U.S., British financial firms reduce presence in Korea

In contrast, Chinese and Japanese financial firms expand local operations

U.S. and British financial firms seem to be applying different strategies in Korea in the field of stock investment and the operation of brokerage branches.

Investors from the United States and Britain account for a large proportion of foreign investors on the local bourse. Last month, those firms collectively net purchased Korean stocks worth more than 4 trillion won ($3.6 billion) of the total 5.3 trillion won shares held by foreign investors.

However, a growing number of U.S. and U.K.-based financial firms, including brokerages and investment banks, have scrapped or scaled back their operations here over the past few years.

Since the 2008 global financial crisis, 12 financial firms from the two countries have retrenched their businesses or pulled out of the local market, according to the Financial Supervisory Service.

Regulators revoked the business license of the local unit of Lehman Brothers from the U.S. in 2009, while Ireland-based Merrill Lynch also had to withdraw its operations.

Manhattan-based Goldman Sachs has withdrawn its asset management sector and London-based HSBC Korea closed down 10 branches for retail financing.

Two foreign securities firms, including the local unit of U.S. Prudential Financial Inc. which was acquired by Hanwha Securities Co., also shut down. Aviva of the U.K. plans to drop its alliance with Woori Financial Group.

Similar cases are also seen among other Western financial firms. They included Ergo of Germany, Societe Generale of France, ING of the Netherlands and Macquarie of Australia.

An FSS official attributed the reduced presence in Korea to “restructuring efforts in their headquarters in the wake of the eurozone fiscal crisis and the economic slowdown in the U.S. between 2010 and 2012.”

Some market insiders, however, cited low profitability in Korea due to still strict regulatory hurdles.

Earlier this year, chief financial regulator Shin Je-yoon ordered the senior regulatory staff to look into whether the recent withdrawal of foreign firms in the local market was caused by problems created by the nation’s financial authorities.

However, Chinese and Japanese financial firms are expanding their presence in Korea.

The Korean branch of the Industrial and Commercial Bank of China saw its net assets increase by 4 trillion won as of June, compared with five years earlier.

The Bank of China and the China Construction Bank also saw their net assets in the local market surge more than three-fold over the corresponding period.

Japanese players such as Sumitomo Mitsui Banking Corp. and Mizuho Corporate Bank also recently beefed up their equity capital here.

“Japanese firms are utilizing the won’s strong position against the yen while Chinese firms are seeking closer partnership with Korean firms,” said an FSS official.

By Kim Yon-se (kys@heraldcorp.com)