Some foreign securities firms are sending hundreds of billions of won in retained earnings earned in Korea to their headquarters every year. With little money being reinvested domestically, critics say their real contribution to the economy is minimal.
According to the financial investment industry on the 10th, UBS Securities Limited Seoul branch remitted 20 billion won in retained earnings to its Swiss headquarters on the 7th. That accounts for most of UBS Securities' first-half net profit of 21 billion won. UBS Securities did not send surplus funds to headquarters last year after injecting 35 billion won to acquire the investment banking and capital markets business from Credit Suisse's Seoul branch in early 2023, but it resumed after two years.
In general, branches of foreign securities firms repatriate the profits earned in Korea to headquarters as dividends to recover their investment. In the first half of this year, JPMorgan Securities Seoul branch and Citigroup Global Markets Securities Korea branch also paid out 112.6 billion won and 48 billion won, respectively, in retained earnings as dividends to headquarters. The amounts are the same as each company's previous-year net profit of 112.6 billion won and 48.1 billion won. In effect, the money earned over the year was sent intact to headquarters.
Remittances amounting to several times net profit, as in the past, are on the decline. As retained earnings accumulated over the past few years have shrunk due to interest rate hikes and a contraction in the real estate project financing (PF) market, securities firms appear to have reduced the size of their remittances.
For example, Merrill Lynch Securities' Seoul branch sent roughly twice its net profit to its U.S. headquarters until 2022, but in 2023 and last year it sent 40 billion won, an amount similar to the previous-year net profits of 53.8 billion won and 49.9 billion won, respectively. Merrill Lynch Securities' accumulated retained earnings exceeded 300 billion won by the end of 2021, but from 2022 through last year they were reduced to the 270 billion–280 billion won range.
UBS Securities likewise sent 80 billion won to headquarters in July 2020, about three times the previous-year net profit of 28.5 billion won. At the time, UBS Securities' accumulated surplus was 143.3 billion won, more than 35 billion won (24.7%) higher than the accumulated surplus of 108 billion won as of the first half of this year. Goldman Sachs Securities and BNP Paribas Securities have not sent money to headquarters since 2022.
Given how global financial institutions operate their branches, remitting funds to headquarters is a natural procedure. However, as the practice of attributing all revenue generated domestically to headquarters as dividends has continued for many years, it is hard to avoid controversy over "eat-and-run" behavior.
Lee Sang-ho, a research fellow at the Korea Capital Market Institute, said, "We need to create incentives for foreign securities firms to reinvest in Korea," and noted, "Only by increasing investment attractiveness can capital remain in the country on a sustained basis."