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Securities companies must restructure or die
The prolonged lackluster stock market with the continued falling VN Index has put securities companies in dire straits. There are now two choices for the companies, either struggle to exist or leave now.
The information that Kim Long Securities Company asked for permission to shift its operation model to become an investment company instead of a securities company has stirred up the public. Three or four years ago, when the stock market was hot, Vietnam’s stock market witnessed a movement of establishing new securities companies. The “Kim Long phenomenon” is believed to trigger a new movement of securities companies leaving the market.
Explaining Kim Long’s decision, Ha Hoai Nam, Chair of Kim Long said in order to create one billion dong turnover from brokerage services, Kim Long needs to use one trillion dong. This means that the ratio of revenue on investment capital of Kim Long is 0.1 percent – the lowest ratio if compared with the ratios of other business fields.
According to the HCM City Stock Exchange and Hanoi Stock Exchange, in 2010, the total trading volume of both the bourses was approximately 621 trillion dong, or 2.4939 trillion dong per day, a slight decrease of 630 billion dong in comparison with 2009.
Dau Tu Chung Khoan newspaper calculated that the average brokerage fee is 0.2-0.25 percent per transaction value. If so, the total turnover of brokerage fees of the whole stock market in 2010 was an estimated 2.484-3.104 trillion dong in 2010. If dividing the figures to 105 operational securities companies, the average brokerage turnover of every securities company is 23.65-29.56 billion dong per annum.
Meanwhile, according to the two stock exchanges, the 10 leading securities companies account for 50 percent of the market share already. This means that the other 95 companies share the small remaining part of the cake.
In fact, securities companies cannot pocket the entire sum of money, because they have to pay commissions to brokers and related fees. For example, they have to pay to two stock exchanges transmission and connection fees (0.08-0.1 percent). As such, the brokerage service does not bring a fat profit to securities companies as previously thought.
Trading stocks is the second most important service for securities companies. However, in 2010, conditions were clearly not good enough for companies to trade securities. Though Kim Long is a big name in stock trading, the company still has to deposit one trillion dong of mobilized capital at banks. Kim Long’s rivals also did not have a prosperous year 2010 in trading stocks.
In 2010, Kim Long carried out 65 consultancy contracts of different kinds, an increase of 20 percent in comparison with 2009. The clients of Kim Long were big names, including Vinaconex, Song Da Group, Vinabank, HD Bank and Nam A Bank. Though the turnover increased by 150 percent, Kim Long could earn a modest sum of 3.3 billion dong. This shows that consultancy is not the advantage of many securities companies, especially when the market is still being controlled by “big guys” such as Saigon Securities Incorporated or Bao Viet Securities.
To be or not to be?
Commenting about Kim Long’s decision, some experts say that Kim Long has made a wise move, because the stock market is not big enough to feed up all securities companies. Of the 100 securities companies that are providing brokerage services, only the top 10 companies which are holding more than two percent of the market share, can live so-so. Meanwhile, even though the service still cannot bring profit, small securities companies still have to slash fees in order to retain clients.
Even if the stock market has the stable growth rate of 30 percent in the next three years, the brokerage sector will remain a very small piece of cake for the existing 105 securities company. Meanwhile, the prospect of stock trading is still unclear. The profits from stock trading would depend on the ups and downs of the market. Kim Long, for example, took a loss of 347 billion dong in 2008, then it made a profit of 352 billion dong in 2009, and then incurred a loss of 173 billion dong again in 2010.
Some securities companies have been reportedly dragging out a miserable existence. The Rubber Securities Company has the chartered capital of 40 billion dong, but the stockholder equity is only 15 billion dong. Similarly, National Securities has the chartered capital of 50 billion dong, but only has 20 billion dong in stockholder equity.
vietnamnet, DTCK
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