Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Market slowdown paves way for Woori, JB to buy securities firms
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By Park Jae-hyuk
Financial groups desperate to diversify income sources
By Park Jae-hyuk
Woori and JB financial groups seem to have become unexpected beneficiaries of the recent slowdown of the domestic stock market, because the situation can deteriorate the profitability of securities firms here, eventually prompting some of them to be put up for sale.
The two financial groups have sought to acquire brokerage houses over the past few years to maintain competitive edges over their rivals that have enjoyed handsome profits from securities subsidiaries.
Such intentions were shown again during their conference calls on their second-quarter earnings.
“Regarding our M&A strategies, we are in the most urgent need of a securities firm which can create the greatest synergy,” Woori Chief Financial Officer Lee Sung-wook said, July 21. “Our next targets will be the sectors that can minimize damage to our capital adequacy ratio.”
JB Chairman Kim Ki-hong also said Tuesday that his company will continue to look for a securities firm and an asset management company to expand its presence in the capital market.
However, both groups faced difficulties in finding a securities firm to acquire during the first half, because there were no securities firms up for sale, due to their unprecedented earnings growth mainly due to increasing market liquidity amid the COVID-19 pandemic.
As a result, Woori could not defeat NongHyup Financial Group by a wide margin in first-half earnings. Although Woori earned 138.9 billion won ($121 million) more net income than NongHyup during the first half, the result has been partially attributed to a 223 billion won royalty paid from NongHyup to its owner, the National Agricultural Cooperative Federation.
In particular, NongHyup's brokerage arm, NH Investment & Securities, posted 527.9 billion won in net income.
JB also witnessed its rival, DGB Financial Group, reinforcing its non-banking sector by acquiring Hi Investment & Securities in 2018. BNK Financial Group, another provincial banking group, has also enjoyed satisfactory earnings lately thanks to BNK Securities.
Although JB took over a securities firm in Vietnam in 2019, it has yet to have a brokerage house licensed in Korea. It sought to acquire LIG Investment & Securities in 2015, but Cape won the bid and rebranded the securities firm as Cape Investment & Securities.
From that standpoint, growing uncertainties about the outlook for the second-half earnings of securities firms can be viewed as a favorable factor for Woori and JB.
Woori Financial Group Chairman Son Tae-seung, left, and JB Financial Group Chairman Kim Ki-hong / Courtesy of each company
According to the Korea Exchange, the trading volume on the local stock market fell 14.75 percent to 1,705 trillion won during the second quarter from 2,001 trillion won during the first quarter.
Analysts expect large brokerage houses, such as Mirae Asset Securities, KB Securities and Korea Investment & Securities, to continue to enjoy favorable earnings by dealing with large-size initial public offerings. But concerns are increasing about possible negative impacts on smaller ones.
“If the interest rate hike or fatigue from the stock market slowdown reverses investor sentiment after the second half, it can have a negative impact on the profitability of securities firms,” NICE Investors Service credit analyst Yoon Jae-sung said in his recent report.
At this moment, Yuanta Securities, Kyobo Securities, KTB Investment & Securities and Samsung Securities are mentioned as potential companies to be put up for sale, although all of them have denied this.
Woori had once been rumored to be acquiring DS Investment & Securities from DS Networks earlier this year, but the securities firm was eventually sold to DS Asset Management in June. Both the securities firm and the asset management company use the same initials of DS, but the former's initials refer to the previous name of DS Networks, Daesung, while the latter's initials refer to the given name of its chairman, Chang Duk-soo.