[Focus] Major bank merger status in confusion

The merger talks between Kookmin Bank and Housing & Commercial Bank (H&CB) are changing every hour. It was expected that Kookmin Bank president Kim Sang-Hoon would confront the bank¡¯s union to finalize the merger plan, but the plan is now facing extreme confusion.

By early in the evening of Dec. 13, Kim expressed that he would enforce the merger. As the union disclosed its strong opposition to the merger, the union contended that Kim announced his intention to suspend the merger just four hours later. Still, Kim did not officially confirm his position yet, so the possibility for a merger between the two banks cannot be totally ruled out.

Also, the government wanted to include Korea Exchange Bank (KEB) in the projected financial holding company that will be led by Hanvit Bank. However, Commerzbank, the leading foreign shareholder of KEB, has postponed its decision, and the government might have to create a financial holding company with Hanvit Bank, Peace Bank and Kyongnam Bank.

Kookmin Bank's largest shareholder, Goldman Sachs, dispatched a negotiating team to Seoul to discuss terms and conditions of the merger, but the prospects are still unclear with the strong protest by the union. Nearly 3,000 members of the Kookmin Bank union gathered in front of the bank's headquarters and have shown their strong will to block the projected merger with some members threatening that they would burn themselves to death if merger is enforced.

Kim, who officially confirmed the merger at 7 p.m. Dec. 13, disclosed an agreement with the union, which reads that he would take employees' opinions into consideration in pursuing the merger. In this connection, the union claimed that Kim suspended merger talks, while Kim is not yet expressing the bank's official position.

KorAm Bank, which has been weighing its gains and losses from its merger with Hana Bank, asked its largest shareholder, Carlyle, to actively participate in the merger. However, Carlyle is not responding yet, so even the possibility of conditional merger is hard to predict.

The government's bid to include KEB to minimize the image of insolvency of the government-led holding company is hampered. It is because Commerzbank, the leading foreign shareholder, reserved its position for participation in the holding company. As a result, the government is expected to establish the Hanvit Bank-led holding company by combining Peace Bank, Kwangju Bank and Kyongnam Bank.

As Finance-Economy Minister Jin Nym recognized, the merger between blue-chip banks will be decided by themselves. Yet the Financial Supervisory Commission (FSC) has been pushing it, so some point out that it could trigger an ill effect.

Chung Ki-Young, head of Samsung Financial Research Institute, said that it is more urgent to complete restructuring of insolvent banks. "The government initiation of a merger between healthy banks will just trigger financial unrest," he said.

A government official also noted that what is urgent at this moment is to restore financial system to help corporations solve their financial crunch.

Shin In-Suk, chief researcher of Korea Development Institute, said that the government is expanding the war front by initiating a war against all trade unions of domestic banks. "It might result in the postponement of mergers even among insolvent banks," he said.

Hong Chan-Sun larosa@donga.com