Securities Companies In Vietnam Trying to Brave Storm

Up to 56 out of over 100 securities companies in Vietnam reported losses in the third quarter of 2012.

Securities brokerage houses suffered a combined net loss of VND212 billion but the earnings reached VND1,100 billion in the first nine months. Many have to restructure to survive in the raging storm.

Total revenues of 100 securities companies grossed VND2,107 billion in the third quarter, totalling VND7,864 billion in the three quarters. They suffered from a combined loss of VND212 billion in the third quarter but still earned VND1,100 billion of profits in the January - September period.

In October, the State Securities Commission of Vietnam (SSC) temporarily suspended Golden Bridge Vietnam Company (GBS) and Trang An Securities Company (TAS). GBS was forced to suspend from trading in 10 days while TAS was banned in six months for breach of payment activity. This shows SSC’s ironclad actions on wrongdoings and restructuring of securities companies. However, the outcome of this determination needs time to see.

Many houses end brokerage service

Apart from forceful suspensions imposed by SSC for operating violations, many brokerage houses voluntarily stop operations. On November 2, Au Viet Securities (AVS) will hold an extraordinary general meeting of shareholders to seek favours for voluntary termination of transaction membership to the Hochiminh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX). If approved, AVS will end its brokerage activities. Nguyen Hoang Long, CEO of AVS, said his company will notify its customers to move accounts to other securities companies like Saigon Securities Inc (SSI) or Dong A Securities after the proposal for brokerage termination is approved by shareholders.

Giving explanations to the cease of operation, AVS management said the Vietnamese stock market gloominess will last for a long time and the earliest time forecast for recovery is 3 - 4 years. Although AVS’s brokerage services do not generate loss, it is unprofitable either. For that reason, there is no rationale for its continuation.

In mid-June, Cho Lon Securities Joint Stock Company (CLS) also proactively ended brokerage services and moved customer accounts to Ho Chi Minh City Securities Corporation (HSC). A representative of the company said this was the Board of Directors’ act of sheltering from the storm because the stock market was forecast to stay with difficulties in a long time. “In the present time, if the company wants to be competitive, it must raise capital to provide supporting services for investors such as margin or invest in technology development. However, for the time being, the capital increase is hardly feasible when shareholders are very pessimistic and distressed because of prolonged lacklustre market. The company will maintain about 10 employees from now to the end of this year to wait for opportunity of recovery. Otherwise, a dissolution or merger scenario has been taken into account,” said the representative.

Some brokers also announced to cease brokerage services, including Truong Son Securities, Hanoi Securities, Gia Anh Securities and Indochina Securities. Indochina Securities was previously very well-known for its unlisted share brokerage. It served hundreds of OTC share traders a day. But in mid-December 2011, the company sent a notice to customers informing the suspension of brokerage services, citing lack of capital for big cost-required businesses while revenues were small.

Although brokerage is the main activity of any securities companies, many cannot live on with a daily market value of VND500 - 600 billion on both HOSE and HNX. Moreover, the market has 105 brokerage houses but 60 per cent of market shares belong to Top 10 brokers, including HSC, SSI, FPT Securities, Maybank Kim Eng Securities, Bao Viet Securities and ACB Securities. Therefore, the remaining pie is too small for over 90 other securities companies. With the current transaction fee ranging from 0.15 per cent to 0.3 per cent on trading value at present, brokerage fee incomes are insignificant. This is also a cause of loss for many securities

Hard for M&A

According to securities companies, there is a little possibility for mergers and acquisitions (M&A) because a small securities company with a small customer base is unattractive for takeovers. Perhaps, the operating licence of such company used to be the most worthy when was hard to obtain. CEO of a securities company admitted that foreign investors were allowed to set up wholly foreign-owned securities company as of September 15, 2012. So, if foreign investors really want to participate in Vietnam, they can open their own companies. They would rather accept to invest from the start than acquire a ill-reputed brand name. Dr. Nguyen Van Thuan, Head of Banking and Finance Department of Ho Chi Minh City Open University, said that, it is now very difficult for securities companies to find partners to sell stakes. Perhaps, some foreign firms with interest in some securities companies now may raise holdings to take controlling power. Of course, this does not mean the door to M&As is shut to securities companies. According to economic experts, there may be a few M&A deals but the prices must be “acceptable”.

Tightened management

The Ministry of Finance issued Circular No 165/2012/TT-BTC, effective on December 1, 2012. Accordingly, securities companies can be put under special control if they have usable capital of less than 12 per cent, fail to get out of supervised period within 12 months, not report on capital adequacy ratio in two consecutive reporting periods or disclose information on capital adequacy ratio audited by certified auditors.

companies, especially small and medium-sized ones, which only rely on securities brokerage and custody.

Source VCCI

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