Balanced revenue structure drives Meritz's meteoric rise in securities industry

Meritz Financial Group's headquarters in Seoul / Yonhap

By Lee Min-hyung

Meritz Securities is set to emerge as one of the nation's largest brokerage houses in terms of market capitalization thanks to its balanced revenue structure in investment banking and retail finance.

This poses a threat to rival Mirae Asset Securities, which maintained its long-held position as the most valuable securities firm here. According to data from the Korea Exchange, the market capitalization of Mirae Asset Securities reached 4.38 trillion won ($3.4 billion) as of Monday. In contrast, Meritz Securities' market cap stood at 4.07 trillion won.

Particularly noteworthy is the rapid increase in the valuation of the Meritz affiliate, whose stock price fell to an annual low of 3,345 won on Oct. 11. Its valuation almost doubled in four months, topping the 6,600-won mark on Monday. This pace of stock growth is unmatched in the local securities industry. The stock price of Mirae Asset Securities increased by 16 percent.

Meritz's robust rally is attributable to the firm's solid earnings growth driven by its relatively weak reliance on stock trading commission revenues compared to its main rivals. According to the firm's regulatory filing, Meritz Securities generated 1.09 trillion won in operating profit last year, up 15.1 percent from 2021. This contrasted with earnings at most other large brokerage houses. Most other brokerages here reported double-digit declines in their annual earnings during the same period.

The securities company was able to toughen its risk management capability by diversifying its business portfolios into investment banking, trading and retail business last year when stock market sentiment took an abrupt turn for the worse due to steep interest rate hikes. The firm's investment banking operation accounted for almost half of its revenue, while most other brokerages relied on commission revenue and wealth management.

Other top-tier brokerages ended up reporting earnings shocks in line with the frigid stock market sentiment. But this was not the case for Meritz.

“We achieved robust growth thanks to our strong risk management capabilities even throughout 2022 when uncertainties prevailed in most areas of the industry,” a Meritz Securities official said. “Our stance of enhancing risk management this year remains unchanged. We will keep generating synergy with other affiliates.”

The industry is focusing on whether Meritz will be able to defeat Mirae Asset in terms of market capitalization before the former's planned delisting from the stock market on Apr. 25 after it becomes a wholly-owned subsidiary of Meritz Financial Group.