KEB deal has upbeat Hana thinking big
The banking industry had been awash with testosterone in past years thanks to the takeover race for heavyweight corporations, Woori Financial Group and the Korea Exchange Bank (KEB).
But as the dust begins to settle on the chase, it’s becoming clearer that the major changes in the financial landscape will be going through Hana Financial Chairman Kim Seung-yu one way or another.
The ever-aggressive 68-year-old, who has never been gun-shy in mergers and acquisitions (M&As), may have landed the deal of his life last November when he inked a $4.7 trillion won (about $4.27 billion) contract to buy a 51 percent stake in KEB from Texas-based Lone Star Funds.
Hana had been in play for the state-owned Woori, the country’s largest banking group that is now going through the process of privatization, but Kim eventually concluded that KEB will provide a larger bang for the buck and compensate Hana’s existing strengths better.
Kim, who is expected to soon secure his fourth term as chairman, claims that Hana’s acquisition of KEB, which is to be completed by the end of March, will give the industry a true fourth player to challenge the ``big three’’ banking groups of Woori, KB and Shinhan.
``Synergy’’ has been a word used frequently by Kim and other Hana executives, although it bears further watching whether the Hana-KEB union will prove to be better than the sum of its parts. Nonetheless, size does matter in the banking industry, and Hana is confident that its acquisition will allow it to compete with its bigger rivals in brute strength.
Hana currently has total assets of around 200 trillion won (about $180 billion), making it a distant fourth in the industry hierarchy behind Woori (332 trillion won), KB (330 trillion won) and Shinhan (310 trillion won).
Adding KEB and its 116 trillion won worth of assets will elevate Hana into third place at the expense of Shinhan and intensify the battle for the title of the country’s leading bank.
Hana Bank currently has around 649 branches around the country, but adding KEB’s shops results in a network of 1,000-plus outlets, more than what Shinhan and Woori currently have and second only to KB’s 1,170 branches.
``Compared to the three bigger players, Hana has been woefully outsized in the number of customers and branches, and this has resulted in various disadvantages on the sales front. Achieving economies of scale was crucial for Hana,’’ said an official from a rival bank.
``Hana’s added bulk will allow it to land deals it previously hasn’t been able to, such as major projects jointly participated in by large financial companies.’’
Many industry observers believe that Hana and KEB will compensate each other well as the two banking groups have distinctly different strengths and weaknesses.
Hana has managed to build a solid reputation in retail and private banking over the years, and was recently named by Euromoney as the provider of the country’s best private banking service for the seventh consecutive year in the magazine’s ``Global Private Banking Survey.’’ However, the group has underwhelmed in corporate financing, which account for just 55 percent of the group’s 102 trillion won worth of assets in loans.
This is an area where KEB could help, as it has been generating more than 70 percent of its loans from corporate financing and counts major corporations like Hyundai Motor, Hyundai Heavy Industries and Hynix Semiconductor among its clients.
KEB’s undisputed supremacy in foreign-exchange operations is a major plus and the same could be said for its potent overseas business.
Hana currently has nine foreign business units located around the United States, China and Southeast Asia. In comparison, KEB is currently operating 29 branches and sales offices that are entrenched not only in North America and Asia, but also in Europe, South America, the Middle East, Australia and Russia.
Hana has also struggled to expand its presence in the credit card industry and hopes that adding KEB’s credit card business will provide the needed jolt.
Hana is collaborating with mobile-phone operator SK Telecom on credit cards, with them jointly investing in Hana-SK Card, which was launched in 2009. The eventually goals of the companies is to usher in a new era of electronic payment when customers are allowed to leave their wallets at home and use their chip-embedded handsets to pay for goods and services.
However, at least for now, the credit-card game is mostly about plastic, and the 2.7 trillion won in assets Hana-SK had at the end of the third quarter last year was just good enough for eighth place in the industry. And KEB wasn’t doing much better, managing just around 2.4 trillion won in assets at the time.
However, combine the businesses of the two groups, and the industry could be looking at a credit-card provider with a double-digit market share and more than 10 million customers, which will propel Hana into fourth place at the expense of Lotte Card, Woori Card and Nonghyup Card.
``Although KEB’s market share in credit cards is nothing to brag about, it has been quite lucrative. The 237.7 billion won operating profit the company earned through September is equivalent to around 70 percent of the 349.5 billion won operating profit generated by the banking business,’’ said another industry source.
``Another strength of KEB’s credit card business is that the company has been managing and operating its own network to execute transactions and payment approvals, which is something Hana-SK Card don’t have.’’
For Kim, the KEB represents the last piece in the puzzle for building Hana into a serious financial player. Kim pulled off a series of M&As that bulked up Hana in the late 1990s and early 2000s, including the absorbing of the Chungchong and Boram banks from 1998 to 1999 and the acquiring of Seoul Bank in 2002.
Kim was also behind Hana Bank’s acquiring of Daehan Investment and Securities in 2005, which represented an attempt to expand the group beyond banking.
At the end of 1996, just before Kim was named president of Hana Bank, it had just around 8 trillion won in assets. With the KEB deal in the bag, Hana, which was converted to a financial holding company in 2005, is now eyeing over 300 trillion won.