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Seoul court orders stop to Hana-KEB merger process

February 4, 2015
Currency traders pass by screens showing the Korea Composite Stock Price Index (KOSPI) and foreign exchange rate, right, at the foreign exchange dealing room of the Korea Exchange Bank headquarters in Seoul, South Korea, Friday, Jan. 9, 2015. Asian stocks extended gains Friday after other global markets bounced back from a rocky start to the year and oil prices stabilized after dramatic plunges. The Korea Composite Stock Price Index rose 1.05 percent, or 20.05, to close at 1,924.70. (AP Photo/Ahn Young-joon)

Currency traders pass by screens showing the Korea Composite Stock Price Index (KOSPI) and foreign exchange rate, right, at the foreign exchange dealing room of the Korea Exchange Bank headquarters in Seoul, South Korea, Friday, Jan. 9, 2015. Asian stocks extended gains Friday after other global markets bounced back from a rocky start to the year and oil prices stabilized after dramatic plunges. The Korea Composite Stock Price Index rose 1.05 percent, or 20.05, to close at 1,924.70. (AP Photo/Ahn Young-joon)

SEOUL (Yonhap) — A Seoul court on Wednesday ordered a suspension of merger moves between two local banks, siding in part with one of the bank’s unions which accused the other of violating a promise not to seek the merger until 2017.

The Seoul Central District Court issued an injunction stopping Hana Financial Group from pushing ahead with the merger of its flagship Hana Bank with the Korea Exchange Bank (KEB). The injunction is effective for the first half of this year. The court decision effectively bans Hana Financial from any proceedings related to the merger, including holding a shareholder meeting to complete the process.

The banking group said it will withdraw its request filed previously with the Financial Services Commission (FSC) for the merger approval before the end of this week. It had filed the request last month, and the FSC was expected to make its decision later this month. It also said the group will seek legal measures against the court’s injunction.

The court said there is no urgent conditional change to overturn the management-labor agreement of 2012, which is binding on both parties.

“Revenues of the two banks and the local banking industry had reached the bottom in 2013, but it is difficult to say that the survival of the KEB is threatened if Hana and the KEB delay the integration,” the court said.

Hana Financial argues that its early merger decision was made to preempt a possible financial crisis.

“The management of Hana Financial made the decision after considering the future of the company and its employees,” said the banking group in a release. “The court injunction missed this part and we are studying measures from all angles, including filing an objection.”

Hana Financial bought KEB in February 2012 from U.S. buyout firm Lone Star Funds, but agreed with the KEB union to keep the lender independent for five years.

But Hana has been trying for an early merger, claiming it would raise the banks’ efficiency. The KEB union adamantly opposes the move and accuses the financial group of breaking its promise.

Shares of Hana Financial fell 0.78 percent to close at 31,900 won Wednesday on the Seoul bourse, with the benchmark KOSPI finishing up 0.55 percent. The court’s decision was announced during trading hour.