Kim Beom-su, right, the founder of Kakao Corp., arrives for a hearing at the Seoul Southern District Court, Monday. Yonhap

Kakao, the largest shareholder of KakaoBank, may be compelled to sell the majority of its stake in the internet-only bank following the arrest of Kakao founder Kim Beom-su Tuesday. The news triggered volatility in KakaoBank shares, reflecting the bank's uncertain future.

According to the Korea Exchange, KakaoBank's share price surged by approximately 11 percent at market opening, fueled by speculation about potential shareholder changes and acquisition interest. However, the price declined shortly, closing at 20,300 won ($14.64), down by 3.79 percent compared to Monday.

It was followed by the Kakao founder's arrest on allegations of stock price manipulation. Prosecutors allege he inflated SM Entertainment's shares to thwart HYBE's public tender offer during their acquisition battle for SM in February.

The incident led Kakao Corp., the majority shareholder with a 27 percent stake in KakaoBank, to be indicted on the same charges as Kim. The law stipulates that if a company representative or employee commits an illegal act related to their duties, the corporation can also face criminal charges.

Should Kakao Corp. receive a penalty exceeding a fine, financial regulators will reassess its eligibility to remain the largest shareholder of KakaoBank. The decision could force Kakao to sell all but 10 percent of its holdings, thus losing its majority shareholder status.

In this scenario, unless Kakao sells its entire stake to another entity, Korea Investment & Securities will assume majority control of the bank. Currently, the securities firm is in the position of the second-largest shareholder, trailing Kakao by just one share.

However, regulatory constraints prevent a securities firm under a holding company from controlling a bank. This would require a restructuring for Korea Investment Holdings to acquire the shares instead.

KakaoBank's entry into the new business sector is anticipated to be delayed as well. Last May, the Financial Services Commission deferred the review of KakaoBank's new business applications due to the ongoing investigation. It reportedly decided to wait until the trial concludes.

"It could take 2 to 3 years for the Supreme Court to reach a final verdict. And KakaoBank is central to Kakao's operations, so it won't relinquish the bank easily," an industry official said. "Legal risks will loom over the bank for some time."

Despite these setbacks, analysts remain optimistic about KakaoBank's business capability.

"KakaoBank's revenue is expected to grow this year thanks to its loan comparison services and advertising," noted Kang Seung-geon, an analyst at KB Securities.