KB’s chairman is confident after Hyundai deal

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KB’s chairman is confident after Hyundai deal

After winning Hyundai Securities by beating rival Korea Investment Holdings, KB Financial Group’s chairman, Yoon Jong-kyoo, said he hopes to rebuild Hyundai Securities into one of the industry’s top brokerages.

At the group’s headquarters in Yeouido, southwestern Seoul, Yoon told reporters that he plans to expand nonbanking businesses to 40 percent of KB Financial Group’s total revenue by strengthening its brokerage and investment banking businesses.

“We hope to develop Hyundai into a universal bank based on KB Kookmin Bank’s vast customer base, capital and reputation,” Yoon said.

He explained that he would like to see KB benchmark Bank of America Merrill Lynch, a universal bank that emphasizes both the banking and brokerage businesses, rather than Goldman Sachs and Nomura, which only specialize in investment banking. Yoon also said the group may change the integrated firm’s name to include KB.

As for the bidding price, which is known to have been slightly above 1 trillion won ($870 million), Yoon explained that it “was set considering Hyundai Securities’ growth potential and the synergy it will create with other KB affiliates.”

“The setting of the price followed strong support from board insiders,” Yoon added. “Even outside board directors gave us full discretion,”

KB’s victory was its first success after two failed attempts to expand its nonbanking businesses by acquiring existing brokerages put on the mergers and acquisitions market.

KB lost to NH Financial Group in 2013 when it obtained Woori Investment & Securities, and also to Mirae Asset Securities last year when it competed for Daewoo Securities.

Hyundai Group and EY Han Young, the facilitator of the Hyundai Securities deal, said they decided to not announce the specific bidding prices, as the creditors of troubled Hyundai Merchant Marine are still working on a voluntary agreement.

Korea Investment Holdings’ bid was several billion won smaller than that of KB, according to industry insiders on Friday.

The two giants are known to have offered similar prices in the first round, but Korea Investment reportedly offered a slightly smaller price in the second, considering that Hyundai Securities and its two financial affiliates have risky assets in their books.

The local brokerage industry has had mixed reactions to the final results of the bid.

Some said that 1 trillion won was a fair price because the Hyundai acquisition will help KB Investment & Securities expand its market share without much risk.

“The financial industry is moving to where the barriers among sectors are crumbling, so financial groups have to carry all different products, ranging from banking and brokerages to the insurance business, at one branch,” said Choi Chung-uk, a senior analyst at Daishin Securities. “So it was an inevitable and crucial choice for KB to acquire a large brokerage house to expand its investment banking and brokerage businesses.”

Seo Bo-ik, a senior analyst at Eugene Investment & Securities, expects the merger between KB Investment & Securities and Hyundai Securities to go as planned, as the two brokerages don’t overlap much in their specialty businesses and therefore will not require excessive restructuring.

“Hyundai, with its competent investment banking and retail [investor] brokerage businesses, and KB, with its strength in corporate financing, can complement each other and make a good combination,” Seo said.

Hyundai already has a wide customer network nationwide, and KB Kookmin Bank branches can sell Hyundai’s securities accounts, Seo said. If Korea Investment had won Hyundai, it would have had to carry out massive restructuring, as the two have similar business structures.

Kim Jae-woo of Samsung Securities also pointed out that KB Financial can save on the acquisition price later through a buyback of its own shares after acquiring the 22.56 percent held by Hyundai Merchant Marine. Financiers doing the purchasing usually see their stock prices rise after winning a merger and acquisition deal, while the financier that is being purchased typically sees its prices go down, Kim added.

KB Financial Group rose 0.94 percent to close at 32,150 won on the main Kospi market on Friday, while Hyundai Securities closed down 3.35 percent at 6,640 won,

Still, some analysts have said that 1 trillion won was too high compared to Hyundai’s market price - about 300 million won - and may hurt KB’s financial soundness due to the possibility that Hyundai has a high volume of insolvent assets.

Hyundai Group and KB Financial Group will sign a sales and purchase agreement next week, which will be approved by the board by end of May.

The final acquisition price of Hyundai Securities will be fixed after the buyer completes business inspections on the three Hyundai Group affiliates within the coming three weeks to review insolvent assets. The final price will be unveiled once that is complete, EY Han Young said on Friday.


BY LEE TAE-KYUNG, KIM JI-YOON [kim.jiyoon@joongang.co.kr]

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