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5 brokerages get licenses to grow into ‘mega’ IBs

Nov 14,2017
Five brokerage firms in Korea were given a green light by the local financial authorities to operate as investment banks. Of the five, Korea Investment and Securities was the only firm permitted to issue short-term financing, a key part of the investment banking business.

On Monday, the Financial Services Commission (FSC), Korea’s top financial regulator, gave investment banking licenses to five leading securities firms: Korea Investment and Securities, NH Investment and Securities, Mirae Asset Daewoo, KB Securities and Samsung Securities.

The FSC said in August 2016 it wanted to turn local brokerages into so-called “mega-sized” investment banks. The government said it will allow securities firms with more than 4 trillion won ($3.57 billion) in equity capital to issue promissory notes, a debt instrument with less than one year maturity, with total values of up to twice their capital. The main focus of the plan was to allow companies to obtain corporate financing from an institution other than a bank. Brokerage firms with more than 8 trillion won in capital can handle investment management accounts, which deals with different financial instruments including bonds and promissory notes.

While Korea Investment and Securities, which ranks third in capital, was authorized to provide commercial bonds, other companies have yet to pass screening by the Financial Supervisory Service (FSS), Korea’s financial watchdog.

“Korea Investment and Securities was the first to obtain a license to do short-term financing because the screening of the company by the FSS was completed [before others],” said Park Min-woo, a director of the capital market division of the FSC. “As soon as the screenings of other companies are completed, the FSC will follow necessary steps [to authorize them to issue notes].”

The screening of Samsung Securities, which ranks fourth in equity capital, is currently on hold.

The FSS suspended the screening after Lee Jae-yong, the vice chairman of Samsung Electronics and de facto CEO of the Samsung Group, went to trial in the bribery case that brought down former President Park Geun-hye. Lee owns 0.06 percent share of Samsung Life Insurance, the biggest shareholder of Samsung Securities. Lee was sentenced to five years in jail and is currently in the process of appeal.

Although they are unable to issue notes now, the four brokerages will still be able to provide currency exchange services to companies.

Last week, the Korean Federation of Banks, which represents local commercial banks, said the upgrading of brokerages would “lead to an uneven playing field among industries and lack of regulation.”

The FSC, however, said the decision will diversify means of financing for local companies.

“If the banking sector comes up with measures that could stimulate competition and growth in corporate financing, [the FSC] will also consider them carefully as it did [for brokerage firms],” said Choi Jong-ku, the chairman of the FSC, in a statement.

Regarding concerns that the brokerages may lend money for purposes other than corporate financing such as real estate investment, Park said the FSC has made it mandatory for the companies to put aside at least 50 percent of the funds for corporate financing.

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]