Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
Local securities firms' reliance on investment banking profit falls to 6-year low
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By Anna J. Park
By Anna J. Park
As domestic securities companies' commission revenues from the investment banking sector have continued to drop, the proportion of commission profit from investment banks in the total earnings of local securities firms has fallen to its lowest level in the past six years. In terms of an absolute amount, the commission profit from the investment banking sector has also declined half year-on-year.
According to data compiled by the Financial Supervisory Service (FSS) on Thursday, the total amount of net profit posted by local securities companies stood at 3.89 trillion won ($3.03 billion) in the first quarter of this year.
While it is a whopping 89 percent jump from the same period last year, the increase is due mostly to an unusual one-off revenue at some firms. When the influence from this one-time revenue is not factored in, local brokerage firms' quarterly net profit in the first quarter stood at 2.23 trillion won, an 8 percent increase year-on-year.
Despite the slight increase, what is worrisome is that the firms' aggregate profits from commission business fell by 30 percent, compared to the same quarter last year. Out of various sorts of commissions received by brokerage firms, the largest decrease in commission revenue was from the investment banking sector.
Local securities firms' investment banking operations posted an aggregated revenue of 758.6 billion won in the first quarter this year, a 51.7 percent plunge from the same quarter last year. As a result, the proportion of investment banking commission revenue in the securities firms' entire commission business also fell to 27.3 percent, which is the lowest level in six years. The proportion once surpassed 42 percent in the second quarter of 2022.
The sharp decline of the investment banking commission revenue began in the fourth quarter of last year, amid increased risks in real estate project financing due to asset price plunges. Sluggish performance in initial public offerings and M&A deals also led to plummeting investment banking commission revenue.
Market insiders point out that local brokerage firms are not likely to post major increases from their investment banking sector commissions in the coming few years, given that regulations for real estate project financing are being tightened by financial authorities to maintain the financial soundness of the industry. The local securities firms' investment banking sector has grown rapidly over the past decade, relying on growth of the real estate project financing market; some smaller securities companies had over 90 percent of their investment banking commission business based in real estate project financing deals.