Six banks, including Hanvit, likely to reduce capital completely

Six banks set to receive public funds -- Hanvit, Seoul, Peace, Kwangju, Cheju, and Kyongnam -- are likely to reduce their capital completely. Cheju Bank will be taken over by Shinhan Bank, and Peace, Kwangju, and Kyongnam banks will be placed under the umbrella of a financial holding company led by Hanvit Bank. The creation of these companies would complete the disposal of ailing banks.

Labor unions of Kookmin Bank and Housing & Commercial Bank (H&CB), both of which are propelling mergers, resolved Saturday to stage a law-abiding labor struggle from Monday and launch a full-scale strike if and when the merger is officially discussed.

A high-ranking official of the Financial Supervisory Commission (FSC) said Sunday that the FSC is preparing a documentary resolution to designate the six banks as ailing financial institutions and decide on their complete capital reduction. If the capital reduction is finally settled, the FSC will request Korea Deposit Insurance Corp. (KDIC) to inject public funds.

The FSC will propel the complete capital reduction, but plans are under consideration to grant minority shareholders possessing relevant bank shares claims for stock purchases, which would have the effect of incinerating the stocks. If the FSC finally resolves to reduce capital, transactions involving relevant bank shares would be suspended.

Noting that the total public funds poured into the six banks by KDIC would reach 7 trillion won, the official said that the banks would be able to increase their Bank for International Settlements(BIS)-designated capital adequacy ratios to the 10-percent level.

In the first-phase of financial sector restructuring, government agencies, including the KDIC, handed commercial banks a total of 6.7 trillion won. This figure broke down to 3.3 trillion won for Seoul Bank, 3.2 trillion won for Hanvit Bank, and 220 billion won for Peace Bank (preferred stock formula).

The government decided to provide the six banks with 7 trillion won over an extended period, once by the end of this year and two or three times after next year.

The government's decision to invest in the ailing banks on an installment basis, after signing a Memorandum of Understanding (MOU) with each bank, reflects its will to reprimand bank management and reconsider the provision of public funds if manpower reductions and organizational changes are insufficient.

Meanwhile, labor unions of Kookmin Bank and H&CB decided to stage a work-to-rule style labor struggle from Monday, pending a decision on a full-scale strike, by taking such actions as wearing ribbons opposing the merger, wearing plain clothes, and refusing to work overtime.

Finance-Economy Minister Jin Nyum and FSC Chairman Lee Keun-Young are scheduled to brief President Kim Dae-Jung Monday on pending economic issues, including the financial restructuring.

Park Hyeon-Jin witness@donga.com