[Focus] Controversy surrounds bank merger

The government and presidents of both Kookmin Bank and Housing & Commercial Bank (H&CB) have disclosed in principle a merger on equal footing and no forced layoffs. The merger is expected before the end of the year. But, the gains and losses of the projected merger are cause for heated debate.

Those who support the merger contend that the birth of a megabank would be monumental to nurture the nation`s capital market, as well as stimulate mergers among other banks. Those who are opposed to the idea say that there wouldn`t be any synergy effect if it is not accompanied by layoffs.

Currently, the government strongly supports the merger. Financial Supervisory Commission (FSC) spokesman Kang Kwan-Suk said that it is necessary to lead other banks to merge among large blue-chip banks.

FSC said the Hirschman-Herfindahl index, a bank`s monopoly index, is 2000 for the United States, but that Korea is only 600. It explained that it means complete monopoly if the index reaches 10,000, and competitive maturity if it is less than 1,000.

Another reason for the merger is to nurture the capital market.

A recent report by Merrill Lynch of the United States analyzing the merger between the two banks, said it would play a role as a leading bank that decides market interest, adding that it is meaningful in macroeconomic aspects.

In other words, if Kookmin-H&CB lowers their interest rates, it would spread to other local banks. It would result in transfer of high yield-seeking funds to stock and bond markets, which may soften the financial crunch of the capital market.

As for the synergy effect, the report indicated that it cannot be expected if the merged bank does not lay off some of the work force and close some branches where duplicate business areas exist.

In fact, the two banks need to lay off nearly 30 percent of the work force, or 6,000 employees, as well as 65 percent of duplicate branches in order to realize the synergy effect, the report said.

But, the government and president of the two banks contended that if employees are reduced by 10-20 percent through natural reduction of manpower, it would bring about an expected synergy effect.

Trade unions of the two banks are protesting, saying that it is contradictory since heads of the two banks are reversing their principle of manpower reduction.