A Bear Market and Hefty Fines... Brokerages' Gloomy Third-Quarter Results [Weekend Money]

Brokerages' Third-Quarter Earnings Weaken in Bear Market
FTC's Trillions-of-Won Fine over Collusion Allegations Adds to the Burden

Brokerages' third-quarter earnings fell short of expectations as the domestic stock market turned sharply lower in the second half of the year and the Fair Trade Commission (FTC) imposed hefty fines over alleged collusion in government bond bidding.

Brokerages' Third-Quarter Earnings Weaken in Bear Market

According to the financial investment industry, Mirae Asset Securities posted a net loss of KRW 405.6 billion in the third quarter, swinging to a loss from a profit a year earlier. Earnings declined as the market downturn reduced stock trading value and valuation losses on investment assets, including SpaceX, were reflected in its results. The company had posted nearly KRW 3 trillion in net profit in the first half of this year alone, but the trend reversed in the third quarter.

Korea Investment & Securities, which announced its results earlier, reported third-quarter net profit of KRW 281.8 billion, down 70.23% from the previous quarter. NH Investment & Securities' third-quarter net profit also fell 21.62% quarter on quarter to KRW 383.6 billion. Daishin Securities swung to a net loss of KRW 13.7 billion in the third quarter.

The sharp decline in brokerages' earnings is attributed to a steep drop in trading value as the domestic stock market weakened in the third quarter. Average daily trading value on the domestic stock market was KRW 34.6957 trillion in the third quarter, down 38.0% from the second quarter. Investor deposits, which represent funds awaiting investment in the stock market, also plunged to the KRW 85 trillion range as of November 11, hitting their lowest level of the year.

FTC Imposes Trillions of Won in Fines over Alleged Government Bond Bid Rigging

The hefty fines related to the FTC's investigation into alleged collusion in government bond bidding are also a major burden. On November 11, the FTC fined 15 primary dealers (PDs) in government bonds KRW 1.6265 trillion, the largest fine ever imposed in a single case. The commission said the firms colluded while participating in competitive government bond auctions from January 2020 to June 2023, including by agreeing in advance on bid rates and amounts.

Of the 15 PDs, 10 were securities firms, which were fined a total of KRW 1.376 trillion. KB Securities received the largest fine, at KRW 332.178 billion, followed by NH Investment & Securities at KRW 242.785 billion and Mirae Asset Securities at KRW 214.83 billion.

Some brokerages saw their earnings plunge after reflecting the FTC fines in their third-quarter results. On November 11, KB Securities filed a correction to its disclosure, saying its third-quarter net profit had turned into a net loss of KRW 59.1 billion, reversing its initial report of a KRW 273 billion profit. Kiwoom Securities also filed a corrected disclosure, reporting that the fine had reduced its third-quarter net profit from KRW 238.6 billion to KRW 177.8 billion.

Other brokerages are also expected to reflect the FTC fines in their third- or fourth-quarter results. They are reportedly likely to pay the fines first and then seek to recover some of the money through lawsuits. "If they miss the deadline for paying the fines, surcharges will accrue. So brokerages are likely to pay first to avoid additional costs and then respond through litigation," said Yoon Yudong, an analyst at NH Investment & Securities.

"The financial burden from the fines is likely to be greater for securities firms than for financial holding companies, and among securities firms, for smaller and midsize firms," said Jang Young-im, an analyst at SK Securities. She said the fines had increased the pressure on fourth-quarter earnings at NH Investment & Securities and Mirae Asset Securities, while Daishin Securities could potentially post a loss because its earnings are relatively small.

This content was produced with the assistance of AI translation services.