[Reporter’s Notebook] "Samsung Electronics" Announces Record Dividends... Frustrated Financial Shareholders

Financial Authorities Extend Dividend Pressure from Financial Groups and Banks to Insurers
Excessive Regulatory Tightening Holds Back Financial Stocks

[Asia Economy Reporter Park Sun-mi]"It is an act of cutting open the goose that lays golden eggs." "Why does the government decide the dividends given to shareholders? It is an illegal act."

This is a recent outcry posted on an online community mainly composed of investors in financial holding companies and insurance stocks. The main issues are the political demand for financial companies to participate in profit-sharing and the financial authorities' dividend restrictions.

Some agitated shareholders of financial companies are even considering filing criminal charges against management for breach of duty under criminal law or initiating shareholder derivative lawsuits under commercial law. This is because, with the fundamentals of financial companies expected to achieve record-breaking performance this year, they believe the government's and financial authorities' excessive tightening of financial companies is holding back stock prices.

In fact, financial authorities have pressured insurance companies to limit dividends following financial holding companies and banks. Recently, the Financial Supervisory Service convened insurance executives and recommended maintaining the dividend payout ratio at the average level of the past three years. Although the intention is to reduce dividends to strengthen loss absorption capacity amid economic uncertainties, insurance companies that performed well even during COVID-19 are now in a position where they cannot meet the expectations of shareholders who trusted and waited.

Earlier, financial authorities stirred controversy by recommending holding companies and banks to pay dividends within 20% of net profit. Financial holding companies that posted record-high earnings are in a difficult situation because they have no choice but to pay less than last year's dividend payout ratio (25-30%). Shareholders, who expected dividends commensurate with performance from these representative high-dividend stocks, are preparing for lawsuits beyond dissatisfaction. The political sphere has added fuel to the fire by continuously pressuring financial companies to participate in the profit-sharing system, which demands that money given to financial company shareholders be redistributed to small business owners.

Financial holding companies and insurance companies are private enterprises and publicly listed companies with intertwined shareholder interests. If dividends decrease, shareholder value is damaged accordingly, and investment funds inevitably flow out. Without proper capital procurement, they will face difficulties in capital expansion, which will only have a negative impact on the financial market.

Samsung Electronics, which achieved record earnings, announced it will pay record-high dividends this year. In contrast, investors in financial stocks that posted good results are not only failing to profit from stock prices but also are unlikely to receive the 'cost of patience' they trusted and waited for. No matter how good the intention, if reality is not properly reflected, it will only cause side effects in the end.