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Brokers need to merge to survive
A number of securities companies are finding strength in numbers during tough times on the stock market by seeking to join forces with other firms.
This trend of strategic partnerships and mergers began last year when several stock brokerage firms sold stakes to overseas partners.
Viet Gateway Securities sold a 49-per-cent stake to the Singapore arm of Morgan Stanley, while Thailand-based Seamico Securities bought a 49-per-cent stake in Thanh Cong Securities and UK-based Golden Bridge picked up a 49-per-cent interest in Click&Phone Securities.
Under the Law on Securities, a foreign strategic partner is barred from holding a majority interest in a domestic securities company, but the sale of sizable minority stakes in these firms demonstrated that domestic brokerages were seeking to combine with stronger partners to survive the hard times.
In a recent advertisement which appeared in the local press, one securities firm offered to sell an 80-per-cent interest to a domestic buyer.
"The number of securities firms mushroomed during 2006-07 in parallel with the price bubble on the stock market," said a mergers and acquisitions specialist at TNK Capital Partners who requested anonymity.
Vu Thanh Phuc, general director of Intenational Investment Connection and Enterprises Trading (ICE), noted that booming stock prices at that time allowed many securities firms to earn a living on institutional trading alone.
But when the market began to struggle this year, the consequence of too many securities firms became obvious. The choice for many of them was to sell stakes to stronger partners, allowing them to take advantage of partners’ superior capital resources and experience to survive, said the TNK Capital Partners specialist.
Linking up with stronger partners had other benefits as well, said Phuc, including lower overhead and easier regulatory compliance.
Bao Viet Securities Deputy Director Pham Quang Huy estimated that 90 per cent of securities firms in domestic market suffered losses in 2008, and the situation would only get worse this year.
Dang The Duc, a lawyer with Indochine Counsel, commented: "As an objective observer, I think half of securities firms currently operating will struggle to get through this year. Another 40 per cent are well-positioned to survive, leaving 10 per cent that need to maximise their strengths."
These marginal firms could stabilise their earnings and even become more profitable if they were well-equipped with technical and services systems, Duc said, and it was to achieve this end that many of them would need to combine with better-funded, more experienced strategic partners in order to survive.
Gia Phat Securities Co analyst Nguyen Duc Thinh said combinations among securities firms would allow them to take advantage of each other’s strengths to promote competitiveness, but he still believed that 2009 would witness more bankruptcies than combinations, as many brokerages would be unable to attract suitable foreign partners.
But Duc maintained that there would be many opportunities for domestic firms to work together. "Some strong domestic firms could take over the weaker companies, and the combinations could benefit the business strategies of the stronger companies," he said.
VietNamNet/VNS
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