The profits of local securities industry fell sharply in the second quarter this year by being swept into the three declines in trade amount, ELS and IPO.
It has been found that Mirae Asset Daewoo recorded an operating profit of 53.6 billion won in the second quarter of this year, down 65% from a year ago. During the same period, the figures dropped by 61% to 67.9 billion won for Samsung Securities and by 60.9% to 62.2 billion won for Korea Investment & Securities. Likewise, Hyundai Securities’ performance deteriorated from a profit of 93.6 billion won to a loss of 5.5 billion won. Mirae Asset Securities, however, increased its operating profit by 6.15% to 68.1 billion won to become the only South Korean securities companies that showed an improvement in performance between the second quarters of last year and this year. Kyobo Securities’ profit edged down by 100 million won or so to 30.1 billion won.
The overall decline in their profits can be attributed to a simultaneous decrease in trading value, ELS issue and IPO, which has to do with a stock market led by large caps. In the second quarter of this year, the combined average daily trading value of KOSPI and KOSDAQ totaled 8.6080 trillion won, down approximately 20% from a year ago. Small caps and individual investors led the market to result in a significant increase in trading value last year but it is large caps and institutional and foreign investors, which are characterized by less frequent trading, that are leading the market this year. In addition, the total ELS issue for that quarter almost halved to 10.4290 trillion won while the number of IPOs fell from 33 to 24.
Experts are also mentioning a deterioration in the profitability of ELS trading and the like. “Brexit sent shockwaves through the global financial market and the won-dollar exchange rate dropped to negatively affect securities firms’ ELS trading profits,” one of them explained, adding, “Besides, the likelihood an additional key interest rate cut within this year is lower than in the previous year and this is suppressing an increase in bond profits.”
Under the circumstances, problems related to South Korean securities firms’ profit structures are coming to the surface. Most of their profits are still derived from brokerage trading and a small number of certain products such as ELS, causing them to remain vulnerable to market fluctuations. The average ROE of the 10 largest securities companies in the country more than halved from 11.69% to 5.68% between the first half of last year and the first half of this year.