Some Korean family-run brokerage firms and securities units of conglomerates are under fire for paying out high dividends to their shareholders despite worsening profitability

2013-07-08 19:01

Hyundai, Daishin under criticism

Firms pay high dividends despite poor performance
By Na Jeong-ju
Some family-run brokerage firms and securities units of conglomerates are under fire for paying out high dividends to their shareholders despite worsening profitability.
Hyundai Securities, an affiliate of Hyundai Group, paid 44.4 billion won in dividends last year although the firm recorded 2.1 billion won in losses. The securities firm’s largest shareholder is Hyundai Merchant Marine with a 25.9 percent stake. Other Hyundai affiliates are also key shareholders of Hyundai Securities.Market watchers say its dividend payments were excessive to the point of damaging its financial health.
Family-run brokerage houses also paid high dividends to stakeholders.
Daishin Securities saw its net income sharply drop to 17.2 billion won in 2012 from 90.7 billion won in 2011, but increased dividends payments. It paid 38.7 billion won in dividends last year. The ratio of dividends to net profit quadrupled to 225.5 percent from 56.8 percent in 2011.
Daishin’s largest shareholder is its vice president Yang Hong-seok. Yang has a 6.66 percent stake, and Yang’s mother and the firm’s Chairwoman Lee Uh-ryung has 1.41 percent. Yang’s sister also has a 1.03 percent stake.
Lee became the firm’s boss after her husband and Daishin founder Yang Jae-bong died at 85 in 2010.
The Korea Investment and Securities, BNP Paribas Securities Korea, the securities unit of French banking group BNP Paribas, and Bookook Securities also paid out high dividends – the ratio of dividends to net profit at the three firms reached 113.3, 79.3 and 68.4 percent, respectively, last year.
Bookook Chairman Kim Joong-kun is the largest shareholder of the securities firm with 12.2 percent, and his brother Kim Joong-gwang holds an 11.79 percent shares.
BNP Paribas Securities Korea is fully owned by its parent group. The firm paid 10.2 billion won in dividends last year.
The Financial Supervisory Service said it will strengthen monitoring of dividend payments by securities firms. FSS Governor Choi Soo-hyun recently expressed regret over the matter, saying it is time to raise cash holdings, rather than paying high dividends.
“It seems irresponsible for brokerage firms to raise dividend payments despite falling profits. We will look into this matter,” an FSS official said, asking not to be named. “We will consider summoning the firms’ staff to explain our stance and call for earnest efforts to comply with our guidelines on dividends.”
The FSS has advised financial firms in Korea to refrain from paying high dividends, citing an uncertain outlook for the financial industry.
Some foreign banks have repeatedly clashed with the regulator over their high dividend policies.
Korea Exchange Bank was criticized for giving excessive dividends to Lone Star Funds while it was a major shareholder. Citibank Korea, the Korean unit of the U.S. lender, and SC Bank Korea, an affiliate of the British banking group Standard Chartered, have had an uneasy relationship with the FSS over the same issue.
Most of the 62 brokerage houses in Korea, including 12 units of foreign firms, suffered sharp falls in earnings last year mainly due to decreased commission income from stock trading.
The combined dividend payout at the brokerage firms reached 562.7 billion won in 2012, up 4.2 percent from the previous year, while their combined net profit dipped 30 percent to 1.15 trillion won.
Their poor performances continued in the first quarter of this year as their combined net income fell to 787.7 billion won, down 55 percent from 1.75 trillion won a year earlier.
Meanwhile, the FSS said it will expand the ongoing probe into bank executives’ high income to those at insurance companies and brokerage houses in a bid to overhaul their pay system. The regulator plans to conduct an investigation into the income structure of local life and non-life insurers and brokerage firms in the second half of this year.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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