[Inside Chodong] The Other Side of High Salaries in the PF Industry

[Asia Economy Reporter Lim Jeong-su] The announcement of securities industry employees earning over 500 million KRW in 2019 early last year was a party for the PF industry. Except for some top executives such as vice chairmen and CEOs, most of the employees earning over 500 million KRW came from the PF sector. Kim Jin-young, President of Hi Investment & Securities (then Vice President), received an annual salary of 3.4 billion KRW, surpassing Choi Hyun-man, Senior Vice Chairman of Mirae Asset Daewoo (2.9 billion KRW), to top the salary rankings. Park Sun-young, Executive Director of Hanyang Securities; Park Jung-joon, Vice President of Bukook Securities; Kim Cheol-eun, Executive Director of Eugene Investment & Securities; and Kim Ki-hyung, President of Meritz Securities also earned around 2 billion KRW each due to the PF boom.

In particular, Meritz Securities, strong in PF, had the most names?five?in the top 30 ranking of those earning over 1.5 billion KRW. Since a significant portion of top executives’ performance also came from PF, it is hard to say their high salaries are unrelated to PF. The salary results for last year, to be announced this year, are expected to be no different. Stories of PF industry employees receiving bonuses exceeding 1 billion KRW are frequently heard here and there.

Securities firms are strengthening real estate finance significantly this year to continue the party. They are putting PF high performers at the forefront and expanding their organizations by recruiting related personnel from construction companies, other financial firms, savings banks, and P2P companies. It is common to split existing headquarters into several units.

Capital (cash) input is also expected to increase significantly. Although the volume of real estate development projects is limited, most financial companies are eager for PF loans, and there is even a move to proactively secure deals through equity investments. Korea Investment & Securities is known to have already invested mid-300 billion KRW in equity for real estate development projects. Small and medium-sized securities firms with a high PF concentration are also allocating a significant portion of their capital to equity investments. Recently, even risk-averse large bank-affiliated securities firms are showing a trend to increase their equity positions.

Because of this, there is a joke in the related industry that “these days, you can do development projects even without money.” The story goes that if you find land for the project, securities firms will invest directly and take responsibility from bridge loans for land acquisition to the main PF, making it easier to raise funds. Construction companies also provide not only guaranteed completion but also credit extensions and joint guarantees to secure construction volume.

Since so much money is being made in PF, the voices of credit review and risk management departments assessing investment risks are reportedly weakening. When the credit review or risk departments raise objections to deals secured by the sales department, conflicts arise, and decision-makers, including CEOs, mostly side with the money-making side.

At this level, it is worth questioning whether this is a boom or overheating. There are concerns that the current atmosphere resembles the period just before the 2011 savings bank crisis. At that time, central banks worldwide implemented quantitative easing (QE) to escape the global financial crisis, flooding the market with liquidity, and significant liquidity, including high-interest personal deposits, flowed into the real estate finance market. Many large savings banks that thrived on construction finance risk-taking have long since disappeared into history.

The harrowing moment just one year ago, right after the outbreak of COVID-19, when securities firms faced liquidity shortages due to PF, also overlaps. The current PF industry atmosphere of “rowing when the tide is in” seems to need a “brake.”