M&A to Sweep Securities Industry
By Park Hyong-ki
Staff Reporter
A seismic shift is about to take place in the securities industry where brokerage houses will go all-out to expand their volume through mergers and acquisitions (M&A), spurred up by expected parliamentary approval of the Capital Market Consolidation Act (CMCA) this month.
The bill, which was passed by a National Assembly financial subcommittee last week, aims to ignite a ``big bang'' in the financial market by tearing down business barriers between securities, futures and asset management companies.
The legislation is likely to benefit securities firms the most, analysts said. The provision of payment and clearings services to customers will accelerate the shift of funds to investment products from savings accounts.
Encouraged by such a move to foster domestic brokerage houses into global investment banks like Goldman Sachs and Merrill Lynch, numerous securities firms have set up plans for expansion.
Analysts said that the party has begun for brokerage firms.
``Brokerage stocks are being re-rated,'' Goodmorning Shinhan Securities analyst Park Sun-ho said. ``They are still undervalued given their growth potential, particularly in the investment banking area.''
``We expect the planned capital market consolidation act, pending passage through parliament, will provide a big impetus to brokers' rise as investment banks,'' he added.
He said Daewoo Securities and Samsung Securities are among stocks that will perform strongly.
Park said that the fact that Samsung Securities is a financial affiliate of Samsung Group should boost its growth potential when a retail payment system becomes available at brokerages.
Goodmorning Shinhan raised its target price for Daewoo Securities to 35,000 won from 27,000, adding it is the brokerage house's sector top-pick.
Daewoo is among brokerage houses targeted by other rival securities firms.
Market analysts said that Woori Investment & Securities is one of the potential bidders for Daewoo.
Woori has said it will merge or take over a large brokerage house.
``We need to take over a big brokerage house to grow our equity capital to 5 trillion won by 2010,'' said Park Jong-soo, CEO of Woori Investment & Securities, at a recent press conference.
To gain a competitive edge in the wake of the financial big bang, CEO Kim Sung-tae of Daewoo Securities said, ``We will grow our capital to 5 trillion won and assets to 20 trillion won in three to four years, though not by M&As.''
Seoul Securities said it targets to become one of the top seven brokers in four years by taking over securities firms by 2009. NH Investment & Securities also said it will beef up its status as one of the top five through M&A.
The Financial Supervisory Service is also expected to ease rules restricting mergers among brokerage houses and other securities-related firms.
Shares of securities firms on the local bourse have grown 44 percent since the beginning of the year, making them one of the bullish stocks alongside heavy machinery, steel and logistics.
On Friday, Samsung Securities ended up 5 percent at 75,500 won, while Daewoo Securities rose 1.57 percent to 32,300 won. Woori Investment & Securities climbed 5.87 percent to 32,450 won.
Shares of other securities firms such as Kyobo Securities, Hyundai Securities and SK Securities have also jumped 27 percent, 22 percent and 17 percent respectively, on M&A themes since early this Month.
Compared with the size of its economy ranking 11th in the world, Korea's financial market lags far behind their international rivals in profitability and capitalization.
Last year, fifty-four domestic securities companies' equity capital stood at about 20 trillion won, well below that of Goldman Sachs' 29 trillion won (in 2005) and Merrill Lynch's 35 trillion won.