Securities companies losing money abroad
By Kim Da-ye
Korean brokerages grew overseas last year in quantity but not in quality, the local financial watchdog’s data showed Tuesday.
Securities companies’ overseas branches lost a total of $16.6 million in the first half of 2010 ― down a whopping $39.7 million from $23.1 million in net profit made a year ago, according to the Financial Supervisory Service (FSS).
“As the brokerages expanded branches abroad, they invested and hired more. The loss mainly comes from increases in sales and management costs by 20.2 percentage points or $12.4 million,” the regulator said in a statement.
“Another reason is that the income from trustee fees dropped $3.9 million or 8.6 percent as the volume of consigned stock trading decreased.” Those transactions fell 30 percent to $82.9 billion in the first half of their 2010 fiscal year from April through September from $118.3 billion a year earlier.
As of September 2010, 19 Korean securities companies operated 83 overseas branches with 77 percent or 64 of them located in the Asia.
China hosted the most at 16, followed by 15 in Hong Kong, 11 each in Vietnam and the United States, 10 in Japan, and the remainder spread between Europe, Southeast Asia and Kazakhstan. The overall total is an increase from 33 in 2005, 38 in 2006, 50 in 2007, 69 in 2008 and 80 in 2009.
Woori Investment & Securities expanded most aggressively with 11 branches scattered across New York, London, Hong Kong and the capitals of emerging Asian economies. Hyundai Securities followed with seven branches while other major brokerages including Korea Investment & Securities, Daewoo Securities and Mirae Asset Securities have six.
More branches meant more assets. Assets belonging to the overseas branches ballooned 16.8 percent to $1.25 billion. Equity capital also grew three percent to $949 million.
“It’s positive that securities firms are trying to enter overseas markets in order to improve competitiveness and lay the foundations for a global network. But for a viable overseas business to emerge, the brokerages should make efforts to secure stable sources of income and enhance their capability to manage risks,” the FSS said in a statement.
In comparison with brokerages, banks that have expanded abroad saw relatively steady earnings at their overseas branches.
Between January and June, 2010, overseas branches of domestic banks made $211.8 million in profit ― down 6.5 percent from $226.4 million a year ago.
As of June 2010, 11 domestic banks were operating 127 overseas branches in 32 countries. The value of their assets reached $94.4 billion ― up $4.4 billion from a year ago.