By Park Hyong-ki
Staff Reporter
Securities companies are seeing their profitability deteriorating amid a prolonged bearish run on the stock market.
As investors are shunning equity investment, securities firms are finding it difficult to make ends meet on brokerage commissions, which account for over half of their profits.
According to the Korea Exchange Sunday, eight brokerage houses posted a combined net profit of 26.9 billion won in July, down 92 percent from the same period a year ago.
What is more troubling is that each of the company's operating profit tumbled more than 90 percent on average.
The eight are Samsung, Woori Investment, Mirae Asset, Daewoo, Daishin, Tong Yang, Hyundai and Kyobo.
Of the companies, Tong Yang posted an operating loss of 9.7 billion won, shifting to the red last month.
Samsung Securities posted an operating profit of 4.1 billion won, down 91 percent from a year ago, and Daishin Securities' operating profit was off 95 percent at 1.8 billion won.
Daewoo Securities was no different, dropping 98 percent to 890 million won.
Woori Investment & Securities recorded an operating profit of 3.5 billion won, down 93 percent.
The exchange attributes the steep fall to declining trading volume on the stock market, which is undermining securities companies' brokerage business, their main cash cow.
The stock trading volume stood at 3.9 trillion won a day on average last month, down from 8.2 trillion won in October 2007.
Also, fierce competition among brokerages to reduce trading commissions hurt their overall profitability.
Hana Daetoo Securities ignited the competition by lowering its brokerage fees to 0.015 percent last May, the lowest level.
This led others to offer low fees on stock brokering both online and offline.
The other negative factor that drove business down was the rise of the interest rate.
Analysts noted that if this trend, coupled with the bearish stock run, continues throughout the year, most securities companies will be in the red by the year's end.
Meanwhile, 54 domestic and foreign brokerage houses posted a combined net profit of 775.7 billion won in the first quarter, down 40 percent from a year earlier.
The drop in earnings put downward pressure on their profitability measured by return on equity, which stood at 10.4 percent, a drop from 22.6 percent last year.