Shinhan Financial Group is negotiating the acquisition of Lotte Insurance, with CFO Jang Jeong-hoon addressing the deal during the second-quarter earnings call. Current valuation estimates around 1 trillion won exceed Shinhan's internal threshold needed to maintain value-up commitments of 10% ROE, 50% shareholder returns, and 13% CET1 ratio through 2028. JKL Partners invested 880 billion won since 2019 and seeks to complete a sale after Lotte Insurance received management improvement recommendations in November.
Shinhan CFO Confirms M&A Negotiations During Q2 Call
CFO Jang Jeong-hoon addressed the Lotte Insurance acquisition during the second-quarter earnings conference call. "M&A is a game with counterparties," Jang stated. "There are sufficient positions from the other stakeholders, so there may be a painstaking process of finding a delicate compromise point." The CFO's remarks represented the first public acknowledgment of ongoing deal discussions by Shinhan Financial's senior management.
Valuation Gap Centers on 1 Trillion Won Threshold
Current market estimates place Lotte Insurance's enterprise value around 1 trillion won. This represents a decline from the 2 to 3 trillion won range discussed when Woori Financial considered an acquisition in 2024. Shinhan Financial faces internal resistance to spending 1 trillion won or more, as the acquisition would require additional capital injections of several hundred billion won to raise Lotte Insurance's K-ICS ratio to group standards. Jang stated the company would proceed "within the scope that does not violate the Value-Up 2.0 principles" and only when there is "confidence that ROE will improve while maintaining a stable CET1 ratio."
JKL Partners Faces Pressure After 880 Billion Won Investment
JKL Partners invested a total of 880 billion won in Lotte Insurance, including 373.4 billion won for equity acquisition and 360 billion won in capital increases since the 2019 acquisition. A sale price below 1 trillion won would result in minimal management premium after accounting for opportunity costs and management fees over seven years. Kang Min-gyun joined Lotte Insurance's board as a non-executive director and is participating directly or indirectly in sale negotiations. JKL Partners has demonstrated commitment to completing a sale this year.
Capital Requirements Constrain Deal Structure
Shinhan Financial announced its Value-Up 2.0 program in April, committing to maintain ROE above 10%, shareholder returns above 50%, and CET1 ratio above 13% through 2028. An acquisition requiring "1 trillion won plus additional capital" would increase risk-weighted assets and potentially impair the CET1 ratio or reduce shareholder return capacity. Lotte Insurance received a management improvement recommendation in November due to capital adequacy deterioration, then submitted a revised management improvement plan and has been recovering its capital ratio.
FAQ
What did Shinhan Financial CFO say about Lotte Insurance acquisition during the Q2 call?
CFO Jang Jeong-hoon stated during the second-quarter earnings call that "M&A is a game with counterparties" and "there may be a painstaking process of finding a delicate compromise point." He confirmed the company would only proceed within Value-Up 2.0 principles and when confident that ROE will improve while maintaining stable CET1 ratio.
How much did JKL Partners invest in Lotte Insurance since 2019?
JKL Partners invested a total of 880 billion won in Lotte Insurance since the 2019 acquisition, comprising 373.4 billion won for equity purchases and 360 billion won in capital increases.
Why did Lotte Insurance receive management improvement recommendations in November?
Lotte Insurance received management improvement recommendations in November due to capital adequacy deterioration. The company subsequently submitted a revised management improvement plan and has been working to recover its capital ratio.
