The Dominant Power in Banking Industry Changes

It was known that Shinhan Financial Holding Company (SFHC) attended in bid for purchasing shares of Chohung Bank at 23rd.

SFHC has a plan to purchase of all of government possession (80%) to secure management of the bank by possessing more than 51%.

One of high rank officers of government commented about it “More than 10 companies submitted application for purchasing shares, bur SFHC is the most prospect candidate.”

If the purchasing succeeds, domestic bank industry is expected to be dominated by 4 majors such as Koonmin, Shinhan, Hana-Seoul, and other minor should make decision for their survival.

▽How to take over= paid capital of Chohung Bank is 3.396 trillion won and government owns 80%. If SFHC takes over it by par value of 5,000 won, the purchasing amount will be 2.7 trillion won. As the rumor of acquisition of Chohung Bank spreads, the share price increases vertically and recovers 5,000 won almost.

SFHC preferred consortium to sole acquisition to reduce the capital burden, and mixture payment with cash and share to cash payment because the government wants cash to some extent to collect public fund.

SFHC considers to pay government with the SFHC`s ordinary shares like the acquisition of Seoul Bank by Hana Bank, and to purchase back government shares with the profits of merged bank.

Another possibility is that merged bank issues government preferential shares and purchases back them to protect existing shareholders` portion like acquisition of Daewoo by General Motors.

▽ The change of majors in bank industry= Kookmin Bank becomes as a absolute major one in retail finance after merging with capital of 200 trillion won. The amount is more than twice of the total capital of other banks and shares more than 40% of household loan. So it was worried that the bank has monopoly power in the market.

However, if the merger of Shingan-Chohung succeeds, it will appears as a strong rival. After merging, total asset will be 130 trillion won. The synergy effect of the operational know-how of Shinhan, branch networks of Chohung and low cost deposits of 17 trillion won will be very strong competing weapon.

Woori, Hana Banks reinforce loan for household and small & medium business with assets of 104 trillion won and 84 trillion won respectively, so the monopoly of Kookmin Bank can be transferred into 4 majors` competition.

Other banks are under the circumstance to develop very special niche market or service to survive. However, the survival possibility is not so high.

Dr. Lee Dong-gul of Korea Institute of Finance commented, “By the merger of Shinhan-Chohung, large-scale merger will be completed.” And commented “From now on, the importance is quality rather than quantity.”

Do-Young Kim nirvana1@donga.com