Increasing Conflicts: Market Concerns Growing over Incomplete Launch of Mega-sized Investment Banks | BusinessKorea

Wednesday, November 22, 2017

Seoul, Korea
13 November 2017 - 12:30pm
Yoon Yung Sil

The mega-sized investment banks (IBs) will be launched in earnest on November 13. The Financial Services Commission (FSC) plans to designate Mirae Asset Daewoo, NH Investment & Securities, KB Securities, Samsung Securities and Korea Investment & Securities as mega IBs at its regular meeting. However, only Korea Investment & Securities received a license for issuing promissory notes and short-term financing, which is the main business of mega IBs. Therefore, there are concerns and complains in the market that it is the incomplete launch of mega IBs as Korea Investment & Securities is actually the only mega IB to be launched. 

According to financial authorities and politicians on November 12, the FSC is planning to grant a license for five mega IBs and short-term financing business only to Korea Investment & Securities at the regular meeting on today (November 13) with FSC Chairman Choi Jong-ku and Financial Supervisory Service (FSS) Governor Choi Heung-sik in attendance. Accordingly, Korea Investment & Securities will dominate the promissory note issuance market in advance unless something major comes up, while the remaining securities firms will provide currency exchange services for enterprises. 

Conflicts between the banking sector and securities industry are on the rise as the Korea Federation of Banks (KFB) urged the government not to allow large brokerages to issue promissory notes on the 9th with the delays of additional reviews on short-term financing business licenses of Mirae Asset Daewoo, NH Investment & Securities and KB Securities. The bill for mega IBs’ extended credit offering, which is still before the National Assembly, will not be able to pass again in November due to opposition of the ruling Democratic Party of Korea. So, there are so many difficult problems to be solved for mega IBs in order to get into their stride.

During a recent press conference, Choi said, “Given the current circumstances, we will thoroughly review on laws and regulations.” He expressed his intention to conduct the principled review regardless of pressure from politicians and the KFB. 

However, it is still unclear when the reviews for Mirae Asset Daewoo, NH Investment & Securities and KB Securities to start short-term financing business will be completed, except for Samsung Securities which failed to meet the eligibility, as its largest shareholder Samsung Life Insurance stood in the way. As the FSS are delaying to take disciplinary action against Mirae Asset Daewoo over the incomplete sale of euro asset investment option products, the reviews on the company’s short-term financing business license is also adversely affected. There are also concerns for NH Investment & Securities over financial soundness because it had a debt guarantee of 3.6 trillion won (US$3.21 billion) as of the end of June. KB Securities had been ordered to suspend business due to cross trading before the merger. The Securities and Futures Commission (SFC) will not approve the proposal to grant a license for short-term financing business to three securities firms on November 14. An official from the FSS said, “At the moment, the proposal will not be able to pass at the SFC.” 

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