'Kim Beom-su Arrest' Puts Kakao Bank in Judicial Risk... Employees Also Stirred [1mm Financial Talk]

Kakao founder and Management Innovation Committee Chairman Beom-su Kim, considered the pinnacle of the 'SM market manipulation' suspicion, is attending the detention hearing (warrant review) held at the Southern District Court in Yangcheon-gu, Seoul on the 22nd. Photo by Hyun-min Kim kimhyun81@

With the arrest of Kim Beom-su, the founder of Kakao and chairman of the Management Innovation Committee, Kakao Bank has also been thrown into turmoil. This is because if Kakao, the largest shareholder of Kakao Bank, is confirmed to have committed a violation of the Capital Markets Act resulting in a fine or higher penalty, it could lose its status as the major shareholder. The atmosphere is unsettled as the company faces a potential change in ownership.

According to financial circles on the 24th, various discussions are taking place in online communities where Kakao Bank employees gather, including posts asking, "What happens if Han투 (Korea Investment & Securities) becomes the largest shareholder?"

One Kakao Bank employee conveyed the mood, saying, "It seems that as something that was expected for a long time has become a reality, various rumors are circulating." Another employee said, "If the major shareholder changes, there is even an internal reaction of approval, expecting that businesses that could not be pursued due to major shareholder risks might now be undertaken."

Many also believe that there will be little significant change. Another Kakao Bank employee predicted, "Even when the largest shareholder was Korea Investment Financial Group in the past, the Kakao name was used, and currently many executives are from Korea Investment, with almost no difference in shareholding, so there will likely be little impact."

Seoul Southern District Court Chief Judge Han Jeong-seok issued an arrest warrant the previous morning for Chairman Kim, who is accused of violating the Capital Markets Act (price manipulation). Kim is suspected of manipulating SM Entertainment’s stock prices. The Financial Supervisory Service’s special judicial police (special investigators), who requested the investigation, have referred Kakao’s management and the Kakao corporation itself to the prosecution with a recommendation for indictment.

Kakao holds a 27.17% stake in Kakao Bank as of the first quarter of this year, making it the largest shareholder. According to the Special Act on the Establishment and Operation of Internet Specialized Banks, major shareholders must not have been fined or penalized with a higher sentence for violations of financial laws, tax evasion laws, specific economic crimes, or the Fair Trade Act within the past five years. Financial authorities conduct regular eligibility reviews of major shareholders every six months to determine whether to maintain approval.

If Kakao is confirmed to have been fined or penalized with a higher sentence, its eligibility as a major shareholder will be compromised. If the issue is not resolved, it will be deemed ineligible as a major shareholder and must dispose of any shares exceeding 10% of its holdings within six months. This means the major shareholder could change.

Currently, Korea Investment & Securities (27.16%) is the second-largest shareholder, followed by the National Pension Service (5.76%), KB Kookmin Bank (4.88%), and Seoul Guarantee Insurance (3.20%). However, under the Financial Holding Companies Act, securities firms under holding companies are prohibited from controlling banks, so Korea Investment Financial Group would likely need to acquire the shares in a manner compliant with regulations.

Considering future litigation procedures, it is expected to take considerable time for the sale of Kakao Bank to materialize. However, Kakao Bank is also facing several concerning situations.

First, new business initiatives such as MyData and credit card entry are not progressing quickly. The Financial Services Commission discussed whether to resume Kakao Bank’s new business permit review in November last year and May this year but did not resume, citing unresolved reasons for the suspension. Additionally, the possibility of customer attrition due to concerns over Kakao-related risks cannot be ruled out.

However, the industry believes that Kakao Bank operates independently from Kakao, so the impact will likely be minimal. Park Hye-jin, a researcher at Daishin Securities, stated, "Since Kakao Bank operates independently from Kakao and already pays royalties for trademark rights, there is almost no impact on profitability. Weakening the connection with Kakao could actually be advantageous for Kakao Bank."

Meanwhile, Kakao Bank’s stock temporarily rebounded early in the previous day’s trading session but closed at 20,300 won, down 3.79% compared to the 22nd. Analysts say the negative factors have been priced in but the outlook is not entirely positive. Jeong Jun-seop, a researcher at NH Investment & Securities, had previously lowered the target price from 32,000 won to 27,000 won and stated that his view has not changed significantly. Jeong said, "Earnings are solid, but the investment environment is not favorable."