By Kang Seung-woo
Big brokerages have started to bulk up in their bid to become a Goldman Sachs-style investment bank (IB). They are striving to raise funds to meet the financial regulator’s requirement of 3 trillion won ($2.58 billion) in equity capital to qualify as “a comprehensive financial investment company.
Daewoo Securities leaped ahead by coming up with a plan for a large-scale capital increase.
Korea’s third-largest brokerage by equity capital, Daewoo announced last month that it will raise its capital by 1.4 trillion won by issuing 136.6 million new common shares aiming to rank as a global investment bank.
Samsung Securities and Woori Investment and Securities, the nation’s Nos. 1 and 2 players by equity capital, followed Daewoo and increased their capital by 400 billion won and 600 billion won apiece.
Not to be left out of the race, Hyundai Securities and Korea Investment and Securities, which round up the top five stock trading companies in the local stock market, are also expected to announce capital increases although they are keeping mum about specific numbers.
Hyundai Securities said it is reviewing on how and when, while Korea Investment and Securities said there is little chance in the short term.
The rush to create capital comes as the Financial Services Commission (FSC) and its Chairman Kim Seok-dong are barreling through a plan to create a globally-competitive IB that could facilitate funding for Korean business projects overseas.
According to the financial regulator’s revised version of the amended capital market law, contingent upon approval by lawmakers, brokerages with equity capital of over 3 trillion won can reclassify themselves as IBs.
As the equity capital at each of the country’s top five brokerages is more than 2 trillion won, more is likely to help all of them surpass the requirement.
At the end of June, Samsung Securities’ equity capital stood at 2.78 trillion won, followed by 2.699 trillion won at Woori, 2.693 trillion won, and 2.56 trillion won at Hyundai.
Unlike large brokerages, however, smaller players only speculate on participating in investment banking because it is not easy to meet the requirement of 3 trillion won in equity capital and it is unclear to see how lucrative the business will be.
Shinhan Investment and Hana Daetoo Securities, both of whom are affiliates of Shinhan Financial and Hana Financial, are cautious, saying the issue is up to their holding companies.
Mirae Asset Securities and Tong Yang Securities, whose equity capital was 1.91 trillion won and 1.24 trillion won recently, respectively, have nearly dropped out of the scheme to set up a global IB.
“It is not easy to meet the 3 trillion won level and it is questionable how much profit we could generate. We have concluded that we will not engage in this business,” a Mirae Asset official was quoted as saying by Yonhap News.