The clock is ticking for Kim Jung Tae. The president of Housing & Commercial Bank is a pioneer of shareholder value and one of South Korea's most respected executives, yet his career hangs in the balance. In the coming weeks, he'll learn if he is to head a new powerhouse formed by the merger of H&CB and Kookmin Bank, Korea's largest retail lender. He might instead end up playing second fiddle to Kookmin President Kim Sang Hoon, since under Korean protocol, the larger partner usually runs a merged company, and Kookmin has 42% more assets and 25% more staff than H&CB.
Missing the top job would be an ironic fate for Kim. He built H&CB from a sleepy state mortgage lender to Korea's most profitable bank; its 22% return on equity last year handily beat Kookmin's 17.9%. H&CB officials hope that the selection committee--which includes outside directors of both banks--will see the logic of appointing Kim, who himself feigns indifference. "Of course, I'm not assured of the job," he says. So why do a deal that puts your job at risk? "The opportunity presented by the merger," explains Kim, "was too great to pass up."
A ZEAL FOR TRANSPARENCY. The betting is that Kim will prevail. He is, after all, a legend in Korean financial circles as a banker who actually believes executives should maximize profit, not simply amass assets. Driven by a zeal for transparency, shareholder value, and rooting out crony capitalism, Kim took less than a year to turn H&CB into Korea's top-performing bank stock (chart).
Yet whoever runs the merged banks will face big hurdles. Neither bank's loan portfolio has much exposure to Korea's deadbeat conglomerates, or chaebol. Yet corporate debt, most owed by small and midsize companies, still makes up 60% of Kookmin's $36.1 billion in outstanding loans, and 12% of these debtors are late on payments. Also, the new bank will need to lay off staff, but unions oppose any job cuts. "I have mixed feelings about how they'll come together," says Wilfred Y. Horie, an American brought in from Dallas-based Associates First Capital Corp. to fix and run Korea First Bank.
If anyone can do it, say his admirers, it's Kim Jung Tae. The unassuming 53-year-old son of peasants, who still works his farm on weekends, has long shunned Korea's worst business traditions. His father's emphasis on honesty taught him to value sound economics over cronyism, he says. He cut his teeth as CEO at Dongwon Securities, a midsize brokerage belonging to the Dongwon Group. His refusal to borrow for growth paid off when the 1997 crisis hit, allowing his firm to ride out the storm.
Kim's record at Dongwon caught the eye of Seoul National University Professor Cho Dong Sung. He recommended Kim to H&CB's board, which sought an outsider to shake things up. "His profit-first approach was a coup in Korean banking circles," recalls Merrill Lynch & Co. analyst Terence Lim.
NO MORE FANCY LUNCHROOM. At H&CB, Kim's sense of fairness muted union opposition--despite staff cuts of 25%. Upon arriving at H&CB, he announced he would take his pay in stock options plus 1 cents. He closed the executive restaurant and made top brass ride common elevators. When layoffs were announced, redundant managers went first.
Write-offs of bad loans pushed the bank to a $231 million loss in 1998. Then Kim began to inculcate the staff with Western business practices. He even hired six foreigners. "We don't insist on pure blood," Kim says. "That's a step toward improvement." He hired McKinsey & Co. to create an incentive system. Profits hit $419 million in 2000, and shares, which traded below $3 when he arrived, are now around $22.
The merger with Kookmin could create Korea's first consumer-banking giant. With more than 1,100 branches and 28 million accounts, the new bank will count most Korean adults as its customers. Kim also hopes ING Group, which has 9.9% of H&CB, and Goldman, Sachs & Co., which holds 11.1% of Kookmin, will help him by offering insurance and investment products.
The fly in the ointment is the labor situation. To appease unions, the government promised there would be no layoffs for 18 months after the merger of six problem banks. But that doesn't apply to healthy lenders like H&CB and Kookmin. Both banks say they'll stress voluntary departures, but analysts doubt that tactic will work. Kim asserts he can make the merger click. Shareholders fervently hope he is the man who gets to try.
By Moon Ihlwan in Seoul