Bank shares benefit from Dodd-Frank moves

Financial shares on Monday rose after U.S. President Donald Trump took his first step to roll back financial regulations set in the aftermath of the 2008 global crisis under Barack Obama’s administration.

Bank shares on average rose a half-percent as they hit the highest mark in 52 weeks. Hana Financial Group shares rose 1.11 percent to close at 36,400 won ($31.99) while KB Financial Group saw its shares add 0.74 percent to end 47,900 won. Woori Bank climbed 0.38 percent to close at 13,250 won.

Brokerage firms’ shares saw a sharper increase at an average 3.74 percent. Kiwoom Securities shares rose 6.12 percent while Mirae Asset Daewoo, the country’s largest brokerage house, climbed 5.85 percent and NH Investment & Securities went up 3.98 percent.

SK Securities’ shares went up to 6.22 percent, adding to favorable news that the company’s largest stakeholder SK Group is in the process of selling its shares in the brokerage firm. In fact during the day it hit its highest mark in 52 weeks.

Credit card shares were up 2.97 percent on average while life insurers’ shares increased 0.89 percent.

Financial shares rose after Trump on Friday signed an executive order to review financial regulations. On Monday, Trump reportedly told small-business owners he intended to change the Dodd-Frank Act, calling it “a disaster” that crippled the U.S. economy.

The basic framework of the Dodd-Frank Act, which went into effect in July 2010, enhances monitoring and regulates the risky assets of financial companies to prevent another financial crisis like the one in 2008.

“The revision of the Dodd-Frank Act was a surprise move as it wasn’t one of the six major national issues that he announced in achieving in the first 100 days in office since he was elected president,” said Ahn Hyun-guk, a Shinhan Investment Corp. researcher.

Ahn said Trump’s move to roll back the regulation will have a positive impact on shares as financial companies’ profits will be expected to improve.

Since the financial regulation was set by the Obama administration, financial companies’ profitability has remained low, as the average return-on-equity ratio of the financial sector on the Standard & Poor’s 500 has been around 8 percent, nearly half of the average 14.6 percent enjoyed in the last three years leading up to the financial crisis, according to Shinhan Investment Corp.

“There could be an increase in expectation over financial companies’ [more active] sales and profitability once the Dodd-Frank Act regulation is eased,” said Ahn. “If so we expect the ROE in the next 12 months to be raised up to 9.1 percent.”

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]