[Financial Upheaval] ① Meritz, the 'Catfish' Chasing NongHyup Closely... Changing the Financial Holding Company Landscape

Meritz Financial Group Rises to 13th in Market Capitalization
Chairman Cho Jung-ho Becomes Korea's Second Richest Person
Regarded as a Disruptor Threatening the Top Five Financial Holding Companies
Traditional Financial Groups Face Limits of Bank-Centered Portfolios and Must Rewrite Growth Strategies

Editor's NoteAs 1% low growth becomes entrenched, the survival competition among domestic financial companies, which have grown mainly in the domestic market, is intensifying. To survive the severe domestic slump, innovation is being triggered across the entire financial sector including banks, insurance, and cards, with fierce ranking competition emerging in the process. Asia Economy is focusing on companies causing tectonic shifts through innovation in major financial sectors and running a series to consider what strategies financial companies should set in the era of low growth.

If you were to name Korea's richest person, Samsung Electronics Chairman Lee Jae-yong would be the first to come to mind. Then, who is the second richest person threatening Chairman Lee's position? Is it SK Group Chairman Chey Tae-won, or Hyundai Motor Group Chairman Chung Eui-sun? No. The answer is Meritz Financial Group Chairman Cho Jung-ho.

As of the end of last month, Chairman Cho's stock valuation is about 12 trillion won, closely trailing Chairman Lee's valuation of around 13 trillion won. Just two years ago, Chairman Cho's stock valuation was less than 5 trillion won, but with the rise in Meritz Financial Group's stock price, his asset size has grown remarkably, approaching the top spot in Korea.

Meritz Financial Group is causing a tectonic shift in the financial sector with rapid earnings growth and advanced shareholder return policies. Meritz Financial Group's current market capitalization is 23 trillion won, ranking 13th among listed companies in Korea. Its stock price surged 76% last year alone and rose 16% this year, jumping dozens of ranks in market cap within a few years. In terms of financial holding companies' market cap rankings, Meritz Financial Group is third, right behind KB Financial Group and Shinhan Financial Group. In February, it even surpassed Shinhan Financial Group temporarily to take second place, attracting attention.

Looking solely at market capitalization, Meritz Financial Group far surpasses Hana Financial Group at around 17 trillion won and Woori Financial Group at around 12 trillion won. Its strict performance-based compensation and talent management have succeeded in steadily improving earnings in the highly competitive insurance and securities sectors. Moreover, its bold corporate value enhancement (value-up) policy, which allocates more than 50% of net profit to shareholder returns, is cited as the reason behind Meritz Financial Group's stock price rise.

Jo Jung-ho, Chairman of Meritz Financial Group

As Meritz Financial Group achieves unprecedented growth, the banking industry is becoming highly alert. Although Meritz focuses on insurance and securities without engaging in banking, it has risen to a position threatening bank holding companies in terms of market capitalization and net profit. Meritz Financial Group's net profit last year was 2.3334 trillion won, which does not reach KB Financial Group's 5 trillion won or Shinhan Financial Group's over 4.5 trillion won, but it is closely challenging NongHyup Financial Group, the youngest among the top five financial groups, which posted 2.4537 trillion won.

Kim Yong-beom, Vice Chairman of Meritz Financial Group, expressed confidence during a conference call on the 19th of last month, saying, "We will achieve a net profit of 3 trillion won within the next 2 to 3 years," and "We will become Korea's Berkshire Hathaway." If Vice Chairman Kim's prediction comes true, Meritz could surpass NongHyup and even challenge Woori Financial Group, the fourth largest financial holding company.

Top 5 Financial Holding Companies... Need to Change Bank-Centered Growth Strategy to "Survive the Competition"

From the perspective of existing financial holding companies, there is much to learn from Meritz Financial Group's growth strategy. Attempts to grow non-bank businesses such as insurance and securities, moving away from the traditional bank interest income-centered growth strategy, should continue, and value-up policies also need to be strengthened.

In fact, the difference between success and failure in the performance of the top five financial holding companies last year was non-bank profits. The combined net profit of the top five financial holding companies last year was 18.8742 trillion won, a record high, up 10.4% compared to 2023. The proportion of bank profits in the net profit of the top five financial holding companies was 80.3%, down 2.1 percentage points from the previous year. The improvement in the performance of securities and insurance affiliates reduced the proportion of bank profits, forming the basis for the record high performance.

Nevertheless, the excessive dependence on bank profits, still over 80%, remains a challenge for holding companies to solve. To address this, Woori Financial Group is pursuing acquisitions of Dongyang Life Insurance and ABL Life Insurance. Woori Financial Group, the only one among the top five financial groups without an insurance affiliate, aims to gain new growth engines through these acquisitions. Especially, Dongyang Life Insurance posted a net profit of 310 billion won last year, so if Woori succeeds in the acquisition, it is expected to reduce bank dependence and diversify its portfolio, bringing various benefits.

NH NongHyup Financial Group's new Chairman Lee Chan-woo has also been focusing on strengthening non-bank affiliates, visiting NH Investment & Securities last month after his inauguration and soon planning visits to NH NongHyup Property & Casualty Insurance and Life Insurance. This appears to be a strategic move to narrow the gap with other financial holding companies and shake off the pursuit of latecomers like Meritz Financial Group. In his inauguration speech on the 4th of last month, Chairman Lee urged innovation, saying, "Financial companies are rapidly evolving into platform companies that integrate various services in financial and non-financial areas," and "Please reset existing systems and ways of working."

Senior Research Fellow Lee Byung-yoon of the Korea Institute of Finance advised, "Due to demographic changes and slowing economic growth, the sustainability of bank interest income-centered growth strategies will significantly decline," and "Fundamental strategic changes such as increasing non-interest income, expanding businesses like trusts and asset management to prepare for an aging population, and expanding into countries with high growth and young populations must be actively pursued."

Ham Young-joo, Chairman of Hana Financial Group

The value-up policies of the top five financial holding companies are also being strengthened. Han Young-joo, Chairman of Hana Financial Group, promised in an internal interview last week, "Through active shareholder return policies, we will recover the undervalued stock price and raise Hana Financial Group's price-to-book ratio (PBR) above 1." Chairman Han said, "Currently, domestic financial holding companies' stock prices are traded below a PBR of 1, which is significantly undervalued, mainly due to lower shareholder return rates compared to global banks," and emphasized, "Hana Financial will continue to expand shareholder returns to achieve a total shareholder return ratio of 50% by 2027." This is the first time a financial holding company chairman has directly expressed commitment to corporate value-up in an internal interview.

Jin Ok-dong, Chairman of Shinhan Financial Group, held an overseas investor relations (IR) event in Japan for four days starting on the 12th of last month. Chairman Jin met with major investors such as the Financial Services Agency of Japan, the Bank of Japan (BOJ), Daiwa Securities, Mizuho, and SMBC, introducing the stable Korean financial market and value-up policies. Yang Jong-hee, Chairman of KB Financial Group, and Lim Jong-ryong, Chairman of Woori Financial Group, have also been steadily meeting overseas investors from early this year to recently, promoting their companies' commitment to value-up.

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