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| A panoramic view of Korea's financial district on Yeouido in Seoul / gettyimagesbank |
By Lee Min-hyung
A group of securities firms that are eligible to apply for licenses to become super-large investment banks are moving to delay their plans amid unceasing stock manipulation scandals triggered by sales of risky derivatives.
Only five major brokerage houses ― Mirae Asset Securities, Korea Investment & Securities, NH Investment & Securities, KB Securities and Samsung Securities ― have so far won the licenses from financial authorities. Any securities firms with equity capital worth more than 4 trillion won ($3.12 billion) are eligible to apply for the license.
As of the end of March, four other players met the qualification: Meritz Securities, Shinhan Securities, Hana Securities and Kiwoom Securities. But they have all temporarily dropped their plans to win the status amid legal risks regarding their alleged involvement in a nationwide stock manipulation scandal.
Other players are also walking on eggshells around financial authorities. They do not have to be in a rush for the license at a critical time when risks from the nation's real estate project financing market have not been alleviated and the outlook for the overall financial market remains uncertain due to macroeconomic volatility, industry officials said.
Up until early this year, Kiwoom Securities expressed its strong willingness to pursue the license and set up a special team dedicated to handling related legal tasks. But the company was de facto forced to suspend the plan over the alleged connection of a former chief of its mother firm to a nationwide stock manipulation scandal. This incurred 13 trillion won in losses in the combined market capitalization of nine listed stocks in only about three weeks from late April.
The securities firm still faces investigation from the Financial Supervisory Service (FSS) and the prosecution.
"We have not given up the bid for the super-large investment bank license, but cannot proceed with the plan due to the ongoing investigation," a spokesperson of the company said.
Meritz Securities, a rising securities firm after winning the title as the nation's most profitable firm by operating profit last year, also said it does not have any immediate plans to pursue a license, even if it still leaves the possibility open.
Industry officials said few brokerage houses will push ahead with their earlier plan to win the super-large investment bank status this year.
"Financial authorities do not grant the license unless applicants' internal control system remains solid," an industry source said. "But some brokerage houses face multiple legal risks, as was shown with the recent financial fiasco. Others without direct links to the scandal will also hesitate to take the step due to the unfavorable market sentiment."
Securities firms face risks from real estate project financing. According to the FSS, the average delinquency rate of securities firms' real estate project financing reached 10.4 percent as of the end of 2022, up 6.7 percentage points from a year earlier.
Other data from the Bank of Korea also showed that they face growing real estate business risks. According to the central bank, local securities firms' real estate project financing exposure has soared in recent years. The figure came in at 29.2 trillion won as of the end of June 2020, but surged to 49.4 trillion won at the end of June 2022.
Another official from the industry said the market has turned down and shows few signs of a rebound due to the overall economic doldrums.
"The government, for its part, is also focusing on the risk management of the real estate project financing industry," the official said. "But the outlook remains cloudy over the near-term recovery of the market."
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