Banks' Courtship Still Stormy

Concerns are rising over whether the merger of Kookmin Bank and H&CB will proceed smoothly, as many observers say the marriage, announced Wednesday, has been pushed too hastily. The government's intervention in achieving the merger is also attracting criticism from the banks' labor unions, which are gearing up to wage strong protests.

Confusion exists over what the merger will produce. Initial plans called for the two lenders to become a new entity, but early this year the merger steering committee suddenly changed its mind and said that one of the banks would remain as a surviving entity. A committee member, Choi Buhm-soo, told reporters just last week that "consolidating the two lenders by setting up a new entity is not a good idea, since it sends the message that the talks didn't go smoothly." He even said that the new-entity option was "not even worth considering." But when the merger was announced this week, the plan was based on establishing a new entity.

Mr. Choi countered criticism from industry analysts, who have said that the steering committee failed to adequately review the expense needed to form a new corporate body. "Due to corporate tax laws revised last year," he said, "the total cost of the merger will be reduced by around 100 billion won ($76 million)." Even if the banks are burdened with a few billion won more in expenses as a consequence, he added, the committee decided that a swift decision was needed.

The banks' unions are upset with the part played by Lee Keun-young, the chairman of the Financial Supervisory Commission, in encouraging the presidents of the two banks to reach a quick agreement. The unions suspect that Mr. Lee wanted the pact secured so he could give a favorable report to President Kim Dae-jung, whom he was scheduled to meet Thursday. The Korea Financial Industry Union said Friday that the agreement, because it was reached "for the sake of giving a report to the president," is invalid. It said it would sue the government for breaching its agreement, reached last year, in which it promised not to force a merger.

by Kim Won-bae