New Broker Shuffle Underway

The 1997-1998 economic crisis transformed Korea's brokerage landscape, Five brokerage houses, including Coryo, Dongsuh and Dongbang Peregrine, were forced out of business and many others were sold.

Now again, many local securities companies are striving to merge or attract foreign capital. Last week, Lee Keun-young, head of the Financial Supervisory Commission, said that Korea needs some "leading securities companies," Since then, many local brokerages have unveiled their plans.

Daewoo Securities Co., Korea's third-largest stockbroker, announced Friday that it will seek capital from overseas investors and change its name. The brokerage was taken over by the Korea Development Bank last year after its parent conglomerate, the Daewoo Group, collapsed in mid-1999.

Hyundai Investment Trust and Securities Co. set its hopes of survival on the proposed equity investment by a U.S. consortium led by the America International Group.

Regent Securities Co. and Ileun Securities Co. will likely be sold off if their largest stockholder, Korea Online, decides to pull out of the businesses in the wake of a loan scandal.

Industry experts say that the two companies will not be able to fend for themselves.

"There are about 60 brokerage firms in Korea, including foreign operations, and it's hard for all of them to survive independently," said Roh Hee-jin, a researcher at the Korea Securities Research Institute.

He projected that the local brokerage industry will be rearranged in two to three years. It will be led by three to four large domestic firms and a similar number of foreign brokerages such as Merrill Lynch and AIG, he forecast. It will also consist of three to four medium-sized foreign stockbrokers, around 10 mid-sized Korean companies and a couple of online brokerage companies.

Securities firms set up by commercial banks have also began to woo foreign investments. Shinhan and Hana are seeking independent survival, as their parent banks are moving to change into bank holding companies.

Hanvit Securities, a subsidiary of Hanvit Bank, plans to merge with Hanaro Investment Bank and seek foreign investment before being integrated into a government-led holding company.

Tong Yang, Kyobo and Sejong securities companies and Mirae Asset have also jumped on the foreign-capital bandwagon. Their first goal is to boost their competitiveness with the help of foreign capital while maintaining management control. But some say that they are willing to share or even hand over the reins.

Some local securities firms may be sold to foreign-owned brokerage houses. Seoul Securities, KGI Securities and Meritz Securities, each held by George Soros' Quantum Fund and the Koo Group of Taiwan, are looking at two to three takeover candidates. "Price and synergy effects are the main factors for an acquisition," said Michael Chang, KGI's president. Meritz, of which Prudential, a U.S. insurer, is the largest shareholder, is also making similar moves.

"Recently, Singaporean and Taiwanese investors as well as U.S. and European capitalists are interested in taking over domestic securities companies," an industry expert said.

by Huh Eui-do / Kim Hyun-chul