Brokerages Transforming into Investment Banks
The South Korean securities industry has gone through a sea change since the introduction of the Capital Market Consolidation Act 10 years ago. Local securities companies’ total assets have increased from 36 trillion won to 56 trillion won and three new companies have put their names on the top five list. In addition, approximately 20 M&A deals have been signed.
The profit structure of domestic securities companies has changed a lot, too. The number of their branches has dropped and their investment banking business has expanded to a large extent. Many are aiming to turn themselves into giant investment banks comparable to Goldman Sachs.
The seismic change in the industry has been especially conspicuous since late 2014, when Woori Investment & Securities and NH Nonghyup Securities merged with each other into NH Investment & Securities. Meritz Securities and IM Investment & Securities merged with each other in 2015 and Mirae Asset Securities took over KDB Daewoo Securities in 2016 to become Mirae Asset Daewoo, the largest company in the industry. At present, Mirae Asset Daewoo’s equity capital amounts to 8.2 trillion won, approximately three trillion won more than that of runner-up NH Investment & Securities.
Likewise, KB Financial Group acquired Hyundai Securities and launched KB Securities. Each of Samsung Securities, Korea Investment & Securities and KB Securities has increased its equity capital to over four trillion won as one of the top five in the industry. Those out of the top five list expanded their business as well. The number of companies in the industry fell from 61 in late 2008 to 56 the third quarter of 2018, while their total assets swelled from 31 trillion won to 56 trillion won during the same period.
The number of securities companies’ branches dropped from 1,800 or so to 998 during the same period as a result of the M&As and business focus shifting from stock brokerage to wealth management and investment banking.
“Local securities companies prepared for a transition from business models dependent on stock brokerage fees until last year, and an investment banking-driven change will become very noticeable this year,” said Yuanta Securities analyst Shin Hyun-min.