On the 22nd Meritz Financial Group Earnings Call
"This Year's Hong Kong ELS Maturities Total 1.1 Trillion"
Jang Won-jae, CEO of Meritz Securities, stated on the 22nd that "Meritz Securities is free from compensation liability for losses due to incomplete sales as it does not directly sell Hong Kong equity-linked securities (ELS) to customers."
On the same day, during the 2023 Meritz Financial Group settlement performance conference call, CEO Jang explained, "The total exposure of Hong Kong ELS is 2.1 trillion KRW, and the company’s own hedge (risk avoidance) is 35.8 billion KRW, effectively hedging all index movements, resulting in almost no risk."
He added, "The volume of Hong Kong ELS maturing in 2024 is 1.1 trillion KRW, with some losses being repaid, but we are free from compensation liability for incomplete sales. However, as ELS investment is expected to decrease and the market shrink, fundraising through this channel may become difficult. To compensate, we plan to increase principal-protected products."
Regarding concerns about the investment banking (IB) division’s sluggishness due to the real estate market downturn, he responded, "The real estate market is expected to see the pre-sale market not performing as well as before, but it will stabilize and show signs of rebound. There is an increasing demand from companies to raise funds by liquidating high-quality assets they hold, which will serve as a stable lending opportunity for securities firms." He added, "Our company has been expanding not only in real estate but also in non-real estate sectors, and we plan to continue these efforts."
He also dismissed concerns that the burden on the securities subsidiary would increase due to a potential reduction in Meritz Fire & Marine Insurance’s dividend capacity to Meritz Financial Group. Recently, financial authorities have recommended insurance companies to refrain from excessive dividends.
CEO Jang said, "Meritz Securities paid an interim dividend of 280 billion KRW in 2023, which was part of the group’s efficient capital allocation and medium-term dividend policy." He added, "Despite dividends, we maintained a net capital ratio (NCR) of 1589% as of the end of 2023, securing soundness superior to competitors." He further stated, "While supporting the group’s medium- to long-term shareholder return policy, we plan to maintain and manage a high NCR ratio compared to competitors through good profitability and supplementary issuance of hybrid capital securities." NCR is an indicator of the financial soundness of securities firms. Financial authorities recommend maintaining an NCR above 100%.
Meanwhile, Meritz Securities announced that its consolidated operating profit and net profit for 2023 were 881.3 billion KRW and 590 billion KRW, respectively. It ranked first in operating profit in the securities industry for two consecutive years and second in net profit. The company minimized losses through pre-risk management such as contracts for difference (CFD) and real estate project financing (PF), achieving solid results in trading, financial income, and retail sectors.
In the fourth quarter of the year, operating profit and net profit reached 276.5 billion KRW and 111 billion KRW, respectively. From the first quarter of 2018 to the fourth quarter of 2023, the company recorded net profits exceeding 100 billion KRW every quarter for six years. At the end of the fourth quarter last year, its equity capital was 6.0984 trillion KRW, an increase of 406.5 billion KRW compared to the previous year. The consolidated annualized return on equity (ROE) was 10.0%.
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