'Governance Typhoon' Woori Financial... Is KODIT's Stake Sale Step Getting Complicated?

Chairman Sohn Tae-seung's Severe Disciplinary Action Throws Woori Financial's Governance into Uncertainty... Government May Postpone Stake Sale to Second Half
"Woori Bank Deteriorated Under KODIT... Can Responsibility for Current Situation Be Blamed Solely on the Bank?" Criticism Also Raised

[Asia Economy Reporter Kwon Haeyoung] The government's plan to sell its stake in Woori Financial Group, initially expected as early as the first quarter, is at risk of being derailed due to the CEO's severe disciplinary action stemming from the overseas interest rate-linked derivative-linked fund (DLF) scandal. If Sohn Tae-seung, Chairman of Woori Financial Group (also CEO of Woori Bank), accepts the Financial Supervisory Service's (FSS) severe disciplinary measures and decides not to seek reappointment, the governance structure will be shaken, potentially plunging the entire Woori Financial Group into significant turmoil due to the lack of a suitable successor.

According to financial circles on the 4th, the Korea Deposit Insurance Corporation (KDIC) is the largest shareholder of Woori Financial Group, holding 17.2% (approximately 124.6 million shares). The Financial Services Commission announced a roadmap for selling KDIC's shares in two to three phases by 2022 to fully privatize Woori Financial Group, which converted into a holding company in January last year, setting the first sale period for the first half of this year.

A financial industry insider said, "The FSS's severe disciplinary action against the CEO has halted the process of appointing the next CEO of Woori Bank. If Chairman Sohn decides not to seek reappointment, numerous candidates will emerge both inside and outside the company vying for the next chairman position." He added, "Rather than completing the financial holding company system, managing the chaotic organization will become the top priority, making it possible that the government's plan to sell Woori Financial Group shares could be postponed until the second half of the year or later."

The government injected approximately KRW 12.8 trillion in public funds into Woori Financial Group through KDIC, which started as Korea's first financial holding company in 2001. So far, about KRW 11 trillion has been recovered, with an additional KRW 1.5 trillion or more still to be recouped. The current value of KDIC's stake in Woori Financial Group is about KRW 1.25 trillion. Although close to recovering the principal, the uncertain governance of Woori Financial Group is a variable affecting the timing of the sale in the first half.

Chairman Sohn, whose term expires at the end of March, will announce his decision on whether to pursue reappointment at the board meeting on the 7th of this month. Regardless of his choice, Woori Financial Group is expected to face difficulties due to conflicts with the FSS or a leadership vacuum. If he declines reappointment, an unprecedented situation will arise where the group must internally appoint both a new chairman and CEO simultaneously, increasing the likelihood of management gaps and confusion. In fact, even before a leadership vacuum occurs, various names are already being floated as potential successors for the chairman position. This is why there is speculation that the government will find it difficult to initiate the sale of Woori Financial Group shares in the first half.

KDIC, for whom the sale of Woori Financial Group shares is a top priority, is also in a difficult position. In preparation for starting the sale this year, KDIC held an investor briefing last November jointly with Woori Financial Group, targeting asset management firms in the U.S., Hong Kong, and Singapore. At that time, overseas investors did not consider the DLF scandal a major issue, but domestically, it became a storm that completely shook Woori Financial Group's governance.

Although the recent DLF scandal has disrupted the government's schedule for selling Woori Financial Group shares, there are many criticisms that the financial authorities and, more broadly, the government are fundamentally responsible for causing this situation. Over the past 20 years of Woori Financial Group's history, political interference in CEO appointments has continued as financial governance, and it is argued that Woori Bank's competitiveness has been undermined under KDIC's supervision.

A financial authority official pointed out, "While other banks set high management goals and advanced, KDIC always presented only achievable targets to Woori Bank." He added, "Under 20 years of management and supervision by a government agency, Woori Bank's competitiveness has been completely destroyed." He further remarked, "The recent DLF scandal may have occurred because the CEO was eager to end such abnormalities and quickly escape the government's shadow. We need to reconsider whether the fundamental cause of Woori Financial Group's current instability can be solely blamed on Woori Bank."

This content was produced with the assistance of AI translation services.