Euh vows to slim down an ‘obese’ KB

Euh Yoon-dae

The new chairman of KB Financial Group yesterday vowed to cut costs and staff at the nation’s second largest banking group, which he said was suffering from “obesity.”

“KB is suffering from an excessive workforce and rising wages, while bad-loan risk increases,” said Euh Yoon-dae in his inaugural speech. “It’s like a patient suffering from obesity. The company needs a fundamental change and it’s time to treat the diseases hurting its competitiveness.”

The bank’s trade union is already gearing up for a fight with the new chairman by holding protests yesterday outside the bank’s headquarters in Yeouido, western Seoul.

The union fears job cuts, which could be larger if KB succeeds in merging with Woori Finance Holdings as part of a move toward creating a megabank as favored by the government.

Euh, however, focused yesterday on the need for KB to diversify by expanding its non-banking operations.

Euh has been appointed to a three-year term as chairman and replaces Hwang Young-key, who resigned last September under government pressure after investment losses suffered by Woori, his previous employer.

The new chairman plans to boost KB’s share price 30 percent by cutting costs, shifting workers from headquarters to branch offices and increasing fee income from services such as mobile banking.

He also proposed spinning off KB’s credit card division from the banking unit in the near future.

Higher shares for KB would help promote Euh’s plans to take over Woori through a share swap.

Euh compared KB’s situation to that of General Motors, which went bankrupt last year as a result of a high-cost management structure.

Equity analysts agreed that Euh needs to work on improving KB’s earnings.

A consensus earnings forecast for KB’s second-quarter results, conducted by Yonhap Infomax, said that net profits could fall by 42 percent to 331.2 billion won ($273 million).

This compares unfavorably to the performance of smaller rivals such as Shinhan Financial Group and Hana Financial Group, which are expected to post higher profits in the second quarter.

“KB’s profitability was once better than its competitors, but it has been deteriorating over the past five years. It is important that the new chairman restore KB to the dominant position it once held,” said Koo Kyung-hwe, an analyst at Hyundai Securities.

Park Jie-won, floor leader for the opposition Democratic Party, alleged that Euh was appointed due to political pressure from the Blue House.

By Jung Jae-yoon [jyj222@joongang.co.kr]