ASEM HSBC Closer to Taking Over KEB
By Kim Jae-kyoung
Staff Reporter
Korea Exchange Bank (KEB), Korea's premier bank, now awaits the closing of the ongoing share acquisition agreement between Lone Star Funds, the bank's controlling shareholder, and HSBC, one of the world's largest global banks, ranking first by equity capital and second by asset volume.
Lone Star and HSBC signed an agreement under which the U.S. private equity fund sells 51.02 percent equity stakes to HSBC, subject to regulatory approval, in September 2007 and recently extended the deadline for completion of HSBC's proposed acquisition of KEB to July 31.
KEB CEO Richard F. Wacker reiterated several times that the management and employees of the bank continue to strongly believe HSBC would be the best shareholder for KEB, which will help the bank and its customers grow both domestically and internationally and help the Korean financial industry further develop.
Following completion of the acquisition, KEB will remain a company listed on the Korea Exchange, retain the KEB name, keep its international network and its employees.
The bank now stands at a critical juncture and now is the time for KEB to have a new, permanent strategic shareholder for the bank's continued development.
KEB hopes to see a successful closing of the long-stalled deal at the earliest date to eliminate uncertainty surrounding who will be KEB's next major shareholder and see the bank continue to grow forward.
The fact that other domestic banks eye KEB as a potential M&A target underscores the bank's remarkable turnaround in recent years and strong resilience combined with industry-top profitability as manifested by key financial indices.
Established in 1967 as a government-owned bank specializing in foreign exchange and international trade financing, KEB has developed a dominant position in the banking industry.
KEB was privatized in 1989, and was put on the same competitive footing as other commercial banks, it has since continued to solidify its standing as one of the country's premier commercial banks.
Like other domestic banks, KEB was confronted with the threats posed by the collapse of large corporations following the 1997 Asian financial crisis and had to overcome the challenges stemming from the bursting of the consumer credit card bubble in 2003. Unlike many other domestic banks, KEB survived without public bailout money.
With the new large-scale capital injection from Lone Star Funds, the bank was able to take another giant leap forward.
Revenue from the bank's strong core franchise along with self-directed restructuring and the efforts of devoted staff enabled KEB to overcome difficulties arising from crisis. The bank built a platform for quality profit growth.
With new management, reorganization and go-to-market clarity, KEB has driven ahead once again as 'not the biggest but the best bank'.
KEB has proven that the bank is a healthy and strong institution, with profitability, capital adequacy and portfolio quality in their best shape in the bank's history.
Under the strong leadership of CEO Richard F. Wacker, the bank built a stable financial structure and improved its profitability significantly, which was encapsulated by the slogan 'Smart and Profitable Growth'.
The bank posted record-high net income of 1,929.3 billion won in 2005, followed by 1,006.2 billion won in 2006 and 960.9 billion won in 2007. During 2005 and 2006, KEB had the highest return on equity (ROE) of any Korean bank.
Not only in terms of profitability but also in asset quality, the bank has remained ahead of its Korean peers. The bank's non-performing loan (NPL) ratio has stayed at 0.6 percent, the lowest in the domestic banking industry. This indicates a remarkable improvement of asset quality compared to 2.59 percent at the end of 2003 and 4.01 percent in February 2004.
From 2006, the bank was able to pay corporate income taxes for the first time since 1996. Total corporate income tax the bank paid stood at 1,143 billion won (87 billion won in 2006 and 556 billion won in 2007).
The new management has made large investments in the bank's infrastructure in order to build better and more appropriate facilities. Approximately 100 billion won was poured into opening new branches as well as remodeling the existing ones.
Another 100 billion won was injected into various IT system developments and upgrades including Next Generation Systems, Wealth Management Systems, Customer Relations Management (CRM) systems, etc.
Boasting the broadest global branch network and most extensive money exchange and trade finance operations of any Korean bank, KEB continued its reign as Korea's unchallenged foreign exchange specialist bank.
In 2007, the bank held onto its leading position in the domestic foreign exchange market for the 12th consecutive year with a share of 40 percent of total transactions handled by the nation's seven top commercial banks.
This success was repeated in the trade finance sector, where the bank recorded industry-leading market shares of 29 percent each for both export financing and import financing.
In recognition of the bank's continued strong performance in these core business areas in 2007, KEB garnered kudos from respected international financial publications.
The bank was named "Best Trade Finance Bank in Korea" (7th consecutive year) and ``Best Foreign Exchange Bank in Korea'' (6th consecutive year) by Global Finance. Asiamoney also selected KEB as ``2007 Best Foreign Currency Exchange Bank in Korea'' (second consecutive year).
In addition, KEB improved the way the bank compensates its employees by introducing performance-based compensation. At the end of 2007, the salary level of employees was nearly double of that in mid-2003.
In return for increases in salary, employee productivity increased. Over the last three years, productivity-per-employee has been recorded as the highest in the domestic banking industry.
What's more, in a remarkable switch from customary Korean hiring practices, the bank introduced 'open hiring' whereby the bank no longer targets specific universities or imposes age limits, but recruits those with strong capacity and passion.
Other banks and companies, even the government, quickly rushed to follow suit and remove the age limit in their recruit programs.
From 2005 to 2007, KEB has hired 606 new entry level staff (202 per year average), compared to just 419 new hires between 1998 and 2003 (70 average). And the bank plans to hire approximately seventy new employees during the first half of this year under its 'open hiring.' This 'open hiring' focuses on recruiting the best, most talented candidates regardless of educational pedigree as an extension of the bank's philosophy to create a strong and merit-based environment.
In line with the governments labor policy to ensure job security among non-regular employees, the bank granted job security to 1,000 irregular workers in 2007.
The bank won the Best Equal Employment Company 2006 by the Ministry of Labor.
The bank's credit rating has also climbed. Fitch Ratings adjusted the long-term unsecured debt rating of the bank upward to A- while the Korea Ratings Corporation lifted the long-term senior debt rating upward to AAA.
In order to coordinate the bank's social activities and maximize their impact, KEB created the Korean bank industry's first non-profit foundation, the KEB Foundation, in December 2005.
The foundation engages in charitable activities to support needy and neglected members of domestic and global society including underprivileged children, child welfare facilities, etc.
The bank has devoted particular energy to building a social safety net by nurturing the future dreams of youths in need, and to international relief work which, as Korea's preeminent global bank since the bank's inception in 1967, goes hand-in-hand with the bank's global brand image.
For 2008, KEB aims to continue to develop healthy capital, asset quality and improve its cost position as well as use capital and people efficiently as part of efforts to create an engine of growth.
The bank plans to earn a net income of 1 trillion won, to increase its total assets by 5.5 percent from the previous year, as well as maintain its NPL ratio and delinquency ratio below 0.85 percent, the best in the industry in terms of asset quality.
During the first quarter of this year, the bank posted 267.4 billion won of net income up 12.2 percent over the first quarter of last year, in stark contrast with other domestic banks whose quarterly income have fallen year-on-year.
Capital adequacy remained strong and overall profitability was healthy with return-on-assets (ROA) at 1.27 percent, the highest of any other Korean bank.
Celebrating its 40th anniversary in 2007, KEB will keep improving and evolving as a world-class banking institution.