Several leading domestic securities firms lost money in October as lackluster turnover in the stock market and plunging share prices took a toll on earnings.
Analysts, however, believe that the rebound in the stock market in the past few days may help brokerages recover some of their paper losses.
Taiwan Securities Corp, one of the top 10 local brokerages and a member of Shinkong Group, reported a loss of NT$512 million in October, resulting in a January to October net profit of NT$90 million, according to a local Web site. That translates into an earnings per share of NT$0.11.
The company's underwriting department and the proprietary trading department combined lost NT$570 million in October. Taiwan Securities said that the company's proprietary trading department is still sitting on a stock portfolio worth NT$1.5 billion, while its underwriting department has a portfolio worth NT$900 million.
Another leading securities firm, Polaris Securities, also reported a loss of NT$339 million, out of which NT$189 million is related to trading of financial derivatives. The company's first 10 months pretax profit stood at NT$534 million, for an earnings per share of NT$0.62.
While Taiwan International Securities reported a positive net profit of NT$3 million in October, it reported a net loss of NT$271 million in the first 10 months.
Those securities firms with less aggressive proprietary trading portfolios were more resilient. National Securities reported a net loss of NT$35.92 million in October, but its January to October net profit stood at NT$1.47 billion, due mainly to its relatively conservative trading department.
The stock market has lost more than 40 percent from this year's peak, while the market's average turnover has fallen below NT$50 billion over the past few weeks. Analysts estimate that securities firms need an average daily turnover of at least NT$50 billion to break even in the market.
"These are tough times for local houses now," said Mark McGregor, vice president at Primasia Securities. "Because turnover is low so, the commissions have fallen."
But the recent rebound in the market may help them regain some of their losses, he said. Local accounting rules require securities firms to report their paper losses, although they realize the losses only if they sell the stocks.
Fee income and proprietary trading income are two major sources of income for local stockbrokers, which makes the securities firms highly volatile in terms of earnings.
"Everyone with exposure to equities is hurt by the downturn," said Neal Stovicek, investment strategist at National Securities.
One leading analyst at a foreign securities house said he usually pays little attention to securities firms because of their small market capitalization. "Clients do not want to hear about it even if we tell them they are going to go up by 20 percent," he said.
But in good times, securities brokerage is seen as an extremely lucrative business, thanks to Taiwan's high concentration of investors. Taiwan has nearly 6 million active investors, close to half the adult population.
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