Goldman Sachs considered to be main victim of short-selling ban

21-Jan-2021 Intellasia | KoreaTimes | 6:02 AM Print This Post

Goldman Sachs appears to have suffered more from the temporary ban on short-selling on the Seoul bourse than two other top-tier global investment banks ? JPMorgan Chase and Morgan Stanley, according to industry officials, Wednesday.

Short-selling refers to a method in which an investor sells borrowed shares in the belief that the price will fall and they will be able to buy the shares back at a discount, keeping the difference and returning the borrowed shares.

Before the financial authorities temporarily prohibited the practice last March to counter the stock market plunge in the aftermath of the COVID-19 pandemic, Goldman Sachs was one of the foreign brokerage houses that had most frequently used short-selling on the KOSPI and Kosdaq markets, along with Morgan Stanley, Merrill Lynch and Credit Suisse, according to data from the Korea Exchange.

The temporary measure apparently took away Goldman Sachs Seoul branch’s opportunity of raking in handsome profits in commissions from short-selling.

“After the enforcement of the temporary ban, the volume of short-selling through Goldman Sachs has declined sharply,” a high-ranking foreign bank executive familiar with the issue said on condition of anonymity. “This could affect the revenue of its Seoul branch.”

JPMorgan, Morgan Stanley and Credit Suisse appear to have managed to cover their losses from the short-selling ban last year by actively serving as advisers and underwriters for large acquisition deals and initial public offerings (IPOs) in the Korean market.

Data given by the Financial Supervisory Service to Rep. Kim Byung-wook of the ruling Democratic Party of Korea showed the cumulative incomes of the local branches of JPMorgan, Morgan Stanley and Credit Suisse during the first three quarters of 2020 outstripped their annual incomes for the previous year.

JPMorgan earned 81 billion won ($73 million) here in the first three quarters, up from 53 billion won during all of 2019. Morgan Stanley’s net income during the first three quarters was 53.9 billion won, up from 37.6 billion won; while Credit Suisse posted 72.4 billion won, up from 68.1 billion won.

In contrast, Goldman Sachs, which earned 38.8 billion won in 2019, achieved 29.6 billion won in net profit during the first three quarters of 2020. Mid-tier Merrill Lynch, with a higher reliance on the retail sector, earned 16.6 billion won, far lower than the previous year’s annual income of 41.8 billion won.

Goldman Sachs declined to comment on the impact of the short-selling ban on its earnings.

The government and the ruling party reportedly began discussions over extending the ban for another three months, raising the possibility that the US investment bank could continue to see profits decline in Korea.

The government extended the temporary ban for another six months last September.

The Financial Services Commission (FSC) hinted at lifting the ban starting in March this year, despite sharp criticism from retail investors. But the regulator took a step back recently and said nothing has been decided yet.

Industry officials said the further extension of the short-selling ban and the recent revision of a law that could lead to the imprisonment of illegal short-sellers could trigger an exodus of foreign investors, most of whom are customers of foreign brokerages, including Goldman Sachs.

According to the FSC, some foreign investors complained about the strict measures during a Financial Development Council meeting earlier this week, in which Goldman Sachs’ in-house lawyer Kim Seong-eun participated as an expert from the private sector.


Category: Korea

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