Shinhan Financial Group CFO Jang Jeong-hoon stated during the Q2 earnings conference call on July 23 that the group is reviewing various M&A targets including Lotte Insurance, though no deals have been finalized. The CFO announced a KRW 700 billion share buyback decision and emphasized that M&A activities will not impact shareholder return commitments. Jang explained the group will pursue acquisitions only within available capital while maintaining the CET1 ratio in the 13.0-13.4% management range, which stood at 13.43% at the end of Q2. The M&A review aligns with the group's Value-up 2.0 policy, which requires investment returns to meet the 12.5% investor required return threshold derived from the current 0.8x PBR and 10% cost of equity.
Shinhan Financial Reviews M&A Targets While Maintaining CET1 Ratio Management Range
CFO Jang stated on July 23, "We are currently reviewing various targets including Lotte Insurance to determine what would benefit the group, but nothing has been finalized." He explained that M&A involves counterparties with their own interests, making the process of finding compromise challenging. The group plans to pursue M&A within the framework of Value-up 2.0 announced with Q1 results. Jang said, "Transactions will proceed when we have confidence that EPS or ROE can improve within available capital while maintaining a stable CET1 ratio. If we decide on M&A, consider it a transaction where we expect corresponding profitability." He added, "With the current PBR at 0.8x and COE at 10%, the investor required return is around 12.5%. M&A must also meet this required return in the mid-to-long term." Shinhan Financial manages its CET1 ratio in the 13.0-13.4% range. Jang emphasized, "Capacity remaining after maintaining the CET1 management range can be used for additional growth, shareholder returns, or M&A. I can assure you that M&A will not directly impact shareholder returns in the current year."
CFO Announces KRW 700 Billion Share Buyback with Additional Decision in October
Shinhan Financial decided on a KRW 700 billion share buyback and cancellation. The group will decide on additional buybacks at the Q3 earnings board meeting scheduled for October 27, comprehensively considering annual earnings outlook and shareholder return ratio. CFO Jang explained, "With increased volatility in interest rates, exchange rates, and stock prices this year, predicting earnings before the half-year mark has become difficult. To manage the shareholder return ratio more precisely, we divided it into three-month units this time." He clarified, "This doesn't mean we will continue buying back shares every quarter. If earnings stability is secured, we can return to six-month intervals, and if volatility is high, we will execute flexibly." Shinhan Financial has decided on KRW 1.4 trillion in share acquisitions to date. Jang stated that under the Value-up 2.0 formula, the shareholder return ratio can reach up to 53% this year. He said, "We cautiously judge that there is room for additional shareholder returns. We will be able to explain the specific amount at the October earnings announcement." He added, "If additional shareholder returns are needed while maintaining equal dividends, we will have no choice but to adjust through settlement dividends. From this perspective, there may be some level of dividend volatility."
Securities Subsidiary Capital Allocation to Proceed Parallel with Insurance M&A
Concerns were raised during the conference call that insurance M&A could constrain securities subsidiary development. The concern addressed whether large-scale funding for Lotte Insurance acquisition could delay Shinhan Investment & Securities capital expansion. Shinhan Financial responded that insurance acquisition and securities capital expansion can proceed in parallel. CFO Jang explained, "Insurance acquisition immediately leads to capital deduction affecting the CET1 ratio, but securities capital injection does not immediately lead to risk-weighted asset (RWA) increase. Even if RWA increases with securities business expansion, capital allocation is possible if it meets the required return." He stated, "Securities capital injection will not be pushed back due to insurance acquisition. If confirmed as a business with high ROE and ROC, we can inject capital into any sector." However, he judged that there is no significant need for large-scale capital injection into Shinhan Investment & Securities in the short term. He explained that since Shinhan Investment & Securities received commercial paper business approval at the end of last year, there is still sufficient room to expand leverage. Jang said, "What Shinhan Investment & Securities currently needs is risk limits including credit extensions rather than RWA limits. We are working to increase limits by having the holding company acquire the securities subsidiary's hybrid capital securities." He added, "It won't be an immediate capital injection like other peer groups in the short term."
FAQ
Will Shinhan Financial's M&A activities affect shareholder returns this year?
CFO Jang stated on July 23 that M&A will not directly impact shareholder returns in the current year. He explained that transactions will only proceed within available capital after maintaining the CET1 ratio in the 13.0-13.4% management range, and capacity remaining after this can be used for growth, shareholder returns, or M&A.
What is Shinhan Financial's CET1 ratio management target?
Shinhan Financial manages its CET1 ratio in the 13.0-13.4% range. The ratio stood at 13.43% at the end of Q2. CFO Jang stated that capacity remaining after maintaining this management range can be allocated to additional growth, shareholder returns, or M&A activities.
When will Shinhan Financial decide on additional share buybacks?
Shinhan Financial will decide on additional buybacks at the Q3 earnings board meeting scheduled for October 27. The decision will comprehensively consider annual earnings outlook and shareholder return ratio. CFO Jang stated on July 23 that the group has decided on KRW 1.4 trillion in share acquisitions to date, and there is room for additional shareholder returns under the Value-up 2.0 formula allowing up to 53% return ratio this year.
