By Oh Young-jin
Hana Financial must overcome a couple of challenges to make its acquisition of the Korea Exchange Bank (KEB) a success, according to analysts and industry watchers.
First, it has to make the best use of its bigger size while at the same time attain efficiency.
After absorbing KEB, with assets of 107 trillion won, Hana’s assets will total 331 trillion won, making it the second largest in Korea behind Woori with 372 trillion won.
This ranking will enable Hana to compete with the existing big three of Woori, KB and Shinhan.
It also raises the combined staff on the Hana-KEB payroll to 16,962, a figure higher than Woori’s 15,000.
The added wage burden is expected, especially considering KEB employees receive the industry’s top salaries and Hana employees will want to raise their pay scale to the level of their KEB counterparts.
Hana Chairman Kim Seung-yu already ruled out any drastic rationalization, saying during last week’s news conference that KEB will be run independently under Hana’s wing for the time being.
Kim’s remarks are obviously aimed at appeasing the KEB union, which is vowing to fight Hana’s KEB takeover.
However, it is widely believed that Hana will sooner rather than later take the ax to its payroll in order to create a small but efficient work force.
This will likely lead to a confrontation between Hana and KEB unionists, who are backed by the opposition parties itching to turn it into an issue to attack the government ahead of April’s general election.
Even if the union row settles down, Hana should follow it up with a chemical amalgamation of KEB employees. The KEB union claims that Lone Star’s sale of KEB to Hana is not valid.
There are good and bad precedents. Shinhan maintained a two-bank system with Chohung after it took it over in 2004 before it absorbed one of Korea’s oldest banks.
Their merger is regarded as one of the most successful marriages in the sector, helping Shinhan become the most profitable bank in Korea.
It remains to be seen how the funds Hana raised for the KEB purchase will affect its capital base.
Hana will pay a total of 3.92 trillion won for the 51 percent stake in KEB.
It will also pay 480 billion won for Korea Exim Bank’s stake.
To cover costs for the purchase, Hana raised about 5 trillion won _ 2.2 trillion it raised besides 1.3 trillion won in capital increase or new shares and 1.5 trillion won in commercial papers.
Although Hana and KEB have sound capital bases, it remains to be seen whether the loans will adversely affect their capital adequacy ratio.
“Quite often, firms suffer from a post-merger syndrome,” one source said. “Hana should carefully set up a strategy to prevent itself from falling into the same trap other firms and banks faced after big mergers.”
Oh Young-jin is The Korea Times' publisher and president. He began to work at The Korea Times in 1988 as a sports writer. Then, he worked as a reporter and later as editor at the City Desk, Business Desk and Politics Desk. He worked as chief editorial writer before taking the current position. He has a keen interest in politics as well as defense affairs.