Dongwu Securities' Stock Price Plummets After Resumption of Trading, Dampening Mid-to-Small Brokers' "Group Huddle Dream"

Why does the market have deep concerns about AI · Dongwu Securities’ merger upgrade?

Source | Times Business Research Institute

Author | Sun Huqiu

Editor | Han Xun

Amidst the encirclement by industry giants, how can small and medium-sized securities firms “band together for warmth”?

On the evening of March 13, after being suspended for ten trading days, Dongwu Securities (601555.SH) officially disclosed its asset restructuring plan, upgrading from a plan to acquire a 26.68% controlling stake in Donghai Securities to a combined approach of issuing shares and paying cash, taking over 83.77% of Donghai Securities to achieve absolute control.

As the first major M&A case in the securities industry in 2026 and the first domestic cross-prefecture-level city state-owned securities integration within the same province, this deal was labeled from the start as “regional financial resource optimization” and “small and medium-sized firms banding together to break through,” once seen as a flagship example of the industry’s M&A wave.

However, as details of the transaction were gradually revealed, market reactions remained unusually cold. On the day of resumption on March 16, Dongwu Securities’ stock price plummeted 7.10%, closing at 8.63 yuan per share, with a market value evaporating over 3 billion yuan in a single day. Since then, its stock price continued to stay weak, declining for five consecutive trading days, further confirming the market’s cautious attitude and deep concerns about this merger.

Beneath the narrative of regional financial resource integration, this seemingly logical domestic securities firm alliance actually harbors multiple hidden worries, including compliance issues of the target company, deteriorating profitability fundamentals, internal conflicts during merger integration, and strategic misalignment. For Dongwu Securities, this merger appears more like a heavy gamble with significant risks.

Donghai Securities’ compliance blemishes cannot be hidden

From the details of this merger plan, Dongwu Securities’ upgrade in acquisition scale far exceeded market expectations. When first announced on March 2, Dongwu Securities only disclosed an intention to acquire a 26.68% stake from Donghai Securities’ controlling shareholder, aiming for a relative controlling interest. Just 11 days later, the plan evolved into a full acquisition of 83.77% of Donghai Securities held by 61 trading counterparties, achieving absolute control. As of now, the final transaction price has not been determined; the issuance price is set at 9.46 yuan per share, with a differentiated payment scheme of “92% shares + 8% cash” combined with pure share payment.

Regarding the consideration for controlling Donghai Securities, Dongwu Securities mentioned three points in the announcement: first, implementing national strategies and serving regional development; second, enhancing core competitiveness and achieving sustainable growth; third, leveraging synergies to improve the efficiency of state-owned capital operation.

However, these official statements cannot conceal the market’s deep concerns about the transaction’s rationality. Currently, the Ma Tai effect in the securities industry continues to intensify, with core resources increasingly concentrated in leading firms, while Dongwu Securities is making a huge investment to acquire a problematic small and medium-sized firm amid structural industry adjustments—raising serious questions about its strategic logic and commercial reasonableness.

The core bottom line of securities firm mergers and acquisitions is the compliance and profitability of the target assets, which is precisely the most prominent shortcoming of this deal.

In July 2025, the CSRC issued Administrative Penalty Decision [2025] No. 105, clearly stating that Donghai Securities, during its role as an independent financial advisor for Jinzou Cihang’s (now delisted) major asset restructuring, failed to perform due diligence, and its documents contained false records and major omissions, resulting in a confiscation of 15 million yuan of business income and a fine of 45 million yuan, totaling 60 million yuan in penalties. This penalty amount is 2.55 times Donghai Securities’ net profit attributable to the parent in 2024, highlighting the severity of its violations.

In addition to the administrative penalties, Dongwu Securities will also assume all compliance risks hidden within Donghai Securities, most critically the potential collective investor lawsuits and compensation liabilities related to the Jinzou Cihang project, with amounts yet to be estimated. Moreover, Donghai Securities has previously been involved in false statements case against Huayi Electric (now delisted) and was penalized by the CSRC; over the past years, it has also been repeatedly listed as a defendant in judicial disputes, revealing weak compliance governance.

According to securities industry regulations, as a future controlling subsidiary of Dongwu Securities, Donghai Securities’ major violations will directly impact Dongwu Securities’ regulatory rating once integrated into the parent’s supervision system, and may also affect its qualifications for sponsorship, bond underwriting, and other core businesses. Under the tightening regulatory environment, Donghai Securities’ historical compliance issues could become a long-term burden, putting Dongwu Securities at a disadvantage in the increasingly fierce industry competition.

Merger may lead to inefficient scale accumulation

Alongside compliance issues, Donghai Securities’ weak profitability fundamentals persist. Currently, there is a significant size gap between Donghai Securities and Dongwu Securities. Business synergy effects are not evident and may even become a performance burden for Dongwu Securities.

Financial reports show that in 2015, Donghai Securities’ operating income was 4.841 billion yuan, with a net profit attributable to the parent of 1.827 billion yuan. At that time, Dongwu Securities’ revenue was 6.83 billion yuan, with a net profit of 2.708 billion yuan—close in scale.

However, their trajectories diverged sharply afterward. In 2023, Donghai Securities’ revenue shrank dramatically to 650 million yuan, with a net loss of 492 million yuan; in 2024, revenue rebounded to 1.469 billion yuan, but net profit was only 23.49 million yuan. In contrast, Dongwu Securities achieved revenue of 11.534 billion yuan and net profit of 2.366 billion yuan in 2024, with a clear size gap.

Post-merger, Donghai Securities will be fully consolidated into Dongwu Securities’ financial statements. Its meager profits will hardly boost Dongwu Securities’ performance; if the industry enters another downturn cycle, Donghai Securities’ losses will directly erode Dongwu Securities’ net profit, creating a significant drag on performance and further weakening profitability and risk resilience.

Market logic for securities mergers and acquisitions has always emphasized “stronger combined, advantages complementing each other,” but the merger between Dongwu and Donghai Securities lacks a foundation for “stronger union” and “advantage synergy,” more resembling inefficient scale stacking.

From a business structure perspective, both firms are highly homogeneous, rooted in Jiangsu South of the Yangtze River, heavily reliant on traditional brokerage and proprietary trading, with no prominent advantages in wealth management, asset management, or financial derivatives, and both have weak investment banking performance.

According to Wind data, in the first half of 2025, Dongwu Securities’ proprietary trading income accounted for 39.57%, brokerage and credit business combined accounted for 49.55%, and investment banking only 7.5%. Donghai Securities’ proprietary trading income was 21.16%, with brokerage and credit totaling 73.44%, and investment banking only 4.55%.

This high dependence on traditional businesses contradicts the current trend of securities firms focusing on innovation and reducing reliance on market fluctuations. The merger is essentially a simple addition of traditional businesses, unlikely to produce effective capability enhancement.

Weak investment banking performance further highlights the synergy shortcomings of this merger. In 2023, Dongwu Securities had 11 IPO sponsorship and underwriting projects; in 2024, this sharply declined to 3; in 2025, it only completed one IPO project for Zhongcheng Consulting (920003.BJ), with continued decline in competitiveness. Donghai Securities’ situation is even worse, with a 56.58% year-over-year drop in net income from investment banking in the first half of 2025, and zero IPO sponsorship projects for the entire year.

Core asset defense

A major core asset for securities firms is talent, and the loss of key personnel is a significant potential risk in this merger.

Looking at industry precedents, after Far East Securities (601901.SH) acquired Minzu Securities, internal conflicts and operational risks led to a significant loss of core investment banking teams, severely damaging its investment banking business. After this merger, Donghai Securities will face management changes, department integrations, and restructuring of compensation and assessment systems. If core teams such as the Changzhou local brokerage, fixed income investment, and research teams are not properly settled, they are highly likely to defect to competitors. Losing key personnel would turn the acquired firm into a shell license, rendering the large upfront payment essentially worthless, and the merger’s original purpose would be lost.

Additionally, regulatory constraints such as the “one participation, one control” rule will impose huge costs and risks on integration.

According to the “Securities Company Equity Management Regulations” and related supervisory requirements, the “one participation, one control” principle states that a single entity cannot control more than one securities firm, and this applies to futures, funds, and related financial licenses. Failure to comply could lead to regulatory rating downgrades, restrictions on new business approvals, and other consequences.

Currently, Dongwu Securities controls Dongwu Futures and Dongwu Fund, while Donghai Securities controls Donghai Futures and Donghai Fund. After acquisition, Dongwu Securities will hold two futures companies and two fund companies, directly breaching regulatory limits.

Faced with this dilemma, Dongwu Securities has only two options, both risky: internal integration, which involves huge costs in client migration, system integration, and personnel adjustments, with risks of high-net-worth client loss and business interruption; or external disposal of Donghai Futures and Donghai Fund, which, in a down cycle, would face valuation pressures, potentially resulting in financial losses from low sale prices, and uncertain approval of buyers’ qualifications, further complicating integration.

More paradoxically, Dongwu Securities launched a 6 billion yuan private placement plan in July 2025, mainly to fund subsidiaries’ capital increases, IT, compliance, wealth management, and derivatives market-making, aiming to build differentiated competitiveness against top firms.

At that time, Dongwu Securities’ asset-liability ratio was already high, reaching 72.38% as of March 31, 2025, on a consolidated basis (excluding agency securities and underwriting securities). It urgently needed to raise capital through private placement to reduce debt and focus on core innovative businesses.

The acquisition of Donghai Securities would heavily consume the company’s capital, directly impacting capital adequacy and risk resilience, effectively “leveraging against the trend” in a sluggish industry cycle, significantly increasing operational risks. Post-merger, management will need to devote substantial effort, capital, and time to resolve compliance risks, fill performance gaps, and integrate internally. Mishandling could lead to a passive situation where both ends suffer, hampering existing innovation efforts.

Regarding this merger, Dongwu Securities responded to Times Business Research Institute that Donghai Securities, rooted in Changzhou and deeply engaged in the Yangtze River Delta, has distinctive advantages in wealth management, fixed income, futures and derivatives, and asset allocation. If the strategic integration proceeds smoothly, Dongwu and Donghai Securities will complement each other in business layout, resource endowment, and service capacity, generating synergy, improving operational efficiency, and creating greater value for shareholders.

Core viewpoint: The way out for small and medium-sized securities firms is not blind pursuit of scale expansion

Currently, the Ma Tai effect in the securities industry continues to intensify, with leading firms monopolizing core resources such as licenses, capital, talent, and projects, squeezing out smaller firms, and industry concentration rising. Under this backdrop, the way out for small and medium-sized firms is not blind scale expansion but focusing on core businesses, deepening niche markets, and cultivating differentiated core competitiveness to stand firm and break through in fierce competition.

As of now, the audit and valuation work for Dongwu Securities’ current transaction are still ongoing, and final pricing and integration plans have not been fully finalized. For Dongwu Securities, this merger not only determines its future path with Donghai Securities but also reflects the broader industry anxiety—under the pressure of industry concentration, many small and medium firms rush to expand through mergers, falling into the trap of “big scale, weak quality.”

Donghai Securities’ weak profitability and compliance risks mean that if the industry remains sluggish, its performance gaps will widen, and operational risks will continue to propagate. In such a scenario, Dongwu Securities may fail to realize its initial goal of “growing stronger through acquisitions,” instead being dragged down by Donghai Securities’ compliance and financial burdens, missing opportunities to deepen innovation and build differentiation, ultimately falling behind other mid-sized firms focusing on core businesses, and facing the dilemma of “scale expansion with declining competitiveness.”

For Dongwu Securities, the most pressing question for the market and investors remains: can mergers solely aimed at scale truly translate into core competitiveness? Under the triple pressures of compliance risks, financial drag, and internal integration, whether this regional securities firm consolidation becomes a breakthrough or a costly burden remains to be seen, likely to be revealed gradually through subsequent integration progress and performance.

(Full text 4058 words)