Application for IB License
Five large Korean securities firms will apply for license for the investment bank (IB) business as early as June 30.
Five large Korean securities firms will enter the investment bank (IB) business by applying for their own IB license as early as June 30. The capital market is paying attention to whether or not the five securities firms that claim to have proper strength and ability for the IB business to play high-risk and high-return games will be able to become "Korean versions of Goldman Sachs".
According to the IB industry on June 22, Mirae Asset Daewoo with 6.7 trillion won (US$6.0 billion) in owner’s equity as well as NH Investment & Securities, KB Securities, Samsung Securities and Korea Investment & Securities, all with more than 4 trillion (US$3.6 billion) in owner’s equity, decided to apply to the Financial Supervisory Service for licenses for general financial investment business and short-term financial business at the same time, on June 30.
The Financial Supervisory Service (FSS) received preliminary approval documents from each brokerage house last month and discussed supplementary matters. One day after their application, the Financial Supervisory Committee (FSC) will decide whether or not to approve their applications.
Unlike banks, securities firms have limited channels to funding. However, if a large-scale IB license is granted, a securities firm can handle up to 200% of its owner’s equity in drawn bills.
In venture capital investment, an IB should invest 50% of their funds unconditionally in enterprises to match its nature as an IB. It is expected that 24 trillion won (US$21 billion) will flow into adventure capital if the five securities firms issue up to 48 trillion won (US$43 billion) in their drawn bills.
Super large IBs have the strength to make bold investment via stable funding. Companies that were denied loans or investments by banks or securities firms can receive investment through very large IBs if their potential is proven.
The key is whether or not all of the securities firms that will apply on the same day will receive permission to handle drawn bills. All of them can receive general financial service licenses but violations of laws and ordinances and reviews of the biggest shareholders’ qualifications can be a stumbling block to catching short-term financial business licenses. Financial authorities are not ruling out a possibility of giving licenses separately by separating the general financial investment business from the short-term financing business.