KB Securities Swings to Loss in Q3; Kiwoom Securities Profit Drops by 60.8 Billion Won
10 Brokerages Fined 1.37 Trillion Won; NH Investment & Securities and Mirae Asset Securities Face Q4 Earnings Pressure
Massive fines resulting from collusion in treasury bond bidding are dealing a direct blow to the earnings of South Korean brokerage firms. Following KB Securities' swing from a third-quarter profit to a loss, Kiwoom Securities also saw its net profit shrink by over 60 billion won. On the 12th, industry analysts warned that NH Investment & Securities and Mirae Asset Securities face mounting pressure on their fourth-quarter results, while Daishin Securities may see its deficit widen.
According to the financial investment industry on the 12th, the Korea Fair Trade Commission (KFTC) decided the previous day to impose a total of 1.6266 trillion won in fines on 10 brokerage firms and 5 banks for colluding on treasury bond bids. Of this total, 1.376 trillion won is levied against the 10 brokerage firms.
KB Securities faces the largest penalty at 332.2 billion won, followed by NH Investment & Securities (242.8 billion won), Mirae Asset Securities (214.8 billion won), Shinhan Securities (147.3 billion won), Daishin Securities (120.1 billion won), and Samsung Securities (118.9 billion won). Kiwoom Securities, Meritz Securities, Korea Investment & Securities, and Kyobo Securities were fined 83.8 billion won, 64.6 billion won, 37.9 billion won, and 13.7 billion won, respectively.
KB Securities revised its third-quarter consolidated net profit from a 273 billion won surplus to a 59.1 billion won net loss to reflect the 332.2 billion won fine. Consequently, its cumulative third-quarter net profit fell from 1.074 trillion won to approximately 741.8 billion won, erasing its milestone of surpassing 1 trillion won in cumulative profit.
Kiwoom Securities also adjusted its third-quarter net profit down by 60.8 billion won, from 238.6 billion won to 177.8 billion won, to account for its 83.8 billion won fine. As the penalty was reflected as a non-operating expense, the firm's operating profit remained unchanged.
Other brokerages are expected to either revise their previously announced third-quarter results or reflect the fines as expenses in the fourth quarter. In particular, NH Investment & Securities and Mirae Asset Securities, both facing fines exceeding 200 billion won, are expected to face significant year-end earnings pressure.
Jang Young-im, an analyst at SK Securities, stated in a report on the 12th, "The financial burden from these fines is expected to be greater for brokerage firms than for financial holding companies, and among brokerages, the impact will be more pronounced for small to mid-sized firms."
The KFTC determined that from January 2020 to June 2023, the sanctioned financial institutions coordinated bid rates and purchase volumes during competitive treasury bond auctions. The commission concluded that these actions restricted competition and increased the government's cost of issuing national debt.
Financial firms are protesting the calculation method used for the fines and are considering administrative litigation, arguing that the penalties are excessive because they were calculated based on purchase amounts rather than actual profits earned from bond trading. Shinhan Securities and Samsung Securities are expected to see their final burdens reduced as they qualify for leniency programs.
Despite the short-term earnings pressure, some analysts suggest that the investment appeal of brokerage stocks remains intact. Yoon Yoo-dong, an analyst at NH Investment & Securities, noted that the sector's price-to-book ratio (PBR) has fallen to around 0.7x, with major high-dividend stocks offering an expected dividend yield of approximately 9%. "As stock prices have already undergone significant corrections due to concerns over industry stagnation, the appeal of being undervalued remains valid even when accounting for these additional costs," Yoon stated.
