Major Securities Firms Expected to Perform Well in Q1... IB Faces Lingering Uncertainty

Consignment Brokerage Fee Revenue Up 24%
Trading Volume Surges 28%... Foreign Net Buying 15 Trillion
IB Sector Varies with Government Will... Variables

With a rare positive turn in the stock market, the first-quarter earnings of major domestic securities firms are expected to be at a decent level. The retail and trading (S&T) divisions, excluding the investment banking (IB) sector burdened with project financing (PF) risks, are anticipated to perform relatively well.

According to financial information provider FnGuide on the 4th, the combined net profit estimate for five KOSPI-listed securities firms (NH Investment & Securities, Korea Financial Group, Mirae Asset Securities, Kiwoom Securities, and Samsung Securities) for the first quarter was 820.4 billion KRW. This marks an improvement compared to the net loss of 254.7 billion KRW recorded in the previous fourth quarter. All five firms except NH Investment & Securities are expected to return to profitability this quarter.

The improvement in securities firms' profitability indicators is closely linked to better performance in the brokerage sector. According to KB Securities, brokerage commission revenues for these five firms are expected to increase by 23.6% compared to the previous quarter. This rise is attributed to a 28.4% increase in average daily trading volume, which boosted commission income accordingly.

Market analysts attribute the stock market boom to government policies aimed at enhancing corporate value and advancing the capital market, which began early this year, as well as expectations surrounding the abolition of the financial investment income tax. In particular, as part of the 'Value-Up Program' benchmarked after Japanese policies, low price-to-book ratio (PBR) stocks are expected to benefit, coinciding with an increase in foreign investors' holdings of domestically listed stocks. In fact, foreign investors' cumulative net purchases of domestic listed stocks in the first quarter surpassed 15 trillion KRW for the first time on a quarterly basis, reaching 15.77 trillion KRW.

Stable performance is also expected in the S&T division. This is attributed to the combined effects of the rising stock market, declining interest rates, and a base effect from the large provisions and impairment losses recorded in the previous quarter. With the U.S. Federal Reserve's (Fed) interest rate stance shifting to a 'cut' this year, bond valuation gains have increased. A senior official from a domestic securities firm stated, "Except for the IB department, other business units are not facing a bad business environment," adding, "In the bond sector, some of the value declines have somewhat recovered."

On the other hand, the IB business division still faces uncertainties related to additional provisions for bridge loans and overseas real estate alternative investments. On the 4th of last month, Lee Bok-hyun, Governor of the Financial Supervisory Service, warned the entire financial industry, including securities firms, stating, "We must swiftly proceed with the cleanup and restructuring of troubled real estate PF projects to induce a virtuous cycle of funds into productive sectors."

Another securities firm official commented, "Most of the IB business units involved are in subordinate positions, and if these projects actually move into the auction or foreclosure market, business losses will be inevitable," adding, "Since this depends on how determined the government is, it is difficult to predict the current IB performance."

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