'Crisis at Securities Firms: Earnings Drought and Restructuring Wave Amid Financial Hardship'

[Asia Economy Reporter Lee Seon-ae] As the funding market tightens and securities firms' cash flow dries up, their earnings have sharply declined, heightening the sense of crisis. Last year, five securities firms joined the '1 trillion won club,' but this year, there is a possibility that none will make it. Restructuring has already begun, especially among small and medium-sized securities firms facing liquidity shortages.

◆Sharp Increase in Electronic Short-Term Bond Issuance and Record High Issuance-Type CMA

According to the financial investment industry on the 18th, securities firms are desperately trying to escape the liquidity crisis by continuously increasing the issuance of commercial paper (CP) and electronic short-term bonds (Jeondanchae) to resolve funding difficulties. CP is a promissory note issued for fundraising purposes, issued by creditworthy companies when borrowing money short-term. Jeondanchae is a financial product that electronically issues and circulates short-term funds with maturities under one year and is one of the financing methods used by securities firms.

Ebest Investment & Securities issued 40 billion won worth of 3-month maturity A2+ rated electronic short-term bonds (STB) at an annual interest rate of 6.3% on the 7th. On the same day, IBK Investment & Securities also issued 3-month maturity A1 rated Jeondanchae at 5.95% per annum. Large securities firms are also struggling to raise funds. On the same day, Hana Securities succeeded in issuing 20 billion won worth of A1 rated 3-month Jeondanchae only after offering an interest rate of 5.8% per annum.

The issuance amount of Jeondanchae in the securities industry is rapidly increasing. Meritz Securities expanded from 100 billion won in September to 590.4 billion won, and ShinYoung Securities grew from 160 billion won in September to 440 billion won. Daishin Securities did not issue Jeondanchae in September but issued 90 billion won last month. Kyobo Securities' Jeondanchae issuance last month was 1.665 trillion won, more than eight times the previous month (190 billion won). The issuance limits for CP and Jeondanchae are also increasing. IBK Investment & Securities increased by 500 billion won, BNK Investment & Securities by 80 billion won, and Hyundai Motor Securities by 300 billion won.

The balance of issuance-type comprehensive asset management accounts (CMA), a short-term financial product issued within one year based on the securities firms' own credit to raise funds, is also rapidly increasing. The balance, which reached 7.4646 trillion won at the end of last year, rose by more than 70% to 12.7183 trillion won last month, setting a record high. On the 16th, it further increased to 12.7193 trillion won, breaking the record again. Only ultra-large securities firms with equity capital exceeding 4 trillion won (Mirae Asset Securities, Korea Investment & Securities, NH Investment & Securities, KB Securities) can issue issuance-type promissory notes. This implies that even ultra-large securities firms are not in an easy situation.

◆The Disappeared 1 Trillion Won Club

Amid funding difficulties, earnings are on a downward path. The five securities firms that exceeded 1 trillion won in operating profit last year?Mirae Asset Securities, NH Investment & Securities, Korea Financial Group (Korea Investment & Securities), Samsung Securities, and Kiwoom Securities?are expected not to surpass 1 trillion won in operating profit this year. Among major securities firms including third-quarter results, Meritz Securities leads with a cumulative operating profit of 823.5 billion won, followed by Mirae Asset Securities (755.8 billion won), Samsung Securities (551.1 billion won), Korea Financial Group (Korea Investment & Securities, 505 billion won), Kiwoom Securities (519.7 billion won), and NH Investment & Securities (384.5 billion won).

Korea Financial Group, which ranked first in operating profit last year, is expected to fall to third place this year with 881.5 billion won. NH Investment & Securities, which posted 1.2939 trillion won in operating profit last year, is expected to achieve only about 516.2 billion won this year. Samsung Securities (1.3087 trillion won → 703.8 billion won) and Kiwoom Securities (1.2089 trillion won → 676.1 billion won) are also expected to see significant declines in operating profit.

Mirae Asset Securities' annual operating profit is close to the '1 trillion won club' at around 900 billion won, but considering the worse outlook for the fourth quarter, it seems difficult. The market forecast for the fourth quarter is only 199.6 billion won. Meritz Securities is the only firm expected to achieve an operating profit of 1.0204 trillion won this year. If it records 197 billion won in operating profit in the fourth quarter as forecasted, Meritz Securities will surpass 1 trillion won in annual operating profit for the first time since its founding, but the fourth quarter market conditions are expected to worsen, so this is not guaranteed.

◆Restructuring Already Underway

As expectations grow that restructuring in the securities industry will intensify, the atmosphere is tense. Among small and medium-sized securities firms, many employees above the deputy level are on specialized contract positions. It is understood that personnel restructuring is being carried out by not renewing contracts due to deteriorating earnings and tightening funding markets.

Cape Investment & Securities announced on the 1st through an internal notice that it decided to close its corporate and research organizations and will complete the process by the end of the year. Ebest Investment & Securities is reviewing downsizing in the corporate finance (IB) division, which recently conducted project financing (PF) business, and Daol Investment & Securities reportedly did not renew contracts for six members of its bond structuring team after their contracts expired.

Meanwhile, to resolve the liquidity crisis of small and medium-sized securities firms, many securities firms have applied to purchase project financing (PF) asset-backed commercial paper (ABCP) through the launched 'Second Bond Market Stabilization Fund.' The eligible small and medium-sized securities firms are SK Securities, Daol Investment & Securities, Ebest Investment & Securities, Eugene Investment & Securities, Hanyang Securities, Buguk Securities, and Cape Investment & Securities?seven firms in total. The first disbursement will begin next week, and the support limit per applicant is reported to be 200 billion won.

This content was produced with the assistance of AI translation services.