By Kang Seung-woo
Policymakers say it is high time the country has a globally-competitive investment bank that could boost funding for Korean business projects overseas.
But the majority of market observers advise government officials to calm down as it would be a long and painstaking process before the country earns its stripes in investment banking, if ever.
The Financial Services Commission (FSC) Tuesday announced a set of policy suggestions aimed at creating an environment for the dawn of the country’s first investment banks. Its revised version of the amended capital market law, contingent upon approval by lawmakers, enables brokerages with equity capital of over 3 trillion won (about $2.85 billion) to reclassify themselves as investment banks and compete with commercial lenders in corporate financing.
The financial regulator said the first Korean investment banks could make their debut by June next year if lawmakers ok its bill by the end of the year.
Based on the FSC’s criteria, the country’s top five brokerages, Daewoo Securities, Samsung Securities, Hyundai Securities, Woori Securities and Korea Securities, could easily list themselves as investment banks, as their average equity capital currently stands at 2.7 trillion won.
But don’t expect the firms to go toe-to-toe with the global giants at the ring of the bell. Daewoo’s 2.8 trillion won in equity is just one 30th of that of Goldman Sachs.
``It wouldn’t be possible for local players to immediately have equal footing with global giants,’’ said Lee Chan-seon, a senior researcher at the LG Economic Research Institute.
``The more immediate focus for Korean investment banks would be local projects and small and medium-sized companies. It would be impossible to leap past that step and just acquire the bulk and experience to go global straight out the gate. American investment banks clearly have the money and presence to trot all over the world, but it’s hard to imagine Korean firms matching them.
Foreign investment banks have been combining for a firm position in corporate financing here, with their presence particularly dominant in the market for merger and acquisition (M&A). The future Korean investment banks will have to prove that they can hold their own their home turf first before aspiring to big international dreams.
``The size disadvantage is significant. We need more time before seeing a homegrown investment bank that can flex global muscle,’’ said a finance industry source who didn’t want to be named.
``The local financial market has been too small for a sizable investment bank to grow and establish itself. There is a reason that it has yet to happen.’’
And it’s no sure thing that the FSC’s plans will receive the blessing of lawmakers, especially when considering the heightened intensity as polls approach.
``Let’s be clear; all the talk about investment banks becomes garbage the moment the opposition Democratic Party decides to reject it,’’ Lee said.
Last week, FSC Chairman Kim Seok-dong told reporters that a new policy direction on capital market law is essential for the future of the local financial industry, adding that the regulator will strive to ensure that the capital market law will create explosive energy as originally planned.
Agreeing to his remarks, they said that the government has to push ahead with the plan to boost the local financial market.
“The FSC expects to jolt the nation’s non-banking financial markets, which have lagged in comparison to the banking sector. In order to improve the local financial market’s competitiveness, the demand and role of IBs should increase and the FSC has recognized the need,” Lee said.
Another analyst said, “Local brokerage houses have to raise their own equity capital continuously, which will contribute to bringing evolution to the local industry.”
Korea enforced the capital market law in 2009 to help create globally competitive financial giants by abolishing regulatory barriers banning brokerages from pursuing futures trading and other asset management operations. But due to the global financial crisis in 2008, the law is seen to have dire consequences, thus leading to a different version of the revision.