Kakao Bank shares volatile after founder’s detention, sale speculations

Kakaobank Corp. CI

Kakao Bank shares experienced significant volatility following the detention of Kakao founder and chairman Kim Beom-su, raising speculations about a potential sale of the bank. However, experts in the securities industry caution that these expectations could be premature and lack a solid basis.

Kakao Bank’s stock price started at 21,450 won on Tuesday and surged to 23,550 won early in the session, but then fell back to close at 20,300 won, down 3.79 percent from the previous day’s closing price. The initial spike in buying interest was fueled by expectations that the arrest could lead to a sale of Kakao Bank due to issues regarding the bank’s major shareholder qualifications.

Kim’s arrest comes amid broader legal troubles for Kakao. Kakao’s Chief Investment Officer Bae Jae-hyun was indicted in November 2023 for allegedly manipulating stock prices during a management dispute over SM Entertainment. Kakao as a corporation was also charged under the principle of dual liability, and this case is currently undergoing its first trial.

Under the Special Act on Internet-Only Banks, if Kakao receives a penalty of a fine or more, it could jeopardize its status as a major shareholder. In this scenario, the financial authorities would issue a ‘major shareholder qualification fulfillment order.’ To retain major shareholder status, Kakao must resolve the issue within a set period and failure to do so would require Kakao to sell any shares exceeding 10 percent of its holdings within six months.

Despite the market buzz, industry experts urge caution. Samsung Securities analyst Kim Jae-woo maintained a ‘neutral’ rating on Kakao Bank, saying, “Expectations for M&A involving Kakao Bank are premature. Legal procedures are not finalized and could take years. Even if fines are imposed, the decision on whether to sell the excess shares ultimately lies with the Financial Services Commission.”

Sangsangin Group, for example, received a sale order for its savings bank in October 2023 but the ensuing legal challenges have delayed the sale. “It took three years from the initial arrest in June 2020 to a Supreme Court ruling, and even now, four years later, the sale has not been executed due to ongoing administrative litigation,” Kim noted.

There are also speculations about Korea Investment & Securities, the second-largest shareholder with just one share less than Kakao’s 129.53 million shares (27.17 percent), potentially acquiring Kakao Bank. But such a move could burden Korea Investment Holdings, the parent company, which would have to transition to a financial holding company that is subject to stricter financial soundness regulations, including the BIS capital adequacy ratio.

The original objective of Kakao Bank was to introduce the ‘catfish effect’ in the banking industry, which makes an acquisition by an existing financial holding company unlikely. “A partial acquisition structure does not align with the strategy of achieving synergy through 100 percent subsidiary integration. Considering the market capitalization and the differences in the PBR, it will not be easy to fully acquire additional shares or exchange stocks,” Kim added.