Kim Beom-soo, founder of Kakao and chairman of its Management Innovation Committee, was detained on July 23 on allegations of manipulating SM Entertainment’s stock price. This could result in Kakao losing its status as the major shareholder of KakaoBank under the joint penalty provision. Industry insiders speculate that Korea Investment & Securities, the second-largest shareholder, may become the new majority stakeholder in KakaoBank.
While it may take at least two to three years for the Supreme Court to issue a final verdict, Kim’s arrest suggests that at least one or two of the involved individuals are likely to receive prison sentences. If that happens, Kakao Corporation will inevitably face penalties. Analysts believe KakaoBank should prepare for a potential separation from Kakao, regardless of the timeline. The joint penalty provision stipulates that if an executive or related person violates the law, the corporation is also penalized.
If Chairman Kim or former Chief Investment Officer Bae Jae-hyun is convicted and Kakao Corporation faces penalties under the provision, the Financial Services Commission may deem Kakao unfit to be a major shareholder and could mandate the sale of some KakaoBank shares.
According to the Act on Special Cases Concerning the Establishment and Operation of Internet-Only Banks, non-financial entities holding over 10% of an internet bank must not have been fined or received significant penalties for violating financial, tax, economic crimes, or fair trade laws in the past five years. Kbank, the first internet-only bank, faced similar issues when its major shareholder, KT, was fined for antitrust violations in 2016, leading to a near shutdown. KT then transferred its 10% stake to BC Card, which is now Kbank’s largest shareholder with a 33.72% stake.
The problem is KakaoBank’s high valuation. Initially valued as an IT company during its IPO, KakaoBank was rated higher than traditional financial groups. Despite its share price dropping from over 90,000 won to the low 20,000 won range, its price-to-book ratio (PBR) remains at 1.5, nearly three times the 0.5 PBR of other financial groups.
Kakao holds a 27.16% stake in KakaoBank. Selling 17.16% while retaining the required 10% could generate around 1.7 trillion won based on the current market capitalization.
A financial industry insider said, “Banks must maintain a BIS capital adequacy ratio of at least 8% against risk-weighted assets. Despite the potential of internet banks, their profit margins are limited, making it difficult to sell them at high valuations.” The insider also pointed out, “Since Kakao is selling, the Kakao premium appealing to the MZ generation could vanish, posing a risk for potential buyers.”
