Lagging S. Korean brokers poised for M&A splash

A growing number of money-losing local brokerage houses are poised to merge with bigger rivals or go out of business as underdogs are grappling with low commission fees amid the prolonged slump in the South Korean equity market, according to company officials Friday. 

Calls have grown for active mergers and acquisitions (M&A) to restructure the crowded financial market as the securities firms are competing with similar business models that heavily rely on trading commissions, while the tepid local stock market failed to attract big investment in recent years. 

Out of 62 brokerage houses, nearly 10 have been put up for sale since last year, but only a few deals have been struck. Those who can't find a buyer are looking for ways to shut down their businesses, which would reduce the total number of companies below

60 by year-end and cut more next year, according to industry sources. 

The biggest deal is a merger between Woori Investment & Securities Co. and Nonghyup Investment & Securities Co., which will become the nation's top securities firm with assets totaling 41 trillion won (US$36.8 billion), with its launch slated for Dec. 31. 

In October, Meritz Securities Co. acquired a 52.08 percent stake in I'M Investment & Securities Co. at 171 billion won.

Although Meritz did not announce a plan to absorb the smaller rival, market watchers see a high probability of merging the two entities for efficient management. 

BNG Securities Co., which has been up for sale since last year, failed to sell its stake and is waiting for the financial regulator's approval to go into liquidation. 

The shutdown comes after Apple Investment Securities Co. went bankrupt in March due to operating losses, becoming the nation's first firm opting for a voluntary closure in nine years. 

Hanmag Securities Co. is also on the verge of bankruptcy after a futures trader last year misplaced orders to buy and sell index options, incurring $43.8 million in losses for the company that had only $18.8 million in equity capital. 

The brisk M&A moves illustrate the polarizing equity market in Asia's fourth-largest economy. A handful of large brokers managed to post profits with fund sales and initial public offering deals, while smaller companies failed to turn around their waning business.

The securities industry reported 109.8 billion won of net operating loss during the April-December period last year, industry data showed, going into the red for the first time in 11 years.

Twenty-eight firms reported a deficit due to decreasing brokerage fees from the sluggish local stock market.

In the first half of 2014, 666.8 trillion won worth of stocks were traded, down 12.5 percent year-on-year. Trading hit a high note in the second half of 2011 with 1,142.6 trillion won worth of stocks were traded, and it has since gone downhill. 

According to a recent survey by the state-run Korea Development Institute, 70.6 percent of CEOs at 34 brokerage houses said 20-40 securities firms will remain in business in the next few years, expecting dozens to be absorbed or go bankrupt. (Yonhap)