BNP Paribas China partner takes over indebted broker

Shanghai, Jan 25 | Updated: Jan 26 2005, 05:30am hrs
Changjiang Securities, BNP Paribass partner in China, has taken over indebted domestic rival Eagle, the market regulator said on Tuesday, in the latest government-led move to shore up the loss-making industry.

Changjiang, majority owner of a $72.5 million brokerage venture with Frances BNP Paribas, has been appointed by regulators to take over daily operations at Eagle Securities, an official with the China Securities Regulatory Commission said.

Beijing launched a long-awaited shake-up of the overcrowded brokerage industry by seizing control of Southern Securities, the countrys fifth biggest trading house, in early 2004. It has picked up the pace of overhaul since, via closures and policy-driven mergers involving about 10 players so far.

As Eagle Securities operations are seriously out of order and it carries an extremely high level of financial risk, the regulator has decided to hand over its operations to Changjiang Securities, the China Securities Journal reported.

Regulators have appointed accountants to clear Eagles debts, according to a statement posted in the official newspaper by a committee established to settle its accounts. Sources told Reuters in January that Eagle had run up debts of more than 4 billion yuan ($483.3 million) by the end of 2004, and that it was slated for a takeover by Changjiang.

The Shenzhen-based brokerages had negative net assets of more than 2 billion yuan by the end of 2004, a source close to the houses has said, compared with net assets of 2.13 billion yuan at the end of 2003, according to data issued by the China Securities Association, which ranked it as Chinas 15th biggest brokerage.

Larger Changjiang, based in the central city of Wuhan, was the countrys 11th biggest brokerage with net assets of 2.41 billion yuan by the end of 2003, official data showed.

Its 2004 figures and ranking were not available.

Eagle Securities troubles underscore the plight of a sector that relies heavily on trading fees in a depressed market.

State media say more than half of Chinas 130-odd brokerages went into the red in 2004, when the stock market plunged 15%.

Chinas markets were Asias worst performing that year, and are still wallowing near five-and-a-half year lows, hit by measures to cool a racing economy, corporate scandals, and a bulging IPO pipeline that threatens to suck money from the market.

Despite the slide last year, valuations remain 25 times earnings on average because Chinese with few investment choices and $1.5 trillion in savings have piled into equities, making stocks nearly twice as expensive as in Hong Kong. Only a third of the market is traded.

Compounding matters is a widening crackdown on brokerages. Last week the regulator began a probe into eight trading houses pected of falsifying finances, misusing client funds, and poor management.