Capital erosion swamps 34 asset management firms, 10 brokerages

A slew of financial investment companies here are suffering from capital erosion as their losses surged on excessive competition and the economic slump caused by the eurozone fiscal crisis.

Forty-one percent of local asset management firms and 16 percent of brokerage houses had impaired capital, according to the Financial Supervisory Service and the Korea Financial Investment Association.

Some of the smaller companies with impaired capital, whose total capital is less than their paid-in capital, are to be put up for sale, with no prospective buyers in sight, they said.

Of the 82 asset management firms in Korea, 34 had impaired capital as of the end of June.

As for Wise Asset Management, which shut down recently, the difference between its paid-in capital and total capital amounted to 77.2 percent of its paid-in capital.

Its peers Hanju (71.8 percent), RG Energy (70.2 percent), Ask Veritas (67.6 percent), Vestas Investment Management (64.1 percent), My Asset (47.8 percent), Black Rock (46.9 percent), GS (44.1 percent), Ascendas (42.7 percent), KERR (41 percent), GG Investment Management (36.2 percent), JP Morgan (16.9 percent) and Deutsche (16.3 percent) also had impaired capital.

HDC (-3.7 percent), LS (-2.3 percent), Golden Bridge (-4.7 percent), Alpha Asset (-7.1 percent) and Hyundai Swiss (-1.4 percent) were yet to see their capital erode, but were getting close.

Mirae Asset Management (-1,361 percent) was the most financially sound.

Of the 62 brokerage houses, 10 including Korea RB (58.8 percent) had impaired capital.

None of the asset managers and brokerages had fully impaired capital.

However, the companies are expected to continue posting losses as they rely heavily on commissions for profits.

The combined net profit of brokerage houses in the three months to June was 216.3 billion won, down 72.7 percent from a year ago, as their commission income plummeted amid a global slowdown.

Twenty-one of the 62 brokerages and 34 of the 82 asset managers were losing money.

Solomon Investment & Securities, which recently changed its name to IM Investment & Securities, is up for sale, and several others are likely to be put on the market, too.

“The financial investment firms’ eroding profitability won’t be temporary,” said Park Shin-ae, a researcher at the Korea Capital Market Institute.

“Since those likely to be put up for sale have not specialized in any specific areas, I don’t know if there will be anyone willing to buy them.”

By Kim So-hyun (sophie@heraldcorp.com)