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Big change looms in brokerage sector

NH’s deal with Woori set to change landscape of securities houses

The sale of Woori Investment & Securities is expected to reshape the landscape of the nation’s brokerage industry as chances are high that a minor player will take over the securities giant.

On Tuesday, the government selected NongHyup Financial Group Inc. as the preferred bidder for three units of the state-run Woori Finance Holdings Co., the nation’s largest banking group in terms of assets.

If NongHyup’s deal with Woori is successful, NH Investment & Securities Co., under NongHyup’s wing, will become the top brokerge house.

KB Financial Group, the other powerful potential bidder, lost out to NH Investment in last-minute negotiations.

On Wednesday, however, Woori Financial Group issued a statement that it has decided to keep KB as the “back-up preferred bidder” for the three Woori units, in case the negotiation fails between NH Investment and Woori Investment.

“The board of directors agreed to do their best in carrying out additional negotiations to improve the terms for the sale of Woori Investment & Securities and Woori Financial Savings Bank,” said the group.

If NH Investment successfully acquires the No. 2 Woori brokerage, NH is expected to surpass KDB Daewoo Securities, the present No. 1 in equity capital, in one big leap.

Such an outcome is expected to rattle the potential bidders for Hyundai Securities and other, smaller brokerages, such as Etrade Securities, Tong Yang Securities and Leading Investment & Securities.

“Besides the bidding price, we looked into multiple factors such as the financing plan, contract requirements, management potential and other non-pricing terms,” Woori Financial Group said in a statement.

NongHyup Financial Group is to conduct due diligence on Woori over the next two weeks starting on Thursday. It will be the final step in sealing the acquisition deal to be concluded in January 2014.

NH Investment is known to have won the spot by offering 1.15 trillion won ($1.1 billion) to Woori Financial Group for a batch purchase of three Woori units: Woori Investment & Securities, Woori Aviva Life Insurance and Woori Financial Savings Bank.

NH Investment holds 878.2 billion won in equity capital, which translates to about 22 percent of KDB Daewoo’s 3.96 trillion won, according to data from the Korea Financial Investment Association. Woori has 3.47 trillion won in equity capital, second only to KDB Daewoo.

NH Investment and Woori together will have 4.35 trillion won in equity capital, setting the stage for NH Investment to begin a long-desired investment banking operation.

The acquisition deal reflects NongHyup Financial Group’s call for aggressive management by diversifying its portfolio since the June inauguration of its chairman, ex-Vice Finance Minister Lim Jong-ryong.

The group’s operation has revolved around the performance of its bank unit, NH NongHyup Bank, which makes up about 80 percent of the group’s profits.

Lim has openly called for changes in the group’s business philosophy, urging it to move from being a “good old faithful” finance institution to becoming an “aggressive profit earner” through stronger M&A and management of its assets.

By Chung Joo-won (
Korea Herald Youtube