Brokerages feel heat from hot blow torch

Less investors are now willing to take leveraged punts on the market

The 2010 financial statements of one of the top 10 securities firms in Vietnam showed the company splashed out VND4,100 billion ($198 million) for securities investments although its equity capital was only VND1,400 billion ($67.6 million).

Despite securities companies’ financial statements showing the debts from their leveraged clients were unremarkable, a VIR source said numerous brokerage houses were unlikely to recoup bad debts which had soared to thousands of billions of Vietnamese dong.

Market observers doubted that all of these sums would be recouped given the gloomy market over the last few months. There was little sign of an immediate recovery either.

The problem was even worse for firms that had borrowed from banks to re-lend to their clients for securities investments at lending interest rates as high as 30 per cent per annum.  

The same source, who declined to be named, said brokerages’ financial pressures were not just coming from their proprietary trading activities but also from their “investors financial support services”.

Over the past two years, numerous securities firms considered “investors financial support services” as their key earnings but things were now changing and securities firms were feeling the pinch.

“Amid such challenging market conditions, brokerages’ financial ability is too sensitive and the market regulator should keep a close watch on the situation, immediately regulating to prevent bankruptcy, which could further hurt investor confidence,” said Nguyen Hoang Hai, general secretary of Vietnam Association of Financial Investors (VAFI).

In related developments, a month ago, a chairman of a securities firm fled, leaving a huge hole in his own trading account. A source said the chairman lost over VND100 billion ($4.83 million), with the majority coming from his company’s clients and borrowed cash.

Meanwhile, another VIR source revealed that a PetroVietnam affiliate had recently provided VND200 billion ($9.66 million) to a listed securities firm for re-lending to its clients for securities investments. When the PetroVietnam affiliate asked to be paid back, however, the brokerage firm came up VND70 billion short.

The affiliate said it planned to take the brokerage to the court.