024, in terms of initial offerings, CITIC Securities has sponsored a total of 45 companies, and as of April 7, 9 IPO projects have been withdrawn, namely Han's Sealing and Testing, AVIC Petroleum, Ark Baifa Biotechnology, Adopt a Cow, Hantong Integration, Huimangwei, Zhouyu Design, etc., with a withdrawal rate of 10.98%, higher than the same period last year.
From the perspective of the reasons for withdrawal, most of them are related to the market environment and the company's development status.
Specifically, Hantong Integration "has not read back" to regulatory inquiries; Huimang Micro Science and Technology Innovation Board was transferred to the Growth Enterprise Market for the second time and then folded, and before that, "it was withdrawn after a check"; adopting a cow received a series of 48 questions from the China Securities Regulatory Commission more than 13,000 words of inquiry letters; AVIC Petroleum withdrew its application after not responding to the first round of inquiries.
With the reduction of business scale, the withdrawal rate of CITIC Securities' sponsored projects will show an increase in 2023.
On March 12, a blogger reposted that "many shareholders demand a thorough investigation of CITIC Securities", which detailed that among the 30 IPO companies sponsored by CITIC Securities in 2023, in less than a year, 22 companies' stock prices have fallen below the issue price, and the breakage rate is as high as 73%. In contrast, in 2023, CITIC Securities' net profit from underwriting and sponsorship will be 2.81 billion yuan.
Some shareholders wonder whether CITIC Securities has fulfilled its responsibilities as a "gatekeeper" while earning sponsorship profits?
According to Wind data, CITIC Securities sponsored a total of 303 projects in 2022, with a withdrawal rate of 7.62%, of which 20 projects were voluntarily withdrawn. Although the total number of sponsored projects will decrease to 252 in 2023, the withdrawal rate has soared to 16.67%, and the number of projects voluntarily withdrawn has reached 41.
Zhang Youjun said that CITIC Securities puts functionality in the first place and implements the "gatekeeper" function of intermediaries. High-quality listed companies are the cornerstone of the capital market, and to achieve this, high-level professional services of securities companies are needed to provide a good entrance to the capital market.
According to the latest financial report, CITIC Securities will achieve operating income of 60.068 billion yuan in 2023, a year-on-year decrease of 7.74%, and a net profit of 19.721 billion yuan, a year-on-year decrease of 7.49%. The company's revenue and net profit have been declining for two consecutive years.
In the face of the tightening of investment banking business and the decline in revenue and net profit, more than 100 people are transferred or the first step of CITIC Securities' "self-help".