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The Bank That's Rewriting All the Rules


From the start, the merger seemed doomed. Just two days before Kookmin Bank was to combine with its rival H&CB, union leaders were still blocking Kim Jung Tae, president of H&CB, from taking over the new operation. Then, Kim made a preemptive strike: The would-be chief executive of the new Kookmin Bank turned up unannounced at the union's office in Seoul, ready for a showdown. He challenged the unionists to help boost profits and shareholder value. "Speak up now if my plan is wrong," he told them. "I'll listen to you, but your ideas better be good for the bank." Kim took office on Nov. 1 without incident.

Now, five months later, Kim has not only taken firm control of Kookmin but is also turning it into a model for South Korea and the rest of Asia. He has cut off delinquent customers, speeded up the integration of the banks' info-tech systems, and held managers to tougher standards. Investors have applauded, driving up the share price by 64% since he took over. That has given Kookmin a market capitalization of $12.5 billion as of Mar. 26, surpassing Development Bank of Singapore for the highest market cap of any Asian bank outside of Japan and China. What's more, the enthusiasm for Kookmin has spilled over to the rest of Seoul's stock market, helping to boost the Kospi index 62% since Nov. 1. "I think the launch of Kookmin Bank served as a turning point for foreign investors to rerate Korea," says Kwon Jae Jung, research fellow at the Korea Institute of Finance.

More important, Kookmin's success is reshaping the landscape for Korean banking. The birth of the giant retail bank--it has 1,125 branches across the country and one-third of all banking assets--is forcing other local banks to follow. Market forces, not government arm-twisting, are driving consolidation. Any bank left with a limited network of branches is handicapped at a time when exposure to the big conglomerates, or chaebol, is risky and when retail banking is the key profit spinner. "The smoother-than-expected progress at Kookmin makes other banks feel that their survival is threatened," says banking analyst Lee Chang Hee at Daiwa Securities in Seoul. "Suddenly, it looks like the problem of too many banks is nearing an end."

Take Shinhan Bank. It rejected an offer of marriage from Kim's H&CB back in 2000, but today it's busy cementing alliances with other financial institutions so it can emulate Kookmin's strategy of delivering insurance, brokerage, and asset-management at each branch. The market is abuzz with talk that Shinhan is pursuing Korea First Bank, while two other top banks, Hana and Koram, are negotiating a merger of their own. A series of new mergers could end the sector's cutthroat competition and dramatically boost bottom lines, which would please regulators who remember the Asian financial crisis and want banks to get more profitable.

At the new Kookmin Bank, Kim is picking up where he left off at H&CB. There, on the eve of the merger, he famously cut off fresh credit to floundering chipmaker Hynix Semiconductor. Helped by the country's 3% growth rate last year, the newly merged Kookmin reported a 24% jump in profits, to $2.8 billion, over the Kookmin-H&CB total in 2000. And Kookmin officials are confident that profits will rise by at least a further 20% this year. Revenues rose 13.5% last year, to $12.6 billion.

Without firing staff or shutting branches, Kim, 54, who worked at brokerage firms for 23 years before taking over H&CB in 1998, has moved aggressively to adopt modern practices. He started by declaring that the bank must choose one computer system, departing from the usual practice in Korean mergers of compromising by maintaining different systems. H&CB's system won. In March, Kim reshuffled senior managers based on their performance over the first four months of the merger. "We are asked to accept enormous changes at a scary pace," says Park Ji Woo, a deputy general manager from the old Kookmin. "Some of my colleagues are hurt, but we know we're heading in the right direction."

So far, so good, but Kim has his sights set on a much more ambitious goal--raising the level of management to make Kookmin "look similar to advanced banks" in the U.S. and Europe within five years. His plan has two prongs: giving each of 200 senior managers a one-year paid leave to go back to school and upgrade their skills, and raising the number of executives hired for senior positions from outside the bank from the current 40% of top management to 50%. The upgrading will be a tough task, but if Kim can do it, he will have established yet one more benchmark for his Korean competitors. By Moon Ihlwan in Seoul


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