Our Financial Group in Turmoil... Government May Delay Stake Sale (Comprehensive)

Chairman Sohn Tae-seung's Severe Disciplinary Action Clouds Woori Financial Group's Governance... 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 Raised
Woori Financial Group's 'Third Largest Shareholder' Woori Bank Union and Outside Directors Express Strong Support for Chairman Sohn

[Asia Economy Reporter Kwon Haeyoung] The government's plan to sell its stake in Woori Financial Group, initially expected in 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 the financial sector 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 (FSC) announced a roadmap for selling KDIC's shares in two to three rounds by 2022 to achieve full privatization of Woori Financial Group, which transitioned to a holding company last January, with the first sale scheduled for the first half of this year.

A financial sector official said, "The FSS's severe disciplinary action against the CEO has halted the process of appointing the next Woori Bank CEO. If Chairman Sohn decides not to seek reappointment, numerous candidates will emerge both inside and outside the company vying for the next chairman position," adding, "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 will be postponed until the second half of the year or later."

The government injected approximately 12.8 trillion KRW of public funds into Woori Financial Group through KDIC, which started as Korea's first financial holding company in 2001. So far, about 11 trillion KRW has been recovered, with an additional 1.5 trillion KRW or more still to be recouped. The current value of KDIC's stake in Woori Financial Group is about 1.25 trillion KRW. Although close to the principal recovery line, the uncertainty in Woori Financial Group's governance structure is a variable for the planned 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 leadership vacancies. If he declines reappointment, an unprecedented situation will arise where the group must internally appoint both the next chairman and CEO simultaneously, increasing the likelihood of management gaps and confusion. In fact, names of potential successors have already been circulating in anticipation of a leadership vacuum. 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 the sale this year, KDIC held investor briefings 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 view the DLF scandal as a major issue, but domestically, it became a storm that completely shook Woori Financial Group's governance.

Although the DLF scandal recently disrupted the government's schedule for selling Woori Financial Group shares, there are many criticisms that the financial authorities and the government fundamentally caused 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 viewed that Woori Bank's competitiveness has been undermined under KDIC's oversight.

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

Meanwhile, the Woori Bank labor union, which has risen to become the third-largest shareholder of Woori Financial Group through the employee stock ownership association, has expressed strong support for Chairman Sohn. On the 31st of last month, the Woori Bank union issued a statement titled "Immediately Withdraw the FSS's Arbitrary and Irresponsible Abuse of Authority," condemning the FSS for showing no sign of taking responsibility and acting as the root cause of complacency and self-preservation. The statement criticized the CEO's severe disciplinary action as not a decisive measure to protect financial consumers and restore financial order but rather an arbitrary abuse of authority to evade responsibility. Outside directors of Woori Financial Group also expressed strong support, stating they would respect Chairman Sohn's decision.

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