There's reason for KB stocks not to nosedive

Unionized Kookmin Bank workers call for the resignation of KB Financial Group Chairman Lim Young-rok at the bank’s headquarters in downtown Seoul, Thursday. / Yonhap

By Yoon Ja-young

KB Financial share prices fell for the third consecutive trading session Thursday.

But the drop was not as bad as it could have been, and didn’t reflect the gravity of its leadership crisis, considering its CEO’s standoff with the financial regulator.

Analysts attributed that to a pickup in the property market, in which the bank specializes.

Still, that does not necessarily mean the bank has avoided paying a price in the market for the so-called “CEO risk.”

The group’s stock closed at 40,900 won, down 2.15 percent, Thursday. The market had been closed until Wednesday for Chuseok.

The Financial Supervisory Service (FSS) announced on Sept. 4 that it had strengthened penalties against KB Financial Group Chairman Lim Young-rok and KB Kookmin Bank President Lee Kun-ho from “cautionary warnings” to “punitive warnings,” for their internal dispute and mismanagement.

The dispute between Lim and Lee divulged in May concerned the group’s online computer system change. Each of them supported different systems and failed to reach an agreement. Lee brought the case to the FSS, raising questions about decision-making procedures.

When the regulator issues “punitive warnings” to executives, it is widely regarded in the market as a recommendation to resign. Lee stepped down right after the announcement of the heavy penalty, but Lim has been refusing to quit.

Analysts say that the CEO risk in general negatively affects share prices. “Incidents like this cannot have a positive effect on the share price,” said Jason Choi, an analyst at Woori Investment and Securities.

However, when the internal dispute was first divulged in May, there wasn’t much impact on the share price. “In the market, the problem was known. We can estimate that it was already reflected in the share prices,” said an analyst who refused to reveal his name.

Banking shares have been enjoying a rally recently, on expectations that they will benefit from government policies to boost the real estate sector. As the government is encouraging buying homes, the balance of housing mortgages at banks increased by four trillion won in August.

The announcement of the heavy penalties on KB Financial executives, meanwhile, prevented further increase as investors negatively evaluated the CEO risk.

Analysts cited uncertainties as the biggest stumbling block.

“The decision by the FSS will carry weight as uncertainties regarding top management will continue,” said Kim Jae-woo, an analyst at Samsung Securities. “Until this scandal gets resolved, KB will be in a disadvantageous position compared with other banks,”he added.

Choi at Woori Investment and Securities said the penalty can be an opportunity for KB to get rid of uncertainties. “Though Lee resigned, Lim can continue his job to get KB back on track. For KB, it is better than a continuing internal dispute.”

KB Financial was the country’s biggest financial group by assets as of March. It posted 765.2 billion won ($755 million) net profit for the first half of this year, up 33 percent from the previous year.