Bank mergers post mixed results

Mergers are frequently used in foreign countries as a means to liquidate nonviable banks and strengthen the competitiveness of blue-chip banks. In Korea, there also have been some banks merged since the national economic crisis erupted. In most cases, the purpose has been to clear insolvent companies.

However, analysts evaluate that government-led mergers have mostly gone nowhere, as they have failed to reform bank structure and workforce and create a chemical consolidation due to the lack of agreement between involved parties.

On the other hand, transferring nonviable banks to blue-chip banks through contracts is regarded to have been successful. A lot of sacrifices were made in the process, such as the loss of many jobs, but at least problematic banks were liquidated.

The merger between Kookmin Bank and Housing & Commercial Bank announced Dec. 22 in quite a dramatic way drew the public attention because it is a merger between blue-chip banks. But their employees, including executives and labor unions, are strongly opposing the plan, it is too early to call it a success.

Following is the record on the restructuring of the banking sector in the past two years through mergers, P&A, overseas sales and management on consignment.

Hanvit Bank (Commercial and Hanil)

Commercial Bank and Hanil Bank declared their merger in July 1998. As of the end of 1997, the total assets of the two banks were 48.5 trillion won and 53.8 trillion won respectively. When they were inaugurated into Hanvit Bank in January 1999, merged bank¡¯s total assets reached 102 trillion won, the largest level in the nation.

As their sizes were similar, they opted for a merger on an equal basis. But for clearing bad loans and increasing capital, they asked for 7 to 8 trillion won of public funds from the government.

However, after the grandiose inauguration, Hanvit Bank failed to cast off its public image as a merger between nonviable banks, and internal conflicts were strong. To make things worse, the bank's assets have sharply decreased after its main corporate customers such as Daewoo Group and Samsung Motor collapsed.

Less than two years after the merger, the bank has exhausted all of its capital including public funds.

Hana Bank (Hana and Boram)

Stimulated by the merger between Commercial and Hanil Banks, Hana Bank and Boram Bank announced a voluntary merger plan under the goal of becoming a leading mega-bank in September 1998. The banks agreed on an equal-basis merger, but as they selected Hana Bank as its trade name, Boram Bank disappeared from the market.

The banks created great synergy effects in cost savings and profit generation after the increase of customers and the integration of structure and workforce. Amid the poor performance of leading players such as Hanvit, Cho Hung and Korea Exchange Bank, Hana Bank emerged as a new blue-chip bank. Now it is often cited as a successful bank merger.

Koomin Bank (Kookmin and Long-Term Credit)

Kookmin absorbed Long-Term Credit Bank. From the merger, Kookmin enjoyed advantages in the household financing sector and Long-Term Credit Bank in the corporate financing sector. But after the merger, which was often compared to a marriage between David and Goliath, most former employees of Long-Term Credit Bank left the bank after they failed to get along with former Kookmin employees. Since then, Kookmin has been shunned by other banks as a merger partner.

Cho Hung Bank (Cho Hung, Kangwon and Chungbuk)

Cho Hung Bank failed to find a proper merger partner and then decided to combine with regional banks such as Kangwon, Chungbuk and Chungbuk Investment & Finance by making aggressive investments in the banks under workout programs. When the stock market was bearish, the option appeared to be successful. But now the bank's viability remains doubtful, as its main corporate customers such as Ssangyong Cement began to stagger.