Guotai Junan Securities: CICC-Galaxy Merger Set to Create China's Third-Largest Brokerage

CICC and Galaxy Merger: A Game-Changer for China's Brokerage Industry

State-owned China International Capital Corp (CICC) is preparing to merge with China Galaxy Securities, creating a formidable brokerage with total assets of US$193 billion. This merger is notably significant as it marks a pivotal moment in China's US$1.6 trillion securities industry, having received support from Chinese authorities.

Details and Implications of the Merger

• The merger will be facilitated through a share swap, primarily driven by major shareholder, the China Investment Corporation (CIC).
• This combination is projected to surpass Huatai Securities, setting the stage for the third-largest brokerage in China.
• Regulatory and shareholder approvals will be required to finalize the transaction.

Shares of CICC surged by over 8% following news of the merger, while China Galaxy saw a remarkable increase of 10%. This consolidation occurs amid efforts by Beijing to strengthen domestic investment banks as they strive to compete with global entities like Goldman Sachs.

Market Context and Future Outlook

The combined brokerage is anticipated to bolster its position during challenging market conditions, specifically as the industry faces headwinds due to economic slowdown and regulatory tightening.

Chinese authorities continue to advocate for mergers and acquisitions to streamline an industry that consists of over 140 firms vying for market share. Their goal is to develop two to three internationally competitive investment banks by 2035.