“Korea’s investment banking system is almost the same as elsewhere. Most securities firms have characteristics of investment banks, including the Equity Capital Market, the Debt Capital Market, and the M&A market. But there are no distinctions. Moreover, those companies are insensitive to changes,” said an official high in the investment banking industry.
Since dozens of local securities companies operate with very similar investment banking systems in a limited market, sometimes some investment banking departments are idle without business deals.
According to data on Korea’s capital market in 2013 released by Bloomberg on January 6, three of the local securities firms in the top 20 local currency bond rankings represent less than 1.0% of the market. Two securities companies in the top 15 underwriter rankings oversaw just one IPO last year, falling short of 1.0% in market share.
The country’s securities firms are impotent in the M&A market. Last year, there were a lot of large companies for sale on the market, such as the STX, Woongjin, and Tong Yang Groups, along with small and medium businesses. However, those companies preferred foreign securities companies.
Bloomberg’s league tables show that five foreign securities firms were in the top 10 of Korea’s financial advisory mergers and acquisitions rankings last year. JP Morgan topped the list, followed by Goldman Sachs. Only two local companies — Woori Investment & Securities and Samsung Securities — ranked among top 10 companies.
Recently, foreign securities companies have been responding quickly to changing markets by increasing the personnel of related departments, in line with their prediction that the local M&A market will grow.
In contrast, local firms do not give up old practices, and refuse to change. Basically, investment banking involves taking risks to make huge profits. Nevertheless, Korea’s security companies are not willing to change, and lack in creativity. To be reborn as true investment banks, they should take on the good traits of foreign investment banks.