By Kim Yoo-chul
Chief executives at Korea's top three banking groups are continuing to purchase shares of their own banks, believing them to be undervalued.
Data provided by the Financial Supervisory Service (FSS), Korea's top financial regulator, showed the CEOs of KB Financial, Woori Bank and Shinhan Financial Group purchased shares of their own companies over four trading sessions from March 27 to 30.
In detail, Woori Bank CEO Sohn Tae-seung bought 5,000 company shares on March 27. A day after the share buyback event, Shinhan Financial Group Chairman Cho Yong-byung bought 2,171 company shares, followed by KB Financial Group Chairman Yoon Jong-kyu purchasing 1,000 of his bank's shares on March 30.
Typically, companies or high-paid executives choose to repurchase shares and then resell them in the open market once the price increases to accurately reflect the value of the firm. When earnings per share (EPS) increases, the market would perceive this positively and share prices would go up after buybacks are announced.
But the recent repurchase campaigns by the executives came at a time when the stock prices of each bank remained weak, which in part stemmed from toughening regulations in borrowing and the financial regulators' deepening investigation of them over hiring irregularities.
Buybacks, therefore, could be a signal of the market topping out, as the CEOs intend to artificially boost share prices by repurchasing stocks. Theoretically, if earnings can't be increased, buybacks can boost them superficially.
Shinhan Financial Group, one of the country's leading lenders, saw its share price drop by more than 14 percent during the January-March period, the FSS data showed. Foreign investors massively unloaded their Shinhan holdings.
“The recent share repurchase by Chairman Cho leaves him with 12,000 common shares of the company. This is the first time Cho has purchased company shares, sending a message the financial soundness of the banking group will remain stable,” a Shinhan official said.
The share price of Woori Bank was also cut by more than 14 percent last month after its previous chief Lee Kwang-koo had been forced to step down due to his involvement in hiring irregularities. Foreign investors cut their collectively owned portion of Woori to 26.91 percent from 28 percent in March.
“Out of the top three banking groups, Woori Bank would see the largest profit increases given approval by Kumho Tire union to sell the tiremaker to China's Doublestar,” said a Woori official. Woori Bank owned 22.5 million shares of Kumho Tire.
The decision by KB Chairman Yoon to repurchase company shares is, however, understood to be “political” as he was alleged to have been involved in hiring irregularities.
“Yoon has been leading the banking group since 2014. Every time he faces big issues, he purchases company shares. When he was nominated as chairman of the group in 2014, he bought 5,300 company shares. He bought 4,000 shares last August and September when a chairman search committee was held,” a KB official said.