The Financial Supervisory Service has decided to continue reviewing the issuance approval applications submitted by five securities firms, including Kiwoom, Shinhan, Samsung, Meritz, and Hana Securities. Although the Financial Supervisory Service conveyed opinions to suspend the review for four securities firms, excluding Kiwoom Securities, the Financial Services Commission decided to resume reviews for all securities firms.
Securities firms appear to be letting out a sigh of relief. There are expectations that the Financial Services Commission will provide as many securities firms as possible the opportunity to participate in the issuance business. In particular, these firms have shown great interest in whether to approve the business, as Korea Investment & Securities has made enormous profits by actively engaging in the issuance business.
The industry anticipates that latecomers in the issuance business will begin to 'benchmark Korea Investment & Securities.'
Korea Investment & Securities achieved an operating profit of 1.1479 trillion won in the first half of this year, becoming the first domestic securities firm to surpass an operating profit of 1 trillion won in a half year. This is thanks to steady growth across all sectors, including retail, asset management, and corporations.
Competing securities firms believe that the issuance approval is the background for Korea Investment & Securities achieving the highest performance ever. An industry insider noted, 'Korea Investment & Securities is known to have secured medium-term corporate bonds with interest rates of 5-6% in an era of high interest rates,' adding, 'Even offering customers high interest rates at around 3%, the interest margin is estimated to be at a level of 2-3 percentage points.' It signifies a positive cycle, drawing more customer funds while managing high-interest products.
As of the end of June this year, Korea Investment & Securities' issuance scale is about 174% of its equity, amounting to 17.9725 trillion won. Simply applying the expected interest margin means that annual revenue of 359.5 billion won will be generated solely from the issuance business. This amount corresponds to the annual operating profit of a typical small- to medium-sized securities firm.
Bills are financial products introduced to activate the supply of venture capital. They are short-term financial products with a maturity of less than one year that are directly issued by securities firms, which guarantee the promised interest rate to customers and can raise funds up to twice (200%) their equity. It's an unparalleled product for large-scale fundraising.
Korea Investment & Securities' issuance scale is large compared to KB Securities (10.5222 trillion won, 66% of equity), Mirae Asset Securities (8.307 trillion won, 65%), and NH Investment & Securities (7.8658 trillion won, 104%), but it is also known that there are significant differences in revenue.
Securities firms are refraining from disclosing specific figures publicly to avoid exposing their investment strategy in the issuance business, but it is reported that Korea Investment & Securities is significantly ahead of other securities firms in terms of investment performance.
A representative from Korea Investment & Securities said, 'Although the underlying assets for the bills may have a somewhat lower credit rating, we mainly include high-yield corporate bonds rated below AA,' adding, 'Our investment strategy differs from other securities firms.' The representative also explained that 'the ultra-prime bond market is relatively easy for institutional investors to secure funding, so investing in subprime corporate bonds also serves as a means of supplying venture capital.'
Given the situation, a change in atmosphere is detected even among the securities firms that have been passive in the issuance business. A representative from one of the large investment banks noted, 'We are currently reviewing internally to shift from the previous focus on stability in the issuance business to an investment strategy centered on venture capital,' adding, 'However, with the recent trend of low interest rates continuing, we believe it will be difficult to catch up with the revenue as high-yield corporate bond issuance decreases for the time being.'
A representative from a securities firm currently undergoing the issuance approval review explained, 'Assuming we receive business approval, we are planning to adopt an investment strategy similar to that of Korea Investment & Securities.'