Strong third quarter brokerage earnings increase relies on investment banking
|Bank of England|
By Anna J. Park
While the major brokerage firms have successfully passed the 1 trillion won ($ 840 billion) mark in cumulative operating profits through the end of the third quarter of this year, the banking sector of investment (IB) turned out to have been the engine of their quarterly profit growth in the third quarter.
Most brokerage firms have seen their brokerage commissions decline as the total amount of stock trades has declined in recent times, compared to the market boom at the start of this year.
For example, NH Investment’s third-quarter brokerage commission profit was 152 billion won, a reduction of 10.58% from the previous quarter. Samsung Securities grossed 204 billion won in the third quarter in brokerage fees, down 7.1% from the second quarter. Mirae Asset Securities and Korea Investment also each reported a 4.1% and 1.4% decline in brokerage commission earnings, respectively, from the second quarter.
However, their performance in the third quarter went well despite the lower brokerage commission, with corporate finance profits making up for the diminished portion of profits.
The investment bank’s NH Investment profit climbed 26.6% from the previous quarter, as their profits in the Equity Market (ECM) as well as the Debt Capital Market (DCM) both increased. Korea Investment renewed its record investment banking profit in the third quarter, in part thanks to its participation as an underwriter for the Kakao Pay IPO. Other brokerage firms have also reaped strong profits for their involvement in the equity or debt markets in the IB sector.
In the first half of this year, Korea Investment recorded its largest 76.82% increase in investment banking profits, compared to last year, followed by 61.8% from Samsung Securities, 31 , 18% of KB Securities, 22.16% of Kiwoon Securities and NH Investment. 19.55 percent.
Despite such performance, the decrease in the number of daily stock trades among retail investors is clouding the future outlook for companies for brokerage commission earnings. Brokerages are expected to further diversify their sources of profit beyond stock trading commissions, especially in the expansion of the ancillary trade and wealth management, as well as the stock and debt market.
Market insiders are now saying that the core business of securities companies will shift more to investment banking instead of brokerage business.
In terms of cumulative operating profits in the third quarter of this year, four major local securities firms – Mirae Asset, NH Investment, Samsung Securities and Korea Investment each recorded more than W1 trillion in operating profits, with Mirae Asset leading the pack.
Mirae Asset Securities recorded cumulative revenue of 10.78 trillion won in the third quarter, with operating income of 1.25 trillion won and net profit of 993 billion won, largely due to the increase in profits of global portfolios. This is an increase of 52.5% over the previous year.
Samsung Securities reported a cumulative operating profit of 1.1 trillion won at the end of the third quarter, a jump of 116.94% from the same period last year. Korea Investment & Securities recorded 1,063 billion won, an increase of 121.1% over last year, followed by 1,600 billion won from NH Investment with an increase rate of 50.6% in a year.
Kiwoom, Daishin, Meritz and KB Securities are all expected to hit the trillion won mark in cumulative operating profits, including fourth quarter performance.