Lee Bok-hyun, Financial Supervisory Service Chief, "Will Examine Life Insurance Company Acquisition Risks"
Criticism of Communication Gaps in Woori Financial Group's Insurance Company Acquisition
Past Cases Where Holding Company Chairmen Had to Step Down for Acquisition Approval
Woori Financial Group's renewed attempt to enter the insurance industry after 10 years is facing a crisis. Financial Supervisory Service (FSS) Governor Lee Bok-hyun expressed discomfort over the lack of communication with financial authorities to the extent that he said he "found out about Woori Financial's acquisition of Dongyang and ABL Life through the newspaper." Based on past cases, there are also expectations that unless drastic measures are taken, such as the resignation of the holding company chairman or the CEOs of related affiliates, the ongoing acquisition review may be delayed for a long time or canceled.
On the 4th, at a household loan-related meeting held at KB Kookmin Bank in Yeouido, Seoul, FSS Governor Lee said regarding Woori Financial's acquisition of Dongyang and ABL Life, "There are risks in the process of portfolio expansion, and although life insurance companies are much bigger deals than securities firms, we only knew that the life insurance acquisition was under review; I found out about the contract being signed through the newspaper." He added, "Acquiring a life insurance company would help in terms of business expansion, but the risks of insurance companies differ from those of banks," and said, "I am somewhat concerned about whether such risks have been precisely reflected in the risk management of the holding group (the holding company and its affiliates)."
Governor Lee's remarks came during an explanation of why the regular inspection of Woori Financial, originally scheduled for next year, was moved up to October. The advancement of the regular inspection is interpreted as an intention to focus intensively on risks related to the allegations of improper loans involving former Woori Financial Chairman Sohn Tae-seung's relatives, as well as the insurance company acquisition risks ambitiously pursued by Chairman Lim Jong-ryong. This is the first time Governor Lee has mentioned risks related to Woori Financial's insurance company acquisition.
Under the current Financial Holding Companies Act, when a financial holding company acquires another financial company, it must obtain approval from financial authorities to incorporate the company as a subsidiary. In this process, the authorities review approval requirements such as the feasibility of the business plan, financial status, and overall management. If Woori Financial receives a grade of 3 or lower in the management evaluation during this regular inspection, the acquisition of the insurance company could be canceled on grounds of financial soundness or management deficiencies. Since Woori Financial's governance structure is a consortium of financial investment firms holding 3-4% stakes each, a failed acquisition is expected to cause considerable turmoil. A financial industry insider said, "Currently, Woori Financial's management evaluation grade is 2, and capital and financial requirements seem adequate, but ultimately, the key will be how far the authorities define the scope of business plan feasibility," adding, "Governor Lee expressed a will that someone must take responsibility, and since he raised issues even with the insurance acquisition, it is unlikely that the acquisition will be fully approved as a subsidiary."
In the past, when risks related to owners or holding company chairmen arose during the process of incorporating financial companies as subsidiaries, approval reviews by authorities were often conducted only after leadership changes.
DGB Financial Group acquired Hi Investment & Securities in December 2017 and applied for subsidiary incorporation approval from financial authorities, but the review was halted after the authorities requested additional documents. This was because former Chairman Park In-gyu was under prosecution for allegations of slush fund creation and hiring irregularities, which the authorities considered a risk. Eventually, Park resigned from the chairman position in March the following year. The financial authorities resumed the review afterward and approved the subsidiary incorporation in September of the same year.
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