Slew of asset managers, brokerage firms suffer negative net worth

Many asset managers and brokerage houses operating in Korea had negative net worth as the eurozone debt crisis and increased competition ate into their profitability, industry data showed Tuesday.

According to the Financial Supervisory Services, 34 out of 82 asset managers in South Korea had negative net worth as of end-June.

Last week, Wise Asset Management Co. was kicked out of the market as it was saddled with negative net worth following a massive loss of some 90 billion won (US$80 million) from options trades on Nov. 11, 2010.

Negative net worth is a situation in which accumulated losses exceed the shareholder's equity.

According to the financial regulator, around 16 percent, or 10 out of 62 brokerage houses in the country, also had negative net worth as of the end-June.

Market experts said more asset managers and brokerage houses may have negative net worth as they heavily rely on commission incomes.

Securities firms operating in South Korea saw their first-quarter earnings plunge 72.7 percent from a year earlier to 216 billion won largely due to a sharp decline in commission income amid a global slowdown.

The tumble came as the firms suffered a nosedive in their commissions, a main source of their profit, according to the regulator.

Also, assets managers' combined operating profit declined 12 percent on-year to 361.1 billion won in the first quarter as the value of stock funds fell amid the slumping share markets.

"Some of the firms suffering negative net worth may be up for sale soon. It is the best time for the sector to brace for waves of restructuring," said Yon Tae-hoon, a researcher at the Korea Institute of Finance (KIF). (Yonhap)