A Lonely "Net Assets" Conspiracy: CITIC Securities "After A Trillion"

The financial data of CITIC Securities in 2020, which is firmly at the top of the securities industry, is released.

On the evening of March 18, CITIC Securities officially released the annual report of 2020. In the current period, the company's operating revenue was 54.383 billion yuan, up 26.06% year-on-year; the net profit attributable to the parent company was 14.902 billion yuan, with a year-on-year growth of 21.86%, both of which reached the highest level in five years.

If there is no accident, CITIC Securities will continue to dominate the industry in 2020.

That night, CITIC Securities also issued a profit distribution plan, with a total cash dividend of 5.17 billion yuan, which can be said to be full of sincerity.

By the end of 2020, the total assets of CITIC Securities reached 1.05 trillion, an increase of 33% compared with that at the end of 2019, becoming the first domestic securities company with assets of more than trillion yuan.

However, while the scale of assets is speeding forward, CITIC Securities has also exposed many problems recently.

From the data point of view, CITIC Securities has withdrawn 6.5 billion huge credit impairment, liquidity risk indicators approaching the warning line, and 28 billion rights issue triggered share price decline, all of which have caused market disputes.

The whole story of the 28 billion rights issue

On the one hand, high dividends are paid, while on the other hand, more large-scale share allotment financing plans are put forward. Both of them are aimed at "old shareholders", but there is no positive response from the "sincerity of dividends".

As early as February 26, the plan for equity financing was released. CITIC Securities announced that it plans to allocate to all A-share shareholders at the ratio of no more than 1.5 shares per 10 shares based on the total number of shares after the closing of the market on the registration date of rights allotment of a shares, and the total amount of raised funds shall not exceed RMB 28 billion.

Allotment of shares is a kind of financing behavior to old shareholders. It points to the original shareholders to sell a certain number of new shares at a certain price lower than the market price according to their shareholding proportion.

Therefore, for investors holding CITIC Securities, the right issue is tantamount to forcing them to take out real gold and silver, because not participating in the allotment means that their interests will be diluted.

According to the data, in 2020, 6 listed securities companies, namely Guoyuan securities, Soochow securities, Shanxi securities, Tianfeng securities, China Merchants Securities and Guohai Securities, will implement rationing, with an average discount ratio of 44.42%. China Merchants Securities, which has the highest fund-raising among the above-mentioned securities companies, has only announced a share allotment plan of 15 billion yuan, while the other securities companies have kept their share allotment scale below 6 billion yuan.

In view of this, CITIC Securities's 28 billion yuan allotment has aroused great repercussions in the market.

On March 1, on the first trading day after the announcement of the allotment plan, the stock price of CITIC Securities, which had been affected by market fluctuations for 12 consecutive times, plummeted by 5.98% on the same day, and dropped by nearly 10% in the following ten trading days.

As for why CITIC chose to issue shares, which is a highly criticized method in the domestic capital market, some senior investment bankers explained that it is difficult to achieve a daily scale of 28 billion yuan through fixed increase financing. On the other hand, it will dilute the shareholding ratio of the existing major shareholders.

The background is that at present, CITIC shares, the major shareholder of CITIC Securities, only holds 15.47% of the company's shares, so it is not appropriate to dilute them through fixed increase.

Li Jiong, chief financial officer of CITIC Securities, said that the issuance of the share allotment plan was aimed at replenishing the company's net capital. "Compared with the fixed increase of shares, the rights and interests of existing shareholders will not be diluted, and the impact on the dilution of various income indicators of the company will be limited."

At present, for CITIC Securities rationing behavior, the market is mostly interpreted as relieving the liquidity risk of the company.

But in the interview, people from the securities industry said that it should have nothing to do with supplementing the short-term liquidity of the company.

"It has little to do with liquidity, it is more about the convenience of equity financing issuance." A senior executive of a securities firm in East China said that CITIC Securities had just approved an 80 billion corporate bond line at the beginning of the year, which could completely replenish liquidity by issuing bonds. "Only ultra short-term debt and short-term financing bonds of less than one year will affect the company's liquidity coverage and net stable capital ratio. Normal issuance of corporate bonds will only increase leverage and will not increase liquidity risk."

"In addition, the regulatory review period for rationing shares is relatively long, which is generally longer than the review of fixed increase. It generally takes one year to obtain approval." Yuanshui "can not save" near thirst. "

Therefore, in the view of the above-mentioned securities executives, CITIC Securities announced the plan to allocate shares more like making full use of various financing tools to increase net assets.

"With net assets, securities companies can borrow with leverage, make up for the consumption caused by various heavy capital businesses, strengthen the ability to use the balance sheet, and keep up with world-class investment banks."

When this dream is confronted with the downturn of the secondary market, where is the way forward and what is the story behind it?

The pros and cons of multiple "firsts"

One of the most important background is that CITIC Securities has always been given the expectation that China's investment banking business will become bigger and stronger. The expectations come not only from the market, but also from many high-level regulators.

There are not only market expectations for domestic financial institutions to go global, but also expectations for Chinese capital to play a greater role in global asset pricing power.

With the vigorous development of China's capital market, many responsibilities are indeed on the shoulders of the head institutions.

According to the financial report just released, although the growth rate of net profit is just over 20%, CITIC Securities Industry is still in a stable position in the performance side.

According to the data of China Securities Association, in 2020, the securities industry will achieve an operating income of 448.48 billion yuan, a year-on-year increase of 24.41%; and a net profit of 157.53 billion yuan, a year-on-year increase of 27.98%. In 2020, the net profit of CITIC Securities will account for 9.5% of the total profit of the whole industry.

According to the consolidated income statement, CITIC Securities achieved a net brokerage income of 11.257 billion yuan, a year-on-year increase of 51.61%; it realized a net income of 6.882 billion yuan from investment banking business, with a year-on-year increase of 54.11%; it realized a net income of 8.006 billion yuan, a year-on-year increase of 40.29%; it realized a net interest income of 2.588 billion yuan, a year-on-year increase of 26.53%; and a self-employed income of 17.907 billion yuan, the same 68%.

In 2020, with the domestic capital market improving and the registration system advancing steadily, CITIC Securities brokerage business and investment banking business revenue growth is the most prominent, brokerage business and self support business have become the company's pillar business.

According to the reporter of 21st century economic report, in terms of wealth management business, CITIC Securities and its subsidiaries will have a stock based transaction volume of 28.6 trillion yuan in 2020, a consignment sales of financial products of 944.7 billion yuan, and a wealth allocation investment business scale of more than 10 billion yuan.

In terms of investment banking business, last year, CITIC Securities' domestic main underwriting scale was 313.599 billion yuan, with a market share of 18.94%, ranking first in the market; the underwriting scale of bond financing business was 1.3 trillion yuan, with a market share of 12.93%, which also ranked first in the industry.

In addition, by the end of 2020, the asset management scale of CITIC Securities also reached 1.37 trillion yuan, and the market share of private equity management business of the company was 13.5%, ranking first in the industry.

It is worth noting that, although the performance is still brilliant, the 6.5 billion yuan of CITIC Securities still can not be ignored.

This data, or the same in domestic securities companies dominate.

As early as October 30, 2020, CITIC Securities issued an announcement on the provision for asset impairment. It plans to draw a total of 5.027 billion yuan of assets impairment reserves, an increase of 593.84% over the same period of last year, exceeding 10% of the company's audited net profit in 2019, reducing the net profit by 3.772 billion yuan.

In the third quarter of that year alone, CITIC Securities drew 2.993 billion yuan.

By the end of 2020, the provision of credit impairment of CITIC Securities increased by 1.5 billion yuan to 6.581 billion yuan, an increase of 247.89% year-on-year.

CITIC Securities, an official of CITIC Securities, said it was mainly due to the increase in the provision of credit impairment losses due to the purchase of resale financial assets and financing funds.

The typical case is kangdexin stepping on thunder. According to the stock price of kangdexin at the time of suspension was 3.52 yuan / share, 56.8749 million shares in CITIC's hands were worth nearly 200 million yuan.

In addition to stepping on "kangdexin" in disguise, CITIC Securities was also involved in the equity pledge storm of Pingxiang Yingshun Enterprise Management Co., Ltd., he qiaonu, chairman of the board of directors of Oriental Garden, and director Tang Kai of Pingxiang Yingshun Enterprise Management Co., Ltd. The newly established CITIC Securities (South China) has also touched on three cases of stock pledge repurchase transactions.

"There are some common risks among the top securities companies, which is related to the trend of market risk turning of the securities industry as a whole." A person from an institution in Beijing said frankly that this also reflects the convergence of domestic and foreign securities companies' business, and the unique competitive advantage is weak.

Shi Benliang, deputy chief financial officer of CITIC Securities, said at the performance conference that the company's credit impairment is based on a relatively stable and relatively cautious style. "The provision for impairment is not the same as the actual loss. It is beneficial for the company's long-term development to be prepared for danger in times of safety and lay a solid foundation."

However, the credit impairment loss of 6.581 billion yuan of CITIC Securities also reduced the company's net profit by 4.932 billion yuan, accounting for 30% of the company's net profit returned to the parent company in 2020.

Expansion to the left, risk control to the right?

In 2020 alone, CITIC Securities issued a total of 143297 million yuan of various corporate bonds and short-term financing bonds.

On January 6, 2021, CITIC Securities was again approved by the CSRC to publicly issue corporate bonds with a total face value of no more than 80 billion yuan to professional investors.

Among them, the first issue shall be completed within 12 months from the date of approval for registration. The issuance of the remaining bonds shall be completed within 24 months from the date of approval for registration. That is to say, in the next two years, the 80 billion day bond financing line will be collected by CITIC Securities.

With the various financing activities of CITIC Securities, the leverage ratio of the company has also increased significantly in recent years.

According to Cinda securities, the leverage ratio of CITIC Securities excluding customer margin has increased to 4.59 from 4.07 in 2019.

According to the 21st century economic reports, CITIC Securities has expanded rapidly in recent years, which is related to the consumption of capital due to the rapid development of capital intermediary business.

As for capital intermediary business, Li Jiong, financial director of CITIC Securities, explained that it was a business to meet customers' investment and financing needs through product design by using the company's own balance sheet, including margin trading and securities lending, income swap, equity derivatives, bulk commodity derivatives, etc.

"Capital intermediary business relies on the company's capital strength, transaction pricing strength and product design capability. At the same time, it is also a capital consumption business, and its business scale and profitability depend on relatively stable long-term capital supply. " Li Jiong, financial director of CITIC Securities, said.

In February, CITIC Securities also plans to invest no more than 19 billion yuan to develop capital intermediary business in its 28 billion yuan long allotment plan.

By the end of 2020, the scale of derivative financial assets directly related to over-the-counter derivatives business of CITIC Securities reached 20.157 billion yuan, a year-on-year increase of 174.22%.

With the support of capital, CITIC Securities has also gained obvious scale advantages in related businesses.

According to the data of China Securities Association, as of the end of November 2020, the surviving nominal principal of over-the-counter derivatives of securities companies totaled 1.33 trillion yuan, of which CITIC Securities reached 303.965 billion yuan, accounting for nearly 23% of the total scale, ranking first in the industry. In terms of financing and financing business, the scale of CITIC Securities's two financing businesses increased by 108% to 145.5 billion yuan at the end of 2020 compared with that in 2019, accounting for 8.98% of the market share.

The development of CITIC Securities in the above capital intermediary business also foreshadows the liquidity risk of the company.

By the end of 2020, the liquidity coverage rate of CITIC Securities was 141.83%, down nearly 8% compared with that at the end of 2019; the net stable capital ratio was 124.15%, down 7% year-on-year, approaching the 120% warning line stipulated by the regulation.

In addition, by the end of 2020, the total balance of short-term loans, bonds payable and short-term financing funds payable by domestic foreign ministers of CITIC Securities also reached 189.8 billion yuan.

"The company's liquidity coverage has dropped to the lowest level in recent five years, and the net stable capital ratio is only slightly higher than that in 2017." China's small and medium-sized securities companies non bank analysts said.

It is worth mentioning that on March 5 this year, the central bank solicited public opinions on the revised administrative measures for short-term financing bonds of securities companies. The new regulation plans to add new issuance requirements that the liquidity coverage rate continues to be higher than the industry average level in recent one year. According to the calculation of Wanhe securities, based on the semi annual report data in 2020, after excluding the extreme value, the average liquidity coverage rate of 40 listed securities companies of a share is 282.2%, while that of CITIC Securities is 135.33%, which is significantly lower than the industry average. This also means that due to the rapid development of related capital intermediary business, the liquidity of CITIC Securities is limited to an embarrassing situation, and there is no relationship between CITIC Securities and short-term securities issuance in the future or in the short term.

As for the early warning of the company's risk indicators, Li Jiong, financial director of CITIC Securities, for example, said that for capital intermediary businesses such as OTC options and income swaps, the securities company's collection of customer margin will lead to the growth of the company's debt side, and the necessary hedging operations in the business development will form new financial assets, leading to the increase in the scale of the asset side. This will lead to changes in liquidity coverage, "but the liquidity risk remains unchanged.".

It may also be uneconomical if the "liquidity coverage" index is too large. Keeping above the warning line is a relatively healthy state, and (CITIC Securities) popular assets can fully cope with market changes. " Li said. As for the net stable capital ratio, Li Jiong pointed out that only long-term bonds or equity funds can supplement the risk indicator. With the development of capital intermediary business of CITIC Securities in the future, "there will be pressure on the indicators", which is why the company refinances through rights issue.

"As long as the company's development needs, we may take all financing means and expansion plans that can benefit the company." Zhang Youjun, chairman of CITIC Securities, said at the performance Conference on March 19.

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