Vulnerable Portfolio... Hana and Woori Financial's Non-Bank M&A in Focus

Hana Financial Group and Woori Financial Group are drawing attention as to whether they will actively pursue mergers and acquisitions (M&A) this year. Hana Financial is considering additional reviews following last year's acquisition of KDB Life Insurance to strengthen its insurance business, while Woori Financial is actively examining Plan B to acquire the small securities firm Hankook Phos Securities in order to re-enter the securities industry, a long-held goal.

According to the financial sector on the 21st, the contribution of non-bank sectors to the net profit of Hana and Woori Financial last year was only 5.5% and 6.7%, respectively. This contrasts sharply with competitors KB Financial (34%) and Shinhan Financial (35%), which recorded over 30% non-bank contributions despite the high-interest-rate environment last year.

This gap is attributed to a weak portfolio composition in the non-bank sector. In Hana Financial's case, Hana Capital (216.6 billion KRW) and Hana Card (171 billion KRW) performed well, but Hana Life Insurance (6.5 billion KRW) made little contribution, and Hana Securities posted a loss of about 270 billion KRW. In contrast, KB and Shinhan have KB Insurance and Shinhan Life Insurance leading the non-life and life insurance industries, while Hana Life Insurance ranks in the lower tier of the industry.

Woori Financial currently does not own securities or insurance subsidiaries. Since selling the former Woori Investment & Securities (now NH Investment & Securities) to NH Nonghyup Financial Group in 2014 and Woori Aviva Life Insurance (now DGB Life Insurance) to DGB Financial Group the following year, Woori Financial has not held any separate securities or insurance companies. Its current subsidiaries include card, capital, savings bank, and asset management companies. Accordingly, both Hana and Woori Financial have been actively pursuing acquisitions of insurance and securities firms since last year.

Woori Financial is reviewing Plan B ahead of its long-awaited securities firm acquisition. Ebest Investment & Securities, once considered for sale, was sold to LS Group, and Yuanta Securities has clearly stated no intention to sell. With no notable mid- to large-sized securities firms available for sale, Woori Financial is reportedly considering acquiring the small securities firm Hankook Phos Securities.

After entering the securities business through the acquisition of Hankook Phos Securities, there is talk of achieving synergy effects through a merger with Woori Comprehensive Financial and license expansion. Except for stock brokerage, most operations of comprehensive financial companies are similar to those of securities firms. Currently, Woori Comprehensive Financial is the only remaining comprehensive financial company in South Korea.

Reflecting this, Woori Financial recently appointed Nam Gi-cheon, classified as a securities expert and CEO of Woori Asset Management, as the new CEO of Woori Comprehensive Financial. Last year, Woori Financial injected 500 billion KRW into Woori Comprehensive Financial, securing a scale comparable to a mid-sized securities firm, and is also pursuing relocating its headquarters to Yeouido, where many securities firms are concentrated.

Lee Sung-wook, Vice President and CFO of Woori Financial, recently stated during an earnings conference call, "To enter the securities market, all potential targets, regardless of size, are subject to review," adding, "The securities firm often mentioned (Hankook Phos Securities) is one of them." It is also known that the acquisition issue is currently being discussed at the board level.

Hana Financial Group

Hana Financial has also been steadily exploring insurance firm acquisitions since last year. Although it appears to have a portfolio including securities and insurance firms, there is a need to expand Hana Life Insurance, which ranks low in the industry. In July last year, Hana Financial participated in the Industrial Bank of Korea's sale of KDB Life Insurance and was selected as the preferred bidder but gave up after two months of due diligence and deliberation. The industry estimates that about 800 billion KRW would be needed for normalization in addition to the acquisition price.

Currently, KDB Life Insurance, ABL Life Insurance, Tongyang Life Insurance, Lotte Non-Life Insurance, and MG Non-Life Insurance are mentioned as firms for sale or potential sale. A financial sector official said, "Acquisitions remain attractive as they can create synergy with existing companies," adding, "The problem is that the firms mentioned either have poor financial conditions or the asking prices are too high, so Hana Financial is expected to approach cautiously."