Another brokerage firm was "named" for violations of investment bank sponsorship business.
On April 12, Huaxi Securities announced that it was suspended from sponsorship business for 6 months due to suspected lack of diligence in the practice of non-public offering of shares in the sponsorship project. Judging from performance, Huaxi Securities has not yet released its 2023 annual report, but its net profit attributable to the parent company has declined for two consecutive years after 2020. Focusing on investment banking business, in 2022, the net fee income of Huaxi Securities' investment banking business will be halved compared with 2021. The suspension of sponsorship business qualifications for half a year is also another setback after the shrinkage of Huaxi Securities' investment banking business income.
At the end of 2023, Huaxi Securities will also usher in a change of board of directors, and it is still unknown whether the new chairman can lead Huaxi Securities to open a new chapter. Some industry insiders said that the challenges faced by Huaxi Securities include the impact of short-term regulatory "naming", the rectification of medium-term control compliance issues and the improvement of long-term profitability.
Investment banking business violations have been repeatedly "concerned" by regulators
Huaxi Securities' business qualification was suspended for half a year. On April 12, Huaxi Securities announced that it had recently received the "Prior Notice on Suspending the Regulatory Measures for the Qualification of Sponsorship Business for Huaxi Securities Co., Ltd." from the Jiangsu Securities Regulatory Bureau of the China Securities Regulatory Commission. It is reported that Huaxi Securities is suspected of failing to be diligent in the due diligence work in the practice process of the non-public issuance of shares sponsored by Jintongling Technology Group Co., Ltd. in 2019, and there are false records in the sponsorship letter for the issuance of shares to specific objects, the relevant reports issued in the continuous supervision stage are suspected of being falsely recorded, and the continuous supervision and on-site inspection work is suspected of not being implemented in violation of the rules. According to the relevant regulations, the Jiangsu Securities Regulatory Bureau intends to suspend the sponsorship business qualification of Huaxi Securities for 6 months.
Image source: Huaxi Securities
At the same time, Huaxi Securities said that the Jiangsu Securities Regulatory Bureau intends to take regulatory measures against Liu Jingfang and Zhang Ran, the sponsor representatives of the above-mentioned sponsor projects, as unsuitable persons, and shall not serve as securities companies within two years from the date of the decision on regulatory measures to sponsor securities companies or actually perform the above duties;
In fact, this is not the first time that Huaxi Securities has been "named" by regulators for investment banking business problems this year. On January 17, Huaxi Securities was pointed out by the Shanghai Stock Exchange that in terms of investment banking business management system and internal control mechanism, there were problems such as failing to formulate a project management system that timely grasped the situation of corporate bond projects and the practice activities of business personnel;
At that time, the Shanghai Stock Exchange issued a written warning to Huaxi Securities, requiring it to improve and effectively implement the internal control system for the acceptance, declaration, issuance, and duration management of corporate bonds, and to conduct self-examination in a timely manner and complete rectification as required.
If you look at it for a long time, in September 2023, Huaxi Securities was also ordered to correct administrative supervision and management measures by the China Securities Regulatory Commission due to the lack of independence of internal control, the senior executives in charge of the quality control department serving as the sponsor representative of the IPO project and participating in the quality control approval, and the third party hired by some investment banking projects and did not strictly perform the compliance review. At the same time, Du Guowen, as a senior executive in charge of investment banking business of Huaxi Securities, and as an executive in charge of the quality control department, served as the sponsor representative of the IPO project and participated in the quality control approval, and Sun Zhaoming, as the head of the quality control department at the time, were all issued warning letters by the China Securities Regulatory Commission.
In the view of Yu Fenghui, an economist and new finance expert, being "named" by regulators many times may weaken the market's trust in Huaxi Securities' professional ability and compliance risk control level, affect its image among customers and potential project parties, and lead to a decline in market share and a weakening of its competitive position. At the same time, it may also lead to the replacement of sponsors for the sponsor projects being promoted by Huaxi Securities, and the projects that have signed the intention or are in the negotiation stage may also be transferred to other brokerages as a result. This will not only result in the loss of short-term business opportunities for Huaxi Securities, but may also lead to the destruction of long-term customer relationships and the reduction of potential project reserves.
Net profit attributable to the parent company has declined for two consecutive years
According to the company's official website, Huaxi Securities, formerly known as Sichuan Securities Co., Ltd., was established in 1988, and in July 2014, it was officially renamed Huaxi Securities with a registered capital of 2.625 billion yuan, and Luzhou Laojiao Group Co., Ltd. was its largest shareholder. In February 2018, Huaxi Securities was listed on the Shenzhen Stock Exchange for the first time.
As of now, Huaxi Securities has not released its 2023 annual report. In the first three quarters of 2023, Huaxi Securities achieved revenue of 2.589 billion yuan, a year-on-year increase of 2.07%, and net profit attributable to the parent company of 373 million yuan, a year-on-year increase of 3.79%. However, if only from the single quarter in the third quarter, its operating income was 567 million yuan, a year-on-year decrease of 27.84%, and the net profit attributable to the parent company reached a loss of 151 million yuan.
Looking back on the performance of the past five years, the net profit attributable to the parent of Huaxi Securities in 2018 and 2019 was 845 million yuan and 1.432 billion yuan respectively, and after reaching 1.9 billion yuan in 2020, the net profit attributable to the parent of Huaxi Securities began to decline year by year, and the relevant data in 2021 and 2022 were 1.632 billion yuan and 422 million yuan respectively.
Focusing on investment banking business, in the first three quarters of 2023, the net fee income of Huaxi Securities' investment banking business was 131 million yuan, down 23.84% from 172 million yuan in the same period in 2022. If you look at the complete annual data, in 2022, its net income from investment banking fees will be 218 million yuan, halved from 457 million yuan in 2021, a year-on-year decrease of 52.18%.
In response to the possible impact of being suspended from sponsorship business qualifications for 6 months on the company, and whether the suspension of relevant business qualifications for 6 months will further exacerbate the decline in net fee income from investment banking business, a reporter from Beijing Business Daily interviewed Huaxi Securities, but has not received a reply as of press time.
However, a reporter from Beijing Business Daily also noticed that Huaxi Securities said in an announcement issued on April 12 that according to preliminary statistics, the company's business income related to sponsorship business qualifications in 2023 will be about 35 million yuan, and the accurate data is subject to the company's annual report announced in the follow-up. There is uncertainty about the impact of this event on Huaxi Securities' operations in 2024 and subsequent years.
In Yu Fenghui's view, during the suspension of sponsorship business qualifications, the focus of Huaxi Securities' investment banking business team may shift to rectification and compliance construction, and human resource allocation, team morale and stability will face challenges. At the same time, companies need to invest resources to respond to regulatory requirements and carry out internal rectifications, which may further increase cost pressures.
The new executive team has a long way to go
It is worth mentioning that the senior management team of Huaxi Securities has also been rotated in recent years. On March 16, Huaxi Securities issued an announcement stating that Huang Ming, deputy general manager, resigned due to personal work reasons. At the end of 2023, Huaxi Securities has just ushered in a change of board of directors. On December 29, 2023, Huaxi Securities announced that the company has completed the general election of the board of directors and the board of supervisors, and elected Zhou Yi as the chairman.
From December 2021 to July 2023, he served as Secretary of the Party Group, Director of the Luzhou Municipal Finance Bureau, and a first-level researcher, and since July 2023, he has served as the Secretary of the Party Committee of Huaxi Securities.
At the same time as the change of chairman, Huaxi Securities also ushered in a new senior management team, including the appointment of Yang Jiongyang as general manager, Zu Qiang as chief operating officer, deputy general manager and chief information officer, Cheng Huazi, Huang Ming, Wei Tao, Zhang Tong, Li Dan and Zhu Weihua as deputy general managers, Xing Huaizhu as deputy general manager and compliance director, and Li Bin as deputy general manager and financial director.
Fu Jian, director of Henan Zejin Law Firm, believes that at present, Huaxi Securities is facing challenges including the impact of regulatory "naming" in the short term, the rectification of internal control and compliance issues in the medium term, and the long-term adjustment of business structure and profitability improvement. After the completion of the term change, Huaxi Securities should strengthen corporate governance, improve the level of operation and management, optimize the business structure and improve profitability on the basis of ensuring compliance.
"Subsequently, Huaxi Securities can develop other investment banking business areas in addition to sponsorship business through business diversification and innovation, such as financial advisory, bond underwriting, asset securitization, etc., and can also explore opportunities in emerging fields such as financial technology, green finance, and ESG investment. At the same time, it can improve service quality and customer relationships, strengthen risk management and control, ensure the steady development of all aspects of business, and reduce manpower and operating costs through digital transformation and process optimization. In addition, the new management of Huaxi Securities should formulate a clear strategic plan to ensure the effective allocation of the company's resources and ensure that the strategy is effectively executed. Yu Fenghui suggested.
Huaxi Securities also stated in the announcement issued on April 12 that it will deeply learn lessons, seriously reflect, strengthen management, improve and improve the internal control mechanism of investment banking business, and continue to improve the quality of investment banking business. The company will thoroughly implement the requirements of strict access to issuance and listing, improve the quality of listed companies, and build a first-class investment bank, earnestly fulfill the responsibility of the "gatekeeper" of the capital market, and continuously improve the ability to serve the real economy.
Beijing Business Daily reporter Liu Yuyang Hao Yan