South Korean Brokerages Post Record First-Quarter Profit as Commissions Jump 165.8%

61 brokerages post combined first-quarter net profit of 4.3271 trillion won

Brokerage commissions jump 165.8% as trading value surges

Average pay at some securities firms nears 200 million won

South Korean securities firms posted record earnings in the first quarter as a stock-market rally fueled a surge in trading value. The earnings boom also lifted compensation, with average pay at some brokerages nearing 200 million won.

Net profit tops 4 trillion won as trading value jumps

South Korea’s 61 securities firms posted combined net profit of 4.3271 trillion won in the first quarter, according to preliminary operating results for securities and futures companies released by the Financial Supervisory Service on June 12. The total rose 1.8843 trillion won, or 77.1%, from a year earlier and marked a quarterly record.

Brokerage commissions drove the gains. Fee income nearly doubled from a year earlier to 6.6929 trillion won in the first quarter.

Custody commissions totaled 4.302 trillion won, up 2.6835 trillion won, or 165.8%, from a year earlier. The increase came as stock trading surged, mainly on the KOSPI market. First-quarter trading value on the KOSPI reached 2,775 trillion won, up 2,134 trillion won, or 333.1%, from a year earlier.

Wealth-management fees rose 89.4% to 672.1 billion won, helped by higher discretionary-investment and fund-sales commissions. Investment-banking fees were little changed at 944.5 billion won, as fees from mergers and acquisitions and debt guarantees posted only modest gains.

Proprietary trading income, generated by brokerages investing their own capital in stocks and bonds, also increased. First-quarter gains from proprietary trading rose 30.8% from a year earlier to 4.1026 trillion won.

Fund-related gains, including those from stocks and exchange-traded funds, increased by 7.2046 trillion won and boosted earnings. Derivatives-related gains fell by 3.9396 trillion won as hedging losses widened. Bond-related gains dropped by 2.2993 trillion won to 1.5862 trillion won as rising market interest rates led to valuation losses.

Gains from other assets fell 15.6% from a year earlier to 1.0406 trillion won. Foreign-exchange related gains declined by 767.8 billion won because of currency swings, while loan-related gains rose by 574.9 billion won as interest income from credit lending increased.

"The brokerage business led earnings growth as trading value surged on the back of rising stock prices," the Financial Supervisory Service said. Large and small firms alike posted solid results.

The sector’s capital adequacy indicators also remained above regulatory thresholds. The average net capital ratio rose 84.9 percentage points from the end of last year to 999.5%, and all firms met the regulatory minimum of 100%. The average leverage ratio rose 24.6 percentage points to 718.3%, while all firms remained below the regulatory ceiling of 1,100%.

The country’s three futures companies posted combined first-quarter net profit of 32.65 billion won, up 12.12 billion won, or 59%, from a year earlier. Their average first-quarter return on equity rose 1.3 percentage points from the end of last year to 4.2%.

Brokerage pay nears 200 million won

The improvement in brokerage earnings is also showing up in employee pay.

According to industry data, average annual pay for employees in financial investment roles at DAOL Investment & Securities rose 43% from a year earlier to 435 million won last year. The highest-paid employee at the firm was Park Shin-wook, a senior manager in bond sales, who received a total of 3.919 billion won, including a base salary of 82 million won and a bond-sales bonus of 3.835 billion won.

Average executive pay at the firm, by contrast, fell from a year earlier to 333 million won. That left average employee compensation above average executive pay, an unusual reversal. Chairman and Chief Executive Officer Lee Byung-cheol ranked fourth in total compensation at the firm. Excluding 11 million won in welfare benefits, he received 1.809 billion won.

Average annual pay for employees in financial investment roles at Kiwoom Securities rose 58% from a year earlier to 273 million won. Headcount in the division increased 65% to 215 from 130. At Samsung Securities, average pay for employees in financial investment roles rose 10% to 214 million won.

The highest-paid employee at Samsung Securities was branch manager Noh Hye-ran, who received 1.817 billion won. That included a salary of 123 million won and a bonus of 1.685 billion won. Samsung Securities said the bonus reflected her provision of a range of stock and product investment ideas to wealthy clients and corporations. Chief Executive Officer Park Jong-moon followed with total compensation of 1.804 billion won, made up of a 774 million won salary and a 928 million won bonus.

Across the industry, average annual compensation for all employees is approaching 200 million won. Meritz Securities topped the list at 196 million won, followed by NH Investment & Securities at 180 million won, DAOL Investment & Securities at 174 million won, Mirae Asset Securities at 170 million won and Samsung Securities at 169 million won. Most major brokerages have long paid average salaries well above 100 million won.

In the financial industry, the view is that favorable market conditions, including a surge in stock trading value, lifted both brokerage earnings and employee compensation. Average daily KOSPI trading value rose 57.1% from a year earlier to 16.9 trillion won last year.

The Financial Supervisory Service, however, said uncertainty in financial markets persists. "Uncertainty in financial markets is continuing as volatility in the domestic stock market increases and instability in the Middle East drags on, while the won and market interest rates rise," it said. "We will closely monitor trends in securities firms’ profitability and soundness and actively encourage stronger balance sheets through write-downs of bad assets."

Hong Min-seong, Hankyung.com reporter mshong@hankyung.com