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Local securities industry faces wave of M&As

Small- and mid-sized local securities firms are becoming the targets of merger and acquisition deals as the stock brokerage industry has posted a sagging business performance over the past few years.

According to the Financial Supervisory Service, 62 local brokerage houses reported a net loss of 109.8 billion won ($99 million) for the 2013 fiscal year, marking the first yearly deficit in 11 years since fiscal year 2002.

FSS data showed Friday that 28 out of the 62 firms posted a net loss, most of which were smaller businesses.

Officials at the FSS and the Korea Financial Investment Association said that downsizing is sweeping the securities industry, with firms tightening management.

“Amid the ongoing low profitability in the securities industry, a certain portion of them will likely be auctioned off over the next few years,” said an FSS official.

He stressed that the 62 firms operate in the saturated domestic market mainly on a commission basis, and fierce competition in lowering commissions damages their profitability.

Financial authorities have recently decided to provide a set of incentives to brokerage firms seeking to purchase smaller local competitors as part of efforts to enhance their competitiveness and develop the industry.

“The industry’s competitiveness will not improve should they stick to the current businesses. So we need measures to encourage restructuring and overhauling of the industry,” said the official.

The new measures, eased regulation on investment banking business, will be implemented during the second quarter of this year.

Regulatory officials at the FSS and the Financial Services Commission are considering easing the requirements for entering the investment banking business by lowering the minimum equity capital of stock firms from 3 trillion won to 2.5 trillion won if the firms’ capital increases by more than 500 billion won through an M&A.

For now, five brokerage houses meet the 3-trillion-won-capital requirements ― KDB Daewoo Securities, Samsung Securities, Woori Investment & Securities, Korea Investment & Securities and Hyundai Securities.

Several companies with between 1 trillion won and 2 trillion won in equity capital, including Shinhan Investment, Mirae Asset Securities and Daishin Securities, may be eligible for the measures if they take over another brokerage.

By Kim Yon-se (