With the development of derivatives business, the composition of proprietary business income has become more complex

Securities Times reporter Yang Qingwan

In the first quarter of this year, the average daily stock-based turnover of the Shanghai and Shenzhen stock exchanges increased by 4.8%, but the net income of brokerage business of brokerages fell by 9%; The CSI 300 index rose by 3.10%, while the investment income (consolidated fair value) of brokerages still fell by more than 30%. The asset management business has become a relatively stable foundation, accounting for about 10% of the revenue.

There is no suspense that the pace of initial public offerings (IPOs) and refinancing will slow down, and the net income of investment banking business will decline, but why will the stock market improve, and the proprietary and brokerage business will become a drag? In this regard, industry insiders said that nowadays, only from the market volume and index performance, to linear outlook on the performance of brokerages is too simple, especially with the development of derivatives business in recent years, the income structure of proprietary business is more complex, no longer completely directional investment.

In addition, brokerage business should pay attention to "price" in addition to "volume", and the impact of the decline in commission rates cannot be ruled out. In addition to the continuous decline in commission rates on the trading side, the income from the distribution of financial products was also flat due to the sluggish issuance of new funds.

Net profit declined overall in the first quarter

In the first quarter of this year, the performance of listed securities companies did not grow with the improvement of market prosperity, among the 43 listed securities companies with comparable data, only 6 revenue and net profit increased year-on-year, and 37 declined to varying degrees.

Overall, the year-on-year decline in net profit was greater than the decline in revenue. According to Choice data, the average operating income of the 43 listed brokerages with comparable data fell by 21.55%, and the net profit fell by 31.43%. Only 5 brokerages have achieved year-on-year growth in revenue and net profit at the same time, namely Dongxing Securities, Zhongyuan Securities, Founder Securities, Nanjing Securities and Capital Securities.

Among them, Dongxing Securities' operating income increased by 112.56% against the trend, and its net profit increased by 64.94%; Zhongyuan Securities' revenue increased by 38.93% year-on-year, and net profit increased by 97.71%. However, the main reason for the growth of Dongxing Securities' performance is partly from the sales revenue of bulk commodities other than the main business, which will reach 1.237 billion yuan in 2023, although the specific amount was not disclosed in the first quarter, it still maintained growth. There was also an investment business income of 115 million yuan, an increase of 31.88% against the trend.

Nanjing Securities' various businesses have shown signs of strength, not only investment income (consolidated fair value changes) increased by about 170 million yuan, but also the net income of asset management business increased by nearly 2.7 times, and investment banking and brokerage businesses have increased to varying degrees.

Proprietary and investment banks have become drags

According to the statistics of the Securities Times reporter, among the 43 listed securities firms, 37 of them fell in revenue in the first quarter of this year, and the main drag was investment banking business and proprietary business.

The slowdown in the pace of IPO issuance, the decline in the scale of refinancing, and the restriction of equity financing have led to a decline in the net income of the investment banking business of securities firms, which is expected by the industry. According to Choice data, the scale of IPO fundraising fell by 64% in the first quarter of this year, the average fundraising scale of 30 IPO companies decreased by 18% compared with the same period last year, and the scale of additional fundraising also fell by 73%. The slight increase in bond issuance (3.1%) was not enough to offset the decline in equity financing.

Therefore, in the first quarter, the net income of the investment banking business of listed securities companies fell by 35.89%, and the investment banking business income of large investment banks with high market share, such as CITIC Securities and China Securities Construction Investment, shrank more significantly, with a decline of more than 50%.

It is worth noting that why the market boom improved in the first quarter, but self-operation still became a drag on the performance of brokerages? In addition, there is no significant improvement in the brokerage business? These are also confusing for market participants.

In the first quarter, the average daily stock-based turnover of the Shanghai and Shenzhen stock exchanges increased by 4.8%, but the net income of brokerage business still fell by 9%; The CSI 300 index rose by 3.10% (4.63% in the same period last year), while the investment income (consolidated fair value) of brokerages fell sharply by more than 30%, but the asset management business has become a relatively stable fundamental, accounting for about 10% of the revenue contribution.

The person in charge of a listed brokerage company said that the derivatives business has developed rapidly in recent years, and the proprietary business has long ceased to rely entirely on directional investments such as "longs", and many non-directional that is, neutral strategy business scale has brought very considerable profits, especially in the first quarter of last year, with a large base, mainly DMA (long and short income swap) strategy, snowball structure derivatives and other businesses, but these businesses have now shrunk sharply in the new regulatory environment, resulting in a sharp decline in investment income.

If the spin-off point of view, the fair value change income, the listed brokerage also achieved a year-on-year increase, an increase of 143.79%, and only a few brokerages showed floating losses.

Reduced commissions and fees

The impact is not yet fully felt

The performance of brokerage income is not completely synchronized with the activity of market transactions, because in addition to "volume", it is also necessary to pay attention to "price". At the same time, the impact of the decline in commission rates cannot be ruled out, in addition to the continuous decline in commission rates on the trading side, affected by the recession in the issuance of new funds, the income from the distribution of financial products on behalf of the agency is also flat.

Even if the stock market is actively traded and the average daily turnover exceeds one trillion yuan, it is difficult for the brokerage business income of securities companies to achieve synchronous growth, which is not the first time that this situation has occurred. As early as 2021, when the average daily turnover of the Shanghai and Shenzhen stock exchanges exceeded one trillion yuan, which also exceeded that of 2015, the net income from agency securities trading was not as good as in 2015, mainly because the average commission rate dropped sharply, which was only half of that in 2015.

In addition, the proportion of agency financial product sales revenue in brokerage business revenue reached 13.39% in 2021, and it will continue to grow thereafter. Therefore, affected by the slowdown in the issuance of new funds this year, the revenue growth of agency financial products in the first quarter was sluggish.

Judging from the first quarterly report, the performance of the asset management business of listed securities companies is relatively stable. Some brokerage asset management companies may shrink their management scale due to customer redemption, which will affect their management fee income. However, asset management capability is one of the core competencies of financial institutions, and some brokerages continue to make efforts, such as Zheshang and Zhongtai, whose net income from asset management business increased by more than 50% year-on-year. Judging from the trend of wealth management business, there is still room for growth in asset management business.

In the short term, if the impact of fee and commission reductions is considered, the income of asset management business (public offerings) and agency financial products of securities companies may continue to be under pressure in the second half of the year.