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International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Bank ResolutionBank ResolutionKorean CasesKorean Cases
Bank ResolutionBank ResolutionKorean CasesKorean Cases
Korea Deposit
Insurance Corporation
2007. 3. 29Taewan Chung Taewan Chung
[email protected]@kdic.or.kr
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Outline of Presentation
Government-led Bank Restructuring Program
Structure of Public Funds Management
Korean Case Study I - Cho Hung Bank
Korean Case Study II – Woori Financial Group
Conclusion
Overview of the Korean Economy
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Overview of the Korean Economy
KoreanKorean EconomyEconomy sincesince 19971997
Paralysis of Function of
Financial Intermediaries
Credit Crunch
Slowdown in
Overall Economy
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
1st Stage Bank Restructuring Program (1998)
Program Program Program Program EvaluationEvaluationEvaluationEvaluation
☞ ☞ Focus : ImprovingFocus : Improving
Bank’s financialBank’s financial
Structure to Structure to
Attract InvestorsAttract Investors
☞ ☞ Target : Banks Target : Banks
below 8% BIS Ratiobelow 8% BIS Ratio
☞ ☞ Instructed 12 banksInstructed 12 banks
To prepare businessTo prepare business
Restructuring planRestructuring plan
☞ ☞ Review : Review :
Evaluation CommitteeEvaluation Committee
☞ ☞ 5 Non-viable Banks:5 Non-viable Banks:
P & A OrdersP & A Orders
☞ ☞ 7 Viable Banks :7 Viable Banks :Conditional ApprovalConditional Approval
ProcessProcessProcessProcess
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
2nd Stage Bank Restructuring Program (2000)
Program Program Program Program EvaluationEvaluationEvaluationEvaluation
☞ ☞ Focus : EnhancingFocus : Enhancing
The competitivenessThe competitiveness
Of financial industryOf financial industry
☞ ☞ Target : Banks Target : Banks
below 8% BIS Ratiobelow 8% BIS Ratio
Or injected PublicOr injected Public
Funds at 1Funds at 1stst stage stage
☞ ☞ Instructed 6 banksInstructed 6 banks
To prepare futureTo prepare future
business plansbusiness plans
☞ ☞ Review : Review :
Evaluation CommitteeEvaluation Committee
☞ ☞ 4 Non-viable Banks:4 Non-viable Banks:
Public FundsPublic Funds
☞ ☞ 2 Viable Banks :2 Viable Banks :Independent SurvivalIndependent Survival
ProcessProcessProcessProcess
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Structure of Public Funds Management
Review of the appropriateness of disposal of assets
held by the Government and its Agencies
K D I CK D I C
Sub-CommitteeSub-Committee
PFOCPFOCSupervision & Planning of Public Fund
Management including assets disposal
Disposal and Recovery of assets
acquired in Restructuring process
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Korean Case Studies
Case Study I - Cho Hung Bank (CHB)
Case Study II – Woori Financial Group (WFG)
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Privatization of CHB
Decision Decision
of PFOCof PFOC
(Aug.’02)(Aug.’02)
Decision Decision
of PFOCof PFOC
(Aug.’02)(Aug.’02)
Selection Selection
of FAof FA
( Sep.’02)( Sep.’02)
Selection Selection
of FAof FA
( Sep.’02)( Sep.’02)
Dispatch Dispatch
of TL & IMof TL & IM
(Oct.’02)(Oct.’02)
Dispatch Dispatch
of TL & IMof TL & IM
(Oct.’02)(Oct.’02)
‘ ‘Plans for disposal Plans for disposal
of bank shares heldof bank shares held
by KDIC’by KDIC’
Priority : Strategic Priority : Strategic
Investors, Investors,
Partial sale in the OTC Partial sale in the OTC
RFP : 14 overseas,RFP : 14 overseas,
6 local IBs6 local IBs
“ “Morgan Stanley & Morgan Stanley &
Samsung Securities” Samsung Securities”
Consortium chosenConsortium chosen
Contacted 88 investorsContacted 88 investors
TL to 47 investorsTL to 47 investors
IM to 15 investorsIM to 15 investors
STEP 1STEP 2
STEP 3
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Privatization of CHB
PreliminaryPreliminary
BidBid
(Oct.’02)(Oct.’02)
PreliminaryPreliminary
BidBid
(Oct.’02)(Oct.’02)
Due Due
Diligence Diligence
(Nov. ’02)(Nov. ’02)
Due Due
Diligence Diligence
(Nov. ’02)(Nov. ’02)
Final Final
BidBid
(Dec. ’02)(Dec. ’02)
Final Final
BidBid
(Dec. ’02)(Dec. ’02)
8 Investors8 Investors
Short List(4) : SFG, Short List(4) : SFG,
Cerberus , ABN-Amro, Cerberus , ABN-Amro,
Shinsei Shinsei BBankank
one monthone month
Interrupted by BankInterrupted by Bank
Labor UnionLabor Union
2 Investors2 Investors
SFG, Cerberus SFG, Cerberus
Consortium (Shinsei Consortium (Shinsei
Bank, KFB)Bank, KFB)
STEP 4STEP 5
STEP 6
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Privatization of CHB
Maximize the size of PublicMaximize the size of Public
Funds to be recoveredFunds to be recovered
Retain a 3Retain a 3rdrd Party to review Party to review
Selling price & utilize theSelling price & utilize the
results for the negotiationresults for the negotiation
Review by Sub-Committee(Dec.’02)Review by Sub-Committee(Dec.’02)Review by Sub-Committee(Dec.’02)Review by Sub-Committee(Dec.’02) Selection by PFOC(Jan.’03)Selection by PFOC(Jan.’03)Selection by PFOC(Jan.’03)Selection by PFOC(Jan.’03)
Evaluation of Evaluation of
AcquisitionAcquisition
terms & conditionsterms & conditions
TThe merger of CHBhe merger of CHB
and its Buyerand its Buyer
Synergy EffectSynergy Effect
Enhancement of Int’lEnhancement of Int’l
competitiveness of competitiveness of
banking industrybanking industry
STEP 7 STEP 8
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Privatization of CHB
EvaluationEvaluation
By the 3By the 3rdrd
PartyParty
EvaluationEvaluation
By the 3By the 3rdrd
PartyParty
Negotiation Negotiation
With SFG With SFG
(May ’03)(May ’03)
Negotiation Negotiation
With SFG With SFG
(May ’03)(May ’03)
Approval Approval
By PFOCBy PFOC
(Jun. ’03)(Jun. ’03)
Approval Approval
By PFOCBy PFOC
(Jun. ’03)(Jun. ’03)
2 months by Shinhan 2 months by Shinhan
Accounting firm Accounting firm
NAV : KRW 2,385 NAV : KRW 2,385
Intrinsic Value: Intrinsic Value:
KRW 5,929~ 6,967 KRW 5,929~ 6,967
6 weeks6 weeks
Based on valuation of Based on valuation of
33rd rd PartyParty
KDIC, report toKDIC, report to
PFOC (Jun.,’03)PFOC (Jun.,’03)
Signed SPA on Signed SPA on
Jul. , 2003Jul. , 2003
STEP 9STEP 10
STEP 11
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Implications
Landmark Transaction in terms of Sale PriceLandmark Transaction in terms of Sale Price
Recovery higher
than Injection 3.6+0.8 > 2.73.6+0.8 > 2.7(Unit : KRW Tn)(Unit : KRW Tn)
84% premium
on the book value( KRW 3,375 p/s)
56% premium on
the trading price(KRW 3,980 p/s)
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Implications
Improved Competitiveness of BankingImproved Competitiveness of Banking IndustryIndustry
Competition
among local banks
The Merger of CHB
& Shinhan Bank
The 2nd largest bank
(Total Assets : KRW163 tn)
Entry of leading
foreign banks
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Korean Case Studies
Case Study I - Cho Hung Bank (CHB)
Case Study II – Woori Financial Group (WFG)
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Privatization of WFG
Stocks of the 5 banks
WFG’s stocksCapital Injection
5 insolvent banks
Stocks of the 5 banks
Establishment of WFG
1
23
4
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Privatization of WFG
Initial Public Initial Public
OfferingOffering
(June.’02)(June.’02)
Initial Public Initial Public
OfferingOffering
(June.’02)(June.’02)
90 million shares (including 36 million
new shares) Recovered $ 367 million
Sold 11.8% stake
KSE Listing
Block SaleBlock Sale
(Sep, ’04)(Sep, ’04)
Block SaleBlock Sale
(Sep, ’04)(Sep, ’04)
45 million shares Recovered $ 324 million Sold 5.7% stake Discount rate : 3%
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
About MOU
Object : rapid business normalization
Structure : financial targets*
non-financial targets
Inspection : every quarter
Failure of MOU targets → sanctions
No interference of WFG’s daily business
MOU Targets
Financial targets (6 sectors)
: CAR, ROA, Cost-income ratio,
NPL ratio etc.
Non-financial targets
IT integration
Standardize work process
* They set up with consideration of domestic leading banks’ performance
Privatization of WFG
1. Establishment of WFG2. MOU management
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Privatization of WFG
In the futureIn the futureIn the futureIn the future
Sale of controlling
stake
Gradual
monetization of
minority stake
through market
trade (i.e. block
sale)
Sale of controlling
stake
Gradual
monetization of
minority stake
through market
trade (i.e. block
sale)
Up to nowUp to nowUp to nowUp to now
After 2 sales,
KDIC’s
ownership
changed from
100% to 78%
After 2 sales,
KDIC’s
ownership
changed from
100% to 78%
Challenges
Time limit for privatization
(Financial Holding co. Act) Current deadline is for
full WFG privatization is April 2008
Ownership limit on financial holding co (FHC Act) Industrial capital can
hold only up to 4% of WFG’s voting shares
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Implications
Selection of effective turnaround process
Platform for Surplus in Public Funds Recovery
Injected amount(A)
Recovered amount(B)
Estimated recovery
amount(C)
Surplus retrieval
(B+C-A)
$ 12.8 bn $ 0.7 bn $ 14.7 bn* $ 2.6 bn
* 628,458,609 shares × 23,400won(’07.3.20)
- Establishment of holding company to build scale and platform to become a leading financial service institution- Ensure early turnaround through transparent and rigorous MOU management
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Thank you !Thank you !
Q & AQ & A