KEB woes faze Hana Financial

Hana Financial Group chairman Kim Jung-tae has been doggedly pursuing the long-awaited merger of Hana Bank and Korea Exchange bank, but it may prove to be very costly.

The nation’s No. 2 banking group recently experienced a severe setback in the stock market after being handed down a court injunction to suspend the Hana-KEB merger process until June.

But even if the merger were to make progress as planned, the group is likely to suffer the financial consequences of embracing KEB given its recently struggling business performance.

“KEB’s performance level is not even half that of Hana Bank,” the chairman told reporters earlier this week, after the inauguration ceremony of Hana Bank’s new president Kim Byoung-ho.

“(If KEB) continues its current status, it may be outrun by Busan Bank or other provincial banks.”

Since being integrated into Hana Financial in 2012, KEB’s financials have been deteriorating, tumbling into the red with losses of 86 billion won ($77.5 million) in the fourth quarter last year.

It was the only local bank that recorded a loss in the quarter, as well as the only bank that saw a year-on-year decline last year.

The slump, according to Kim, is not entirely KEB’s fault but should be attributed to the bank’s former owner, Lone Star.

“Lone Star didn’t invest too much in the company or its manpower over the 10 years (that it owned KEB) and the past few years have been about overcoming the negative consequences,” he said.

The U.S.-based private equity fund focused on promoting existing employees rather than hiring fresh faces, which resulted in a shortage of quality human resources.

KEB currently has 3,017 employees in the manager or higher level, more than double the regular staff level of 1,430, according to Hana Financial officials. Its average salary is also one of the highest in the banking industry.

Kim blamed KEB employees and its uncompromising labor union.

“It is the KEB employees and unionists who should face the reality and take actions (not me)” he said.

Observers noted a growing sense of impatience in the chairman’s tone.

Kim, who currently owns 47,375 units of the group’s stocks, directly suffered from the group’s stock market crash this week, with the value of his shares plunging to 1.4 billion won from 2 billion won.

Countering his accusation, the KEB union maintained that the responsibility for the bank’s performance slump should be on Hana Financial, as the group forced KEB to sell unpopular financial products.

By Bae Hyun-jung (tellme@heraldcorp.com)