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Permalink Reply by Steven S. Bammel on September 27, 2010 at 4:21pm

I learned a lot of interesting facts about Korean banking from this issue of the Korea Economic Slice. Thanks for sharing it. I have a few thoughts after reading.

1. It seems clear from the article that the primary reason for Korean banks going overseas is to be the local banker for overseas Korean individuals and companies. This is a nice first step, but hardly a long-term strategy. Even a bank like KEB, which is US-owned, hardly makes a mark in the US market.

In fact, I wonder what kind of synergy they can really get from the international approach. I remember a few years ago setting up accounts at Citibank in the US and in Korea in order to streamline my accounting. Amazingly, when I did a little experiment and tested a wire transfer between my two Citibank accounts, I got a worse exchange rate than when I sent the exact same amount of money on the same day from my Wells Fargo account in the US to my Woori account in Korea. When I shut down the Citibank accounts shortly thereafter, I was told that due to international regulations, the two sides of Citibank were not able to cooperate in business. I'd be interested to know if that's due to Korea-side regulations or US-side ones and if this situation is getting better at all.

2. Korea seems to want to become something of a financial hub in Asia, but the chart on page 1 of this week's KES makes it pretty clear they've got a long way to go. Besides, starting so far back of places like Tokyo, Hong Kong and Singapore, you wonder what new niche Korea can really fill here.

Permalink Reply by Robert Eberenz on September 27, 2010 at 5:17pm

All great points Steven~

Barriers to entry, in the industry are high. Well established players with large talent pools and economies of scale, due to proprietary research spread across large areas of business, would require a great deal of investment by any Korean bank that is looking to play on the international Investment Banking field.

Mirae Asset is the first Korean group to begin building funds based in the E.U. and U.S., and has a vision to expand internationally with a Headquarters moving to Hong Kong. However, many of the more bread and butter Korean banks are sticking to deals and industries within Korea's borders or Korean firms' expansions abroad.

In a personal note from a distinguished member of the Korea Econ Forum, Ondrej Slechta, explained how "one Czech based branch of a major global player only has 1 branch on the ground (as compared to most of the other corporate banks with several dozens branches) but they have 50% market share in FX derivatives and net income per employee up to 10x over the peers." So it seems that perhaps my metric of comparing banks using branch offices may be flawed. The data gauging market cap, deal volume, and net profit would be arguably more effective as a metric for comparing these institutions, according to Mr. Slechta. He went on to say that there are actually markets where Korea has beat out players with branch offices, without opening a permanent Korean presence on the ground...

The aforementioned data would likely be much more appropriate to use in comparing the firms. Perhaps the question will spur a second look into whether Korean banks and their global expansions, except next time by measuring the operations in those countries.

Permalink Reply by Blair A on September 30, 2010 at 9:17pm

Mirae Asset has launched the six funds and are ready to go.

Here is a link regarding Mirae Asset Securities going global.

http://www.koreatimes.co.kr/www/news/biz/2010/09/123_73675.html

Permalink Reply by Steven S. Bammel on October 1, 2010 at 8:49am

So would you say that Mirae Asset is the player to watch in the Korean financial industry? Or is there anyone else out there growing aggressively outside Korea?

Permalink Reply by Blair A on October 1, 2010 at 9:16am

I'm not sure what other firms have planned, but as of now I'm not aware of any other Korean Investment companies making big moves. Samsung has done some global expansion. But I don't see how Samsung can differentiate themselves from other local investment firms in global locations.

Permalink Reply by Blair A on October 2, 2010 at 4:27pm

Again I'm not sure with regards to Banks. But related to securities and asset maangement firms Mirae Asset is ahead of others with regards to global expansion.

An example would be India and Brazil. Mirae Asset is the only one in those countries.

Permalink Reply by Blair A on October 1, 2010 at 9:10am

The six funds were lunched in the U.S.

http://www.reuters.com/article/idUS115330+27-Sep-2010+PRN20100927

Permalink Reply by Robert Eberenz on October 2, 2010 at 5:40pm

Thanks for the insights Blair!

Permalink Reply by Ondrej Slechta on October 4, 2010 at 6:32am

Larger Korean banks feel that they "need" to go regional/global to retain their competitiveness. Korean banking market, both corporate and retail segments, is relatively mature and saturated. Many Asian economies grow faster than Korea and the Korean banks naturally want to participate in this growth. Foreign subsidiaries of Korean companies are natural targets as it is always easier for a Korean bank to approach a Korean client than a non-Korean client. Of especially importance is relationship on the headquarters level and the ability to understand the client's business and where it is going.
Another issue is diversification - having various assets in the portfolio enables a bank to growth with less restrictions due to country limits and ultimately the probability that the whole bank's equity will be wiped out by an adverse event decreases. Therefore expansion pleases stockholders.
The Korean banks understand well that the most natural region to grow are emerging markets in East Asia. They are easier to understand for them and are less undermined by global turmoil of recent years. Once the banks increase their know-how on how to manage international network (easier said than done) they can go further and offer more complex products to broader customer segments in more remote countries.
In the recent interview, Euh Yoon-dae (KB Chairman) mentioned universal banking model a la JP Morgan and Santander's approach to globalization as his role models. These two banks are of the least affected by the crisis precisely for these reasons. JPM could rely on stable segments and constant flow. Santander was never over ambitious in terms of global expansion and focused on what they understand the best - Spanish and Portuguese speaking territories. Why would Santander follow everybody to China if they think they don't understand that market? Why would the Korean banks want to expand in Europe and the US?
As for the evergreen Korean mega bank discussions, we might see some interesting domestic mergers in the coming years but the idea that a new global Korean investment bank will be created is nothing more than wishful thinking. Nobody will consider doing any serious business on any larger scale with an inexperienced Korean investment bank.