The landscape of the Korea’s securities industry is undergoing a major shakeup, with four out of the 10 largest brokerages by assets up for sale.

2013-12-23 16:56

Securities industry faces shakeup

By Kim Tae-jong
The landscape of the nation’s securities industry is undergoing a major shakeup, with four out of the 10 largest brokerages by assets up for sale.
Now, attention is focused on who will acquire them and how that will change the pecking order in the market, which has suffered its worst slump ever. Some even raised anticipation of the emergence of an investment bank big enough to compete globally.The four major securities firms which are, or will be, offered for sale are: Woori Investment & Securities, KDB Daewoo Securities, Hyundai Securities and Tongyang Securities. Their combined assets stand at about 85 trillion won, which accounts for about 30 percent of the securities industry here.
Of them, Woori Investment & Securities will likely be the first to have a new owner.
Nonghyup Financial Group, KB Financial Group and PineStreet Group joined the bidding last week to acquire the biggest securities firm by assets here.
It is known that Nonghyup Financial placed the highest bid of 1.2 trillion won to acquire Woori Securities and its three sister financial firms ― Woori Asset Management, WooriAviva Life Insurance and Woori FG Savings Bank.
Nonghyup is also believed to be the strongest candidate, as it offered to buy all four of the financial units, different from the two rivals that only offered to buy Woori Securities.
The four Woori units are one of the three sales batches grouped by the government to privatize Woori Finance and its 13 affiliates. The preferred bidder for the securities firm will be announced early next year.
Financial Services Commission Chairman Shin Je-yoon stressed Monday that the three financial units should be sold in a package.
The sale of Woori Securities is also seen as the government’s effort to create a globally-competitive mega brokerage, such as Goldman Sachs or Nomura Holdings.
Korea’s brokerages, which had a combined 300 trillion won in assets, lag far behind global rivals. New York-based Goldman Sachs Group had $938 billion, while Nomura Holdings, Japan’s largest brokerage, boasted $422 billion, according to Bloomberg’s most recent report.
Another attractive and major item is Hyundai Securities, which Hyundai Group decided to sell last Sunday along with two other financial affiliates.
Its market capitalization is estimated at 1.27 trillion won, but Hyundai Group has about a 24-percent share in it. So the price tag for the nation’s fourth-largest brokerage, including its management rights, should be around 500 billion won.
Market insiders think Hyundai Securities could be a variable in the merger and acquisition (M&A) deal of Woori Securities, because it can be a cheaper alternative to bidders for Woori Securities.
Attention is also focused on whether Hyundai Motor Group and Hyundai Heavy Industry will join the bidding to acquire Hyundai Securities.
The two industry leaders have brokerage affiliates ― HMC Investment Securities and HI Investment & Securities ― but they are not allowed to use the name “Hyundai” for their financial arms due to opposition from the Hyundai Group.
Previously, Hyundai Motor Group and Hyundai Group were in a legal dispute for the use of the name “Hyundai” for their financial units, as the latter had exclusive rights to it.
By acquiring Hyundai Group’s financial arms, Hyundai Motor Group or Hyundai Heavy Industry can also acquire the right to use the name “Hyundai” for their financial units, not to mention increase their market influence.
Market insiders are also paying keen attention to the M&A deal of KDB Daewoo Securities, the second-largest securities firm in Korea.
The firm is expected to be up for sale in July, as the Korea Finance Corp. (KoFC), a state financing company that was spun off in 2009 from the Korea Development Bank (KDB), will be reintegrated into the state-run lender.
In the reintegration process, KDB’s largest affiliate, KDB Daewoo Securities, will be auctioned off.
Whoever acquires KDB Daewoo Securities will immediately become a leading brokerage firm.
Along with the four major brokerage houses, there are also six small securities firms that are awaiting a new owner, including HanMag and E-Trade.
But due to the fact there are too many brokerages in the M&A market, it will be difficult for smaller firms to be sold.
The M&A deals that are underway will be critical in reshaping the securities industry here, which is facing its toughest challenge due to its profits plunging sharply in recent years.
The industry saw its net profit decrease in the first half of this year due to lowered earnings from brokerages and proprietary trading, according to the Financial Supervisory Service.
Sixty-two securities companies’ net profit stood at 251.6 billion won in the April to September period, down about 63 percent from 674.5 billion won a year ago. Their profitability measured by return on equity stood at 0.6 percent, down 1 percentage point in the same period.
To cope with the downturn in business, many brokerage houses have carried out restructuring and reshuffling, closing down branches.
Given the prolonged slump in the industry, many experts point out that only a few M&A deals will be made.
“There will be only a few players which want, and can afford, to acquire a securities firm,” said Park yong-rin, head of financial services industries at the Korea Capital Market Institute. “Additionally, no major brokerage houses would want to buy smaller ones, as they have few merits.”