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CONSIDERING THE MESS in the Korean broking industry, where up to 50% of the 44 domestic securities houses have, for the past few years, posted losses, it's hard to image why any institution would want to buy into a Korean broking house. But in June 2002, Korea's Shinhan Financial Group, which controls Cheju Bank and Chohung Bank, did just that and acquired control of Good Morning Securities from a private-equity consortium for US$315 million, or two times book value. It then merged the existing Shinhan Securities, a relatively small broking operation with Good Morning Securities.
The joint entity of Good Morning Shinhan Securities sits in an area of the financial sector that offers little promise. In addition, the merged company is haunted by politics and internal turmoil that refuse to fade away. So, two years on, questions remain unanswered as to whether the tie-up between Shinhan and Good Morning will ever take off as the first Korean combined commercial investment bank with a one-stop-shop strategy, or whether talk about innovation and progress in Korea's banking and broking industry is nothing more than lip service.
Kang-Won Lee, the president and CEO at Good Morning Shinhan Securities for the past six months, likens the current situation to a battlefield. "We are in the middle of waging a war," he says, referring to the company's legacy issues, the challenge of enhancing the company and its product and coping with the challenges in the industry as a whole.
Good plan, poor results
Shinhan, like other banks around the world, wanted the prestige of owning a brokerage as well as becoming a full-service bank with investment-banking capabilities. But in trying to achieve its ambitions, Shinhan is unable to avoid the criticism that it has ventured into one of the worst performing sectors--in terms of returns--in the country.
Lee maintains that Shinhan Financial Group did the right thing in buying Good Morning, and points out the foresight that allowed SFG to recognize the opportunity to create "synergies" between a broker and a financial holding company. "We want to become a solution provider for our corporate clients and we are closely working together with Shinhan and Chohung Bank." Shinhan purchased Chohung bank in June 2003, expanding its branch network by some...