Some stock brokerage firms have decided to close down amid a worsening business environment in the domestic market, according to financial industry sources.
A few securities firms recently tendered applications for “returning their business license” to financial authorities, said a source.
Citing the saturated market, the sources said the low profitability in the securities sector is somewhat attributable to the oversupply under which the number of brokerage houses comes to 62.
“It is time to seriously review whether 62 brokerages is appropriate in consideration of the nation’s GDP scale and financial demand,” said a brokerage house executive. “Some say the registration number should be halved for an optimum level.”
A regulatory official at the Financial Supervisory Service confirmed the applications for business closedown. He, however, declined to publicize the company names.
“The withdrawal process will be approved by the (final decision-maker) Financial Services Commission,” said the FSS official. “Any company which returned its license is banned from re-applying for the securities business for the next five years.”
The move by some firms to close came as a number of brokerages ― including Etrade Securities, Leading Investment & Securities and I’M Investment & Securities, all on the M&A market ― are having difficulties finding new owners. U.S.-based Goldman Sachs has also decided to shut down its asset management business in Korea.
“A full-fledged restructuring in the overall industry would be inevitable in the coming months and years,” said one former senior executive in a financial company.
“As far as I’m concerned, most of the applicants are considered to be small- and mid-sized players. And they are mostly domestic-based firms,” he said. Aside from the small companies suffering from low profitability, big securities firms have posted a sharp drop in earnings or swung into the red.
Hyundai Securities and Daishin Securities reported a net deficit of 22 billion won ($19 million) and 5.4 billion won, respectively, during the second quarter.
Samsung Securities and Woori Investment & Securities saw their net profit fall by 71.2 percent and 90.6 percent, respectively, on a year-on-year basis.
Their sagging performance is being linked to an overall manpower restructuring ― particularly for research analysts whose average income level stays above that of ordinary stockbrokers. According to the Korea Financial Investment Association, the number of analysts at the 62 firms dropped by 70, or 4.81 percent, from 1,455 at the end of 2012 to 1,385 in August 2013.
While 31 firms scaled back their payroll for analysts, only 15 firms increased the number of analysts.
Samsung Securities and Woori Investment & Securities, both of which are regarded as two of the top three players in the industry, slashed the analyst payroll by 15 individuals and eight, respectively, over the corresponding period.
By Kim Yon-se and Chung Joo-won