Everbright must look for buyer while it still has some value left

Facing a spat of lawsuits from angry investors, Everbright Securities' future looks bleak indeed. The beleaguered stockbrokerage was dragged down by the "fat finger" mishap last month, and, in the process, lost one of the most valuable assets of any financial establishment, trustworthiness.

Branded an insider trader, the company was slapped with a record fine of 523 million yuan ($85.46 million) by China Securities Regulatory Commission. What's more, four of the company's senior executives have taken the blame and resigned.

The brokerage has not contested the penalty, which, though high by most reckoning, is not going to cripple the company that posted earnings of more than 800 million yuan for the first six months of this year. The potential lawsuits can.

Investors in Shanghai and Guangzhou, as well as Fujian province have either filed or are preparing to file claims for investment losses caused by Everbright Securities' alleged deceptive maneuverings after it inadvertently placed an exceptionally large buy order in the market. The company's total exposure to such claims is estimated to be about 27 billion yuan.

Paying off all the claims can stretch the company's capital resources. Besides, the court proceedings, which can take months, if not years, are expected to distract much attention of the company's management from its normal business endeavors.

Cases of individual investors taking on Everbright Securities, one of the largest stockbrokerages in China, are juicy tales that the domestic media would love to latch onto and widely circulate on the Internet. Such negative publicity will serve as a sharp reminder of the company's misdeeds, dragging its already battered image through the mud.

In fact, the company will be remembered by the investment public for the Aug 16 incident in which it hid its mistake as long as it could to profit from the market confusion it had caused. At least that is the widely held perception of the investment public after the CSRC's verdict.

The question many people are asking is what is left of a financial services provider when it has lost the trust of the market and the investment public as severely as Everbright Securities has? If the answer is "not much", as many observers will agree, the next logical question is what to do with it?

Cynics have often quipped that memories in the Chinese stock market are short and trustworthiness is worth little in an arena dictated by unwritten rules framed by and for the deeply entrenched vested interests. That may well be true. But the Aug 16 incident has created so much drama and stirred such a big controversy that it is hard to forget.

Of course, investors can forgive the "fat finger" mistake caused by program glitches. Such things can happen to any company at any time in any stock exchange. But it would be hard to find an excuse for the apparent stonewalling tactic the company so shamelessly deployed to prolong the market confusion, which it exploited for illicit gains that was eventually confiscated by the CSRC.

Exposing the absence of a culture of integrity and social responsibility, Everbright Securities is going to have a tough time regaining the confidence and trust of investors and its peers. Perhaps the best option for it is to find a willing buyer while there is still some value left in the company.

(China Daily 09/07/2013 page5)