Foreign major shareholders of South Korean financial businesses are turning their backs to the domestic market due to the political authorities are shaking the management rights of chief executive officers (CEOs) stemmed from corruption. As foreign shareholders are accepting the current situation as risks of the new government, leading to a selling spree, there is growing concern over a fall in the value of companies.
According to banking industry sources on November 12, foreign shareholders are paying great attention to the recent management risks in domestic financial sector. A senior official from the investment banking industry said, “Foreign institutions that own larger stakes in domestic financial groups are taking the current circumstances seriously. They are considering the current conditions in where labor unions threaten the control of companies and the government backs it up the long-term government risks.”
Currently, foreign investors own a 69 percent stake in KB Financial Group, while they hold a whopping 73.5 percent in Hana Financial Group. Offshore investors own 27.6 percent in Woori Bank but they hold a considerable portion of the stakes, except for the shares owned by the largest shareholders including Korea Deposit Insurance Corporation with 18.7 percent, oligopolistic stockholders with 29.7 percent, National Pension Service with 8.4 percent and employee stock ownership association with 5.5 percent.
Foreign investors’ selling spree has pulled down the stock prices for days. As foreign investors have continued the net sale of Woori Bank from the 2nd, they sold out 1.8 million shares of the company. The price of Woori Bank stocks dropped from 19,650 won (US$17.55) in July to 15,600 won (US$13.93). The price of Hana Financial Group shares increased to 50,000 won (US$44.66) in October but decreased 8 percent to the current 45,850 won (US$40.95) after showing a turnaround from November. Overseas investors net sold 250,000 shares of Hana Financial Group in November, while they have been selling KB Financial Group stocks from November 9.
Foreign shareholders are trying to make a retreat from the domestic market as the management right of financial groups have been tottered, according to market watchers. KB Financial Group Chairman Yoon Jong-kyu was going to confirm his consecutive terms of office at the general stockholders’ meeting on the 20th, but he recently hit a snag. Seoul Central District Prosecutors' Office has launched investigation on Yoon in allegations of embezzlement and breach of duty after Spec Watch Korea reported him last month. On the 3rd, the police conducted seizure and search to investigate on allegations of public opinion vote tampering. The labor union of KB Financial Group is claiming that the group fabricated the result of public opinion poll that asks about pros and cons of Yoon serving consecutive terms.
Hana Financial Group Chairman Kim Jung-tae and KEB Hana Bank President Ham Young-joo are charged to the prosecution with violation of banking laws. Civic groups, including People's Solidarity for Participatory Democracy, reported Kim and Ham to the prosecution in June that they granted illicit loans to support Choi Soon-sil and her daughter Chung Yoo-ra and exerted influence for the special promotion of former Hana Bank’s global sales division executive Lee Sang-hwa. As the labor union of Hana Financial Group recently asked the Financial Supervisory Service to impose sanctions against Kim and Ham as well as took legal actions, concern is growing further.
The prosecution raided the home and office of Nonghyup Financial Group Chairman Kim Yong-hwan in allegations of requesting the Financial Supervisory Service to give favors his son during the watchdog's regular recruitment of employees. It also raided the main office of Woori Bank to look into an allegation of irregularities in hiring employees that are related to influential figures, including politicians and senior bankers, even after CEO Lee Kwang-koo resigned to take responsibility for the dubious hiring practices.
According to investment banking and securities industry sources, foreign shareholders’ biggest concern is the move of labor unions. An official from the IR division at a bank said, “There is great concern among foreign stockholders that labor unions exercise the stockholder's right and threaten CEOs. They seem to be more affected as the performance momentum is gone now after the release of Q3 results and there is more labor union risks in terms of profit taking.”
In particular, some market experts point out that overseas investors accept the current situation as the new government’s risks. An analyst at a foreign securities firm, who requested anonymity, said, “Foreign shareholders consider labor unions the ‘deep-rooted evils.’ They don’t understand the government supporting labor unions’ move at the moment when labor unions, who are an employer, are shaking the management rights. The biggest concern is that the country is losing the value as investments as foreign investors are think that it is the new government’s risks instead of simple CEO changing issues.”