Align Partners Asset Management, a domestic activist fund, has publicly proposed that JB Financial Group and BNK Financial Group officially review the possibility of a merger. The firm sent a shareholder letter to both companies, requesting the establishment of a special committee composed of independent directors to assess the strategic and financial feasibility of the merger, and to respond by August 7 regarding whether they will initiate the review.
On July 14, at a press conference in Seoul's Yeouido IFC Hall, Align Partners CEO Lee Chang-hwan stated, "This proposal is not about pushing for an immediate merger, but rather asking both boards to conduct an independent and professional review and transparently disclose the results to all shareholders."
Align Partners is urging both companies to form a special committee made up solely of independent outside directors and to appoint global investment banks and strategic consulting firms as advisors to evaluate the merger's feasibility. If they proceed with the review, the firm requested that the results and implementation plans be made public by the time of the third-quarter earnings announcement.
Lee cited the structural crisis facing regional banks as the backdrop for the merger proposal. He noted that the ongoing population decline and aging in the Yeongnam and Honam regions, along with the concentration of economic activity in the capital area, have weakened the operational foundations of regional banks. Despite the emergence of internet banks and the transition of iM Bank to a commercial bank, the oligopolistic structure centered on major banks has not significantly changed. He emphasized, "Only the integration of two regional financial groups with complementary business portfolios can ensure the long-term survival of regional banks through a market-driven solution."
Lee also pointed out that the proposed merger is not a new concept. He explained, "Just as the banking industry in Korea has evolved through mergers and the transition to financial holding companies following the foreign exchange crisis, this merger represents a growth path that the industry has already taken. It is a solution to address national challenges facing local economies, beyond merely enhancing shareholder value."
Align Partners anticipates that if the merger is successful, it would create the largest regional financial holding company in South Korea, with total assets of 234 trillion won. JB Financial Group has a strong presence in the Honam region, while BNK Financial Group operates primarily in the Yeongnam area, resulting in minimal overlap in branches and customers. The combined market capitalization is projected to reach approximately 10.3 trillion won, comparable to that of Kakao Bank. If business synergies are realized, the market capitalization could increase to about 14.5 trillion won, and applying the average valuation of the top four financial holding companies could push it above 20 trillion won.
Furthermore, the return on risk-weighted assets (RoRWA) could improve to JB Financial's level of 1.83%, and if selling and administrative expenses, excluding labor costs, are reduced by 10%, the return on equity (ROE) could rise from 9.1% to 12.8%, while the cost-to-income ratio (CIR) could decrease from 45.5% to 38.7%. The proposed 'merger holding company' structure would allow for the maintenance of regional brands while achieving economies of scale. This could lead to reduced funding costs and improved profitability, as well as enhanced investment capabilities in artificial intelligence, expanded research coverage, and inclusion in the MSCI Korea index.
Lee also referenced Japan's experience with regional financial group mergers, such as Chiba Bank and Chiba Kogyo Bank, which have undergone similar integrations. He noted, "Japan has faced population decline and aging before us and has policy-supported regional bank mergers. Recently, there have been cases where proposals from activist investors have led to actual management integrations. We must proactively consider merger possibilities before the foundation of our local economies weakens further."
He concluded by stating, "Both companies have recently appointed a number of shareholder-nominated outside directors, enhancing the independence and expertise of their boards. Now is the most appropriate time to conduct an objective review through an independent special committee and global advisory firms."
* This article has been translated by AI.
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