Brokerages post poor performance in Q3

By Kim Bo-eun

Major brokerages saw their net profits drop significantly in the third quarter, due to poor earnings from trading and sales of derivative options, as well as the falling value of equity-related assets in a bearish stock market, according to analysts, Monday.

Four of the six major brokerages ― NH Investment & Securities, KB Securities, Hana Financial Investment and Shinhan Investment ― suffered earnings setbacks between July and September on a quarter-on-quarter basis. Mirae Asset Daewoo and Samsung Securities have yet to post their earnings.

NH, the second-largest brokerage in terms of equity capital, saw its net profit for the third quarter fall by 25 percent to 80.7 billion won from the previous quarter. This is also a 23 percent drop from the same period a year earlier.

HI Investment & Securities analyst Kang Seung-geon noted NH's performance fell below the market consensus of 95 billion won.

“This was due to a fall in trading as well as the loss in value of equity-related assets amid a sluggish stock market,” Kang stated in his report.

KB Securities also saw its net profit dip 34.03 percent to 61.4 billion won from the previous quarter. This is similar to 60.8 billion won it posted in the third quarter of 2018.

Hana Financial Investment saw its net profit fall 35.05 percent to 58.6 billion won and Shinhan Investment 17.6 percent to 59.3 billion won.

The trade war between the world's two largest economies as well as Korea's trade conflict with Japan are seen to have affected the stock market in July and August.

Data showed brokerages' profits from trading were poor, and profits from equity-linked securities (ELS) and derivative-linked securities (DLS) also fell.

ELS products have their final payouts based on the return of underlying equity that can be a single stock, a basket of stocks or an equity index. DLS options' final payouts are tied to the price of underlying assets or interest rates.

Data from the Korea Securities Deposit shows 17.98 trillion won of ELS options were issued in the third quarter, which is down 35.3 percent from the previous quarter. A total of 6.5 trillion won in DSL options were issued in the same period, also down 24.8 percent from the previous quarter.

This is believed to be due to the decreased sales of ELS options tied to Hong Kong's Hang Seng Index because of the prolonged protests in Hong Kong.

There was also a fall in demand for DLS products after certain options tied to yields of German treasury bonds caused huge losses for investors.