Korea's biggest bank a step closer

Kookmin Bank President Kim Sang-hoon shakes on the deal with H&CB's chief in December

SEOUL, South Korea (CNN) -- Kookmin Bank and Housing & Commercial Bank nailed down terms of their merger Wednesday in a deal that will create South Korea's largest bank.

The banks missed a March deadline for the merger. On Wednesday, they said the deal would be effective October 31.

The banks also agreed that each H&CB share would be swapped for 1.6883 shares of Kookmin Bank. It values H&CB at around $2 billion, or 2.7 trillion won.

Kookmin Bank will be the surviving entity. The deal gives Kookmin, Korea's largest retail lender, a 61.3 percent stake in the new bank. H&CB, Korea's largest mortgage bank, will hold the remaining 38.7 percent.

The combined bank will have assets of around $125 billion.

Disagreement holds up deal

Kookmin and H&CB signed a memorandum of understanding to merge last December. But the deal has been held up by disagreement between the two banks over issues such as the exchange ratio for the merger and who will head the bank.

"H&CB had different ideas in terms of the merger ratio and merger price, but we finally determined the conditions," said Cho Sungshin, general manager of Kookmin's international-management office. "H&CB finally accepted our merger conditions."

The CEO of the bank and the management team has yet to be determined.

Cho said the banks will sign the final merger agreement soon, perhaps this week. They will then decide the management team.

Goldman Sachs is Kookmin's largest shareholder, with an 11 percent stake. Goldman is understood to support Kookmin president Kim Sang-hoon taking over the merged bank. H&CB officials favor their president, Kim Jung-tae.

The Korean government owns stock in both banks and is H&CB's largest shareholder. It has encouraged bank mergers to help form larger, more-stable banks as the country's troubled financial sector recovers from the Asian financial crisis.

The merger still requires approval from Korean bank regulators and the U.S. Securities and Exchange Commission.

H&CB lists its stock on the New York Stock Exchange. The surviving entity will continue to list in both the United States and Korea.

Kookmin shares were up 0.4 percent to 13,500 won midday Thursday. H&CB stock jumped 5.4 percent to 22,500 won.

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