By Yoon Ja-young
Staff Reporter

After the collapse of Lehman Brothers and Merrill Lynch, skepticism is growing over U.S. investment banks. Debate has heated up over the model in the country that regarded these U.S. investment banks as its model. However, IBK Securities CEO Im Kee-young said it was too early for Korea to discuss the pros and cons of the U.S. model.

``The local financial companies' evaluating the U.S. investment bank model as wrong for the crisis they face is like telling elementary school children not to go to college citing a car accident caused by a college student driver. The problem was in management rather than in the model itself,'' Im said in an interview with The Korea Times.

He explained that though excessive leverage caused the problem, an adequate level of leverage is essential for the financial market and helps the economy.

``They regarded the U.S. investment banks as their model, but local players are still lagging far behind. I think we have a way to go to improve ourselves before mentioning the pros and cons of the U.S. model,'' the CEO added.

He said the first priority for local investment banks is to seek a high-value added model that does principal investment instead of the current low-value one depending on commissions. ``An adequate level of capital and leveraging is essential. Of course, one should not miss the importance of risk management, as seen in the U.S. investment banks that fell into trouble due to indiscrete selling of derivate products,'' Im said.

He suggested that Korea should set up its own investment bank model based on thorough risk management. ``The financial regulator could play a role as a guide,'' he added.

Big Bang After Capital Market Consolidation Act

Regarding the Capital Market Consolidation Act to be implemented from February, Im said it will be the most critical point for the financial market to expand and develop.

``There is estimated to be a big bang in financial products, and the financial industry will be realigned as financial investment companies, banks, and insurance entities. A differentiated growth strategy is essential to survive and develop in the market where the wall has been demolished and both entry and exit are free,'' Im said.

The differentiation strategy for IBK Securities is focused on small and medium sized businesses. As a subsidiary of the Industrial Bank of Korea (IBK), a state-run bank for small businesses, IBK Securities will aim to help small businesses grow.

``We will focus on setting up a new financial scheme through cutting edge financial technologies to help provide more quality funding for small businesses. We seek to get regulator's approval on over the counter derivate products by the latter half of this year as part of the scheme. Of course, good risk management is a prerequisite for all these,'' Im stressed.

IBK Securities to Focus on Small Businesses

The securities company is planning to set up a support system to satisfy the financial needs of businesses, through its extensive network linking IBK, IBK SG Asset Management, and IBK Capital.

``We will utilize joint marketing with IBK, using their marketing know-how on small businesses. We are already seeing synergetic effects, being selected as lead manager of initial public offerings (IPO) for IBK customer businesses, giving M&A advice, and issuing non-performing loan (NPL) asset backed securities (ABS).''

Im added that IBK Securities is aiming at maximizing this synergetic effect, jointly developing and selling various financial products with the bank and expanding its customer base. IPO, corporate bond issuance, ABS, M&A brokerage and private equity fund (PEF) are some of the areas it is eyeing.

It is faithfully fulfilling its mission as a partner for the small businesses. IBK Securities announced a 30 billion won principal investment (PI) in the Kosdaq last November, and has executed over 15 billion won of this so far, to help promising companies in the junior, tech-loaded stock market having trouble funding. ``The additional PI will follow depending on market conditions. We are also considering investing in convertible bonds or bonds with warrants of Kosdaq listed firms,'' Im added.

Its commitment for small businesses has paid off. IBK Securities was selected as a lead manager of ABS issuances by small businesses guaranteed by Korea Credit Guarantee Fund. It was an inspiring achievement for a new player in the market.

It recorded its first operating surplus in last December, only five months after establishment and despite harsh market conditions. Its fund sales reached one trillion won last December, with the number of accounts surpassing 38,000.

Stock Market to Recover from Second Quarter

Regarding the economy and the stock market, Im estimated things to hit bottom in the first half this year. ``The GDP recorded a minus growth rate in the last quarter, and it is difficult to expect a plus growth rate in the first half of this year. From the second quarter, however, it seems there will be a slow recovery compared with the previous year,'' the CEO said.

``Corporate performances will make similar moves to the economy, and hence, the stock market is expected to gradually rise after hitting bottom in the first quarter, with an economic recovery.''

Im advised that it might be time to start increasing stocks in portfolios. ``The stock market will remain uncertain in the first half, due to the economic recession and the concern over deflation. However, investors should note that inflation could remerge in the latter half. Usually, it is a good investment strategy to buy stocks during deflation and sell during inflation.''

He said that stock investments have become attractive, as economic growth will rise as time goes on this year and the recovery will continue next year. ``Of course, they should avoid aggressive or reckless investment as uncertainties still linger, but it seems that it would be good to start installment stock investments or adding equity funds to portfolios,'' the CEO advised.

chizpizza@koreatimes.co.kr

Who Is Im Kee-young? Im has over 27 years of experience in corporate and investment banking, with extensive knowledge in not only the Korean financial market but also the U.S. capital market, having worked with Bankers Trust, Salomon Brothers, Samsung Securities and Deutsche Bank. Born in 1953, he majored in economics at Yonsei University and holds an MBA from George Washington University. The successful CEO, who has a proven record of increasing revenue and business development as well as the successful execution of capital increase, acquisitions and divestitures, is also a lover of literature and cultural performances, such as operas and musicals. He recently recited Charlotte Bronte’s poem ``Life’’ in a New Year speech for IBK Securities employees. Im said that he wanted to share the hopeful message contained in the poem.