CICC’s “Merger” with Dongxing and Xinda: A Trillion-Dollar Giant Is Born, but Can It Fly?
Hello everyone, I’m your financial journalist friend. Today, we’re talking about a big deal that’s caused quite a stir in the financial world: CICC has officially received approval to merge with Dongxing Securities and Xinda Securities.
This isn’t just any merger; it’s one of the largest acquisitions in the history of China’s securities industry. In simple terms, three securities firms are becoming one, creating a new company with total assets exceeding one trillion yuan and rising from 14th to 3rd place in terms of the number of branches.
Sounds impressive, right? The numbers are indeed impressive. But as ordinary people or even as investors, we must have a big question in mind: Can combining three companies with completely different personalities, backgrounds, and working styles really result in more than the sum of their parts? Or will it just be like piling three piles of sand into one bigger pile?
Below, I’ll break down the situation for you in plain language, from five different perspectives.
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1. The Scale Perspective: Overnight, from “Top Student” to “Giant”
First, let’s look at the most obvious change: size. Before the merger, although CICC was well-known and strong in investment banking, it wasn’t the absolute leader in terms of size. Its total assets were 782.8 billion yuan, with revenue of 28.4 billion yuan. Dongxing Securities (backed by Dongfang Asset) and Xinda Securities (backed by Xinda Asset) weren’t as large as CICC on their own, but together they had assets of over 240 billion yuan and revenue of over 8 billion yuan.
The new CICC’s numbers are quite impressive:
- Total Assets: Approximately 1.03 trillion yuan. This means it has officially joined the “trillion-dollar club” and become a top-tier giant in the industry.
- Revenue: Approximately 37.2 billion yuan, jumping to third place in the industry.
- Number of Branches: This is what most people notice. CICC mainly focused on institutional clients and high-end investment banking, so its branches might not have been as numerous for individual investors. Now, with Dongxing’s strong presence in Fujian and Xinda’s in Liaoning, the new CICC has a total of 441 branches, rising from 14th to 3rd place.
- Number of Clients: The number of retail clients has increased from 9.99 million to over 15 million.
In simple terms: It’s like a top tailor shop specializing in high-end suits (CICC) suddenly acquiring two large chain clothing stores (Dongxing and Xinda) with branches all over the country. The advantage is that it can serve a wider range of customers, including ordinary wage earners. The challenge is whether the high-end service standards can be maintained for everyone.
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2. The Overlap Perspective: Three Companies Selling “The Same Goods” – How to Share the Resources?
This is the most troublesome issue. The Chinese securities industry suffers from severe homogenization. If you look at their businesses, you’ll find they all do similar things:
- Brokerage Services: They all help clients buy and sell stocks.
- Investment Banking: They all help companies go public and issue bonds.
- Asset Management: They all manage clients’ finances.
- Proprietary Trading: They all use their own money to trade stocks and bonds.
The specific conflicts include:
1. Geographical Overlap: Dongxing is strong in Fujian, Xinda in Liaoning, but CICC also has branches in major cities like Beijing, Shanghai, Guangzhou, and Shenzhen. Now, with three companies in the same cities, there might be competition for the same clients.
2. Business Overlap: Both Dongxing and Xinda have a background in asset management and are good at dealing with non-performing assets and fixed-income investments; CICC focuses on large IPOs and cross-border mergers. Although they each have their strengths, CICC has also been expanding into retail and wealth management, while Dongxing and Xinda are strengthening their investment banking capabilities. The boundaries between their businesses are becoming blurred.
3. Subsidiary Issues: After the merger, CICC will have subsidiaries like Dongxing Fund, Xinda Australia Fund, Dongxing Futures, and Xinda Futures. How will these subsidiaries be managed? Will they be integrated into one large platform, or will they operate independently? If they operate independently, could there be conflicts over resources?
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3. The Integration Perspective: The Hard Challenges of People and Systems
A key statement in the regulatory approval from the China Securities Regulatory Commission is: “The company is required to develop and submit a detailed integration plan within one year.” This shows that the regulators realize the approval is just the beginning, and the real challenges lie ahead.
The First Challenge: Integrating People (the Most Difficult)
- Employee Numbers: The three companies combined have nearly 20,000 employees.
- Salary Disparities: CICC’s average salary is around 800,000 yuan, while Dongxing’s is around 510,000 yuan, and Xinda’s is around 400,000 yuan.
- Imagine an employee who has worked at CICC for five years with an annual salary of 800,000 yuan and another at Xinda with 400,000 yuan now working in the same office doing similar jobs. There could be resentment.
- How will this be managed without causing conflicts?
- Cultural Differences: CICC has an elite culture that values professionalism, standardization, and high performance, while Dongxing and Xinda have a more local state-owned enterprise culture that emphasizes stability, relationships, and personal connections. These cultural differences can lead to friction.
The Second Challenge: Integrating Systems (the Most Painful)
- The three companies have separate trading systems, customer databases, and risk control systems. Merging the accounts, transaction records, and holdings of 15 million clients into one system is like replacing the engine of a speeding car on the highway.
- Any errors, such as discrepancies in customer funds or transaction delays, could lead to significant compliance and reputational risks, requiring significant technical and time investments.
The Third Challenge: Integrating Business Operations (the Most Complex)
- Which branches should be closed? Which employees should be laid off? Which business lines should be merged? Each decision involves specific departmental interests and local resources. For example, closing a branch in a certain city could offend local governments or key clients.
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4. The Shareholder Perspective: The Entry of AMC Giants – A Boost or a Hindrance?
This merger has a special background: Dongxing Securities and Xinda Securities are both backed by major AMCs (Asset Management Companies), namely Dongfang Asset and Xinda Asset.
After the merger, these AMCs will become significant shareholders of the new CICC:
- Dongfang Asset will hold 8.03% of the shares.
- Xinda Asset will hold 16.76% of the shares.
What does this mean?
1. Resource Synergy: AMCs have a lot of non-performing assets and struggling companies. CICC’s investment banking capabilities could help restructure and securitize these assets, creating new business opportunities.
2. Potential Risks: The business styles of AMCs and CICC may differ. AMCs focus more on risk management and cash flow, while CICC focuses on project valuation and long-term value. If shareholders interfere too much, it could affect CICC’s market-oriented decision-making.
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5. The Ultimate Question: Is It About “Getting Stronger” or Just “Getting Bigger”?
The ultimate question is: What’s the purpose of this merger? The Chinese securities industry doesn’t lack large companies; what’s needed are truly competitive giants. On paper, larger scale can lead to lower costs and stronger bargaining power. There’s also the potential for synergies, such as combining CICC’s investment banking capabilities with Dongxing/Xinda’s retail networks and AMCs’ asset management resources.
However, history shows that many mergers fail to achieve these synergies, leading to internal strife, talent loss, and decreased efficiency. “Economies of scale” can become “diseconomies of scale” without effective management and a unified strategy.
My Prediction:
- In the short term: The numbers will look great, and market sentiment will be positive, with potential stock price fluctuations.
- In the medium term (1-3 years): This will be a painful integration period with employee turnover, branch adjustments, and system upgrades. If CICC can develop a clear plan that respects market principles and effectively integrates the businesses, it could become a leader in the industry.
- In the long term: If the integration fails, the new CICC might become an inefficient, bloated giant, unable to innovate and surpassed by more flexible and specialized competitors.
In summary:
CICC’s merger is a huge step forward, but the success depends on the integration process. It’s no longer just an investment bank; it’s a complex financial ecosystem. Whether this ecosystem can function efficiently depends on how “smart” and well-integrated it is.
Over the next year, what we should focus on is not just its total asset figures, but its integration plan and how well it’s implemented. That’s what will determine whether this “trillion-dollar giant” can truly set sail.