Daewoo Securities'
Expanded Role

Securities firm to be fostered as global IB on par with leading IBs in world

The Ministry of Finance and Economy said recently that Daewoo Securities Co. will not be auctioned off for a while and continue to be controlled by Korea Development Bank as its affiliate under the ministry's plan to develop it on the level of an international investment bank ultimately.
The core nature of the plan is to let Daewoo Securities take over the IB business from KDB and to be a leading IB in the country, the ministry explained, one of the reasons being that domestic securities companies would not be able to move quickly to turn themselves into IBs, although the new Capital Market Consolidation Act will come into force in 2009.
The ministry came to the conclusion that the government should lead the development of a leading IB as early as possible by combining the operations of KDB and Daewoo Securities. The ministry believes that the move is the short-cut to building a Korean version of major IBs in the world such as Goldman Sachs, Morgan Stanly and Merrill Lynch.
The MOFE projects that KDB will have a vital role to play in the financial sector yet. In short-term, the government-owned bank will have to provide finance to the development of regional, social development project and the knowledge industry, while in long-term, the bank would have to take care of the financial needs that will emerge in Northeast Asia, which will include various financial needs for North Korea when its relations with the outside world improves and eventually unite with South Korea although it could take decades.
The ministry's move is directly in counter to the suggestion made by the Audit Board to auction off the securities firm. "Not at this time,"is the ministry's answer.
Daewoo Securities'market value has climbed to 6.43 trillion won as of the stock market value on June 6, tops among the securities firms in the country, drawing much of its revenue from stock transactions and the IPO market.
KDB, in the meantime, led the banking industry in the areas of derivative product sale, M&As, and consultancy and ranked the 4th in project financing in Asia, which goes to show that it can compete with foreign banks in those areas in the world.
The ministry, therefore, concluded that the combination of the two financial institutions would create a substantial synergy and can easily be developed as a global IB in less time than private financial companies can.
KDB will deal with policy loans exclusively, while Daewoo Securities will take over the IB sector from KDB and fostered to be a leading IB in the country in the ministry's three stage plan.
In the first stage, KDB and Daewoo will solve the conflicting areas of their operations. In three to five years, KDB will gradually reduce its Capital area mortgage loans and transfer part of it to its affiliates. In order to strengthen its policy loan sector, the bank will set up the headquarters for public investment and restructure its set up and personnel assignment.
In the second stage, KDB will transfer its IB business to Daewoo such as the arrangement of bond issues, M&As, and private equity funds and derivative products.
In the third stage, the MOFE will consider allowing private investment in Daewoo and selling it in a public bidding. The ministry will assess the feasibility of Daewoo's development as a leading IB.
The MOFE has also decided to withhold the sale of KDB Capital and KDB Asset Management, Daewoo will take over the latter company in a merger. KDB will not be allowed to meddle in the operation of Daewoo as it will be managed by the management council of subsidiaries. The council will be made of outside experts, the Deputy Governor of KDB and CEOs of affiliates.
In the meantime, President Kim Seong-tae of Daewoo Securities said Daewoo will work very closely with KDB in the area of the IB business to pave the way for its growth as an international IB, taking advantage of the two companies'IB experiences and manpower and the synergy to created by the joint operation.
He said Daewoo will first take over from KDB its M&As, bond issuance management and others that are more private-sector oriented.
Daewoo will also consider assigning some of its IB professionals to KDB's overseas network of branches to strengthen its overseas IB operations. Daewoo will try to expand its global operations, now focused on southeast Asia to South America and Eastern Europe. Daewoo will also expand its business territories, too, by taking advantage of KDB's high credit ratings to enter such areas as M&A overseas, PI, PEF, ABS and others.
The Daewoo CEO said Daewoo will achieve 12 trillion won in capital and 2.4 trillion won in annual profit by 2015 backed up by KDB's vast financial resources and its high credit rating, which will be wings for Daewoo'take-off in its international operations in the future. nw

President Kim Song-tae of Daewoo Securities Co.