Business Context and Reporting Period
Company: Woori Finance Holdings Co., Ltd. (Woori Financial Group Inc.)
Filing Type: Form 6-K (Summary of FY2008 Business Report)
Reporting Period: Fiscal Year Ended December 31, 2008
Submission Date: March 31, 2009
Business Overview: A financial holding company managing a diversified group including Woori Bank, Kyongnam Bank, Kwangju Bank, Woori Investment & Securities, Woori Aviva Life Insurance, and Woori Financial. The holding company's primary income source is dividends from subsidiaries.
Key Financial Metrics (FY2008)
| Metric | 2008 (Won Millions) | 2007 (Won Millions) |
|---|---|---|
| Operating Revenue | 86,901,262 | 26,650,125 |
| Operating Income | 1,115,506 | 2,915,662 |
| Net Profit (Aggregated) | 588,502 | 2,114,360 |
| Net Profit (Majority Shareholders) | 454,478 | 1,939,238 |
| Total Assets | 290,994,295 | 249,652,302 |
| Total Liabilities | 276,685,692 | 234,635,010 |
| Total Shareholders' Equity | 14,308,603 | 15,017,292 |
| Loans (Net) | 197,040,672 | 167,635,411 |
| Deposits | 170,224,891 | 146,583,312 |
| BIS Ratio | 10.90% | 11.53% |
| Debt Ratio (Liabilities/Equity) | 27.96% | 16.30% |
Material Changes vs. Prior Period
- Revenue Surge: Operating revenue increased by 226% to 86.9 trillion Won, driven primarily by a massive gain on foreign exchange (22.4 trillion Won) and gains on derivatives (approx. 42.6 trillion Won in other operating revenue). This contrasts sharply with 2007 revenue of 26.7 trillion Won.
- Profit Decline: Despite revenue growth, Net Profit for Majority Shareholders plummeted by 76.5% to 454.5 billion Won from 1.94 trillion Won in 2007. This was due to significant increases in operating expenses, particularly losses on valuation of derivatives and foreign exchange losses.
- Asset Growth: Total assets grew 16.6% to 291 trillion Won, with loans increasing by 17.5% and securities holdings remaining relatively stable.
- Derivative Volatility: The group reported significant volatility in derivative valuations. While gains on valuation of derivatives in revenue were high, losses on valuation of derivatives in expenses were also substantial (12.2 trillion Won), reflecting market turbulence.
- Impairment Charges: Loss on impairment of available-for-sale securities increased to 744.4 billion Won in 2008 from 453.5 billion Won in 2007, largely attributed to CDOs and equity securities.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items: The 2008 financial results were heavily influenced by fair value accounting changes and market volatility. A significant portion of revenue (approx. 49%) came from "Other Operating Revenue," dominated by gains on derivatives and foreign exchange. Conversely, operating expenses included massive losses on derivative valuations.
- Accounting Policy Changes: The company adopted amendments to SKAS No. 15 (Investments in Associates) and Interpretation 53-70 (Accounting for Derivatives). These changes required retroactive adjustments to prior periods and impacted the classification of credit derivatives and equity method investments.
- Risks:
- Market Risk: Significant exposure to foreign exchange and interest rate fluctuations, evidenced by the large swings in derivative and FX gains/losses.
- Credit Risk: Increased loan loss provisions (1.63 trillion Won in 2008 vs. 0.65 trillion Won in 2007) and higher impairment charges on securities indicate deteriorating asset quality or market conditions.
- Regulatory Risk: The company is subject to management improvement plans with the Korea Deposit Insurance Corporation (KDIC). Failure to meet targets could result in capital adjustments or business restrictions.
- Outlook: The filing does not provide specific forward-looking guidance or earnings projections for 2009. The focus remains on meeting KDIC performance targets and managing the integration of recent acquisitions (e.g., Woori Aviva Life Insurance).
Key Facts for Investor Verification
- Revenue Quality: Verify the sustainability of the 226% revenue increase, which was largely driven by non-recurring gains on derivatives and foreign exchange rather than core banking operations.
- Derivative Exposure: Assess the net impact of derivative positions. The company reported both massive gains (42.6 trillion Won) and losses (12.2 trillion Won) on derivatives, indicating high volatility and potential future earnings instability.
- Asset Quality: Monitor the trend in loan loss provisions and impairment charges on securities, which increased significantly in 2008, suggesting potential stress in the loan portfolio and investment holdings.
- Capital Adequacy: Confirm the BIS ratio of 10.90% remains sufficient to meet regulatory requirements, especially given the increased risk-weighted assets.
- Majority Shareholder Control: Note that the Korea Deposit Insurance Corporation (KDIC) owns 72.97% of the company, exerting significant influence over strategic decisions and management plans.