April 20, 2024

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[THE INVESTOR] Global investment banking giants lament that their glory days are over. But for many Koreans, investment banking is still finance’s final frontier, all the more fascinating because it seems way beyond their reach.

Park Hyeon-joo, arguably the most successful financier born in Korea, eyes Korea‘s presence in the world of investment bankers, from which existing players have been retreating. He aims to grow his Mirae Asset Financial Group into Asia’s leading investment bank. 

“I have been dying to do investment banking,” the 58-year-old former stockbroker said late last year, after Mirae Asset won the race to acquire control of KDB Daewoo Securities. “I am excited to think what we can do with Daewoo Securities (under Mirae Asset’s wing.)”

Buying KDB Daewoo, now renamed Mirae Asset Daewoo, was for Park a key step toward a global investment bank. How eager he was to buy Daewoo, locally known as a front-runner in investment banking services, is reflected in the price that he paid. Mirae Asset spent nearly 2.4 trillion won ($2.05 billion) on the acquisition, which raised concerns over overpayment.

"Daewoo, with strengths in IB and corporate finance, is a perfect fit for Mirae Asset, which is strong in asset management,” Park said.

Analysts and industry watchers are generally positive about the deal from a local market perspective, but not many seem to foresee a future in which Mirae Asset matches the likes of global giants Goldman Sachs, JPMorgan or Nomura of neighboring Japan, as Park hopes.

"Highly fragmented and concentrated on thin-margin brokerage services, Korea’s securities industry needs a shakeup. The emergence of larger players is a positive development in this respect,” said KB Securities’ analyst Yoo Seung-chang.

Mirae Asset Securities, when it merges with Mirae Asset Daewoo in November as announced, will be the industry’s largest, with equity capital of 5.7 trillion won.

The industry will soon get a new No. 3 as well, as KB Financial Group, which completed the acquisition of Hyundai Securities this past May, plans to merge it with the group’s existing brokerage unit to create a company with 3.9 trillion won in assets.

Market consolidation is exactly what Korea’s financial regulators have been trying to spark.

In October last year, the Financial Services Commission and Financial Supervisory Service unveiled a road map to develop the local financial investment industry, including a plan to ease regulations on big firms to support their pursuit of the investment bank model.

To be sure, Mirae Asset has much room to grow if it wants to be noticeable on the global stage.  

Aside from the gulf in manpower, global network and reputation, Mirae Asset’s securities unit lags far behind existing players in the global field, with its equity capital standing at 5.9 trillion won compared to Nomura Securities’ 11 trillion won. Goldman Sachs’ is 91 trillion won.

Park said even 10 trillion won -- he laid out the goal of equity capital exceeding 10 trillion won in three years in his New Year’s address this year -- wouldn’t be sufficient for his goal. “A financial investment company’s strength inherently hinges on its asset size,” he said.

Sadayuki Horie, head of research at Nomura, pointed out the perils of an expansionist strategy.

“I don’t agree the size of an asset management company is important to the strength of its fund managers,” he said.

Furthermore, postmerger integration may prove quite challenging for Mirae Asset, since the group, founded by Park, has a strong culture, Horie added. 

Seo Sang-young, an analyst at Kiwoom Securities in Seoul, echoed Horie's view that human capital matters.

“Even if Mirae Asset bolsters assets, the question is who manages the money. I have doubts it will be able to secure or retain competent professionals in competition with global IBs.”

The focus in the financial industry has now shifted to boosting capability in risk management amid shorter cyclical financial downturns, from increasing capital and human resources to get bigger, some industry insiders said.  

“The game suddenly changed, focusing now on risk management because the market will be facing shorter cycles of booms and busts," an asset management industry source said. 

"The trend in using robotic data algorithm these days is really about how we can calculate future risks better to reduce dangers of making wrong decisions.”

For now, Mirae Asset seems firmly in expansion mode, with the charismatic founder and chairman chasing the Korean investment bank dream.

Mirae Asset Securities is hiring professionals in deal advisory and securities underwriting, the core areas of investment banking, and has recently acquired an investment banking business license from local regulators, notwithstanding the planned merger with Daewoo later this year. 

The group bolstered the equity capital of Mirae Asset Daewoo’s New York unit by more than nine times recently, a strategic investment which many see as being reflective of its global aspirations.

"Risk is not something you avoid. It’s something you manage,” said Park.

"I want to show what investment banking is really about, navigating investments into areas that others see risky.”

By Lee Sun-young, Park Hyong-ki & Park Han-na (milaya@heraldcorp.com) (hkp@heraldcorp.com)(hnp@heraldcorp.com)