Investment banking becomes primary profit source for brokerages

For South Korea’s largest brokerages, investment banking has replaced traditional income sources such as stock trading and wealth management as the No. 1 profit maker this year, data showed Monday.

Local brokerages are bolstering their investment banking divisions and looking to this business area as a steady income source due to the sluggish stock market.

According to regulatory filings compiled by the Financial Supervisory Service, Mirae Asset Daewoo’s investment banking unit posted a third-quarter operating profit of 249.8 billion won ($214.6 million) on a consolidated basis, which accounted for nearly 41 percent of its entire operating income of 575.3 billion won. The stock trading business division of the nation’s largest brokerage by market cap, meanwhile, posted an operating profit of 237.3 billion won in the cited period. 

The third-quarter operating profit on a consolidated basis is equal to the operating income accumulated throughout the January-September period.

KB Securities’ operating profit from investment banking accounted for 41 percent of the pie with 120.4 billion won, in the same period. Out of the total operating profit of 293.9 billion won, stock trading accounted for slightly less at 95.2 billion won and wealth management even less at 7 billion won.

NH Investment & Securities’ operating profit from investment banking in the nine-month period also accounted for nearly 41 percent at 209.9 billion won. Its stock trading generated an operating income of 210.2 billion won, while its total operating profit came to 507 billion won in the same period.

Meanwhile, Korea Investment & Securities and Samsung Securities’ operating profit from investment banking accounted for less than 18 percent of the total. This indicates that some stock brokerages continue to place more weight on their traditional business areas.

But overall, the figures reflect consistent growth of the local investment banking business in recent years. Operating profit from investment banking accounted for an average of about 10 percent of the total in 2014.

Local brokerages are diversifying their investment banking portfolios as well, with real estate project financing and overseas social overhead capital quickly rising as new trends, while the mergers and acquisitions business remains strong.

“While the brokerages’ loan guarantee-to-equity ratios have been increasing, its asset qualities have been improving with expansion of investments in large real estate projects,” NH Investment analyst Jung Jun-sup said.

“This is a result of improvement in Korean investment banking businesses’ capacity,” he added.

By Jung Min-kyung (mkjung@heraldcorp.com)