Haitong Securities (6837.HK, 600837.SH) saw its stock price surge by 5.23% on Tuesday, amid news that its proposed merger with Guotai Junan Securities (2611.HK, 601211.SH) is expected to proceed despite Haitong's recent losses. The company has been incurring losses from its legacy Hong Kong portfolio, which has pressured its earnings since 2022.

In contrast, Guotai Junan reported a consolidated net income of around 4.6 billion yuan in the third quarter. S&P Global Ratings expects the merger to create an entity with the same creditworthiness as Guotai Junan, supported by its robust capitalization. A faster cleanup of Haitong's Hong Kong portfolio will provide solid ground for the merged entity, while Haitong will significantly benefit from Guotai Junan's solid credit profile.

The Shanghai government-backed merger is a strategic move to create a global investment bank and to strengthen the city's position as an international financial hub. S&P believes the merger will create a stronger entity, combining Guotai Junan's solid credit profile with Haitong's potential after addressing its portfolio issues.