SINGAPORE/Hong Kong (Reuters) - CITIC Securities Co Ltd, China’s biggest brokerage by market value, reported an 18 percent fall in 2018 net profit on Thursday amid a weak domestic stock market.
Its net profit for the year dropped to 9.4 billion yuan ($1.41 billion) from 11.4 billion yuan a year earlier, the company said in a stock exchange filing, and was in line with preliminary results released in January.
China’s 131 brokerages earned 66.6 billion yuan in net profit in 2018, 41 percent lower than they did a year earlier, while their revenue fell 14 percent, according to a Reuters calculation based on data from the Securities Association of China.
Of 131 firms included in the data, 106 were profitable. That compares with 120 out of 131 a year earlier.
All major segments of their businesses - from underwriting and financial advisory to investment and asset management - saw revenue declines last year, hurt by a weak market environment.
Chinese securities brokers have been caught in the slow-motion collapse in China of pledged share financing, in which companies’ major shareholders provide shares as collateral for loans.
About 6.23 trillion yuan ($932 billion) worth of traded Chinese shares, or 14.3 percent of total market capitalization, were pledged as of 2018-end, according to TF Securities and Reuters calculation based on data from Shanghai and Shenzhen bourses.
As share prices collapse and collateral withers, creditors suffer.
Last year, CITIC Securities set aside 2.2 billion yuan to cover credit losses while the amount for the first nine months of 2018 was 1.2 billion yuan, according to its annual report.
Chinese brokerages have also suffered from fewer initial public offerings, which totaled 137.8 billion yuan in 2018, a 40 percent drop from 2017, according to TF Securities.
Deal fees have also come under pressure, with some brokers offering to work for less or even free to keep in with key clients and to maintain their standing in underwriting league tables.
But the securities industry senses hope in 2019 as regulators reveal detailed rules for a Nasdaq-style start-up board in Shanghai, which will come with a registration-based system limiting official powers to control the timing of listings and new rules that allow some “pre-profit” companies to go public.
CITIC Securities’ Hong Kong shares closed up 0.89 percent on Thursday at HK$18.06 before results were announced, in a broader market that added 0.85 percent.
Reporting by Shu Zhang and Julie Zhu; Additional reporting by Kane Wu; Editing by Shreejay Sinha