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Some securities companies have reportedly lost liquidity and cannot pay money back to investors. This has raised a big worry that a wave of insolvency of securities companies may occur.
The stock market has received a shocking piece of news: SME Securities Company (SMES) has lost the ability pay cash to investors.
In fact, SME fell into the loss of liquidity two times in the last two months, and it was two times asked by the Vietnam Depository Center to stop the custody services. The first time was on November 3 to December 3, while the second time was December 7 to January 7, 2012.
Besides, SMES, Trang An Securities Company TAS has also been warned by the Vietnam Depository Center for losing the payment capability for securities transactions. TAS has no more ability to make payment for the transactions with investors, while it still owes more than 7 billion dong to the Depository Center’s payment support fund.
Feeling worried about the fate of SMES, a lot of investors have been leaving SMES. Some investors have complained that since they were late in closing their transaction accounts at SMES. On December 12, they were told that their securities have been transferred to the accounts newly opened at Golden Bridge GBVS Securities.
The securities investors have been told by the officers of SMES that they may have to wait a couple of weeks to get their money in cash. However, the investors feel worried that they may not be able to get their money back. A lot of them have been put on tenterhooks, when thinking that in the worst scenario, securities companies have fled with the investors’ money.
Worries raised about the wave of losing liquidity
Securities investors have expressed their worries that the SMES case may trigger a new wave of losing liquidity of securities companies. They have every reason to worry about that: securities companies have been reportedly incurring loss, while the stockholder equity of many securities companies has dropped dramatically.
The finance reports of the securities companies listing their shares on the HCM City Stock Exchange show that 2/3 of the companies took profit in the first nine months of the year, while 18 of which had the losses of up to 1350 billion dong.
A recent survey conducted for preparing to apply new finance standards shows that by early October 2011, 12 securities companies had had the usable capital at less than 180 percent. Of these companies, five ones have the figure at less than 120 percent – the level low enough to be put under the special control by the watchdog agency.
The third quarter’s finance report of SMES shows that the company now has 7.7 billion dong in cash and other assets equivalent to money. This includes 6.3 billion dong which is the securities investors’ money, a sharp fall from the 44.6 billion dong level of the second quarter of 2011. The ratio of total debts on the stockholder equity has raised 2.91.
Some other securities companies have also fallen into the same situation. TAS, for example, has the ratio of money on short term debts at 12.27 percent, while the figures are 11.22 percent for APG and 3,02 percent for GBS. Especially, ROS, WSS and SBS have reportedly had the “enigmatic debts.”
What’s next?
“Foreign investors keep running away. The wave of bargaining away the shares of securities companies has been kicked off when SMES lost its liquidity,” an investor wrote on a securities investors’ forum.
The investor went on to say that the stock market has undergone a very bad year in 2011. A lot of securities companies may not have money to pay their staffs in November and December. The information about SMES will surely have negative impacts on the cash flow on the stock market.
Another investor has commented that the stock market would enter a long hibernation period, since investors’ confidence has decreased to the deepest low since the Hanoi and HCM City bourses were established.