KB Financial Rules Out Woori Bid, Targets 13% Return on Equity Next Year

KB Financial Group Inc. Chairman Euh Yoon Dae ruled out a bid for rival Woori Finance Holdings Co. and said he’ll continue cutting jobs to help quadruple return on equity by next year.

Euh, 65, reiterated his opposition to buy the South Korean government’s $6 billion stake in Woori even as a state entity said it would change the sale process after a group of bidders dropped out. KB Financial, owner of the country’s biggest lender, will seek growth in non-banking businesses to boost return on equity to 13 percent, he said.

“The return on equity is more important” over the next two years than expanding by acquiring a stake in Woori, Euh said in an interview at his office in Seoul yesterday. “We’ll try to fulfill a certain level of ROE, rather than focusing on size.”

Euh, who began a three-year term as chairman in July, has pledged to cut costs and boost fee income with new services. The company’s Kookmin Bank unit slashed 3,244 jobs, about 12 percent of its workforce, in November. KB posted a record 335 billion won ($290 million) loss for the second quarter and a 53 percent plunge in third-quarter profit from a year earlier because of provisions for soured construction loans.

To bolster return on equity, a measure of how well a company uses reinvested earnings, to 13 percent, Seoul-based KB Financial will widen its net interest margin and expand businesses such as life insurance and investment banking, Euh said. KB, set up as a financial holding group in September 2008, had return on equity of 3.25 percent in 2009, according to the company.

Photographer: SeongJoon Cho/Bloomberg

Euh Yoon Dae, chairman of KB Financial Group Inc., speaks during an interview in Seoul. Close

Euh Yoon Dae, chairman of KB Financial Group Inc., speaks during an interview in Seoul.

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Photographer: SeongJoon Cho/Bloomberg

Euh Yoon Dae, chairman of KB Financial Group Inc., speaks during an interview in Seoul.

Euh didn’t specify how many additional jobs he’ll cut.

‘Reasonable Profit’

KB Financial’s ROE for 2010 as a whole may be negative, as the company expects a fourth-quarter loss amid about 680 billion won in costs for an early-retirement program at its bank unit, Euh said. Net income plunged 39 percent to 315 billion won in the first nine months of the year.

“After clearing up bad loans with pre-emptive provisions and staff reduction, KB Financial will see a reasonable profit for its size next year,” said Ku Yong Uk, a banking analyst at Daewoo Securities Co. in Seoul who advises investors to buy the stock. “The chairman may want to look for some takeovers maybe after one year or so.”

KB Financial slid 0.8 percent to 58,500 won at 3 p.m. close in Seoul. The stock has dropped 2 percent this year compared with the key Kospi index’s 21 percent gain.

More Competition

South Korea plans to review the proposed Woori stake sale after the Public Fund Oversight Committee said Dec. 17 that it would suspend the divestment process following the withdrawal by a group of potential buyers led by Woori employees.

The group, seen as the strongest candidate to purchase the 57 percent stake in the country’s largest financial company by assets, said on Dec. 13 that it abandoned the plan because the government was asking for too high a price.

Hana Financial Group Inc.’s planned takeover of Korea Exchange Bank, which will make Hana the nation’s third-largest financial company by assets ahead of Shinhan Financial Group Co., will mean “tougher competition” for KB Financial, Euh said.

“Hana will become more efficient than now because of diversity in its business lines,” he said.

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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