Salomon Smith Barney wants to enter the new South Korean retail and high-net worth business next year once capital controls are finally relaxed, says ES Min, Salomon's managing director in Seoul and CEO of its securities company joint venture with Korea Exchange Bank.
As of 1 January 2001, restrictions on how much individual Koreans can invest offshore or remit will be scrapped. A private banking official at Merrill Lynch explains this is a huge change that creates an entire new level of private banking business in Korea. To date this has existed only for the super-wealthy – Merrill handles clients with a $25 million minimum net worth – and Koreans have been left with offshore mutual funds as their only vehicle to move assets out. Merrill Lynch has already put in place a private banking team in Seoul in anticipation of deregulation.
Wrapping up talks
Salomon is in talks with potential domestic partners to distribute the products it markets to the US retail market, such as wrap accounts. Hong Choi, managing director of Mirae Securities, says he has been in negotiations with Salomon and others such as Merrill and Goldman Sachs to distribute wrap accounts or other fund products. “Mirae Asset Management is looking at a number of potential joint ventures or partnerships with foreigners, but there is nothing concrete yet,” he says. “They can test the Korean market by cooperating with us, without having to risk buying a company or learning the market.”
Min says the sheer size of the retail trading volume on the Korea Stock Exchange is enticing. “Many foreign banks concentrate on the cross-border business, but here 80% of the trading volume for the KOSPI index is retail.” With deregulation just around the corner, Salomon is now reviewing which local businesses it wants to go after. Options include private banking, retail brokerage and introducing global products such as dollar-denominated mutual funds or wrap accounts.
The main hurdle is to determine whether the firm can capture enough revenue versus the potential costs. These include establishing a branch network for distribution, or cobbling a JV with a local broker, or just relying on its current small private banking sales force to go after the super-rich. “We need a concrete picture of revenue and investment profile,” Min notes.
The other question is timing. Min says there is no clear view about the stock market’s direction. “In a bear market it would be difficult to achieve an initial success with our wrap product. A bad market could create a bad image of our products.” He hopes a final decision will be made by next year, coupled with a sustainable rally for KOSPI.
