[INVESTMENT BANKS] Korean brokerages attempting to bulk up ahead of deregulation

[THE INVESTOR] South Korean securities companies are bracing for major changes in the market following the government’s plans to nurture mega investment banks announced on Aug. 2.

Under the plans, securities companies will be categorized according to the size of their capital, and those in larger categories will be allowed to offer more services, and to use a wider range of financial tools for raising capital.
The categories are those with pain-in capital of less than 4 trillion won (US$3.60 billion), between 4 trillion and 8 trillion won capital, and those with more than 8 trillion won capital. 

Mirae Asset headquarters in Seoul.

With Mirae Asset Daewoo being the only one with paid-in capital anywhere close to 8 trillion won -- 6.7 trillion won -- industry watchers say that smaller firms are likely to opt for takeovers and new stock issuances to bulk up. NH Investment is the only other securities firm with more than 4 trillion won capital.

Of the smaller firms, experts say that Samsung Securities and Korea Investment & Securities are likely to be antsier than the rest. Samsung’s capital stands at 3.4 trillion won, and that of Korea Investment at 3.2 trillion won.

To benefit from the new measures, which will take effect in 2017, the two companies need to bulk up fast. While acquiring sizeable securities firms would be the fastest way, many of the more attractive acquisition targets -- Hyundai Securities and Daewoo Securities -- have already been taken off the market.

Of the midsized firms, the course of action Meritz Securities opts for is drawing the industry’s attention. The company has engaged in an aggressive growth strategy in recent years, increasing its capital from 700 billion won in 2014 to 1.7 trillion won today.

With a number of securities companies seen likely to opt for acquisitions, hopes are rising for HI Investment & Securities. Although Hyundai Heavy Industries hopes to sell off the company, the disparity between its interests and HI Investment’s value has fueled concerns that the sale would be difficult.

The company’s paid-in capital stands at about 700 billion won, sufficient to boost Samsung Securities and Korea Investment over the 4 trillion won cutline.

By Choi He-suk (cheesuk@heraldcorp.com)