Brokerage firms expected to become big investment banks through M&As


Mergers and acquisitions in the banking sector are expected to reshape the nation’s financial landscape in 2012, analysts said.

Among major M&A targets in the banking sector are Korea Exchange Bank, Woori Financial Group and HSBC’s Korean unit.

The most closely-watched situation is whether Hana Financial Group will successfully take over KEB, which has been owned by U.S.-based Lone Star Funds since October 2003.

While the Financial Services Commission is poised to approve or reject the preliminary deal between Hana and Lone Star to trade KEB shares before March, the financial regulator has faced harsh criticism for its alleged irregularities.

The chief charge is that the FSC has not taken punitive action against Lone Star over the past eight years despite the equity fund’s ineligibility as the biggest shareholder of a Korean bank.

In a statement on Dec. 23, civic group Solidarity for Economic Reform said the FSC had interpreted core documents on Lone Star “arbitrarily” and has been negligent in probing the fund.

The financial regulator, which lost a four-year-long suit filed by SEC, disclosed the Lone Star documents on Dec 15.

Aside from FSC Chairman Kim Seok-dong, who played a significant role in handing over KEB to Lone Star in 2003, Kwon Hyouk-se, governor of the Financial Supervisory Service, an executive arm of the FSC, has been accused of seeking to justify the regulator’s alleged faults.

On Dec. 26, Kwon argued that the banking laws, which ban non-financial investors from owning a local bank, cannot simultaneously be applicable to foreign investors.

The top regulator’s argument is contradictory to stance of public officials eight years ago.

In a statement on Sept. 4, 2003, the Finance Ministry said that “equally for local and foreign investors, if it is classified as a non-financial investor, it will not be allowed to hold more than a 4 percent stake in a local bank.”

Opponents of Hana’s planned KEB takeover say that investigating the allegations should precede the exit of Lone Star, which was convicted of stock manipulation.

A larger scale M&A target than KEB is Woori Financial Group, the nation’s largest financial company with assets of about 370 trillion won ($321 billion).

FSC Chairman Kim recently said it was necessary to again push ahead with the privatization of the state-funded Woori Financial.

He said members of the Public Fund Oversight Committee, which is in charge of the Woori Financial sale, had been newly selected and “prior procedures are underway.”

Last month, a group of lawmakers called for the state-run Korea Deposit Insurance Corp., the biggest shareholder of Woori Financial, to report to the National Assembly measures to recoup taxpayers’ money by accelerating the sale of the group to the first quarter of 2012.

Financial authorities, the FSC and the PFOC, had to suspend the sale twice ― in the second half of 2010 and the first half of 2011 ― as they failed to attract competitive investors.

In another potential M&A, KDB Financial Group has reportedly been in low-key talks with HSBC to take over the U.K.-based bank’s retail operations in Seoul.

Like Woori Financial, the government has been mapping out a project to privatize the state-run KDB Financial in the coming years.

M&As are also likely to feature in the brokerage sector as financial authorities encourage securities firms to become large-scale investment banks.

Regulatory officials said they would revise laws on the capital market and financial investment business to allow bigger securities firms to issue loans to conglomerates.

The policy to endorse brokerage houses’ lending could be regarded as epoch-making in terms of inducing M&As among major players such as Daewoo Securities, Samsung Securities and Woori Investment & Securities.

A big securities firm ― or an investment bank ― whose equity capital reaches 3 trillion won will be entitled to issue loans to conglomerates.

An FSC director general predicted that the minimum requirement of 3 trillion won for lending business will accelerate M&As in the market.

By Kim Yon-se (kys@heraldcorp.com)