We need a bigger boat to go global

Daewoo Securities CEO stresses urgency to create large-scale IBs

By Kim Jae-kyoung

Globalization is at the heart of the top domestic financial companies’ growth agenda. The rationale and the urgency around it are difficult to argue against.

The domestic demand for financial services is very close to saturation, leaving only a single-digit percent annual growth potential. More importantly, the securities industry is behind in its global presence relative to the national economy’s global status. In other words, they are capturing less than their natural share considering the opportunity potential.

Against this backdrop, CEOs of most local securities companies here are placing a top priority on making forays into overseas markets but only a few of them have a well thought-out strategy and the discipline to implement it. In addition, their global aspiration is not aligned with their firms’ financial capabilities.

In the eyes of Im Kee-young, CEO of Daewoo Securities, growth will have to come from capital market-related activities, such as investment banking (IB) and wealth management, and international business, areas that call for a different culture, talent pool and capabilities, many of which they can acquire through globalization.

Size matters in globalization

In an interview with Business Focus held at his office in Yeouido, Seoul, on June 8, the chief executive of the nation’s largest securities company says that in order for Korea’s financial firms to make progress on the globalization front, they should internationalize three key elements — size (equity capital), talent and culture.

Im, who is considered the nation’s first-generation investment banker, stress the importance of size when competing in the global market, likening the global financial market to the ocean.

“When you sail along the coast, a hundred-ton fishing boat would be enough. But when you set out on ocean navigation, a hundred thousand-ton deep-sea fishing vessel is needed to ride out the wind and waves,” he said.

“I think that the same principle applies to the financial business. To compete with global players, you need a good captain and capable crewmen. But at the same time, you need a vessel large enough to navigate the deep sea,” he added.

Taking into consideration his philosophy about size and recent developments in the financial industry, his comments can be taken as a sign that Im may picture the merger with Woori Investment & Securities, the securities arm of Woori Financial Group, which is now up for sale for privatization.

Currently, KDB (Korea Development Bank) Financial Group, a Daewoo’s parent company led by Chairman Kang Man-soo, is pushing for the takeover of Woori Financia.

“I recently went to the United States to meet with fund managers and institutional investors, and I was surprised that they are very positive about the possible merger between the nation’s two leading securities companies,” Im said.

“They believe that the marriage between the two can create great synergy. They said that there is no overlapping customer base because the origins of the two firms are different — Daewoo Group for Daewoo Securities and LG Securities for Woori.”

The 57-year-old CEO also emphasizes that local financial firms must create an environment in which it can employ the world’s best financial talent and work at the international level. He believes that Korea has yet to build a culture that will accept, attract, and motivate this talent.

“We have recruited global talent and will continue to expand our international workforce. The problem is that the rise in the number of global workforce should grow in line with the growth of overseas business activities. But we are still lacking the scale in that regard,” he said.

Im, however, cautioned that local players should take a step-by-step approach. “I believe Koreans have financial DNA but only a few have been exposed to international businesses. Therefore, at first, it would be better to opt for a branch manager system. Once they fully understand business practices and cultures, then they have to go for M&As there,” he said.

JP Morgan in mind

Im, who serves as head of Global Banking Korea at Deutsche Bank in Seoul from 2004 to 2007, said that he takes JP Morgan as a role model for globalization because the company is one of the few global IBs that have successfully weathered the financial crisis by maintaining a balance between growth and risk management.

“There can be several good models. The reason I picked JP Morgan is that it has both commercial and investment banking functions, known as corporate investment banking (CIB). Since KDB Financial Group is doing commercial activities while serving development functions, JP Morgan can be a good model,” he said.

“Also, it is very good at risk management. What has set JP apart from its peers is it always makes efforts to see market risks even if they have a great system.”

Vision 2015

Under its Vision 2015 roadmap, Daewoo aims to raise its equity capital and assets under management to 5 trillion won and 30 trillion, respectively, by 2015.

In particular, Im has set a goal of increasing the firm’s revenue from global operations to 15 percent for the next five years from the current 5 percent.

First, he plans to focus on making Daewoo become a regional leader by enhancing Asian networks. He plans to expand its Hong Kong subsidiary and to launch a subsidiary in Singapore this year, while seeking to increase presence in China, Vietnam and Indonesia.

In Indonesia, Daewoo purchased a major stake in E-Trading Securities, a local brokerage house, last year, and has turned it into the No. 1 online securities company there by transferring advance technology and know-how.

“Based on success in Indonesia, we plan to make inroads into other emerging markets, such as Vietnam and Malaysia to create another success story. If necessary, we will seek to tap advanced markets, such as Australia, as well as the Middle East market,” he added.