Chohung Bank's labor union ended a five-day strike after South Korea's government agreed to delay a merger with Shinhan Financial Group Ltd's banking unit for three years.
Chohung, the nation's fifth-largest lender, will be managed independently during that time, with a chief executive appointed from the company's ranks. The Chohung name will be part of the merged company.
The agreement, reached after 11 hours of talks in Seoul, ends a dispute that saw 6,000 Chohung workers barricade themselves in the bank's headquarter to protest the sale of the government's 80 percent stake to Shinhan. The pact may end a run on the bank after customers withdrew almost 6 trillion won (US$5 billion) in savings, or one-ninth of the bank's deposits, since June 11.
"It's good news that the strike's over, even though three years seems a bit long for a merger," said Lee Hong Jae, who manages the equivalent of US$420 million at Macquarie IMM Asset Management. "Customers will rest a lot easier and will stop pulling money from the bank."
Financial regulators had been worried that Chohung's computers may fail, after 90 percent of the workers at its data network center walked out. The data system began to show errors late Friday after 28 of the 35 remaining data-processors went on strike. They returned the next day "to minimize discomfort for customers," the union said.
The government on Thursday approved Shinhan's 3.4 trillion won bid for its stake in Chohung. The government agreed to cover as much as 650 billion won of future losses.
A merger with Chohung will more than double the size of Shinhan's branch network, making it the second-largest lender in Korea after Kookmin Bank. Chohung is the nation's oldest and most profitable lender to Korean companies. Shinhan had the second-lowest bad-loan ratio among Korean banks as of March.
"The benefits of the merger have already been reflected in Chohung and Shinhan shares," Lee said. "The effect will take a long time to show."
Chohung's shares have gained 17 percent to 4,750 won this month, and Shinhan Bank 9 percent to 13,900 won, compared with a 5.8 percent gain by the benchmark Kospi index.
Shinhan will raise Chohung employees' pay to meet that of its banking unit, Shinhan Bank. The two banks will form a committee in two years to complete the merger the following year.
"The data-processing division will start working today to make sure that we return to normal operations tomorrow," Chohung Bank's chief executive officer, Hong Serck Joo, said after signing an agreement with the union, Shinhan and the state-run Korea Deposit Insurance Corp.
"The final agreement of the sale of the government's stake will take place on [Wednesday]," Hong said.
Chohung also agreed not to press charges against union leaders for taking over the headquarters. It will also try to persuade the government not to press criminal charges for illegal rallies and strikes. In Korea, unions are required to alert police ahead of demonstrations and walkouts.
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