Shinhan Financial Group Attempts
to Expand Non-Banking Sector

Acquisition of LG Card would have synergetic effects

Lee In-ho, CEO of Shinhan Financial Group, chosen as the preferred bidder to take over a controlling stake in LG Card Co., said his group plans to strive to keep the nation's second largest card issuer listed for two years to protect minority shareholders from the acquisition.
Shinhan Financial Group President Lee told a meeting with reporters on August 17 that Shinhan's acquisition of at least 51 percent stake out of creditors'combined interest of 72 percent would lower minority shareholders'portion to 7 percent, a factor for delisting the card issuer, so his company's bidding proposals carried details for preventing delisting of the card issuer. Currently, a company should be delisted from the stock exchange when its minority shareholders'proportion falls below 10 percent of total share ownership.
In order to solve the issue of keeping LG Card listed, Shinhan Financial Group is considering an additional purchase of shares from creditors following the acquisition and putting them on the market or encouraging creditors to sell their remaining shares to the market after the initial disposal, sources familiar to the bidding said.
During the bidding process, Shinhan Financial Group offered 85,000 won a share for a 85 percent stake said the sources, adding that the actual bidding price was estimated at 6.7 trillion won, given the actual acquisition of about 78 percent stake except Shinhan's 7.14 percent interest in LG Card.
The estimated bidding price could set a record in the history of the domestic financial M&As market as it would surpass the 6.95 trillion won Kookmin Bank agreed to pay for the Korea Exchange Bank.
Shinhan Financial Group brushed aside some analysts'comments on the overpriced bidding. Renowned international credit agency Standard & Poor's (S&P) said in a statement that the known bidding price, estimated at between 6.3 trillion won and 6.7 trillion won, could weaken overall financial soundness of the group. S&P downgraded its long-term and short-term ratings for its main affiliate Shinhan Bank from A- and A-2 to "Watch Negative,"respectively.
However, Shinhan Financial Group pins high hopes on the mid- and long-term strategic values of LG Card. The financial group's vision is to widen the revenue portion of the card business - the non-banking sector with the goal of upgrading the group's banking vs. non-banking revenue structure to an advanced one.
Shinhan Financial Group considers LG Card clientele base with a membership of 11 million subscribers as one of the card issue's strengths. The financial group said it can capitalize on the database of the 11 million LG card users to attract new customers and dramatically raise revenues arising from a marketing strategy of exchanging financial products among subsidiaries. Officials at Shinhan Financial Group said they believe that the acquisition of the card issuer could boost the group's retailing banking, the financial group's weakest business sector by diversifying the customer base of retailing banking in a short period of time.
Since 2001 when it shifted to a structure of a holding company, Shinhan Financial Group has made strides following a succession of M&As like the acquisition of Jeju Bank, Good Morning Securities and Chohung Bank.
If it takes over LG Card as planned, Shinhan Financial Group's total assets could rise 12 trillion won to 219 trillion won with its total net income for the first half of the year surging from 1,072.1 billion won to 1,712.7 billion won.
Kookmin's total assets could climb to 268 trillion won when it completes the acquisition of Korea Exchange Bank, 49 trillion won more than those of Shinhan Financial Group plus acquisition of LG Card, a difference enough to be overtaken depending on business performances, industrial analysts said. The acquisition would have Shinhan Financial Group rank second in overall ranking in the domestic financial industry to second place, but No. 1 position in the card issuer industry.
Shinhan Financial said it plans to operate LG Card as a separate unit for two years before a merge with own credit card unit Shinhan Card, as it did in the M&A case of acquiring Chohung Bank.
Shinhan Card, an affiliate of Shinhan Financial Group, incorporated the card business unit of the now-defunct Chohung Bank following the financial group's merger with Chohung Bank. Shinhan Card has a membership of 6.03 million and 3.37 million franchised shops. Shinhan Card has a 8.6 percent market share, but the financial group's market share could surge to 25 percent following the acquisition of LG Card. nw

Lee In-ho, CEO of Shinhan Financial Group

A Huge Swing in Profit

Shinhan Financial Group's H1 profit exceeds 1 tln won

Shinhan Financial Group's net profit in the first half surpassed 1 trillion won, joining the Big Three in the banking industry including Kookmin Bank and Woori Financial Holdings.
The Korea Exchange Bank also saw its net profit breaking record by posting 900 billion won in the first half, the largest in the bank's history.
Shinhan's Q2 net profit soared 26.6 percent at 595.7 billion won, far above 470.4 billion won in the same period last year.
The financial holding company's H1 net profit totaled 1.721 trillion won with its total assets rising 6.9 percent to 207 trillion won compared to 193.7 trillion won in the same period last year.
To look at the record by its affiliates, Shinhan Bank recorded a net profit of 948.4 billion won in the H1, up 18.7 percent from the same period last year.
Bank officials said the larger NIM in the period up 0.9 percentage points from the same period last year at 2.42 percent and a large increase in the sale of fund products at 140.8 percent have been a big factor in boosting the net profit.
KEB's Q2 net profit registered 628.5 billion won up 96.3 percent from the same period last year, bringing its H1 net profit to 928.4 billion won, up 43.7 percent from the same period last year. Compared to its assets, the Q2 net profit is far above other banks including net profits of Shinhan Financial Holdings and Woori Holdings at 564.4 billion won and Hana Financial with 263.6 billion won.
Hyundai Construction and Hynix have made a big contribution to those banks superb performances with the turnaround in their operations this year. Those banks earned 136.6 billion won in selling Hyundai Construction shares and 228 billion won in recovered debts. Hynix helped the banks to make 100 billion won in profit from selling its shares and 561 billion won in profit from the company's normalized operation. nw