It has been confirmed that Pepper Savings Bank has also completely failed negotiations recently, following Sangsangin Savings Bank, which was discussing acquisition negotiations (M&A) with OK Financial Group. The decline in acquisition attractiveness due to the ongoing recession in the savings bank industry as a result of real estate project financing (PF) failures was the main reason for the differences in opinions on the acquisition price between the two companies.
According to the financial sector on the 11th, negotiations for the acquisition of Pepper Savings Bank by OK Financial Group have been suspended following Sangsangin Savings Bank. OK Financial Group conducted due diligence over two months and engaged in acquisition negotiations, but there were significant differences in opinions regarding the acquisition price, ultimately leading the parent company of Pepper Savings Bank, Pepper Group, to announce that it would withdraw from the sale. While the acquisition of the savings bank has fallen through for OK Financial Group, the goal is to expand its business portfolio long-term by increasing its stake in securities companies and asset management firms.
Even while negotiating with OK Financial, Sangsangin Savings Bank was receiving offers from 3 to 4 other interested parties. Sangsangin Savings Bank is currently negotiating again with private equity funds that offered better terms. Pepper Savings Bank is also reported to have communicated its intention to withdraw from negotiations with OK Financial after meeting with other transaction entities.
Savings banks, just 2 to 3 years ago, expanded and increased profits through PF, but are now struggling with the rise in delinquency rates and the accumulation of loan loss reserves under the direction of financial authorities to address PF failures. In this context, both Sangsangin and Pepper have been negotiating regarding acquisition prices, leading to Sangsangin being unable to narrow the price gap for over eight months and not reaching an agreement with Pepper after completing due diligence.
The collapse of OK Financial Group's transactions signals negative signs for acquisitions and mergers in the savings bank sector. It is because even large savings banks like Sangsangin and Pepper, which are ranked within the top 10, have failed to reach appropriate price agreements, potentially dampening interest in the savings bank sector. Sangsangin Savings Bank, which OK Financial Group intended to acquire, was valued at approximately 100 billion won, while Pepper Savings Bank had a valuation of around 200 billion won.
The financial authorities are promoting various restructuring measures, such as the sale of insolvent savings banks and capital expansion, to encourage voluntary restructuring in the industry. In March, the Financial Services Commission announced it would temporarily expand the scope of savings banks eligible for mergers and acquisitions for two years to facilitate prompt restructuring in the savings bank sector, and allowed mergers and acquisitions for savings banks in the Seoul metropolitan area as an exception since last year.
Previously, M&A for savings banks in the Seoul metropolitan area was restricted, but with some regional restrictions lifted, large savings banks can now absorb small and vulnerable savings banks in the area. Furthermore, savings banks that received orders for stock disposal due to disqualification of major shareholders, like Sangsangin, have also been included as candidates for mergers and acquisitions.
However, despite the efforts of the financial authorities, it is widely expected that mergers and acquisitions will not be easy until the PF failures are addressed and the savings bank sector revives. A source from a savings bank noted, "Even though reasonably sized and sound Pepper or Sangsangin Savings Bank has come up for sale, the industry leader OK Savings Bank failed to acquire them," adding, "For the time being, it seems better to expect interest from private equity funds or the investment community rather than looking forward to mergers and acquisitions among savings banks."