Headquarters of
Woori Financial in Seoul |
By Cho Jin-seo
Staff reporter
The sale of the governent’s shares of Woori Financial group will reignite the debate regarding the banking sector restructuring, with various mergers and acquisitions scenarios surfacing once more.
The Financial Services Commission (FSC)’s announcement to sell the remaining shares of the Korea Deposit Insurance Corporation means that the bank is likely to be merged with another major commercial bank. Hana Financial Group and KB Financial Group are strong candidates for this “mega bank” scenario.
Other possible outcomes include a block sale of shares to a financial investor, or the splitting of Woori Financial Group into several separate entities. Industry watchers rule out the possibility of a sale on the open stock market, as in that case the government has to forego the management premium it would expect from a block sale.
Hana has said that Woori is its number one target for a merger. Hana, the smallest of the four major commercial banks, is also eyeing Korea Exchange Bank as an alternative. “There is no change in our M&A plan. But details of the plan will have to reflect the government’s plan for the Woori sale,” the bank’s official told Yonhap news agency.
Hana has total assets of 196 trillion won, and merging with 300-trillion-won Woori will make it competitive against other giants such as KB and Shinhan in terms of size, though it is not clear the merger will benefit its shareholders or employees.
The “mega bank” theory has been circulating in the government and in the financial industry for a while. The idea is that Korean banks are much smaller than its Western competitors, so they lose out in international deals. By merging two or more banks, Korea will have its own super-competitive bank, so the theory goes.
One of the theory’s advocates was Euh Yoon-dae, who was recently appointed to the chairmanship of KB. Yet he has become less aggressive since he took the helm and began focusing on restructuring within KB instead.
“KB is suffering from an excessive workforce and rising wages, while bad-loan risk increases. It’s like a patient suffering from obesity,” he said during his inaugural speech as chairman on July 14.
Still, Woori’s strong presence in the brokerage and investment banking sector may tempt Euh’s appetite later on. KB is heavily depending on its retail banking business, which accounts for more than 90 percent of the group’s revenue. Woori’s stock brokerage arm is about 10 times larger than KB’s in terms of asset size.
Currently, the Korea Deposit Insurance Corporation (KDIC), a state firm, owns a 57 percent stake in Woori Finance, valued at 6.84 trillion won ($5.77 billion) based on Woori’s share prices.
It has been six years since the KDIC has been considering an exit from Woori. In 2004, it signaled to the market that it was going to cash out from Woori by selling a five-percent share of the market. Similar selling was done in 2007 and 2009. The share was reduced to 57 percent when it unloaded a 9-percent share this April.
Meanwhile, Woori’s employees are nervous about the possible M&A, since it will accompany restructuring in branches and at the headquarters.
Earlier this month, labor unions of several banks held a joint conference, and vowed to join forces to thwart any M&A. They threatened to stage a general strike once the government pushes for them.
At a joint press conference led by the unions of Kookmin and Woori Bank on July 7, the Korea Financial Industry Union said that a mega bank plan could hamper the health of the financial industry and trigger another crisis by creating system risks.
“It is a step in the wrong direction for the government to try to reshape the banking industry by enlarging the size of banks through M&A,” its leader Yang Byong-min said during the conference.
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