Best Bank:
Kookmin Bank
Best equity house:
Samsung Securities
Best debt house:
CSFB
Best M&A house:
CSFB
Baton charges, tear-gas and the president of Kookmin Bank, Kim Sang Hoon, being taken hostage by his disgruntled workers are just a few of the highlights in the Korean banking sector over the past year. The cleaning up of balance sheets and consolidation goes on and has continued to preoccupy the banks and the government. Jin Nyum, Korea’s finance minister, has said his government will no longer dip its hands into the public coffers to bail out ailing, and now effectively nationalized banks.
| Jin Nyum | ||||||
Plans are afoot to push the ailing banks under one umbrella and create an even bigger problematic bank. Hanvit Bank will lead the charge-cum-hobble as the dirty half dozen are lined up and scrubbed. The president of Hanvit Bank, Kim Jin Mann, however, dislikes the bank being stuck with adjectives such as ailing. “We are not an ailing bank,” he asserts. “We only face a problem with our NPLs.”
Consolidation in the financial sector over the past 12 months has continued at a more sedate pace. The 54 banks before 1997 have become 17 and soon it will be even fewer. Kookmin Bank and Housing and Commercial Bank have taken centre stage as they edge ever closer to a merger. Two healthy entities merging makes a change.
Foreign ownership and foreign leadership continued to increase over the year. William Horie, president of Korea First Bank, is a high-profile example. He made enemies and admirers when it became clear that he would be running the bank along purely commercial lines. The entry of foreign investors and bankers has had a positive affect but it’s easy to overstate their impact. “Foreigners tend to be in control of the risk management side of the business, which is a start, but being in control of human resources would make a lot of sense too,” says one banker.
With government initiatives being bandied about, Korea has experienced growth in the credit card market. Attempts to clean up the corporate entertainment expense claim procedure have been introduced. The bad news for married Korean businessmen is that all expenses now have to be put onto corporate credit cards or no claim can be made. Growth in this area has been matched by an increase in deposits. The consumer banks, with their limited exposure to the chaebols and stronger financials, are benefiting. The new money is going to the good banks. Shinhan and KFB have consistently impressed the market with the strength and competency of their management teams.
But the award this year goes to Kookmin Bank. In the retail banking business Kookmin is the market leader across the board by total deposits, loans and number of customers. This year it became the first Korean bank to have assets in excess of W100 trillion ($77 billion). Its return on equity has also continued to improve, standing now at 22.77%. Its NPLs, although not as low as Shinhan Bank’s, stand at a respectable 6.49% to total loans. On the product side it has 975 ATMs and an 18.2% market share in credit cards.
Although more famed for its retail arm, Kookmin has a respectable wholesale banking business. Corporate lending totalled W28 trillion to April 2001, putting it among the top lenders in Korea.
After staying away from the international markets for fear of increasing their debt levels, Korean corporates are now slowly returning. Corporates realize that stronger Korean names are now better rated abroad and will now more readily enter the international market and extend their maturities past the three years that is available domestically. Total issuance, however, fell away from the beginning of the year. It accounted for 45% of total issuance ex-Japan Asia in 2000. Year to June 2001 it only accounted for 11.8%.
In this bear market, CSFB comes out on top. Its 28% market share in the secondary market makes it the most active trader in dollar-denominated bonds out of Korea. It was also involved in a variety of important deals cutting across a range of sectors, from chemical companies to banks. Deals of note include Hanvit Bank’s ¥30 billion ($242 million) Euroyen offering and KDB’s $50 million Eurobond.
But the deal of greatest significance is SK Corporation’s $250 million Eurobond offering. The Korean oil refiner’s (Baa3 rated) entrance into the market with its international issue was the first non-sovereign related corporate issue since 1997. CSFB, acting as joint bookrunner with Lehman Brothers, basically established a benchmark that has opened up the markets for Korean corporates.
In M&A, it was a difficult year to close transactions. Unions were still too vocal. Daewoo and General Motors, in discussions for months, seem no closer to securing a deal. Things may be about to change.
Companies in financial difficulty are coming under increasing pressure from creditors to merge and consolidate. Debt that was rolled over three years ago is due in the third quarter. CSFB was prominent in the M&A market last year. There were larger deals in Korea that CSFB didn’t touch, such as Goldman Sachs’s mandate for Kookmin Bank’s $2.8 billion pending acquisition of H&CB, but CSFB covers all bases in all major sectors. It advised Hyundai Motor Corporation on the sale of a 9% stake of itself for $428 million to DaimlerChrysler. CSFB also acted as sole adviser to Oxy – one of Korea’s largest manufacturers of household products – and its $130 million sale to UK household products group Reckitt Benckiser. Although not the most glamorous of industries, this showed CSFB’s flexibility and coverage. The firm is also involved in the $629 million sale of Vodafone’s 11.7% share in Shinsegi Telecom.
Until April, when it experienced a rebound of 20%, the Korean equity market was one of the worst performers over the preceding year.
Samsung Securities remains the best equity house in Korea. Its research is still highly regarded, with strong coverage not just of blue chips but also smaller, lower-rated companies. Alongside this it has strong secondary market trading capabilities. With the market rebound Samsung has been awarded over 30 mandates to place shares by the end of the year. Successful domestic IPOs already completed include those for Tong Yang Systems and Danam Communications.
