South Korean securities firms posted record earnings in the first quarter of this year on the back of the global stock market rally that improved the trading environment.
Samsung Securities' net profit came in at KRW117.2 billion (US$98m), up 215% from a quarter earlier but down 12% from the same period a year ago. It was still an earnings surprise – 18% above the market consensus.
Structured product sales revenue in the first three months of this year also rose 59% from Q4 2018 to KRW39.2 billion. The increased early redemption volumes of equity-linked products drove the rise. Sales revenue from selling ELS products was up 260% in the first quarter compared to the previous one.
Samsung Securities’ sales volume of structured products rose to KRW3.9 trillion from KRW1.9 trillion posted in the fourth quarter last year.
The bank attributed the quarterly rise to the improvement in its trading business regarding equity-linked securities thanks to the drop in interest rates and the weak Korean won trend. Samsung also cited improvements in bond trading business which altogether boosted the operating revenue of its trading business by 262% from Q4 last year to KRW109.6 billion. From a year earlier, it was up 85%.
Samsung is one of the largest local issuers of structured products in South Korea which also actively manages its own trading books to hedge risks stemming from dealing such products. Its outstanding volume for structured products stands at KRW10.7 trillion, as of May 15, according to Korea Securities Depository (KSD).
Korea Investment & Securities reached a record net profit of KRW218.6 billion, up almost 45% from the same period a year ago. It is the first time the company reports a net profit of over the KRW200 billion mark. The operating revenue of its trading business also rose nearly 50% to KRW281.7 billion, also on the back of the stock market rally that improved conditions to manage trading books related to equity-linked securities. The bank’s outstanding volume for structured products stands at KRW12.2 trillion, as of May 15, according to KSD.
Korea Investment & Securities distributed roughly 3,400 live products, which raised a sales volume of around US$15 billion in South Korea, according to SRP data.
Mirae Asset Daewoo posted a net profit of KRW168.2 billion in the first quarter this year, up over 500% from the last quarter in 2018. From a year earlier though, the net profit dropped 16%. Its revenue also rose nearly 35% on-quarter and 38% from the previous year to around KRW4.7 trillion.
The securities firm has marketed more than 3,200 live products that raised a sales volume of US$17.1 billion, according to SRP data. The outstanding volume for structured products came in at almost KRW16 trillion, as of May 15, according to KSD.
Mirae uses the so-called back-to-back business model for around half of the structured products it offers. This means it hedges out most of the market risks of 50% of the products it sold via global investment banks. The bank, however, reshuffled its organisation to strengthen its trading business late last year. As part of the plan, Mirae was on a hiring spree, poaching some of the highest-paid bankers from its competitors.
As part of the headcount exercise, Seongrak Kim moved from Korea Investment & Securities to head Mirae’s trading business, along with Yeonchoo Kim who took the role as head of equity derivatives. They are both considered to have led the growth of Korea Investment & Securities in the equity-linked warrants market in Korea.
* The earnings figures are based on the data provided on DART, an electronic corporate filings platform run by Korea’s Financial Supervisory Service.