To Jumpstart Process of Selling off Consumer Finance Unit
Citibank Korea has proposed an exceptional voluntary retirement package to the labor union to jumpstart the stalled process for sale of its consumer finance business unit.
Until now, discussions on the sale have not smoothly proceeded as some potential buyers expressed a negative stance on giving Citibank Korea employees job security.
The voluntary retirement plan proposed by Citibank on Sept. 27 included provision of employees’ salaries until their retirement. If an employee has more than five years left until retirement, the bank will pay him 90 percent of his standard salaries for the remaining period as a special severance pay. If the remaining period is less than five years, the bank will pay him 100 percent of the salaries until his retirement. Employees’ monthly salaries are calculated by dividing annual salaries by 12 months. The upper limit of the severance pay was set at 700 million won. The plan will apply to regular employees with more than three years of service.
In terms of the size of the special severance pay alone, it is the highest level in the banking sector. In addition to the special severance pay, the management also proposed various subsidies. For employees with children, the bank would pay up to 10 million won per child for up to two children in educational subsidies. In addition, it will provide general health checkup services to employee and their spouses for three years after retirement. If employees want to move to other companies, the bank will offer support to them.
The management's exceptional conditions for voluntary retirement came because it can no longer delay the sale plan. The move is aimed at increasing its bargaining power in talks with financial companies that are willing to take over its retail business unit. All financial firms contacted by Citibank Korea were negative about employment succession. Discussions on the sale began in April when Citigroup decided to sell off its Korean consumer finance business unit. But it has failed to move forward with the sale process for the past five months due to the employee job security issue.
Citibank Korea has many employees with long years of service. Accordingly, it has many highly paid employees. According to its business report of 2020, the total number of employees stood at 3,494 and their average number of service years amounted to 18.2. The average annual salary per employee is 112 million won. The figure outweighs the average annual salary of 98 million won of employees at Korea’s four major commercial banks -- KB Kookmin, Shinhan, Hana and Woori. Moreover, the bank maintains a progressive severance pay system, which increases labor costs.
If the labor and management reach an agreement on voluntary retirement, the sale process is expected to accelerate. However, the bank’s human resources structure and the retail finance business unit’s weakened competitiveness and poor business performance are expected to continue to serve as an obstacle to the sale scheme. Citibank Korea posted a net profit of 80.1 billion won in the first half of 2021, down 11 percent from a year ago. For this reason, there is the possibility of selling the wealth management (WM) and credit card business units separately. The possibility of the bank shutting down these businesses cannot be ruled out either.