South Korean Brokerages Post Record First-Quarter Profit as Trading Boom Lifts Pay

61 securities firms post combined first-quarter net profit of 4.3271 trillion won ($3.13 billion)

Custody commissions jump 165.8% as trading value surges

Average pay at some brokerages approaches 200 million won ($145,000)

South Korean securities firms posted record results in the first quarter as a stock-market rally fueled a sharp increase in trading activity. The earnings improvement also fed through to compensation, with average annual pay at some brokerages nearing 200 million won ($145,000).

First-quarter profit tops 4 trillion won on trading surge

The combined net profit of 61 domestic securities firms reached 4.3271 trillion won ($3.13 billion) in the first quarter, according to preliminary business results for securities and futures companies released by the Financial Supervisory Service on June 12. That was up 1.8843 trillion won ($1.36 billion), or 77.1%, from a year earlier and marked the highest quarterly figure on record.

Brokerage commissions drove the earnings improvement. First-quarter fee income rose 98.9% from a year earlier to 6.6929 trillion won ($4.84 billion). Custody commissions accounted for 4.302 trillion won ($3.11 billion), up 2.6835 trillion won ($1.94 billion), or 165.8%.

The jump reflected a surge in stock trading, especially in the KOSPI market. Trading value on the benchmark board totaled 2,775 trillion won ($2.01 trillion) in the first quarter, up 2,134 trillion won ($1.54 trillion), or 333.1%, from a year earlier.

Wealth-management fees also increased, rising 89.4% to 672.1 billion won ($486 million) on higher discretionary investment and fund-sales commissions. Investment-banking fees were little changed at 944.5 billion won ($684 million), with only modest gains in merger-and-acquisition and debt-guarantee fees.

Proprietary trading gains, generated by investing brokerages' own capital in stocks and bonds, rose 30.8% from a year earlier to 4.1026 trillion won ($2.97 billion).

Fund-related gains, including those tied to stocks and exchange-traded funds, increased by 7.2046 trillion won ($5.21 billion), helping lift overall earnings. Derivatives-related gains fell by 3.9396 trillion won ($2.85 billion) as hedge-operating losses widened. Bond-related gains dropped by 2.2993 trillion won ($1.66 billion) to 1.5862 trillion won ($1.15 billion) because of valuation losses tied to higher market interest rates.

Gains from other assets fell 15.6% from a year earlier to 1.0406 trillion won ($754 million). Foreign-exchange-related gains declined by 767.8 billion won ($556 million) because of currency swings, while lending-related gains rose by 574.9 billion won ($416 million) as interest income from credit financing expanded.

The Financial Supervisory Service said the brokerage business led the earnings improvement as trading value surged alongside rising share prices. Large and smaller firms alike posted solid results.

The industry's capital ratios 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 every brokerage cleared the minimum 100% requirement. The average leverage ratio increased 24.6 percentage points to 718.3%, while all firms stayed within the 1,100% regulatory ceiling.

The country's three futures companies posted combined first-quarter net profit of 32.65 billion won ($23.6 million), up 12.12 billion won ($8.8 million), or 59%, from a year earlier. Their return on equity for the quarter rose 1.3 percentage points from the end of last year to 4.2%.

Average brokerage pay nears 200 million won

The earnings rebound is also showing up in employee pay.

Average annual compensation for employees engaged in financial investment business at DAOL Investment & Securities rose 43% from a year earlier to 435 million won ($315,000) last year, according to industry data. The firm's highest-paid employee was Park Shin-wook, a senior manager in the bond-sales division, who received a total of 3.919 billion won ($2.84 million). That included salary of 82 million won ($59,000) and a bond-sales bonus of 3.835 billion won ($2.78 million).

Average executive pay at the company, by contrast, fell from a year earlier to 333 million won ($241,000). That left average employee compensation higher than average executive pay, an unusual reversal. Chairman and Chief Executive Officer Lee Byung-chul ranked fourth in total compensation at the firm, receiving 1.809 billion won ($1.31 million), excluding 11 million won ($8,000) in welfare benefits.

Average annual pay for financial investment staff at Kiwoom Securities climbed 58% from a year earlier to 273 million won ($198,000). Headcount in that division rose 65% to 215 from 130. At Samsung Securities, average annual pay for financial investment staff increased 10% to 214 million won ($155,000).

Samsung Securities' highest-paid employee was branch manager Noh Hye-ran, who received 1.817 billion won ($1.32 million). That included salary of 123 million won ($89,000) and a bonus of 1.685 billion won ($1.22 million). The company said the bonus reflected factors including the 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 ($1.31 million), including 774 million won ($560,000) in salary and 928 million won ($672,000) in bonus.

Stronger earnings across the brokerage industry have pushed average employee compensation close to 200 million won ($145,000). Meritz Securities ranked highest at 196 million won ($142,000), followed by NH Investment & Securities at 180 million won ($130,000), DAOL Investment & Securities at 174 million won ($126,000), Mirae Asset Securities at 170 million won ($123,000) and Samsung Securities at 169 million won ($122,000). Average pay at most major brokerages has long topped 100 million won.

In the financial industry, the view is that favorable market conditions, including the surge in stock trading value, lifted both brokerage earnings and compensation. Competition among securities firms to secure top financial-investment talent is expected to remain intense this year. Average daily trading value on the KOSPI rose 57.1% from a year earlier to 16.9 trillion won ($12.2 billion) last year.

The Financial Supervisory Service said uncertainty in financial markets persists.

"Uncertainty in financial markets continues, including rising volatility in the domestic stock market, prolonged instability in the Middle East, and higher exchange rates and market interest rates," it said. "We will closely monitor securities firms' profitability and soundness and actively encourage stronger balance sheets through the write-off of bad assets."

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