CICC and Galaxy Securities: Merger to Create China's No.3 Brokerage

Sources close to the matter have revealed that China International Capital Corp. (CICC) is set to merge with Galaxy Securities to form China's third-largest brokerage firm. This strategic move aims to create a "carrier-grade" brokerage with super comprehensive strength, fostering ample room for further growth. The merger is expected to enhance competitiveness in the Chinese capital markets, reflecting the sector's accelerated trend toward competitiveness via mergers and acquisitions.

CICC, a leading investment bank, and Galaxy Securities, a prominent brokerage firm, share a common major shareholder, Central Huijin Investment, an arm of China's sovereign wealth fund. The complementary nature of their businesses, with CICC's strong investment banking and private equity investment businesses and Galaxy Securities' expertise in brokerage services, makes this merger an attractive proposition.

The Chinese government has consistently attached importance to the capital markets and supports mergers and acquisitions (M&As) of securities firms. The Central Financial Work Conference in November 2023 called for efforts to "cultivate first-class investment banks," while the State Council's April 2024 measures required supporting leading investment banks to enhance core competitiveness via M&As and organizational innovations. These policies align with the potential merger between CICC and Galaxy Securities.



The merger is expected to create synergies and improve internal risk management, as both companies are well-established in Shanghai with strong state-owned assets systems. This integration could lead to better resource allocation, improved governance, and enhanced risk management capabilities, ultimately strengthening the merged entity's position in the market.

However, the merger also presents operational challenges, such as the complex integration process, Haitong's internal issues, and the operational complexity of managing Haitong's troubled assets. To effectively manage these challenges, the merged entity should establish a dedicated integration team, prioritize resolving Haitong's internal issues, and implement a robust risk management framework.

In conclusion, the merger between CICC and Galaxy Securities, if it comes to pass, would reflect the sector's accelerated trend toward competitiveness via mergers and acquisitions at a time when China is attaching greater importance to its capital markets. The complementary strengths of both firms, along with potential synergies and enhanced capital strength, would contribute to the competitiveness of the merged entity in the Chinese capital markets. However, the successful execution of this merger will depend on effective management of the associated challenges and risks.

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