Woori privatization
The government’s renewed plan to privatize Woori Finance Holdings appears to have collapsed in the face of lawmakers’ opposition to the possible emergence of a mega bank.
Last month, the Public Fund Oversight Committee resumed the process of selling off the government’s 57 percent stake in the nation’s second-largest financial group. The process was stalled in December following an aborted attempt to auction off the shareholdings to a consortium of the company’s corporate clients.
To avert another failure, the Financial Supervisory Commission sought to encourage financial holding companies to participate in the bidding process by lowering the huge costs they have to finance to acquire managerial control of Woori Finance.
Currently, a financial holding company that intends to take over another financial holding company is required to purchase a 95 percent or larger stake in the target.
This means a prospective buyer that purchases the government-held stake is obliged to acquire an additional 38 percent stake in Woori. Furthermore, the buyer is also required to pay a control premium to the government for securing a majority stake.
As a result, the overall costs of taking over Woori Finance would exceed 10 trillion won, an amount that none of the domestic financial holding companies can afford.
To alleviate this burden, the FSC proposed to lower the minimum stake acquisition requirement from 95 percent to 50 percent if the takeover target is a government-owned financial holding company, such as Woori Finance.
Given the difficulty in finding a qualified bidder for the financial group, the proposal makes sense. However, the lawmakers on the National Assembly’s National Policy Committee opposed the proposal, suspecting that it was a ploy designed to help KDB Financial Group, a state-owned policy banking group, acquire Woori Finance and create a mega bank.
KDB chairman Kang Man-soo is a staunch advocate of a mega bank. A close aide to President Lee Myung-bak, Kang is convinced that Korea needs a mega bank that can make its mark in the global financial market.
But the lawmakers do not buy this idea. They rightly note that merging the two state-owned banks hardly fits in with the government’s privatization policy.
To ease the lawmakers’ opposition, FSC Chairman Kim Seok-dong pledged to ban KDB from purchasing the government-held Woori shares. But this hardly impressed the lawmakers. If anything, they threatened to have the 95 percent acquisition requirement stipulated in the Financial Holding Company Act if the FSC seeks to soften the provision.
Currently, the provision is set in an enforcement decree, which FSC officials can revise without approval from lawmakers. But if the lawmakers put it in the act, there would be no room for the FSC to adjust it.
Hence, the FSC has decided to stop its push to change the provision so as not to provoke the lawmakers. However, this means financial holding companies other than KDB ― Kookmin, Shinhan and Hana ― will not be able to participate in the auction. As a result, there will most likely be no letters of intent submitted to the PFOC by the June 29 deadline.
If the sale process fails again, the lawmakers on the NPC cannot avoid criticism. They were right to oppose the KDB’s acquisition of Woori Finance because it could not be seen as privatization. But they went too far when they stuck with their opposition even after the FSC made clear KDB would not be allowed to acquire the Woori stake.
The lawmakers’ concerns about systemic risks posed by a mega bank are valid. But their objection to the FSC’s proposal would further delay the privatization of Woori Finance, which has been badly managed for more than a decade under the control of the government. They should allow the FSC to go ahead with its privatization plan.
Last month, the Public Fund Oversight Committee resumed the process of selling off the government’s 57 percent stake in the nation’s second-largest financial group. The process was stalled in December following an aborted attempt to auction off the shareholdings to a consortium of the company’s corporate clients.
To avert another failure, the Financial Supervisory Commission sought to encourage financial holding companies to participate in the bidding process by lowering the huge costs they have to finance to acquire managerial control of Woori Finance.
Currently, a financial holding company that intends to take over another financial holding company is required to purchase a 95 percent or larger stake in the target.
This means a prospective buyer that purchases the government-held stake is obliged to acquire an additional 38 percent stake in Woori. Furthermore, the buyer is also required to pay a control premium to the government for securing a majority stake.
As a result, the overall costs of taking over Woori Finance would exceed 10 trillion won, an amount that none of the domestic financial holding companies can afford.
To alleviate this burden, the FSC proposed to lower the minimum stake acquisition requirement from 95 percent to 50 percent if the takeover target is a government-owned financial holding company, such as Woori Finance.
Given the difficulty in finding a qualified bidder for the financial group, the proposal makes sense. However, the lawmakers on the National Assembly’s National Policy Committee opposed the proposal, suspecting that it was a ploy designed to help KDB Financial Group, a state-owned policy banking group, acquire Woori Finance and create a mega bank.
KDB chairman Kang Man-soo is a staunch advocate of a mega bank. A close aide to President Lee Myung-bak, Kang is convinced that Korea needs a mega bank that can make its mark in the global financial market.
But the lawmakers do not buy this idea. They rightly note that merging the two state-owned banks hardly fits in with the government’s privatization policy.
To ease the lawmakers’ opposition, FSC Chairman Kim Seok-dong pledged to ban KDB from purchasing the government-held Woori shares. But this hardly impressed the lawmakers. If anything, they threatened to have the 95 percent acquisition requirement stipulated in the Financial Holding Company Act if the FSC seeks to soften the provision.
Currently, the provision is set in an enforcement decree, which FSC officials can revise without approval from lawmakers. But if the lawmakers put it in the act, there would be no room for the FSC to adjust it.
Hence, the FSC has decided to stop its push to change the provision so as not to provoke the lawmakers. However, this means financial holding companies other than KDB ― Kookmin, Shinhan and Hana ― will not be able to participate in the auction. As a result, there will most likely be no letters of intent submitted to the PFOC by the June 29 deadline.
If the sale process fails again, the lawmakers on the NPC cannot avoid criticism. They were right to oppose the KDB’s acquisition of Woori Finance because it could not be seen as privatization. But they went too far when they stuck with their opposition even after the FSC made clear KDB would not be allowed to acquire the Woori stake.
The lawmakers’ concerns about systemic risks posed by a mega bank are valid. But their objection to the FSC’s proposal would further delay the privatization of Woori Finance, which has been badly managed for more than a decade under the control of the government. They should allow the FSC to go ahead with its privatization plan.
Devil is in the details
The prosecution and the police have struck a deal to end an unedifying dispute on the right to investigate crimes. The agreement, struck Monday between Justice Minister Lee Kwi-nam and National Police Agency chief Cho Hyun-oh, is a compromise that balances the key demands of the two sides.
Specifically, they agreed to empower police officers to launch an investigation if there is reasonable suspicion of a crime and have this right stipulated in the Criminal Procedure Act. Thus far prosecutors have refused to recognize police officers’ right to initiate investigations, even though in practice the police do so without prosecutors’ approval in 90 percent of cases.
The two sides also agreed to delete the clause in the Public Prosecutor’s Office Act requiring police officers to “obey any official order” issued by prosecutors. The police demanded the repeal of the clause on the grounds that criminal investigations are conducted through cooperation between prosecutors and police officers.
The prosecution in return demanded that their authority to supervise and direct police officers be more clearly stipulated. Hence the two sides agreed to amend the Criminal Procedure Act to affirm the obligation of police officers to follow the directions of prosecutors in all types of investigations.
The compromise, mediated by Prime Minister Kim Hwang-sik and presidential chief of staff Yim Tae-hee, thus addresses the main concerns of the law enforcement agencies. But as is always the case with any agreement, the devil is in the details. The accord failed to address some important details, leaving much room for conflict.
One such detail concerns the obligation of police officers to follow the directions of a public prosecutor. During the Monday negotiations, the top officials stopped short of specifying the scope of authority prosecutors have over police. This task was left to the Justice Ministry.
It seems likely the two sides will continue to quarrel over the issue. Indeed, they began bickering on it Tuesday with the ink on the agreement barely dry. NPA chief Cho said preparatory activities before an investigation do not constitute an investigation and therefore are not subject to directions from a public prosecutor. He added Justice Minister Lee agreed with that view during the negotiations. The prosecution refuted Cho’s assertion, saying a preparatory inquiry should be seen as part of an investigation. Presidential chief of staff Yim sided with Cho.
Defining the nature of a preparatory inquiry by police may be an important issue to prosecutors and police investigators. But ordinary citizens are not interested in such a technical matter. For them, a far more important issue is how far the law enforcement agencies go to respect the human rights of suspects in investigations. The two agencies would be able to resolve their disputes easily if they approached things from this perspective.
Specifically, they agreed to empower police officers to launch an investigation if there is reasonable suspicion of a crime and have this right stipulated in the Criminal Procedure Act. Thus far prosecutors have refused to recognize police officers’ right to initiate investigations, even though in practice the police do so without prosecutors’ approval in 90 percent of cases.
The two sides also agreed to delete the clause in the Public Prosecutor’s Office Act requiring police officers to “obey any official order” issued by prosecutors. The police demanded the repeal of the clause on the grounds that criminal investigations are conducted through cooperation between prosecutors and police officers.
The prosecution in return demanded that their authority to supervise and direct police officers be more clearly stipulated. Hence the two sides agreed to amend the Criminal Procedure Act to affirm the obligation of police officers to follow the directions of prosecutors in all types of investigations.
The compromise, mediated by Prime Minister Kim Hwang-sik and presidential chief of staff Yim Tae-hee, thus addresses the main concerns of the law enforcement agencies. But as is always the case with any agreement, the devil is in the details. The accord failed to address some important details, leaving much room for conflict.
One such detail concerns the obligation of police officers to follow the directions of a public prosecutor. During the Monday negotiations, the top officials stopped short of specifying the scope of authority prosecutors have over police. This task was left to the Justice Ministry.
It seems likely the two sides will continue to quarrel over the issue. Indeed, they began bickering on it Tuesday with the ink on the agreement barely dry. NPA chief Cho said preparatory activities before an investigation do not constitute an investigation and therefore are not subject to directions from a public prosecutor. He added Justice Minister Lee agreed with that view during the negotiations. The prosecution refuted Cho’s assertion, saying a preparatory inquiry should be seen as part of an investigation. Presidential chief of staff Yim sided with Cho.
Defining the nature of a preparatory inquiry by police may be an important issue to prosecutors and police investigators. But ordinary citizens are not interested in such a technical matter. For them, a far more important issue is how far the law enforcement agencies go to respect the human rights of suspects in investigations. The two agencies would be able to resolve their disputes easily if they approached things from this perspective.
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