KB may have heart set on Woori

One month ahead of the deadline for bids to acquire Woori Financial Group, speculation is growing that KB Financial Group may throw its hat in the ring, despite the latter consistently denying it is interested in chasing the purchase.

But market watchers remain skeptical over what synergy effect the country’s two biggest financial groups could expect in terms of productivity.

Woori, which has the government as its largest stakeholder, ranks as the nation’s largest financial group by asset at 403 trillion won ($348 billion). KB Financial Group has in excess of 369 trillion won.

A merging of the two would create a mammoth-size bank, which has long been the goal of the incumbent Lee Myung-bak administration. Such a financial powerhouse would hold assets of 772.5 trillion won, more than 2,100 branches and nearly 37,000 employees. This would place it among the top 40 banking institutions in the world.

It would far outstrip current domestic rivals, including Shinhan Financial Group and Hana Financial Group. Hana recently expanded by taking over Korea Exchange Bank.

Until now, KB Financial Group has stressed that it has not been interested in pursuing Woori, claiming that its large size would be a major financial burden. Time after time, the group’s chairman, Euh Yoon-dae, has said there would be no benefits for KB as most of their business interests overlap. He said that since his main priority is maximizing shareholders’ interest and value, the main goal of KB Financial Group is to expand and enhance its nonbanking sector.

KB has been negotiating with ING, the Dutch insurance conglomerate, to acquire its Korean operation this year.

However, KB Kookmin Bank President Min Byung-duk reportedly met with the bank’s labor union and proposed making a bid for Woori if the employees are also in favor.

Unlike in the past, the financial group and bank have not denied being interested in such a move at this juncture. KB said nothing has been decided yet.

This is the third attempt by the government to privatize Woori. The financial group came under the ownership of the state after more than 12.7 trillion won of public funds were injected into it in 2001 to keep it afloat in the wake of the Asian financial crisis. Korea Deposit Insurance Corp. is the largest shareholder, with a stake of almost 57 percent.

In 2010 and again in 2011, the government tried to sell the bank without success. In 2010, Hana showed interest in taking over Woori, but at the last minute switched its attention to the less financially burdensome KEB. Last year, no banking group took part in the bid. And this year, the government plans to accept bids on July 27 and choose a primary negotiator in October. It is hoping to privatize the financial group by early 2013 at the latest, but potentially within this year.

Kim Seok-dong, chairman of the Financial Services Commission, said the law clearly states that any public funds injected into Woori should ultimately be retrieved.

“It has been 11 years since 12 trillion won worth of public funds were injected in Woori,” Kim said.

But market watchers remain skeptical about the potential merger, saying the creation of a mega-financial institution would not guarantee an improvement in productivity.

“I believe there is only a slim chance of KB Financial merging with Woori, as the process would become quite tough if the issue of restructuring was raised,” said Hwang Seok-Kyu, a bank analyst at Kyobo Securities.

Hwang said there is also concern that a six-month deadline for privatization is too short.

Labor unionists at the two banking groups are opposed to the merger. Workers at Woori Finance have threatened to strike, arguing that a financial institution of this size would buck the global trend of splitting up large financial firms into smaller entities post-2008.

By Lee Ho-jeong[ojlee82@joongang.co.kr], Yonhap