Korean brokerage firms face growing wave of layoffs

South Korea's securities industry faces an unabated wave of layoffs this year as brokerages strive to bolster their bottom lines and cut costs amid a bearish stock market and growing online stock trading, experts said Wednesday.

Over the past several years, local securities companies have been trimming their workforces and downsizing operations as investors increasingly turn to online trading platforms in line with the rapid development of information technology.

This year will be no exception as securities companies, stung by falling earnings due to the sluggish stock market, are expected to ramp up their restructuring efforts, according to the experts.

Data by the Korea Financial Investment Association shows the number of employees at the country's brokerage houses standing at 36,096 as of end-September last year, down by 483 from the end of 2014.

The workforce had grown since the early 2000s to peak at 44,055 employees in 2011, but the number fell into a downward spiral, dropping to 42,802 in 2012, 40,245 in 2013 and 36,561 in 2014.

The number of local securities firms' branch offices also tumbled 34.4 percent over the cited period to 1,217 as they strive to downsize operations amid a surge in online stock trading.

"As the economy remains in the doldrums and the stock market has been bearish, financial firms have been keen on downsizing as part of cost-cutting efforts," said Hwang Se-woon, an official at the Korea Capital Market Institute.

Among major brokerage firms, Hanwha Investment & Securities Co. laid off 647 workers, or 39 percent, over the past two years following its 2010 purchase of Prudential Investment & Securities Co. and Prudential Asset Management Co. Yuanta Securities Korea Co. dismissed 886 workers, or 34.5 percent of the total, over the past two years after Taiwan's top brokerage house took over troubled Tongyang Securities Inc. in 2014. Samsung Securities Co. also laid off 599 employees, or 21.3 percent of the total workforce.

Market watchers expect more job cuts in the brokerage industry this year, given planned mergers and acquisitions among securities companies as well as falling profits and the change in stock trading methods.

Late last year, Mirae Asset Group, one of South Korea's leading asset managers, was picked as the preferred bidder to take over the country's second-largest brokerage house Daewoo Securities Co., with the final deal set to be sealed in the first half of this year.

Days after the selection, Mirae Asset Chairman Park Hyeon-joo ruled out the possibility of "artificial" job cuts, but industry watchers speculated layoffs may be in the cards in light of past cases.

Cape Investment Co. also acquired LIG Investment Securities Co. at the end of last year, and several other brokerage firms are expected to be up for sale this year.

"Securities companies fared ill last year, and things appear to be bleak this year in the face of a U.S. rate increase and China's economic slowdown," Hwang said.

At the root of the layoff wave are dwindling earnings and growing online stock trading.  

In the third quarter of 2015, the combined net profit of 56 brokerage houses came to 747.2 billion won ($652.2 million), a whopping 38.7 percent drop from three months earlier, due to huge losses from derivatives amid a bearish stock market. 

Technology innovations and the subsequent changes in customer investment practices have also led to a cut in the workforce and branch offices, according to analysts. 

"A growing number of customers have turned to online, mobile platforms for financial transactions, and such a trend has accelerated as fintech (financial technology) has grown really fast," KOFIA chief Hwang Young-ki said. "Changing circumstances then force financial firms to stop and think again of their cost structure."

Last year, stock transactions via mobile gadgets grew sharply here as more retail investors opted to use smartphones and tablets for trading, according to the Korea Exchange.

Trading through mobile devices accounted for 25.06 percent of the total in the tech-laden KOSDAQ market as of end-October, up from 21.27 percent a year earlier. The ratio has been on a steady rise over the past five years from 3.8 percent in 2010 to 14.03 percent in 2012 and 17.52 percent in 2013.

In the wake of the global financial crisis in the late 2000s, the shift in customers' needs in financial services has also led to changes in the manpower structure of the industry, analysts pointed out.

"More people have turned their eyes to how to safely manage their assets and, in fact, the number of employees at this field has risen over the past five years, and the tendency will continue in this fast-aging society," KOFIA researcher Lee Hyung-kee said. (Yonhap)