Securities firms casualties of punishing market falls

Market hangovers have left many securities players nursing sore heads

Saigon Securities Incorporated (SSI), Vietnam’s leading brokerage, for the first time in many years reported it was in the red to the tune of VND102 billion ($4.93 million) first quarter after-tax loss, due to higher operation costs and rising provisions for its investments. 

SSI’s first quarter revenues also fell nearly 50 per cent to VND232.13 billion ($11.2 million) from VND450 billion ($21.7 million) in the same period last year, the firm said on its website.

VnDirect Securities (VND) also reported a VND42.3 billion ($2 million) first quarter loss, compared to VND82 billion ($3.96 million) loss in last year’s corresponding period, due to higher expenditures and lower revenues. Its revenue fell 42 per cent on-year to VND83.3 billion ($4 million).

Au Viet Securities (AVS) followed suit with around VND13 billion ($628,000) during the period on sharply lower revenues and high provisions for its proprietary trading activities. AVS made a profit of VND6.13 billion ($296,000) profit in last year’s corresponding period.

“In the current market conditions, SSI’s loss is no surprise to us,” said an SHS Securities analyst.

In 2010, when numerous securities firms lost, SSI still earned a VND900 billion ($46 million) pre-tax profit. In 2008, when the country’s stock market fell freely during the crisis, SSI earned a VND250 billion profit.

Market analysts said SSI’s first loss was likely as it had to use available cash from its current profits to pay VND2,000 billion plus VND80 billion yields to corporate bond holders in late March.

A Ho Chi Minh City Securities Corporation (HSC) analyst expected several other brokers were also likely to report first quarter losses on their trading positions and perhaps some bad debts to boot.

“Brokers are highly cyclical in nature given that most of their income is derived from proprietary trading or credit activities so this should come as little surprise,” said an HSC analyst.

However, what makes it more pressing is the market regulator State Securities Commission imposing new capital adequacy rules. Some brokers will have to rethink their business model, involving raising capital or selling liquid, high risk weighted assets.

The latter possibility had the market worried, said the HSC analyst.