May 13 (IFR) - Five of China’s overseas-backed securities joint ventures lost money in 2012, according to data released over the weekend, underlining the challenge facing global banks looking to gain a foothold in the country’s capital markets.
Morgan Stanley’s joint venture was the worst performer for a second year, showing a net loss of Rmb104.62m (US$17.0m), while the local affiliates of RBS, CLSA, Daiwa Securities and Citigroup all reported losses in 2012, according to data from the Securities Association of China.
Among the 10 securities JVs backed by foreign banks, only the local affiliate of Goldman Sachs reported net profits greater than US$2m.
The latest results show that a slump in new share listings is having a bigger impact on foreign-backed brokerages, as most are only allowed to underwrite primary offerings. Of China’s 114 securities houses, only 16 recorded losses last year, and five of those were backed by overseas banks.
China’s regulators have blocked domestic IPOs since last November to allow an audit of new listings and restore confidence in the wider equity market.
Goldman Sachs Gao Hua Securities posted net profits of Rmb75.44m, an increase of 50.46% year on year, while its operating revenue rose 24.85% to Rmb658m.
The net profit of UBS Securities tumbled 76.00% year on year to Rmb11.27m, partly due to a 52.65% decline in its securities underwriting business.
Credit Suisse Founder Securities and Deutsche Bank’s Zhong De Securities increased net profits to Rmb6.30m and Rmb4.80m, respectively, up 38.77% and 38.73% on 2011.
JP Morgan First Capital Securities turned in a net profit of Rmb0.66m in its second year of operation, a turnaround from a loss of Rmb37.59m in its inaugural year.
Of the five loss-making JVs, three have operated for only two years. RBS affiliate Huaying Securities made a net loss of Rmb24.73m, versus a Rmb24.58m loss in 2011.
Citi Orient Securities posted a net loss of Rmb55.96m in its first year. Morgan Stanley Huaxin Securities posted the biggest loss for the second consecutive year, at Rmb104.62m, although its loss narrowed 31% year on year.
Daiwa SSC Securities registered a net loss of Rmb8.71m, compared with a loss of Rmb21.93m in 2011, while Fortune CLSA Securities lost Rmb17.45m, versus a loss of Rmb13.45m in 2011.
The top-performing Sino-foreign JV, according to the Securities Association, was BOC International (China) with profits of Rmb353.45m, down 5.64% year on year. Brokerage and securities underwriting businesses were the main sources of the its revenue. Hong Kong-based BOCI is the foreign shareholder.
The second most profitable JV was CICC, which recorded a stellar performance in investment income, thanks to China’s red-hot bond market. CICC, part-owned by overseas investors including TPG and KKR, recorded a net profit of Rmb279.59m, up about 9.74 times on the previous year.
Even those numbers, however, fell far short of the top local players. Citic Securities, the most profitable bank in China, recorded a net profit of Rmb4.24bn in 2012.