Brokerages See Q3 Profits Plunge, with Top Firms' Net Income Down 52%
The combined net profit — income remaining after all costs, including taxes — of South Korea's three largest brokerages plunged an average of 52.3% in the third quarter from the previous quarter. According to the financial investment industry on the 8th, all three of the top-five brokerages (Mirae Asset, Korea Investment, NH Investment, Samsung, Kiwoom) that have reported third-quarter results posted sharp declines in net profit on a consolidated basis, which includes the results of their subsidiaries. Korea Investment & Securities saw the steepest drop, with third-quarter net profit falling 70.23% from the previous quarter to 281.8 billion won. Kiwoom Securities fell 64.95% to 238.6 billion won, and NH Investment & Securities dropped 21.62% to 383.6 billion won. The consensus for Samsung Securities' third-quarter net profit stands at 356.9 billion won, down 26.89% from the previous quarter.
The main culprit behind the weak results was the sharp drop in trading volume amid a lackluster stock market. According to SK Securities, the average daily trading value on the domestic market (combining the Korea Exchange and Nextrade) fell 36.24%, from 118.1 trillion won in the second quarter to 75.3 trillion won in the third. Brokerage commission income took the biggest hit. Commissions are fees investors pay brokerages for brokerage services when trading stocks, exchange-traded funds (ETFs) and bonds. NH Investment & Securities' third-quarter brokerage commission income fell 48.1% from the previous quarter to 231.4 billion won, Kiwoom Securities' fell 42.9% to 286.9 billion won, and Korea Investment & Securities' fell 40.6% to 200.78 billion won.
Rising market interest rates also played a role. Higher rates increase valuation losses on bond holdings and raise funding costs. Kim Hyun-su, a researcher at Sangsangin Securities, said, "Investment returns overall were weaker than expected, likely due to the excessive market volatility."
Mirae Asset Securities, which has yet to report its results, posted a record quarterly net profit of 1.9052 trillion won (consolidated) in the second quarter. However, brokerages expect the firm's equity valuation losses to widen due to the decline in SpaceX's share price and the weaker won against the dollar. BNK Investment & Securities estimates Mirae Asset's SpaceX-related valuation loss at 700 billion won, while Hyundai Motor Securities puts it at around 580 billion won.
Share prices have fallen in line with the weak earnings. Korea Financial Holdings, the parent company of Korea Investment & Securities, plunged 17.34% on the 6th, the day after its earnings announcement, closing at its yearly low of 121,600 won — down 58.43% from its yearly high of 292,500 won. That same day, Mirae Asset Securities (22,150 won), Kiwoom Securities (186,400 won) and Samsung Securities (74,000 won) also hit new yearly lows, down 73.57%, 62.38% and 50.5% from their yearly highs, respectively. Kim In of BNK Investment & Securities said, "Market sentiment, which directly affects investor psychology on brokerage stocks, has been poor, and earnings fell short of expectations, causing share prices to drop excessively."
