Shinhan Financial mulls 'extra dividend' to limit share price drop

Shinhan Financial Group Chairman Cho Yong-byoung Korea Times file

By Lee Kyung-min

Shinhan Financial Group is expected to pay extra dividends to shareholders, in a much-hurried move to prevent its share price from taking a further dive following a capital increase with consideration worth over 1.1 trillion won ($952 million), a corporate decision shunned by shareholders who view their visibility of return is undermined by devaluation of the shares.

The move is considered a method of last resort, given its previous mention of profit-sharing after its Sept. 4 capital increase failed to dissuade shareholders from dumping their shares.

At that time, Shinhan said the capital increase was part of an emergency plan to better counter the fallout of the COVID-19 pandemic and bolster capital capabilities before mergers and acquisitions (M&As). But shareholders continued to dump shares judging that per-share value dropped due to the greater number of stocks issued via the capital increase.

How soon or whether the payments will materialize at all remains to be seen, as the bold move will entail heightened scrutiny from the financial supervisory authorities that made it clear that funds raised for shock-absorbing purposes should not be used to satisfy shareholders.

The group said Thursday the dividend payments were among agenda items put forth during its workshop for board members held Tuesday.

Shinhan Financial Group Chairman Cho Yong-byoung and CEOs of the group subsidiaries reached an agreement that the measure is needed, a step necessary to put a stop to the foreign selloff that continued for the past month.

Also factoring into the unconventional decision was Hana Financial's similar policy whereby its shareholders were given dividends in late June, in addition to April, as most other firms pay dividends to shareholders once a year.

Their agreement came after Shinhan Financial's shares topped the list of local shares sold off by foreign investors who net sold 385.4 billion won between Sept. 4 and Oct. 6.

The group's share price sank to as low as 27,200 won Sept. 24, an over 8 percent drop from 29,650 won on Sept. 4. The price has recovered to 28,400 won, but is still down 4 percent from the Sept. 4 figure.

It contrasts with its competitors KB Financial and Hana Financial which saw share prices jump between a range of 4.3 percent and 4.5 percent.

“Discussions are ongoing over when the dividends should be paid,” a Shinhan Financial official said. “An immediate payment is not an option because of the prolonged uncertainty due to the COVID-19 pandemic.”

The group managed to remain as the leader of the top five financial groups in the first half.

The group's net profit was 1.8 trillion won, down 5.7 percent from a year earlier. This is a notable level given most businesses suffered more due to the virus-induced crisis, raising financial soundness concerns among lenders, the most lucrative subsidiary of financial groups.

Shinhan's net profit during the April-June period was 873.1 billion won. Its interest income in the first six months jumped 3.1 percent to 4.2 trillion won, and non-interest income inched up 1.8 percent to 1.7 trillion won year-on-year. Income from securities, foreign exchange derivatives reported a solid 25.4 percent year-on-year growth, a success led by faster-than-expected recovery of the equity market whose pronounced volatility tanked investor sentiment in the first quarter.

The slower-than-expected growth in the first half was somewhat in line with market consensus because of 185 billion won Shinhan Card and Shinhan Bank put aside as loss reserves.

Increasing of the reserve was inevitable due to heightened uncertainty involving the COVID-19 pandemic, a necessary step following the recommendation from the Financial Services Commission that required all major lenders to prepare against possible amplification of the crisis by a slew of continued delinquencies developing into full-fledged default.