Stock Slump Batters Brokerages as Q3 Net Profit at Top 10 Firms Sinks 77%

Combined Net Profit at 10 Firms Falls 77% From Second Quarter

Mirae Asset Posts a Pretax Loss of $376 Million

Falling SpaceX Valuation Weighs on Results

Net profit at South Korea’s 10 largest securities firms shrank to about a quarter of the previous quarter’s level in the third quarter. Mirae Asset Securities, which had posted more net profit than commercial banks, swung to a loss, while Korea Investment & Securities reported a drop of more than 70% from the prior quarter. A strong second quarter created a high base, then weaker stock trading, higher market interest rates and valuation losses on investment assets compounded the damage in the third quarter.

According to industry data on Nov. 12, the 10 firms posted combined third-quarter net profit of 1.3919 trillion won. That was down 76.55% from 5.936 trillion won in the previous quarter. Mirae Asset Securities said the same day it recorded a consolidated pretax loss of 520.6 billion won and a net loss of 405.6 billion won for the quarter. The net loss exceeded the average securities-industry estimate of 114.3 billion won.

Mirae Asset posted the financial sector’s largest net profit in the second quarter at 1.9052 trillion won, helped by valuation gains on SpaceX. In the third quarter, a drop in SpaceX’s share price widened its pretax loss to 514 billion won. Pretax losses from proprietary investment, or PI, reached 380 billion won. Excluding those two items, pretax profit came to 380 billion won. But losses tied to SpaceX and PI investments pushed the firm into the red.

The market downturn also weighed on earnings. Mirae Asset’s third-quarter brokerage revenue fell 47% from the previous quarter to 330.6 billion won. Domestic stock commissions dropped to 215.9 billion won from 445.3 billion won. Trading and other financial profit slumped 80% to 143.9 billion won from 725.5 billion won, while investment-banking fees fell 34% to 28.5 billion won from 42.8 billion won.

Samsung Securities, which also reported earnings on Nov. 12, said third-quarter net profit fell 27.73% from the previous quarter to 352.8 billion won. It held up better than Mirae Asset, but still could not escape the impact of lower stock trading value. Other brokerages faced similar pressure.

Korea Investment & Securities posted third-quarter net profit of 281.8 billion won, down 70.22% from the previous quarter. Daishin Securities swung to a net loss of 13.7 billion won from a profit of 257.8 billion won, while Hana Securities saw net profit tumble 94.01% to 10.1 billion won from 168.7 billion won. Kiwoom Securities and Shinhan Investment Corp. also posted declines of 64.94% and 77.43%, respectively. NH Investment & Securities and Meritz Securities fared relatively better, with net profit down 21.62% and 20.52%.

Operating conditions for brokerages are expected to remain difficult in the fourth quarter. Average daily trading value on South Korea’s main stock market fell for four straight months, from more than 50 trillion won in June to 37 trillion won in July, 26 trillion won in August, 21 trillion won in September and 20 trillion won in October. That is a drop of nearly 60% in four months. The KRX Securities Index has fallen 20.13% over the past month.

Some brokerages are also stepping up shareholder returns to support their stock prices. Mirae Asset Securities said on Nov. 12 that it plans to cancel 65 million treasury common shares next year after approval at its regular annual shareholders meeting. That represents 60% of the roughly 108.34 million common treasury shares it holds. Based on the previous day’s closing price, the stake was worth about 1.4 trillion won.

Lee Kang-hyuk, Mirae Asset Securities’ head of management innovation and chief financial officer, said the firm would announce an additional shareholder return plan after realizing gains from its SpaceX investment and meeting related legal and financial requirements.

Lee Seon-a, Hankyung.com reporter suna@hankyung.com