Investment bank China International Capital Corp (CICC) (HKEx: 3908) and the brokerage firm China Investment Securities are in advanced talks on a possible merger, people familiar with the matter told Reuters today.
The trading of government-controlled CICC, formerly led by Levin Zhu, the son of former Chinese premier Zhu Rongji, was halted this morning, involving a very substantial acquisition of the company.
In terms of profiles, the two companies had $28 billion worth of combined assets at the end of last year and posted a total of nearly $900 million in net income. CICC has 20 branches while China Investment Securities has 160 branches around China.
The Beijing investment bank was formed in 1995 by Morgan Stanley and China Construction Bank Corp as China’s first Sino-foreign investment bank. Morgan Stanley sold its stake in December 2010 for nearly US$1 billion.
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CICC has played a key role in advising the Chinese government on state-owned enterprise reform and guiding the listing of the country’s major overseas IPOs. It has offices in Hong Kong, New York, London and Singapore.
However, the CICC’s retail stock broking business is relatively small which hurts its ability to earn trading commissions from the retail investors who helped fuel the stock market’s dramatic boom last year. That is why the merger could be a good deal for CICC, and in general they do appear complementary, since China Investment Securities focuses on the mass-market client base while CICC’s traditional strength has been in investment banking.
Shenzhen-based China Investment Securities ranked 17th among China’s securities companies by operating income in 2015, while CICC was 23rd with, according to industry association figures.
China Investment Securities is fully owned by Central Huijin Investment, which is a unit of China’s sovereign wealth fund and holds stakes in the nation’s biggest financial institutions. The company posted 8.5 billion yuan in operating income in 2015.
Beijing-based CICC, which listed in Hong Kong in November, is the oldest investment bank in China and had 94.1 billion yuan of assets at the end of 2015 calendar year, while China Investment Securities had 92.2 billion yuan, according to its websites.