Sluggish stock market weighs on quarterly earnings, but strong first-half results keep cumulative profits near record levels
South Korea's top brokerage firms saw their earnings boom cool sharply in the third quarter, as sluggish stock trading, rising market interest rates and valuation losses on investment assets weighed on their bottom lines.
The combined net profit of the country's five largest brokerages — Mirae Asset Securities, Korea Investment & Securities, NH Investment & Securities, Kiwoom Securities and Samsung Securities — came to 851.2 billion won ($640 million) on a consolidated basis in the July-September period.
The figure marked an 81.13 percent plunge from the previous quarter, when their combined net profit hit a record 4.51 trillion won.
Mirae Asset Securities, the country's largest brokerage by equity capital, posted the steepest decline.
After reporting a net profit of 1.91 trillion won in the second quarter, the company swung to a net loss of 405.6 billion won in the third quarter, with an operating loss of 502.3 billion won. The result marked a reversal from both the 343.8 billion won net profit a year earlier and the previous quarter's earnings.
The brokerage was hit by massive valuation losses on its proprietary investment assets, driven largely by a decline in the valuation of its stake in US aerospace company SpaceX and the appreciation of the Korean won against the US dollar.
Other major brokerages remained profitable but also reported sharp quarter-on-quarter declines.
Korea Investment & Securities posted a net profit of 281.8 billion won, down 70.23 percent from the previous quarter, followed by Kiwoom Securities with 238.6 billion won, down 64.95 percent. Samsung Securities' net profit fell 27.7 percent to 352.8 billion won, while NH Investment & Securities reported a 21.62 percent decline to 383.6 billion won.
The common drag on earnings was a cooling stock market that dampened trading activity and prompted retail investors to pull back.
The average daily trading value on Korea's stock markets, combining the Korea Exchange and alternative trading platform Nextrade, fell 36.24 percent to 75.3 trillion won in the third quarter from 118.1 trillion won in the previous quarter. The figure declined a further 5.1 percent month-on-month to 38.1 trillion won in October.
With the Fair Trade Commission set to impose a total of 1.62 trillion won in fines on 10 brokerage houses and 5 banks for colluding in government bond auctions for more than three years, the penalties are expected to add to the industry's financial burden.
The cumulative earnings picture remains strong, as massive first-half profits have helped brokerages maintain record-high earnings for the January-September period.
Korea Investment & Securities reported a cumulative net profit of 2.01 trillion won in the first nine months, up 20.1 percent from a year earlier. Mirae Asset Securities also posted a record-high cumulative net profit of 2.50 trillion won, up 148.2 percent year-on-year, despite swinging to a loss in the third quarter.
silverstar@heraldcorp.com
