November 24, 2024

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Woori Financial Group's headquarters in central Seoul (Woori Financial Group)

South Korean financial services conglomerate Woori Financial Group is seeking to diversify its business portfolio beyond banking in an apparent move to take on its bigger rivals here.

Among the nation’s top four financial groups, Woori has long remained the smallest in terms of sales.

Last year, Woori was the only one to post less than 3 trillion won ($2.2 billion) in earnings, with its net profit standing at 2.51 trillion won. KB, the No. 1 financial group, recorded 4.63 trillion won in net profit, followed by Shinhan’s 4.36 trillion won and Hana’s 3.45 trillion won.

The first three months of this year were no different. Even though Woori was less affected by massive compensation claims for misselling Hong Kong-tied equity-linked securities, its first-quarter profit remained at 824.5 billion won, while the other three reported more than 1 trillion won in profits.

Industry watchers say Woori is attempting to expand its nonbanking portfolio by eyeing mergers and acquisitions deals.

Earlier this month, Woori announced it would launch a securities firm by taking over digital brokerage firm Korea Foss Securities and merging it with its existing investment banking subsidiary, Woori Investment Bank.

The new brokerage house will open in the third quarter of this year, after obtaining approval from the Financial Services Commission. If launched, the securities firm would end Woori’s over 10-year hiatus in the brokerage business.

Despite the merger, the new securities arm may face difficulties in securing a foothold in the investment banking market with its small capital. When merged, its equity capital will remain at 1.2 trillion won, and total assets will stand at 6.6 trillion won.

Experts predict Woori could seek another merger deal to spur growth.

“The merger decision is meaningful in that the group has acquired a license in the brokerage business. Woori is likely to be open to further acquisition of a brokerage,” analyst Kim Do-ha from Hanwha Investment & Securities viewed.

Also on its M&A list is Lotte Insurance, the country’s seventh-largest nonlife insurer.

The price discrepancy between the seller and the buyer remains a hurdle. According to industry sources, JKL Partners, the largest shareholder of Lotte Insurance, has requested more than 2 trillion won for its 77 percent stake, almost doubling the firm’s market cap at 1.05 trillion won as of Friday.

Woori has repeatedly stressed it will not settle for an overly high price.

“We are taking an overall look at offerings on the market,” Lee Sung-wok, chief financial officer at Woori, said at a conference call held on April 26. “But the main principle for a Lotte Insurance (takeover) is that we do not pay an excessive price.”

Woori’s rush for portfolio expansion comes as local financial firms are under greater pressure to reduce reliance on interest margins as their key profit source. Woori has also been heavily reliant on its lending unit.

Last year, more than 95 percent of the group’s net profit was generated from Woori Bank alone -- the highest portion among its rivals.

“The nation’s financial firms are in a tricky position. Even though they own banks as the key profit source, they are always asked to reduce their reliance and search for new growth drivers. Woori may feel a greater burden,” an industry official said on condition of anonymity.

By Im Eun-byel (silverstar@heraldcorp.com)