The internal control of the investment bank was not strict, and Industrial Securities was warned by the regulator

Source: China Securities Journal-China Securities Network

Recently, the official website of the China Securities Regulatory Commission announced that it would take administrative supervision and management measures to issue a warning letter to Industrial Securities. The announcement pointed out that Industrial Securities had problems such as incomplete disclosure of project initiation, quality control, kernel review issues, and unreasonable design of the salary appraisal system in the sponsorship report of some project issuances, which violated the relevant provisions of the "Guidelines for Internal Control of Investment Banking Business of Securities Companies". In accordance with the relevant provisions of the Measures for the Compliance Management of Securities Companies and Securities Investment Fund Management Companies, the China Securities Regulatory Commission (CSRC) decided to take administrative supervision and management measures against Industrial Securities by issuing a warning letter. The China Securities Regulatory Commission (CSRC) requires Industrial Securities to strengthen the internal control and management of its investment banking business and hold the relevant responsible personnel accountable.

He has been fined for business violations many times

Investment banking and research business problems are frequent

As the core business segment of securities firms, investment banking not only involves highly professional financial operations such as corporate listing, refinancing, mergers and acquisitions, but also emphasizes the importance of risk management and internal control. According to public information, in recent years, Industrial Securities has been punished by regulators many times, and its investment banking and research business has become a key area with frequent problems.

In March 2024, the Beijing Stock Exchange announced that Industrial Securities was required to submit a written commitment due to sponsorship business violations.

On February 20, 2024, Fujian Senda Electric Co., Ltd., sponsored by Industrial Securities, withdrew its application for issuance and listing. According to public information, Senda Electric's IPO was accepted on June 26, 2023, and received three rounds of inquiries and completed replies before termination.

As early as 2022, the Fujian Securities Regulatory Bureau issued a warning letter to Industrial Securities, because in the process of sponsoring Weizhi Co., Ltd.'s application for public issuance of shares to unspecified qualified investors, it was not found that the issuer transferred funds from the company's bank account to personal bank cards through labor fees or advertising fees from 2018 to 2019 to pay for the labor service costs of some individual labor team projects and project promotion coordination fees. To this end, Industrial Securities was required to strengthen project quality management and submit a rectification report.

Wind shows that in terms of investment banking equity business, as of October 20, Industrial Securities has only completed 4 equity lead underwriting projects this year, raising a total of 929 million yuan (according to the statistics of the issuance date). Judging from the withdrawal of projects, as of October 20, Industrial Securities has announced a total of 13 sponsored projects this year, of which 5 projects have been withdrawn voluntarily, with a project withdrawal rate of 38.46%.

It should be noted that, according to the "Listing Sponsorship Letter on the Placing of Shares by Xiamen C&D Co., Ltd. to the Original Shareholders and Listing on the Main Board" issued by Industrial Securities in September this year, the person in charge of the sponsorship business signed by it is Kong Xiangjie, vice president of Industrial Securities. According to the official website of Industrial Securities, Kong Xiangjie is currently a member of the company's party committee, vice president, supervisor of China Securities Credit Enhancement Co., Ltd., and director of China Industrial Securities (Hong Kong) Financial Holdings Co., Ltd. He used to be the assistant to the general manager of the Hualin office of Industrial Securities, the head of the Jinhui sales department, the head of the directly affiliated sales department, the head of the branch office, the general manager of the Hudong Road sales department, the general manager of the Fuzhou marketing center, the assistant to the president of Industrial Securities and the director of the private client headquarters, the director, general manager and chairman of the board of directors of Industrial Securities Futures Co., Ltd., and the general manager of the brokerage business headquarters of Industrial Securities. His past experience has focused on the brokerage line.

In addition, judging from past fines, the research business sector of Industrial Securities has also become the focus of regulatory penalties. At the beginning of 2024, the official website of the China Securities Regulatory Commission disclosed a fine, exposing the illegal behavior of Chen Lei, chairman of the private equity fund Shenzhen Junru Assets, Wu Quan, the actual controller of the listed company Jintuo shares, and Lin Jianwu, chairman of Shenzhen Huihai Hongrong Investment, the intermediary, in the name of market value management, to manipulate the stock price of the listed company Jintuo shares. The parties were fined a total of more than 660 million yuan. It is worth mentioning that analysts from institutions such as Industrial Securities mentioned in the fine, and frequently released comments on key matters and in-depth reports in conjunction with the favorable announcements of listed companies to attract investors to buy Jintuo shares.

According to public information, Industrial Securities is the listing sponsor of Jintuo shares. The China Securities Regulatory Commission pointed out that the announcement of Jintuo Co., Ltd., the research reports of securities companies such as Industrial Securities, the records of inquiries by relevant personnel, WeChat chat records and other evidence confirmed that Chen Lei, Wu Liang and others raised the stock price by intensively issuing favorable announcements, contacting securities analysts to cooperate with the release of research reports, and organizing personnel to post in the stock bar.

On August 25, 2023, the Fujian Securities Regulatory Bureau disclosed its decision to issue a warning letter to Industrial Securities and related securities analysts. According to the decision, the internal control and compliance management of the customer service behavior of Industrial Securities' securities research report business are not in place, and the content of individual analysts' statements is not prudent enough. The Fujian Securities Regulatory Bureau requires Industrial Securities to take this as a warning, earnestly find and rectify problems, continue to improve internal control, hold relevant personnel accountable, and submit a written rectification report to the CSRC.

Revenue numbers are choppy

Performance continued to be under pressure

Judging from the data, since 2018, the performance of Industrial Securities has been up and down. In 2018, 2022, and 2023, there will be varying degrees of decline. Among them, the revenue in 2018 was 6.499 billion yuan, a year-on-year decrease of 26.31%; The net profit attributable to the parent company was 135 million yuan, a year-on-year decrease of 94.08%. In 2022, the revenue will be 10.660 billion yuan and the net profit attributable to shareholders of the parent company will be 2.637 billion yuan, a year-on-year decrease of 43.81% and 44.40% respectively; In 2023, the revenue will be 10.627 billion yuan and the net profit attributable to the parent company will be 1.964 billion yuan, a year-on-year decrease of 0.30% and 25.51% respectively.

Its 2023 annual report shows that in 2023, Industrial Securities' net fee and commission income and investment income are in a downward trend, while government subsidies are also declining. Among them, the net income of fees and commissions was 6.150 billion yuan, a decrease of 13.83% over the same period of last year, mainly due to the year-on-year decrease in net fee income from brokerage business; The company's investment income was 76 million yuan, a decrease of 69.87% over the same period of last year, mainly due to the year-on-year decrease in investment income from derivative financial instruments; Other income was 188 million yuan, a decrease of 47.98% over the same period of last year, mainly due to the year-on-year decrease in government subsidies received.

2024 is off to a bad start. According to the first quarterly report, Industrial Securities achieved revenue of 2.377 billion yuan in the first quarter, a sharp decrease of 42.99% year-on-year; The attributable net profit was 328 million yuan, a sharp decrease of 60.38% year-on-year. Among them, its investment income loss in the first quarter was 1.602 billion yuan, a year-on-year decrease of 661.77%, mainly due to the year-on-year decrease in investment income from trading financial instruments. According to industry insiders, the so-called "investment income from trading financial instruments" mainly refers to the investment income of stocks and bonds, including bonds that are not held to maturity and the investment income of stock funds that are not held for a long time to obtain dividends.

According to the semi-annual report, Industrial Securities achieved operating income of 5.391 billion yuan in the first half of 2024, a year-on-year decrease of 22.3%; net profit was 942 million yuan, down 47.57% year-on-year. According to the semi-annual report of Industrial Securities, during the reporting period, the performance of the five main businesses of Industrial Securities was different. Among them, the overseas business achieved revenue of 221 million yuan, a year-on-year increase of 17.01%; the revenue of securities and futures brokerage business was 1.324 billion yuan, a year-on-year decrease of 22.58%; The revenue of asset management business was 1.144 billion yuan, a year-on-year decrease of 31.20%; the revenue of institutional service business was 1.821 billion yuan, a year-on-year decrease of 10.29%; The revenue of self-operated investment business was 1.132 billion yuan, a year-on-year decrease of 20.26%. It can be seen that overseas business is the only core business that has achieved double-digit revenue growth.