Citic Securities Unable to Reach Investment-Banking Heads

Updated on
  • Media reports say they may have been drawn into market probe
  • Citic shares plunged 38 percent in Hong Kong this year

Citic Securities Co. said it has been unable to contact two executives, adding to deepening turmoil at a brokerage that is being investigated amid a government probe into China’s stock-market rout.

QuickTake China’s Pain Points

Chen Jun and Yan Jianlin, both members of the company’s eight-person executive committee, its highest decision-making body, can’t be reached, the Beijing-based firm said in an exchange filing on Sunday. Chen is head of Citic Securities’ investment-banking business, while Yan leads investment banking at its international unit. All operations at China’s largest brokerage by market value are normal, it said.

Should their involvement with the market probes be confirmed, it would bring to at least 10 the number of Citic Securities executives including President Cheng Boming caught up in investigations to determine the causes of the stock plunge that wiped out $5 trillion of market value. The government’s most wide-ranging probe into the financial industry has also entangled officials at the securities regulator and a prominent hedge-fund manager.

"The brokerage business is a people business,” said Polar Zhang, a Beijing-based analyst at BOC International Holdings Ltd. “By losing so many executives in such a short span, Citic Securities is definitely facing serious challenges, but we can’t predict to what extent at present.”

Short Selling

Chen and Yan’s involvement would mean six members of the firm’s executive committee have been dragged into the probes. Some media reports had mentioned that the two were “suspected of being requested to assist in an investigation,” Citic Securities said in its statement. They were taken away by authorities and it’s uncertain whether they were being investigated or assisting in a probe, the Caixin magazine reported Dec. 4 on its website.

Some Citic Securities employees who had been requested to assist in preliminary investigations have already returned to work, the brokerage said in its Sunday statement, without naming them. Cheng, who hasn’t been at work since at least mid-September, isn’t among them, said a person with knowledge of the matter who asked not to be identified.

The China Securities Regulatory Commission is investigating the brokerage over alleged breaches of rules on short-selling and margin contracts, the company said on Nov. 26. Its shares fell 0.1 percent as of 2:04 p.m. in Hong Kong, extending this year’s loss to 38 percent, compared with the benchmark Hang Seng Index’s 5.5 percent decline.

Rule Violations

The crackdown on Citic Securities is part of a broader investigation to root out the “malicious” traders and short sellers that authorities blamed for the stock rout. Among individuals ensnared by the probes, which have intensified in recent weeks, are Zexi Investment’s Xu Xiang and Yao Gang, a CSRC vice chairman who supervised China’s initial public offerings until earlier this year.

Haitong Securities Co. and Guosen Securities Co. also joined Citic Securities in saying late last month that they were being investigated for rule violations.

For Citic Securities, combined net income at the firm and its brokerage affiliates tumbled 40 percent in November from a month earlier, compared with an average of zero change at its publicly traded peers, Du Lijuan, an analyst at China International Capital Corp., wrote in a note on Sunday. The acceleration of the regulatory probes may have been a factor behind Citic Securities’s profit decline, Du said. 

Insider Trading

The Bloomberg Intelligence China H-Share Institutional Brokerage index, which tracks seven Chinese brokerages listed in Hong Kong, slumped 21 percent since the start of June as the stock rout hurt trading volumes.

Seven executives at Citic Securities including Cheng have been under investigation for alleged offences including insider trading, according to reports in August and September by the official Xinhua News Agency. An eighth has been assisting with unspecified investigations and unable to perform his duties, according to a company filing in October. None of those named has commented on the allegations and no court proceedings have been reported.

Chen and Yan, the two investment-banking heads, were both 46 as of March, according to the annual report Citic Securities released that month. Chen, who joined the firm in 1997, graduated from Shandong University with a science degree in 1991 and obtained a master’s degree in business administration in 2002, the annual report showed.

Yan joined the company in 2006 and graduated from Northwest University with a science degree in 1990. He obtained a doctorate in economics from Zhongnan University of Economics and Law in 2003.  

Citic Securities was established in 1995 and had more than 5,200 employees at the end of last year, the annual report showed. The company and its affiliates have more than 270 branches in China and in Hong Kong.

— With assistance by Jun Luo

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