Sec. Ind. Cuts Cost; Supervision, Struct. Shift.

Under the backdrop of strict supervision and regulatory changes in business structure, the securities industry continues to reduce costs and improve efficiency.

A review of the semi-annual reports of 43 listed securities firms by Securities China reporters found that in the first half of this year, the total compensation package of the 43 listed securities firms decreased by about 12%, which is roughly equivalent to the decline in their total revenue in the first half of this year.

Among the 21 listed securities firms that disclosed the latest number of employees as of the end of June, 17 firms saw a reduction in their workforce, with a total of over 5,700 employees cut in the first half of the year. Specifically, CITIC Securities and Guoxin Securities each reduced their staff by more than 700 people, while CITIC Construction Investment reduced its staff by over 600 people.

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In addition to reducing employee costs, securities firms have also cut back on office expenses such as travel and entertainment costs. Out of the 30 securities firms with available data, 23 have reduced their travel expenses. For instance, CICC (China International Capital Corporation) saw a 40% year-on-year decrease in travel expenses in the first half of the year.

Total compensation shrinks by 12%

Over the past year, news about securities firms reducing salaries and improving efficiency has often appeared in the media. With the disclosure of the semi-annual reports for 2024, the specific situation of listed securities firms in this regard has been revealed.

Securities China reporters calculated the total compensation for the first half of this year for the 43 listed securities firms using the formula "total compensation for the current period = cash paid to employees and for employees + end-of-period payables to employees - beginning-of-period payables to employees." The total compensation amount for the first half of 2024 was 74.571 billion yuan, a year-on-year decrease of 12.15% compared to the 84.885 billion yuan in the first half of 2023. Among them, 37 securities firms saw a year-on-year reduction in the total compensation paid to employees, accounting for 85%.

Specifically, in the first half of 2024, a total of 21 listed securities firms had a compensation total exceeding one billion yuan. Among them, CITIC Securities saw its compensation total drop below 10 billion yuan to 9.793 billion yuan, a year-on-year decrease of 8.9%. CICC, Huatai Securities, and Guotai Junan followed with compensation totals ranging between 4 and 4.4 billion yuan.

Looking at the year-on-year change in compensation totals, CICC saw a significant reduction, with its compensation total dropping from 5.799 billion yuan in the first half of 2023 to 4.369 billion yuan, a decrease of nearly 25%. Additionally, Zhongtai Securities, Everbright Securities, Caitong Securities, Zheshang Securities, Huaxi Securities, Tianfeng Securities, and Guohai Securities all experienced a year-on-year decrease of more than 20% in their compensation totals for the first half of the year.

A few securities firms saw an increase in their compensation totals against the trend, with the exception of China Galaxy Securities, all were small and medium-sized securities firms. Among them, China Galaxy Securities saw a slight year-on-year increase of 4% in its compensation total for the first half of the year, mainly due to an increase of 319 employees compared to the end of last year. Furthermore, the compensation totals of Guoyuan Securities, First Capital, Huaneng Securities, Capital Securities, and Nanjing Securities also saw growth.The compensation of securities industry professionals is strongly correlated with the performance of their companies, with a reduction in employee compensation packages echoing the decline in brokerage performance in the first half of the year.

Data from Choice, a service of Eastmoney, shows that in the first half of 2024, 43 listed securities firms collectively achieved a total operating income of 235.023 billion yuan, a year-on-year decrease of 12.69%; and a net profit attributable to shareholders of the parent company of 63.961 billion yuan, a year-on-year decrease of 21.92%. In its semi-annual report, CICC also stated that the overall business operations of the securities industry are facing challenges, with the group's operating performance declining compared to the same period in 2023, and employee costs correspondingly reduced.

It should be noted that due to various factors such as deferred bonus payments, timing of year-end bonus distribution, personnel turnover, branch adjustments, campus recruitment, and welfare subsidies, the average compensation per employee and per month in securities companies can be significantly affected. Additionally, there are considerable individual differences in compensation among employees of different positions, departments, and ranks. Therefore, the aforementioned data should be used as a reference only.

However, it is important to point out that in recent years, regulatory authorities have been continuously strengthening guidance on industry compensation management. In May 2022, the Securities Association of China issued the "Guidelines for Securities Companies to Establish a Robust Compensation System," providing basic normative requirements for securities firms and their subsidiaries to establish a robust compensation system and requiring each securities firm to ensure the effective implementation of a robust compensation system.

The new "Nine National Guidelines" also emphasize the active cultivation of a good industry culture and investment culture. It calls for the improvement of a compensation management system for the securities and fund industry that is adapted to operational performance, business nature, contribution level, compliance and risk control, and social culture. From the annual reports of listed securities firms, the compensation of securities industry professionals has declined for two consecutive years in 2022 and 2023.

More than 5,700 employees were reduced in the first half of the year

In addition to the reduction in total compensation, the phenomenon of collective staff reduction in the securities industry is also evident from the semi-annual reports.

Data from Choice shows that a total of 21 listed securities firms disclosed the latest number of employees as of the first half of this year, among which 17 had a decrease in the number of employees compared to the end of 2023, with a total reduction of 5,721 employees in the first half of the year.

Specifically, CITIC Securities and Guoxin Securities were the securities firms with the largest number of employees reduced in the first half of the year, with the number of employees reduced by 779 and 756 respectively compared to the end of last year; CITIC Construction Investment reduced its staff by more than 600, and GF Securities, Industrial Securities, and China Merchants Securities all reduced their staff by more than 500. Among mid-sized securities firms, Guohai Securities had a significant reduction, with 206 employees reduced in the first half of the year, and the number of employees shrank by more than 5%.

Among large securities firms, China Galaxy Securities is the only one that increased its staff against the trend, with the number of employees reaching 14,300 by the end of June this year, an increase of 319 compared to the end of last year. There are also three securities firms that slightly increased their total number of employees compared to the end of 2023, namely Shanxi Securities, Nanjing Securities, and Pacific Securities, with increases of 8, 14, and 3 employees respectively.Travel expenses decline year-on-year

The reduction in employee costs is reflected in the financial statements as a decrease in business and management expenses, a point mentioned by many securities firms such as Changjiang Securities and Orient Securities in their semi-annual reports. Business and management expenses are various costs incurred by a company during its business operations and management processes, usually the largest portion of operating expenses, including but not limited to employee compensation costs, office expenses, depreciation and amortization, business entertainment expenses, travel expenses, marketing costs, etc. Among these, employee compensation costs are the most significant.

The Securities Journal of China has noticed that in addition to reducing employee costs, securities firms have also become more cautious in office expenditures such as travel and reception expenses. Previously, several industry insiders have mentioned to the reporter that their companies have been reducing costs and increasing efficiency in various ways, including lowering travel standards, avoiding unnecessary travel, conserving water and electricity, and canceling lunch meetings.

According to data from Eastmoney Choice, among the 30 listed securities firms with comparable travel expense data in their semi-annual reports, 23 firms saw a decline in travel expenses compared to the same period last year, with more than half of the firms experiencing a reduction of over 10%.

CICC had the largest decline in travel expenses, spending 136 million yuan in the first half of the year, 94 million yuan less than the same period last year. Following closely are Hualian Securities and Hongta Securities, with year-on-year decreases in travel expenses of over 30% in the first half of the year. Everbright Securities and Zheshang Securities also saw significant year-on-year decreases in travel expenses, both over 20%.

Only seven securities firms increased their travel expenses, with four of them showing a substantial increase: Founder Securities, China Galaxy Securities, GF Securities, and Huanan Securities. The highest increase was seen in Founder Securities, with travel expenses of 9 million yuan in the first half of the year, a year-on-year increase of 79.61%.

It is worth mentioning that in the first half of the year, when about 50% of listed securities firms saw a decrease in net profit attributable to the parent company of over 30%, the performance of the aforementioned four securities firms was relatively good. Founder Securities and Huanan Securities saw year-on-year increases in net profit attributable to the parent company of 73.39% and 8.65%, respectively, while China Galaxy Securities and GF Securities saw year-on-year decreases of 11.16% and 3.88%, respectively.

In terms of business entertainment expenses, all 11 listed securities firms with comparable data reduced their expenditures, without exception. Hualian Securities' business entertainment expenses were compressed from 2.1621 million yuan in the same period last year to 1.357 million yuan, Southwest Securities from 5.8576 million yuan to 3.676 million yuan, and Cinda Securities from 12.5625 million yuan to 8.1257 million yuan.

The financial statement standards of securities firms are not entirely uniform. In addition to the two aspects mentioned above, other office expenditures have also been compressed. For example, Everbright Securities' office, meeting, and telecommunications expenses in the first half of the year were 22.5648 million yuan, 3.8737 million yuan less than the same period last year. Caitong Securities' telecommunications and communication expenses in the first half of the year were 15.3909 million yuan, 9.5833 million yuan less than the same period last year.

Ten securities firms saw a slight increase in their operating profit margins.A series of cost-reduction measures have brought what effects to securities firms? In this regard, some securities firms have introduced in their semi-annual reports. For example, Shenwan Hongyuan stated that it continues to optimize asset and liability management, refine cost control, and promote the revitalization of inefficient assets, further promoting revenue increase and cost saving. In the first half of the year, business and management expenses decreased by 10.36% year-on-year, and interest expenses decreased by 6.64% year-on-year.

Southwest Securities also mentioned similar views, stating that the company's cost management level has significantly improved, and the results of cost reduction and efficiency increase continue to emerge. Orient Securities mentioned that it advocates "intensive cost reduction and quality improvement" among all employees, comprehensively improves internal management and governance capabilities, and steadily promotes various work to achieve good results, providing a solid guarantee for the completion of the annual task. Zheshang Securities stated that in the first half of the year, it concentrated on resources and strength from all parties to promote business development and key projects, fully explored cost reduction and efficiency increase points, and the company's overall performance was better than the industry average.

From the data, the significant reduction in business and management expenses has driven down the operating expenses of securities firms. In the first half of the year, the total operating expenses of 43 listed securities firms were 158.923 billion yuan, a year-on-year decline of 4.27%. From an individual perspective, 26 securities firms saw a decrease in their operating expenses in the first half of the year, with more than half of the decline exceeding 10%.

Among them, the securities firms with a larger reduction in operating expenses in the first half of the year include Haitong Securities, Shanxi Securities, Tianfeng Securities, Everbright Securities, and CICC, all of which decreased by more than 20% year-on-year. Looking at the report card for the first half of the year, except for Shanxi Securities, the decline in net profit attributable to the mother company of the other four securities firms was more than 30%.

However, from the perspective of operating profit margin, cost reduction has not shown obvious benefits. Among the 43 securities firms, only 10 securities firms have seen an increase in their operating profit margin, and except for Hualian Securities, the increase is not more than 10%. Hualian Securities' operating profit margin in the first half of the year was 40.42%, an increase of 14.85 percentage points. The operating profit margin of Capital Securities increased by about 7 percentage points, while Hongta Securities and Caithong Securities both increased by nearly 4 percentage points, following behind.

In recent years, with the changes in policy and market environment, "quality improvement and efficiency increase" has become the main theme of the securities industry. The reporter noticed that since the beginning of this year, listed securities firms have successively released the "quality improvement and efficiency increase with heavy returns" action plan for 2024. Many securities firms will continue to optimize the assessment system for directors, supervisors, and senior executives, strictly implement the performance assessment system, and include the perfection of deferred payment and recovery and deduction of remuneration in the management mechanism in the action plan.

It is worth mentioning that when talking about the development ideas for the second half of the year, cost reduction and efficiency increase are still among the choices of some securities firms. For example, when looking forward to the development of investment banking business, Zhongyuan Securities mentioned that it will continue to optimize and improve the line structure and team configuration, resolutely implement the cost reduction and efficiency increase plan, and focus on reducing cost expenses. At the 2024 semi-annual performance explanation meeting, the management of CITIC Construction Investment also stated that it will continue to adhere to cost reduction and efficiency increase, and continuously improve the overall management efficiency of the company.