The job now is to protect the market with extra funds to halt stocks slide

Mainland brokerages have shelved their business and overseas plans for the time being as the authorities try to halt a dramatic plunge in stock prices that threatens the country's economic stability.

Twenty-one of the mainland's biggest brokerages last week pledged to spend 15 percent of their net assets - about 120 billion yuan ($19 billion) - to buy stocks as part of a government-led effort to calm the market.

The securities firms, which have raised $29.4 billion through international and local share sales this year, are expected to pump more of their own cash into the market if share prices fall further, according to executives and analysts.

"The top priority for mainland brokers now is to protect the stock market," said an executive at a mainland securities firm in Shanghai.

Mainland brokers had been looking to use some of the cash they had raised this year to expand their global reach and offer a full range of products and services abroad, complementing the mainland's internationalization of its currency.

Haitong Securities Co Ltd - the mainland's second-biggest brokerage - last year agreed to pay 379 million euros ($418.4 million) for Portuguese investment bank Banco Espirito Santo de Investimento SA, while its Hong Kong-listed firm this year closed a deal to buy Asian brokerage Japaninvest Group plc.

Haitong has now turned to domestic matters as its share price has tumbled about 35 percent since late June. The company has spent at least HK$313 million buying its own shares in Hong Kong during that period, according to company filings.

Haitong suspended its shares on Wednesday after a unit of State-backed investment firm Haixia Capital Management Co Ltd offered to sell a block of its shares at a discount of up to 20 percent.

In February, CITIC Securities Co Ltd said it spent HK$780 million for KVB Kunlun Financial Group to build its international capabilities and expand its currency trading business.

"Those who haven't set up offices in overseas market may have to slow down their plans, and those with offshore branches also won't have energy or time to expand at present," said the Shanghai-based securities executives.

The market rout has seriously hurt mainland brokers this week. "Investors are extremely unimpressed with their sudden conscription into national service, and you can see that in their share prices," said Matthew Smith, a strategist who covers the mainland financial firm sector for investment banking firm Macquarie.

CITIC Securities' stock has lost more than 23 percent in Hong Kong since Monday, while shares of Guotai Junan International Holdings, the offshore arm of the mainland's biggest securities firm, have fallen more than 28 percent.

Shares in Guolian Securities, which started trading on Monday, have dropped about 40 percent.

Bond spreads for securities houses have also widened.

Brokers have declined to give details of their market intervention plans. At some mainland brokerages, those plans include only giving customers information that will "stabilize the market", said another Shanghai-based brokerage employee.

An employee at Shenwan Hongyuan Securities said operations departments have been told to help stabilize markets, which have lost more than $4 trillion since the start of June - or four times what the German stock market is worth.

"Especially our bigger investors, we're being told to comfort them," the worker said. Brokerages are also helping themselves by helping the market, he added. "It's not just a government request," the employee said. "In the bull market, the brokerages benefited a lot. This is something we must do."

The Hang Seng Index slumped 5.84 percent at the close of trading in Hong Kong on Wednesday.

Employees at a branch of Haitong Securities Co in Beijing. Haitong suspended its shares in Hong Kong on Wednesday after a unit of State-backed investment firm Haixia Capital Management Co Ltd offered to sell a block of its shares at a discount of up to 20 percent. Nelson Ching / Bloomberg

(HK Edition 07/09/2015 page8)