Europe banks return to Korean brokerage market; target debt, alternative products
Sep 30, 2016 (Gmt+09:00)
4
Min read
Most Read
Deutsche Bank's Korea IB head quits after country head resigns
Hanwha buys S’pore Dyna-Mac’s stake for $73.8 mn from Keppel
Macquarie Korea Asset Management confirms two nominees
Meritz leaves door open for an M&A, to stay shareholder friendly
Korea's Taeyoung to sell local hotel to speed up debt workout
A growing asset size of South Korean institutional investors and soaring demand for overseas alternative assets have been prodding foreign banks, including ING and Credit Agricole, to make a comeback to the securities market in Asia’s No.4 economy.
Armed with solid balance sheets and broad global networks, such foreign banks are expected to have a competitive edge over South Korean rivals in offering a variety of financial products, although they seem to be little interested in breaking into the country’s crowded equities market.
ING opened a securities branch in Seoul on Sept. 28, a month after it received the securities license from South Korea’s financial authorities. The Dutch financial had sold its South Korean securities operations to Australia-based Macquarie Group in 2004, while running banking business in Seoul for 25 years.
Separately, France-based Credit Agricole (CA) has been reportedly in talks to buy the South Korean operations of Royal Bank of Scotland (RBS), which is put up for sale. The French bank had pulled out of the securities business after selling its brokerage unit CLSA to a Chinese firm in 2012.
“A separate securities license is necessary in the country to conduct a full range of capital market activities, as there is a strict barrier between banking and securities businesses,” ING said in a press release on August 31. It added that the Dutch banking and financial services firm will provide debt capital market and alternative investment assets to corporate and institutional clients in South Korea.
Under the Korean Capital Markets Act, only companies with a securities license in the country are allowed to sell offshore bonds, structured products and funds to South Korean institutional investors, which include the National Pension Service (NPS), Korea Investment Corporation (KIC) and Korea Post.
Brokerage companies are also qualified to handle derivatives products, which used to be limited to banks before the enactment of the Capital Markets Act in 2009. In addition, the banking sector has suffered a setback from reduced arbitrage trading opportunities: the recent increase in South Korea’s sovereign credit rating and banks’ ratings have narrowed spreads between interest rates of South Korea and other countries. Reflecting the business environment change, Goldman Sachs had its banking license in South Korea revoked earlier this year and combined derivatives product business with its brokerage operations.
“Korean companies have been expanding and we have seen a growing demand from them for European and U.S. assets in the current low interest rate environment,” Jonghoon Hyun, country manager of ING Korea, was quoted as saying in the press release.
The NPS alone should allocate further $80 billion to alternative asset classes through 2021 to meet its “mid-term asset allocation plan.” The KIC aims to increase the proportion of alternative investments to 20% of its portfolio by the end of 2020, which means it has to invest at least $7 billion in offshore alternative assets like private equity, hedge funds, real estate and infrastructure over the course of next four years.
DEAL SOURCING, LOANS
Both ING and CA have bolstered their balance sheets through harsh restructuring efforts, after the global financial crisis in 2008. This will give them more leeway to provide loans and deal sourcing to Korean institutions.
“For South Korean institutions investing in property and infrastructure in Europe, we can not only arrange product placement, but also provide loans,” ING’s Hyun told the Korea Economic Daily in a recent interview. He said that ING has secured more than $4 billion by selling insurance units, after receiving a bailout from the Dutch government during the financial crisis.
ING had arranged €235 million senior loans for Samsung SRA Asset Management’s acquisition in 2015 of an office building, Silver Tower, in Frankfurt, Germany.
CA has a stronger balance sheet than other European banks. According to ratings agency Fitch, the French bank’s core capital to risk-weighted assets ratio came to 13.8% at the end of last year, the highest among European banks.
Meanwhile, ING has not applied for a license on initial public offerings, M&A deals and stock brokering in South Korea. The Seoul branch of RBS, which CA is seeking to acquire, is known to have strength in bonds and structured finance over stocks.
By Chang Jae Yoo
yoocool@hankyung.com
Armed with solid balance sheets and broad global networks, such foreign banks are expected to have a competitive edge over South Korean rivals in offering a variety of financial products, although they seem to be little interested in breaking into the country’s crowded equities market.
ING opened a securities branch in Seoul on Sept. 28, a month after it received the securities license from South Korea’s financial authorities. The Dutch financial had sold its South Korean securities operations to Australia-based Macquarie Group in 2004, while running banking business in Seoul for 25 years.
Separately, France-based Credit Agricole (CA) has been reportedly in talks to buy the South Korean operations of Royal Bank of Scotland (RBS), which is put up for sale. The French bank had pulled out of the securities business after selling its brokerage unit CLSA to a Chinese firm in 2012.
“A separate securities license is necessary in the country to conduct a full range of capital market activities, as there is a strict barrier between banking and securities businesses,” ING said in a press release on August 31. It added that the Dutch banking and financial services firm will provide debt capital market and alternative investment assets to corporate and institutional clients in South Korea.
Under the Korean Capital Markets Act, only companies with a securities license in the country are allowed to sell offshore bonds, structured products and funds to South Korean institutional investors, which include the National Pension Service (NPS), Korea Investment Corporation (KIC) and Korea Post.
Brokerage companies are also qualified to handle derivatives products, which used to be limited to banks before the enactment of the Capital Markets Act in 2009. In addition, the banking sector has suffered a setback from reduced arbitrage trading opportunities: the recent increase in South Korea’s sovereign credit rating and banks’ ratings have narrowed spreads between interest rates of South Korea and other countries. Reflecting the business environment change, Goldman Sachs had its banking license in South Korea revoked earlier this year and combined derivatives product business with its brokerage operations.
“Korean companies have been expanding and we have seen a growing demand from them for European and U.S. assets in the current low interest rate environment,” Jonghoon Hyun, country manager of ING Korea, was quoted as saying in the press release.
The NPS alone should allocate further $80 billion to alternative asset classes through 2021 to meet its “mid-term asset allocation plan.” The KIC aims to increase the proportion of alternative investments to 20% of its portfolio by the end of 2020, which means it has to invest at least $7 billion in offshore alternative assets like private equity, hedge funds, real estate and infrastructure over the course of next four years.
DEAL SOURCING, LOANS
Both ING and CA have bolstered their balance sheets through harsh restructuring efforts, after the global financial crisis in 2008. This will give them more leeway to provide loans and deal sourcing to Korean institutions.
“For South Korean institutions investing in property and infrastructure in Europe, we can not only arrange product placement, but also provide loans,” ING’s Hyun told the Korea Economic Daily in a recent interview. He said that ING has secured more than $4 billion by selling insurance units, after receiving a bailout from the Dutch government during the financial crisis.
ING had arranged €235 million senior loans for Samsung SRA Asset Management’s acquisition in 2015 of an office building, Silver Tower, in Frankfurt, Germany.
CA has a stronger balance sheet than other European banks. According to ratings agency Fitch, the French bank’s core capital to risk-weighted assets ratio came to 13.8% at the end of last year, the highest among European banks.
Meanwhile, ING has not applied for a license on initial public offerings, M&A deals and stock brokering in South Korea. The Seoul branch of RBS, which CA is seeking to acquire, is known to have strength in bonds and structured finance over stocks.
By Chang Jae Yoo
yoocool@hankyung.com
Yeonhee Kim edited this article
More to Read
-
-
Private debtM&A rebound will drive private credit volume increase: Golub CapitalMay 16, 2024 (Gmt+09:00)
-
Investment bankingDeutsche Bank's Korea IB head quits after country head resignsMay 13, 2024 (Gmt+09:00)
-
-
Venture capitalVC firm DSC Investment forms Korea's largest secondary fundMay 09, 2024 (Gmt+09:00)
Comment 0
LOG IN