Shinhan Financial Group's shares fell over 4% during trading on concerns about financial burdens and profitability following its decision to acquire Lotte Insurance.
As of 2:56 PM on October 14, Shinhan's stock was trading at 94,900 won, down 4,800 won (4.81%) from the previous trading day, according to the Korea Exchange.
The day before, the board of directors at Shinhan Financial approved the acquisition of Lotte Insurance. Shinhan Financial plans to purchase a 77.04% stake in Lotte Insurance from private equity firm JKL Partners for 693.3 billion won. The company also intends to secure the remaining 22.96% stake after obtaining approval from financial authorities and completing related procedures.
Following the acquisition, Shinhan Financial aims to integrate Lotte Insurance with its existing subsidiary, Shinhan EZ Insurance, to enhance its non-life insurance business and expand synergies within the group. However, market analysts are questioning whether the expected profitability will be sufficient given the acquisition costs and the investments needed for normalizing performance.
Jung Jun-seop, a researcher at NH Investment & Securities, stated, "Considering the costs associated with the acquisition and the investments required for performance normalization, the total effective cost could reach up to 1.5 trillion to 2 trillion won. While Shinhan Financial expects the acquisition to improve group profits by 120 billion won and return on equity (ROE) by 0.2 percentage points, achieving significant financial results in the short term may be challenging."
Jung also noted that Shinhan Financial has the capital capacity needed for the acquisition, suggesting that the financial burden will not significantly impact shareholder returns. While the acquisition could enhance the non-life insurance business and stabilize non-interest income, the key factor will be whether it can generate returns exceeding the invested capital.
Jeon Bae-seung, a researcher at LS Securities, remarked, "There is potential for improved long-term profitability through appropriate acquisition pricing and synergies within the group. However, the decline in common equity tier 1 (CET1) capital ratio and the inability to receive dividends from Lotte Insurance for a considerable period may have some negative implications for the group's cash flow."
* This article has been translated by AI.
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