[Initial Report] KakaoBank 'Sell Report' Controversy

The sell report on KakaoBank, which is on the verge of its IPO, has become a hot topic in the capital market. It is a subscription restraint recommendation report issued by BNK Investment & Securities. The core message is to refrain from subscribing, arguing that the market will find it increasingly difficult to tolerate the IPO price of an internet bank? which has no non-interest income (only interest income from credit loans)?being valued higher than that of financial holding companies with diverse revenue sources. This warning, mixed with concerns from experts, suggests a high possibility of stock price decline after the listing amid overheated enthusiasm for subscription to the IPO shares, to the extent that banks have to worry about cash liquidity management.

However, for some reason, BNK Investment & Securities deleted the report from its platform, which intensified the controversy. It is speculated that the report was withdrawn due to direct or indirect pressure from stakeholders. Since BNK Investment & Securities has not issued a statement explaining the reason for deleting the report, this speculation is becoming accepted as fact.

The reason why the sell report, which is just one of many market opinions, has become a subject of controversy is that it reflects the fact that the domestic capital market environment makes it difficult to freely express opinions, leaving a bitter aftertaste. In the securities industry, there seems to be a widespread sentiment that not issuing a report is also an opinion, so there is no need to endure criticism and disadvantages by releasing a sell report.

Similar to sell reports by securities analysts, corporate credit rating downgrades by credit rating agencies also face significant resistance from market stakeholders. In the past, it was common for companies facing credit rating downgrades to exert direct or indirect pressure.

This resistance is not only from companies that have to accept stock price or credit rating declines. Institutional investors such as pension funds, mutual aid associations, and asset management firms also become stakeholders the moment they hold investment positions in the companies. Securities firms, which must maintain close relationships with companies and major investors, cannot ignore the preferences of these 'dominant' parties. In a mutually supportive relationship that needs to last long, sell reports become more than just uncomfortable?they inevitably lead to business disadvantages.

A notable example is Joo Jin-hyung, a senior member of the Open Democratic Party, who faced dismissal and other disadvantages after issuing a negative report on the Samsung C&T and Cheil Industries merger during his tenure as CEO of Hanwha Securities. This incident even surfaced during a national audit and escalated into a political controversy. It was a case that brought to light the 'visible hand' influencing sell reports to the public. Recently, even individual investors who identify themselves as 'Donghak Peasants' are reportedly collectively and meticulously pressuring securities firms, raising concerns that the environment for issuing sell reports is deteriorating further.

Paradoxically, the difficult environment for issuing sell reports actually strengthens their influence. As mentioned earlier, a sell report should be just one of many diverse market opinions on a particular company, but in an environment lacking diversity where everyone says 'yes,' it becomes a symbol of courage to say 'no.' The fact that analysts write reports despite facing harsh resistance and disadvantages may symbolize sincerity. However, this is not a normal situation.

If it is difficult to expect securities firms to voluntarily and actively publish sell reports, then financial authorities or the Korea Exchange (KRX) should step in to institutionally encourage the presence of diverse opinions in the market. Especially in the current heated stock investment environment, to minimize damage to individual investors, it is necessary to create an environment where diverse opinions and debates about prices (stock prices) are active. In particular, in the pre-listing stage of IPO shares where market prices have not yet been properly established, diverse opinions should be encouraged to fulfill the price discovery function.

We must not overlook economists' warnings that markets lacking transparent and free information flow inevitably become like the used car market (Lemon Market), where information asymmetry between sellers and consumers causes significant consumer harm.

Lim Jeong-su, Deputy Head of Corporate Analysis Department