Daewoo, Woori and Samsung jump on the IB bandwagon; Hyundai, Korea weigh options


Since the Korean financial regulator set the standard for designating homegrown investment banks, local brokerages are racing to increase their paid-in capital to qualify for the potentially lucrative business.

The Financial Supervisory Commission revealed in July that brokerages with equity capital exceeding 3 trillion won would be allowed to engage in prime broker business, a job reserved for investment banks.

The first to move was Daewoo Securities, which announced last month it would increase its paid-in capital by 1.12 trillion won. Daewoo’s equity capital currently stands at 2.69 trillion won.

This month, Woori Investment & Securities said it would increase its paid-in capital by 600 billion won. On Monday, Samsung Securities followed suit by revealing an increase of 400 billion won. Both Woori and Samsung hold paid-in capital of around 2.7 trillion won.

In addition to the Big Three, other heavyweight brokerages ― Hyundai Securities and Korea Investment & Securities ― are expected to jump on the investment bank bandwagon, though their officials are reluctant to reveal their strategies. 

“We are considering the timing and method of capital increase, but nothing has been decided yet,” said an official at Hyundai Securities.

Korea Investment & Securities also said it is considering different options, but hasn’t made any decision on the prime broker business, downplaying the possibility that it would announce a capital increase in the coming weeks.

Given that Hyundai Securities and Korea Investment & Securities have sizable equity capital already ― 2.6 trillion won and 2.3 trillion won, respectively ― market observers say it’s just a matter of time before the two opt to bump up their capital.

But the road ahead for the two might be rocky, largely because current capital market conditions are skittish at best, due to protracted turmoil stemming from debt woes in the eurozone and the slowing U.S. economy.

Injecting more money into their equity capital or growing through mergers and acquisitions are options, but whether the investment banking business might actually turn as big a profit as expected remains uncertain.

Daishin Securities, one of the leading brokerages, does not show any intention yet to step into the IB sector, and Mirae Asset Securities and other smaller players are known to have already scrapped plans to start IB business.

If top brokerages such as Daewoo, Samsung and Woori grab licenses to engage in IB business as expected, the local brokerage market is likely to witness a major shakeup, with smaller players forced to develop their specialty business to stay afloat.

There has been a consensus on the need for Korea to foster competent investment banks, which are deemed necessary to help companies, especially small- and medium-sized enterprises and venture firms, tap capital markets more easily.

By Yang Sung-jin (insight@heraldcorp.com)