Gov’t to Ease Rules on Financial Holding Companies

The Financial Services Commission said yesterday that it will allow financial holding companies in either insurance or stocks to have non-financial subsidiaries such as manufacturers.

The announcement heralds a sea of change in the corporate governance structure of conglomerates over the mid-to long term.

The complicated structure of corporate governance can be simplified and made transparent, as financial holding companies will be allowed to put manufacturers under their wing.

Once a company becomes a holding company, it can have greater freedom to establish and liquidate subsidiaries and pursue mergers and acquisitions.

○ Dongbu likely to become holding company

The Dongbu Group is highly like to turn into an insurance holding company. Dongbu Insurance is the group’s de facto holding company since it has equity holdings in Dongbu’s financial affiliates and manufacturers such as Dongbu Life Insurance, Dongbu Securities, Dongbu Corporation and Dongbu Steel.

Tongyang Major Corporation, the flagship company of the cement giant Tongyang Group, and SK Corporation, the core affiliate of the SK Group, are hoping for the deregulation

Fair Trade Commission spokesman Lee Cheol-ho said, “We will soon announce a plan to allow general holding companies to acquire financial companies as affiliates.”

Experts said the Hanwha Group could also turn into an insurance holding company centered on Korea Life Insurance. Hanwha, however, plans to review this plan after acquiring Daewoo Shipbuilding and listing Korea Life.

Meritz Financial Group, which decided to turn into a holding company at the end of last year, has yet to announce detailed plans or timing. Meritz Fire and Marine Insurance holds shares in Meritz Securities and Meritz Investment Bank.

Meritz Asset Management and Meritz Financial Information Service are wholly owned subsidiaries of Meritz Fire.

○ Samsung, Hyundai Motor to see gradual change

Samsung Group’s financing structure starts from Samsung Everland, then goes to Samsung Life, Samsung Electronics, Samsung Card and comes back to Samsung Everland.

The most likely scenario is that the Samsung Group becomes an insurance holding company. To do that, Samsung Everland, which has a stake in Samsung Life Insurance, not only has to turn into an insurance holding company but also hold a direct stake in affiliates, such as Samsung Electronics and Samsung Card.

The new regulations, however, do not permit insurance subsidiaries to hold manufacturers as “grandchild” companies. The move aims to prevent insurance affiliates from using assets entrusted by policyholders in investing in grandchild companies.

So if Samsung Everland wants to become a holding company, Samsung Life, the biggest shareholder of Samsung Electronics with 7.21 percent, has to sell the electronics company’s shares until it becomes the second-largest stakeholder.

“The deregulation marks a big step forward,” a Samsung Group source said. “Samsung Life, however, cannot turn into a holding company in the near future due to the huge price tag on selling its Samsung Electronics’ stake.”

The Hyundai-Kia Automotive Group, which has been beefing up its influence in the securities sector, will also have difficulty in changing its corporate governance structure soon. “We have no plan to expand our business in other financial fields such as banking,” a group source said.

sanjuck@donga.com jmpark@donga.com