Big 4 resist acquiring troubled banks
Tensions are brewing between the leading financial institutions and the government over the acquisition of savings banks.
While the government is hoping that the leading financial groups - Woori, KB, Hana and Shinhan - will shoulder the troubled savings banks in the aftermath of the restructuring of the industry, financial groups are trying to avoid additional burdens.
Last week, Financial Services Commission (FSC) Chairman Kim Seok-dong told reporters that there are investors including a financial holdings company in Korea that expressed interest in buying the troubled savings banks.
This sparked controversy as to whether the government was once again pressuring local banks in the aftermath of the industry restructuring as the nation’s financial regulator had done last year. The financial institutions have been waiving off rumors of having any interest in buying the suspended savings banks.
“The government has not made any inquiry [on the additional acquisition of savings banks] and we have not yet considered [the possibilities],” said Euh Yoon-dae, chairman of KB Financial Group, while attending the group’s asset management event on Thursday.
“Although we have the [financial] resources to make an additional purchase of a savings bank, the premium is burdensome,” the chairman added.
“We would like to help in stabilizing the financial industry and contribute to the nation’s economy, but we have to also think of our shareholder’s position.”
KB Financial Group President Lim Young-rok, while visiting Manila to attend the Asia Development Bank’s annual meeting earlier this month, told reporters that the financial group has no intention of taking additional savings banks under its wing.
“We have played our role as a big brother [of the financial industry] by buying a bank [the last time the government restructured the savings bank industry],” Lim said.
The KB Financial Group president also noted that savings banks’ profit models are very limited and therefore additional acquisition of a savings bank will not be a profitable move for the financial group.
“In the past, project finance loans were profitable, but currently they have lost market value,” Lim said. “Additionally, it is not appropriate to expand the savings banks business as they were in the past.”
Lee Pal-sung, chairman of Woori Financial Group, expressed until April that there was a possibility of taking in another troubled savings bank.
However, Woori’s position changed completely after the government announced its plans to make its third attempt at privatizing the financial giant.
The financial group stressed that an M&A could jeopardize the privatization as it could change the negotiation price of the government-owned stake in Woori.
Hana Financial Group also stressed that it has only been a few months since it acquired Korea Exchange Bank. The financial group said not only was it tight on financial resources to make additional purchases but also it is currently in the process of smoothing out the differences between the two financial institutions.
Shinhan Financial Group said it is currently working on normalizing the savings bank that it bought last year and has not yet considered the idea of buying the additional savings banks that were suspended earlier this month. FSC Chairman Kim immediately worked on restructuring the savings bank industry after he took office in January 2011.
Last year, when the financial regulator announced the list of savings banks that were suspended, promised that the savings bank industry would normalize soon.
However, the list of suspended savings banks continued to grow as the industry struggled with the souring of massive project finance loans.
The construction market that has been suffering since the late 2008 global crisis showed no signs of improvement and as a result even those who had survived the previous cuts were added to the list.
In just a year and a half after Samhwa Mutual Savings Bank was the first to make the suspension list, 20 savings banks including the nation’s leading savings bank by assets, Solomon, have been frozen by the government.
The four major leading financial groups as of today have taken control of a total of five savings banks.
Woori was the first to make the move while Shinhan now owns the second-largest savings bank by assets, Tomato, while KB owns the industry’s third-largest, Jeil.
“I would really like to know what thoughts go through Kim’s head,” said an official in the banking industry. “Why is he trying to dump all the troubled savings banks onto the leading financial groups?”
“I understand that the government is trying to stabilize the financial industry by restructuring insolvent savings banks, but it is not fair that the financial groups have to carry the burden of this mess.”
Market observers say that although losses that could be generated from buying additional savings banks would be limited at the four leading financial groups, there is a possibility that uncertainties caused by the purchase would devalue the financial institutions’ shares.
“The damage inflicted on shareholders will be exceptionally limited since the cost in clearing insolvent assets when acquiring the savings banks will be a one-time event while the size of these insolvent assets are less than 0.5 percent of the four financial group’s net assets,” said Ha Hak-soo, analyst at ETrade Securities.
The analyst, however, noted that there is no specific reason for the huge financial groups to enter the savings bank market.
“The circumstances in lending fresh loans to clients with low credits are inconvenient while the savings bank market itself is miniscule for major financial groups to enter,” Ha said.
The analyst projected that even if a financial group expands its shares in the savings bank market up to 5 percent, its assets would increase only by 1.1 or 1.5 percent.
By Lee Ho-jeong [email@example.com]
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