Peak-Out of Securities Firms' Q3 Earnings Becomes a Reality

Decrease in Brokerage Trading Volume Leads to Reduced Commission Revenue from Consignment Trading

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[Asia Economy Reporter Park Jihwan] Concerns about a peak-out (passing the high point) in securities firms' earnings are becoming a reality. The biggest cause is the decline in brokerage commission income, which had supported the strong performance of securities firms, due to a decrease in stock trading volume.

According to financial information provider FnGuide on the 8th, the average estimated net profit for the third quarter of this year for four major domestic securities firms?Mirae Asset Securities, Samsung Securities, NH Investment & Securities, and Kiwoom Securities?is 916 billion KRW, down 5.4% year-on-year and 17.7% quarter-on-quarter. The slowdown in securities firms' earnings is attributed to a decrease in brokerage income caused by a decline in the average daily trading volume of the domestic stock market. Brokerage income during the same period is expected to be 690 billion KRW, down 14.5% year-on-year and 4.8% compared to the previous quarter.

Considering that brokerage accounted for about 29% of these securities firms' net operating income in the second quarter, the recent decrease in trading volume appears to have had a significant impact on earnings. The average daily trading volume of the domestic stock market in July and August was 26 to 27 trillion KRW. In September, the average daily trading volume dropped to 24.9 trillion KRW, the lowest level since October of last year. The securities industry expects the average daily trading volume in the fourth quarter to decrease by about 4% compared to the third quarter.

Negative outlooks are also emerging for net interest income, which is expected to reach 695 billion KRW in the third quarter and has overtaken brokerage as the largest source of revenue for securities firms. Given factors increasing market volatility such as the China Evergrande bankruptcy crisis and the US debt ceiling issue, demand for investment through borrowing is inevitably declining, and securities firms' credit extension limits have also reached their maximum. Researcher Jeon Baeseung of eBest Investment & Securities stated, "Considering the domestic and international interest rate hike environment, strengthened household loan regulations by financial authorities, and the exhaustion of securities firms' credit extension limits, it seems unlikely that the inflow of new personal funds into the stock market will strengthen in the future."

Due to the bleak earnings outlook, stock prices in the securities sector are also showing sluggish trends. Since September until the previous day, most major securities firms such as Kiwoom Securities (-11.4%), Samsung Securities (-5.5%), Mirae Asset Securities (-4.3%), and NH Investment & Securities (-3.8%) have shown clear declines in stock prices. This contrasts with bank and insurance stocks grouped as dividend stocks, such as KB Financial (5.5%), Shinhan Financial Group (2.4%), Hanwha Life (4.5%), DB Insurance (11.4%), and Samsung Fire & Marine Insurance (7.1%), which have held up well despite the recent sharp market downturn.

Jeong Taejun, a researcher at Yuanta Securities, advised, "The decline in securities firms' net commission income and interest income has already begun and will worsen with interest rate hikes. Without new growth drivers, earnings decline next year is inevitable. In an environment where profit growth is difficult to expect, responding with dividend yields seems reasonable."