'Stock-type lap' products, which were aggressively sold to retail investors with a target return of 5% to 8%, are now exposed to loss risks. Over the past three months, as the KOSPI fell more than 25%, losses on target-conversion products have not been recovered. The issue lies with bank-affiliated securities firms that saw a large influx of bank customers through integrated branches of financial group companies. In such cases, many customers lack sufficient understanding of stock-type or target-conversion products, raising concerns that the Hong Kong H-Index ELS (equity-linked security) crisis could be repeated.
According to the financial investment industry on the 2nd, sales of stock-type target-conversion lap products reached at least several hundred billion won per firm even in July, just before stocks began to decline. Specifically, Korea Investment & Securities sold about 200 billion won worth of products over one month in July; KB Securities sold about 160 billion won; Shinhan Investment Corp sold 85 billion won; NH Investment & Securities sold about 50 billion won; and Samsung Securities sold about 45 billion won.
With the index failing to rebound since July, it is reported that losses on these products remain unrecovered. The KOSPI's decline over the past three months was 25.44%. Portfolio stocks tracked by target-conversion lap products are also showing sluggish trends.
'Target-conversion' products have a structure where accounts are refunded upon achieving the target return, while losses occur if the target is not met. Although there is no maturity date, invested funds can remain locked in accounts for extended periods. It is analyzed that after the ELS crisis caused by the sharp drop in the Hong Kong H-Index led to significant investment losses and a contraction in bank operations, similar products were sought as a way for affiliated companies to find new avenues.
Sales of target-conversion stock-type lap products by Korea Investment & Securities and KB Securities peaked in April when the KOSPI index continued to rise. Korea Investment & Securities sold 2.1 trillion won worth of products that month, while KB Securities sold 1.9 trillion won. As stocks rose, existing target returns were achieved, followed by refunds, target achievement, and re-enrollment processes repeated, leading to cumulative sales growth.
Bank-affiliated securities firms drew attention due to this sales trend because they have a structure that allows bank customers to easily flow in through integrated branches of financial group companies. The industry's common view is that bank customers include many depositors who are not professional investors and that word-of-mouth promotion has been active. In fact, KB Securities' total entrusted asset management contracts for the first half of this year exceeded 10 trillion won at 10.7408 trillion won, and entrusted fees reached 109.5 billion won, an increase of 100 billion won compared to the same period last year, marking significant changes.
According to industry insiders in the lap and trust sectors, many customers visiting securities firms are aware of stock-type products and recognize the possibility of principal loss. Shinhan Investment Corp, a subsidiary of Shinhan Bank, is still grappling with issues related to the suspension of redemption for Hong Kong Gentu Funds and claims arising from the Lim Asset Management crisis, resulting in limited inter-affiliate transactions. NH Investment & Securities does not engage in any inter-affiliate sales at all. Korea Investment & Securities and Samsung Securities do not have bank affiliates.
Notably, among products sold by KB Securities, some invest solely in a single stock. The Yeodeu Investor Advisory Lap consists of assets made up only of cash and stocks of individual companies such as SK Hynix and Samsung Electronics. Single-stock holdings account for an average of 29% of the portfolio.
A KB Securities official stated, "The proportion of bank-affiliated customers in stock-type laps is typically around 30%, so it is difficult to attribute the recent increase in enrollments to a large-scale influx of bank customers." He added, "Target-conversion laps clearly inform customers that there is a possibility of principal loss and are classified as 'very high risk' products."
Meanwhile, retail sales operations at securities firms have contracted due to crises involving Lim Funds, Optimus, and ELS. Firms faced complaints for failing to properly explain loss risks when customers did not fully understand the products, or they incurred massive compensation losses exceeding fees earned by selling corporate bonds of distressed companies as normal products.
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