In another example of a U.S. brokerage firm taking advantage of Asia's economic crisis, a subsidiary of San Francisco-based investment bank Hambrecht & Quist said Friday that it will acquire a controlling stake in one of South Korea's largest brokerages.
H&Q Asia Pacific will buy 28.11% of Ssangyong Investment & Securities Co., making it the first South Korean brokerage firm to be controlled by a foreign firm. H&Q is paying a nominal $1 for the firm and promises future investments of $110 million.
"With the price as low as it is, maybe some of the concerns just don't matter," said Dean Eberling, an analyst and a managing director of Putnam, Lovell, de Guardiola in New York. "But strategically, it's a little tough to see where it all fits in. Still, you can't dispute that these are some good markets to be in for the long haul."
Eberling said H&Q will face stiff competition in other Asian markets where some of the larger, well-known global Wall Street firms such as Merrill Lynch & Co. and Morgan Stanley, Dean Witter will be tough competitors.
Investment banks see potential for major profits in South Korea since it has begun to overhaul its economy after a collapse last year forced the country to accept a $58.35-billion rescue package from the International Monetary Fund. Because the financial markets are still immature there, many banks see opportunities to serve individual investors and corporate clients.
Struggling Ssangyong Securities posted a net loss equivalent to $190.9 million during its fiscal year ended March, compared with a net loss worth $16.4 million for the year before.
Analysts said the move was likely to accelerate the pace of restructuring in the securities industry and help Ssangyong. "With the support of H&Q, Ssangyong can advance to become a leading securities house," said Mok Young-choong, financial analyst at ING-Barings Securities.
As part of the purchase, Ssangyong said H&Q Asia Pacific will make a $110-million capital investment in the firm by buying securities to be issued by Ssangyong Securities.
South Korea's securities watchdogs had warned Ssangyong Securities to boost capital levels or be shut down.
This is just the latest in a series of investments H&Q has made in Asia, for a total of $700 million in investments there. This year, H&Q bought stakes in a paper company and an electronics company in Thailand. In July, H&Q opened an office in Seoul, its 10th in Asia.
Officials at H&Q Asia were not available for comment Friday.
H&Q shares slipped 19 cents to close at $20.81 on the New York Stock Exchange.
Bloomberg news service was used in compiling this report.