Securities Firms and Capital Companies... Woori Financial Group Changes Its Target

[Asia Economy Reporter Kangwook Cho] As Prudential Life Insurance, considered the biggest deal in the first half of the M&A market, was acquired by KB Financial Group, it is being observed that Woori Financial Group, once seen as a strong competitor, is turning its attention from insurance companies to securities firms and capital companies. This is especially because securities firms, whose profitability has deteriorated due to the impact of the novel coronavirus disease (COVID-19), are more likely to be put up for sale. In the market, it is said that Yuanta Securities, Kyobo Securities, and Aju Capital are on the list of Son Tae-seung, chairman of Woori Financial Group, who has emphasized 'expanding the size' of the non-bank sector.

According to the financial sector on the 17th, Woori Financial is reportedly looking for securities firms and capital companies instead of insurance companies to reduce its concentration in banking and increase profitability in the non-bank sector. Among securities firms, it is understood that Woori Financial is particularly interested in large securities firms capable of exerting market influence rather than small and medium-sized ones.

A Woori Financial official said, "Chairman Son has already shown his intention to acquire securities firms and other non-bank sectors since the beginning of his tenure," adding, "Since banks and insurance companies are both deposit-taking institutions, unless there is a definite asset, acquiring securities firms, which are asset management institutions, is a more urgent task."

The reason why Woori Financial, which was expected to compete with KB Financial in the Prudential Life Insurance acquisition, only participated in the acquisition financing of the private equity fund IMM PE is said to be a strategic move for future securities firm acquisitions. For Woori Financial, selling Woori Investment & Securities to NH Nonghyup Financial Group in 2014 under the government's privatization policy remains a 'painful memory.' Since then, NH Investment & Securities, which changed its name, posted a net profit of 475.5 billion KRW last year, becoming a profitable affiliate within Nonghyup Financial.

Yuanta Securities, whose profitability has deteriorated, is mentioned as a strong candidate for acquisition. Yuanta Securities' net profit last year was 80.9 billion KRW, down 22.7% from the previous year. There are concerns that the decline in performance will be even greater this year due to the COVID-19 crisis. The industry also views Yuanta Securities' change from a dual CEO system of Seo Myeong-seok and Guo Mingzheng to a sole CEO system under Guo Mingzheng at the shareholders' meeting last month as possibly related to the sale. Yuanta Securities was also rumored to be up for sale last year but denied the reports.

Kyobo Securities, another candidate for sale, was already approached by Woori Financial in 2018. At that time, it is known that Woori Financial halted the acquisition process due to strong internal opinions that acquiring a large securities firm should be prioritized. Kyobo Securities posted a net profit of 83.4 billion KRW last year, up 7.9% from the previous year.

Aju Capital is the most likely candidate among capital companies. Woori Financial holds a right of first refusal after investing 100 billion KRW when WelltoSee Investment, a private equity fund (PEF) manager and major shareholder of Aju Capital, acquired 74.04% of Aju Capital's shares in 2017. However, it is uncertain whether WelltoSee Investment will request a sale to Woori Financial. Aju Capital's net profit last year was 101.6 billion KRW, up 11.6% year-on-year, and total assets increased by 20.5% to 7.4731 trillion KRW. Currently, Aju Capital's credit rating is A+.

If the internal ratings-based approach approval process currently underway by financial authorities proceeds smoothly, it is expected that Woori Financial will have more breathing room to secure financial soundness and will take a more aggressive stance in M&A in the second half of the year.

A financial sector official said, "If Woori Financial obtains approval for the internal ratings-based approach, the Basel International Settlement Bank (BIS) ratio will rise from the current 11% to around 12-13%," adding, "From the second half of the year, it is highly likely that Woori Financial will boldly make moves in the M&A market, focusing on securities firms."

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