The largest issuer and distributor in South Korea accumulated KRW253.4 billion (US$2.3 billion) from OTC derivatives in 2020 on the back of its activity in the second half of the year, up 73% from 2019.
OTC derivatives, which consist of equity-linked securities (ELS) and derivative-linked securities (DLS), derived revenues of KRW52 billion, KRW26 billion, KRW102 billion and KRW73.3 billion throughout the four quarters in 2020, respectively. Together they represented 74.2% of the firm’s financial products sales.
In terms of assets under management, OTC derivatives rose to KRW3.5 trillion in Q4 20 from KRW3.4 trillion quarter on quarter (QoQ), or from KRW3.3 trillion a year ago.
In the meantime, trading and interest income has dropped by 50% to KRW244.7 billion in 2020 as ‘hedging costs for ELS products increased in Q1 20’. That accounted for 17.3% of the full-year net revenues at Samsung Securities, which increased by 24.4% to KRW1.4 trillion YoY led by brokerage (KRW685.3 trillion) and financial product sales (KRW340.9 trillion).
For high-net-worth-individuals, ELS remained the least favoured among other financial products such as fund and fixed income products. The balance of ELS products slightly decreased in Q4 20 QoQ, although the total balance of financial products for this client group increased to KRW23.3 trillion from KRW20.9 trillion.
On a consolidated basis, net profit at the subsidiary of Samsung Group, led by CEO Seok Hoon Chang (pictured), fell by 45.8% to KRW126.7 billion in Q4 QoQ, driving the full-year net profit to KRW507.6 billion, up 29.5% YoY.
Samsung Securities kept its crown as the most active issuer and distributor of structured products (namely ‘OTC derivatives’ in its financial report) in South Korea in 2020, although the issuance dipped to 2,661 from 3,885 in 2019 amid the overall scale-down in the country following the mis-selling crisis that occurred in August 2019, SRP data shows.
There were 2,177 products wrapped as ELS, of which equity-linked bonds (ELB) made up 331 while the remaining (484 products) as DLS, which included 80 derivatives-linked bonds (DLB), according to SRP data. Unlike other ELS and other DLS, ELB and DLB are principal-protected.
The balance of other DLS in South Korea has plunged to KRW12.7 trillion as at the end of June 2020 from its record high of KRW18.4 trillion a year prior as a result of the mis-selling of fund-linked products, which put two large banks, three securities houses and five asset managers under investigation.
SRP data shows that UBS and Société Générale acted as hedge providers for 21 and 12 products, respectively, for the products launched by Samsung Securities in 2020.
Indices remained the most popular underlyings including the S&P 500 (1,339 products), Eurostoxx 50 (1,005 products), Hang Seng China Enterprises Index (879 products), Nikkei 225 (692 products) and Kospi 200 (677 products).
Equity underlyings were the second favoured asset on Samsung’s offering including Korea Electric Power (177), Samsung Electronics (129), Hyundai Motor (128), CSI 300 Index (89), K-Water (66), SK Holdings (53), Amorepacific (43), USD/KRW (42), WTI Crude Oil (37) and SK Hynix (34).
