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Emergence of big investment bank not in sight

Failure of two brokerages’ merger dims prospects


The nation is facing a stumbling block in establishing a large-scale investment bank although the chief financial regulator has unveiled a policy toward activation of IB businesses.

The pessimistic view comes after KDB Financial Group failed to take over Woori Financial Group amid an uneasy sentiment between the two state-run financial companies.

There had been speculation that Daewoo Securities, a subsidiary of KDB Financial, and Woori Investment & Securities, would form the nation’s largest investment bank through a merger.

There are now few predictions in the local brokerage industry that the two financial groups will allow a separate merger between their securities units.

The brokerage merger was only possible under the scenario that KDB Financial would acquire most units of Woori Financial as a package deal.

A joint entity between Daewoo Securities and Woori Investment could surpass the No. 1 player Samsung Securities by market capitalization.

“The brokerage unit is one of the core businesses for KDB and Woori financial groups,” a research analyst said. “Neither of the two groups will easily yield their securities business.”

The Financial Services Commission had expected a series of mergers among securities firms following that of the No. 2 Daewoo and the No. 3 Woori.

Though the FSC had reportedly promoted the merger between the two groups in a bid to retrieve taxpayers’ money injected into Woori Financial, the regulatory body seems to have scrapped this alleged project due to criticism from lawmakers and the public.

Critics say that a merger between KDB and Woori would go against the government’s longstanding project to privatize Woori Financial. And FSC Chairman Kim Seok-dong said he would exclude KDB from the coming bidding for Woori.

The financial regulator continued to say that rapid development of the investment banking business is needed to activate the domestic capital market.

“Investment banking should be actively fostered to further develop the local capital market,” said an official of the Financial Supervisory Service.

To help launch an internationally competitive investment bank, the government and the FSS will lift barriers or firewalls between securities firms, futures companies and asset management firms, he said.

In the domestic investment banking field, commercial banks mainly lend money to companies and foreign securities firms, participate in mergers & acquisitions and bad debts’ liquidation.

“By contrast, domestic securities companies have a hard time in competing against their foreign rivals due to their lack of capital and small business size,” he said.

One analyst said trust, reputation, expertise, sales network and capital were all key factors in becoming a successful investment bank.

“Size also does matter. Investment banks need to grow bigger based on an ample capital and an international network, particularly when the competition with foreign rivals is getting fiercer,” he said.

By Kim Yon-se (kys@heraldcorp.com)
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