Securities firms in the firing line

Many securities firms will soon be looking for greener pastures

Securities companies which “have no value” could make up to 70 per cent of the market, revealed Nguyen Hoang Hai, general secretary for the Vietnam Association of Financial Investors.

Hai said those companies’ assets were worth little as few had cash, skilled employees were leaving and rented infrastructure.

“Those [weak] companies can only be dissolved,” Hai said.

Meanwhile, even the business licences of weak companies cannot attract foreign institutions which are seeking to tap the local market. According Le Minh Tam, general director of foreign-backed Kim Eng Vietnam, foreigners have no interest in small local companies.

“They just seek ones which have a good client network and sound professional background, particularly which have strong relationships with state industrial groups,” said Tam.

In Vietnam, mid-scale brokerage firms have some VND400 billion ($19.32 million) to VND700 billion ($33.8 million) in funds, and ones with less than VND100 billion ($4.8 million) are seen as very small.

Up to the end of the fiscal year 2010, 40 out of 105 securities companies suffered losses. The situation is forecast to become worse in 2011 as the government’s tightened monetary policies worry the local securities market.

At the moment, many companies have to use their charter capital to cover operating costs, which made their actual value much lower than the par value. According to sources familiar with the matter, some securities companies with charter capital of less than VND50 billion ($2.4 million) are now for sales at VND5 billion ($241,000) to VND10 billion ($483,000).

According to Maritime Bank Securities general director Nguyen The Minh, the companies which have less than VND100 billion in funds “really got into trouble”.

Market experts said there were too many securities companies for the local market’s scale, which should be reduced to some 30 to 40.

In fact, a majority of securities companies are now backed by banks, financial institutions or enterprises.

Viet Dragon Securities Corp general director Nguyen Mien Tuan said several companies were taking big risks to survive by allowing short selling with great volumes, offering trading on margin accounts with high lending ratios. “These acts will negatively affect their businesses,” said Tuan.

Even medium-sized securities companies are struggling to make money in other investment channels such as real-estate.

“They should change business if they have got another direction,” said Minh. “It is not advisable to do things that they are specialised in.”