FSC chairman has chronic habit of overpromising

Kim Seok-dong falls flat on Woori bidding, savings banks rescue, KEB sale

By Kang Seung-woo

When Kim Seok-dong took over the Finance Services Commission (FSC) as its chairman in January 2011, the old hand of the finance ministry was widely expected to act as a czar to impose belated changes to the financial community.

After a little longer than six months on the job, Kim is closely listened to but few are as willing to believe his words as before.

His track record tells it all. In all three initiatives he has launched from his powerful positions, Kim usually promised more than he could deliver, making him the butt of jokes among some in the financial sector.

The latest was his repeated vow to attract at least two major financial groups to participate in the bid for the state-controlled Woori Financial. None took the bait.

Well before the June 29 deadline, KB, Shinhan and Hana had expressed their intentions to stay away but Kim insisted that they would change track. Kim lost face and so did the authority of his office.

He also shot himself in the foot over the handling of the initial stages of dealing with the troubled savings banks and the sale of Lone Star’s controlling stake of the Korea Exchange Bank (KEB).

Some observers speculate that Kim has been excluded from the overall decision-making process of this administration and lacks full command in fast-changing situations.

Dating back to February, the financial regulator suspended the operations of two troubled savings banks including the nation’s largest secondary lender, Busan Savings Bank, due to a liquidity shortage, which triggered a mad rush of customers from other savings banks withdrawing their deposits.

Obviously afraid of a bank run or massive cash depletion, the life-long bureaucrat encouraged everyone to relax by saying that the FSC will not suspend the operations of any more savings banks in the first half of 2011.

He had to eat his word just two days later, as four more secondary lenders were ordered to stop doing business due to a capital shortage, which weighed more on the struggling non-banking sector and customers, let alone further fears of bank runs.

As for the delayed decision on Lone Star Funds’ eligibility as the largest shareholder of the Korea Exchange Bank (KEB), Kim has promised to settle the matter as soon as possible.

“I will make it fast,” Kim said in a meeting with reporters in early May, when asked whether a decision will be made before June. “I want to eliminate uncertainty in the financial market.”

The financial regulator, however, has kept delaying its verdict on the Dallas-based buyout fund’s status as KEB owner, which is impeding Hana Financial’s take over.

Hana signed a contract to buy Lone Star’s 51.02 percent stake in KEB in November last year, but the ownership problem has derailed the deal thus far.

Three days after Kim’s remarks, the latest postponement came due to a recent court decision that overturned a not guilty verdict against a Lone Star employee over the latter’s 2003 acquisition of KEB’s card unit.

Kim’s latest hollow words came in the process of the Woori Financial Group sale.

There were growing concerns that the long-awaited transfer of the state-run Woori Financial Group to private hands may hit another snag due to an absence of bidders, after the FSC ruled out Korea Development Bank (KDB) Financial, another government-owned entity and leading contender in the auction, from the bidding list due to low public consensus.

To make the situation worse, the three leading financial holding companies reacted coolly to a plea by Kim to participate in the Woori Financial bid and help the government unload its controlling 56.97 percent stake.

At this time, the 58-year-old chairman insisted local banking groups would bid for the nation’s largest financial services firm by assets.

“A valid competition is feasible,” Kim said.

The Korea Deposit Insurance Corp. (KDIC) announced Wednesday that it received three letters of intent for the Woori Stake, but none of the banking groups submitted an offer.

Critics say that he needs to avoid depending on his old-school style.

“Kim has a reputation for his drive and action, but those factors don’t always correspond with the present situation,” a Seoul-based analyst said on condition of anonymity.

“Once, when the government implemented a policy, the remainder followed it, but not anymore. He is kind of stuck in the past.”

He added: “People tend to attach significance to what policymakers say. They need to take more responsibility in dealing with sensitive issues.”