Korean brokerage firms suffered an earnings shock in the fourth quarter of 2018 due to deteriorating profit margins amid market volatility.
KB Securities posted a net loss of 32.4 billion won ($28.98 million) for the last three months of 2018, a major setback from the previous year's 103.3 billion won net profit. The fourth-quarter loss reduced its full-year net income to 178.9 billion won from 271.7 billion won in 2017.
Korea Investment and Securities witnessed its net income for the fourth quarter fall 28.9 percent to 87.4 billion won. As a result, its net profit for the entire year came to 498 billion won, down 5.2 percent from 2017.
The poor performance is attributable mostly to deteriorating profits involving derivatives products including equity-linked securities (ELS) subject to increased market fluctuations compounded by a higher-than-usual volatility.
NH Investment and Securities also recorded only 11.7 billion won in net income in the fourth quarter, not even meeting a third of the 46.3 billion won market average, a figure projected by market analysts for the three-month period.
While its investment banking services reported 80 billion won in net income, a 67 percent increase from a year earlier, the figure was not enough to offset over 100 billion in losses in trading and other financial products.
The losses followed an increase in ELS hedging costs due to weak market indices amid a bearish stock market in the period, according to analysts.
Mirae Asset Daewoo posted 26.9 billion won in net income in the fourth quarter, a 72.2 percent drop from a year earlier.
Overall market volatility and a decrease in brokerage income hurt profits, a similar situation its market competitors faced.
Samsung Securities posted a net income of 37.6 billion won in the same period, a 39 percent decrease from a year earlier.
Daishin Securities saw its net profit plunge by 99.3 percent to 100 million won.
Meritz Securities was the only firm that not only reported a profit in its net income, but also a record high.
Its net income in the quarter stood at 114.2 billion won, the highest quarterly profit in the history of the firm.
Its trading income was 60.5 billion won, a 40.1 percent decline from the previous quarter, but the 177.8 billion won in investment banking services and corporate lending helped boost profit.
"The firm successfully inked high-profile investment banking deals both at home and abroad including aircraft leases and sales of buildings in Germany," a Samsung Securities analyst said.
"It succeeded in its efforts to diversify its business portfolio by reducing reliance on real estate financing."
However, the brokerages' performances will improve in the first quarter of 2019, following the recent bullish sentiment on the local bourse.
"The recent upturn in investor sentiment will help recover the losses from the fourth quarter of last year. The recent momentum over the government's move to cut stock transaction taxes will also help."