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S. Korean banks take a tumble
SEOUL, South Korea -- Shares of Shinhan Financial Group plunged more than 7.5 percent on Monday on worries over its $2.8 billion takeover of rival Chohung Bank. Chohung shares also fell sharply, off 5 percent, following the decision by the bank's workers on Sunday to end their strike. The unionists won agreement from Shinhan to delay its full integration plans for Chohung by three years and defer layoffs. Shinhan is buying the South Korean government's 80 percent stake in Chohung. The combined group will be the country's second largest bank, behind Kookmin Bank. But Monday's sell-off showed investors are worried there may be few benefits from the takeover in the next three years. Shinhan finished at 12,850 won, while Chohung closed at 4510 won. The broader market, measured by the Kospi, lost 1.7 percent. Chohung, hit by the four-day strike that saw customers withdraw more than 10 percent of deposits, requested 5 trillion won from the central Bank of Korea on Monday to meet liquidity needs. "This (the Shinhan agreement with the union) is very disappointing," Lim Chang-gue, a fund manager at Samsung Investment Trust Management, told Reuters news agency. "There won't be any cost cuts for a while and what's worse is that they even promised pay rises." According to Reuters, the settlement marked a victory for South Korea's unions and fanned fears that President Roh Moo-hyun's softer line on labor has emboldened unions seeking better pay and to block privatization. South Korea's unions have been one of the biggest concerns for overseas investors. "The Chohung Bank case left an unpleasant precedent, as the government gave in to the labor union's demands," Kim Hak-kyun, an analyst at Good Morning Shinhan Securities, told Reuters. About 6,000 Chohung employees went on strike last Wednesday, prompting the central bank to pump in liquidity as depositors withdrew their cash. The government finalized a deal on Thursday to sell Chohung to Shinhan for $2.8 billion, or 6,200 won ($5.21) per share, representing an important step in the privatization of banks nationalized after the 1997-98 financial crisis. Shinhan has the right to sell up to 650 billion won in bad loans back to the government as part of the deal. This means the true price Shinhan is paying for Chohung is about 5,000 won per share, CLSA said in a research note reported by Reuters. The government has vowed to sell its remaining stakes in banks, as it aims to recoup some of the roughly $130 billion of taxpayers' money it spent propping up the financial sector.
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