It’s time for top regulator to head for door

Kim Seok-dong, once depicted as czar of financial authority, finds himself relegated to blowhard

By Kang Seung-woo

Behind a bureaucratic yet storied career, Financial Services Commission (FSC) Chairman Kim Seok-dong took up his position in January this year with high hopes of settling issues plaguing the financial industry.

Only eight months was enough to prove that the former James Dean of the finance ministry is no longer what he used to be. One blunder after another makes him appear more like a blowhard with a lot of hot air but little action.

Last Wednesday, the long-awaited privatization of Woori Financial Group fell through in the absence of valid bidders, once again putting Kim’s leadership and credibility as the nation’s top financial regulator in question.

According to the Korea Deposit Insurance Corp. (KDIC), only one investor offered a preliminary bid for a controlling stake in the nation’s largest financial holding firm by assets. The government has required that there be more than two valid bidders in the acquisition process.

“Despite negative reactions, Kim strongly expressed confidence in resolving other lingering issues including the normalization of troubled savings banks as well as the Woori Financial sale, only to suffer setbacks. In the Woori case, there were concerns over the lack of valid bidders in the market,” a Seoul-based analyst said on condition of anonymity.

“Observers were not positive about the Woori deal, but he kept pushing for it, which turned out to be a huge waste of time and eventually damaged his reputation.”

In May, the chairman resumed the sale of the government’s 56.97-percent stake in the nation’s largest financial services company by assets, which the FSC suspended in December last year due to a lack of investor interest.

With former Finance Minister Kang Man-soo and his Korea Development Bank (KDB) Financial emerging in top contention for the Woori purchase, Kim pushed for regulatory changes to make it easier for KDB and other potential bidders to absorb Woori, which sparked speculation that the government intended to sell Woori to KDB.

After drawing harsh negative reactions, Kim decided not to allow KDB, another state-run entity on the government’s privatization list, to participate in the Woori Financial takeover in June. In addition, he said that the government would stick with the sale process to transfer Woori Financial and its affiliates to a private hand in a single package, which the markets believed could render the deal less attractive. The banking group’s main subsidiaries are Woori Bank, Woori Investment and Securities, Kyongnam Bank and Kwangju Bank.

After the restart of the sale process, Kim continued to express groundless confidence in the success of the long-stalled deal, anticipating the participation of major banking groups.

But three leading financial holding companies — KB, Shinhan and Hana — reacted coolly to a plea by Kim to join the bid and help the government unload its major stake.

With market conditions against him Kim said, “A valid competition is still feasible,” and with no banking group in the auction, three private equity funds — MBK Partners, TStone and Vogo Investment — instead submitted letters of intent in June.

The economist said that the domestic markets’ evaluations of Kim are turning negative.

“When he took the helm of the FSC, he was expected to break through pending issues in the markets, although he had a bad reputation as a life-long bureaucrat,” he said. “But now, there are growing worries about him because of his immoderate style in words and deeds.”

On Aug. 5, Kim strongly stressed the need for banks to secure foreign currency liquidity saying, “Although banks say their liquidity is all right, do not trust them (completely) because I have been cheated three times so far by them,” which may mean that banks are troubled by foreign liquidity. Later, Kim said that his remarks aimed at encouraging banks to take measures against a potential financial crisis in advance.

After his remarks, KB Financial and Woori Financial shed more than 11 percent, respectively, between Aug. 8 and 9, a sharper drop than that of the stock market.

Meanwhile, observers think the Woori Financial sale is likely to remain adrift for some time.

“There is no alternative in dealing with Woori right now. The most desirable situation is for a banking group to buy Woori, but it appears improbable. I think buyout funds are not a good suggestion. The government needs to take its time to hammer it out,” said Jeon Hyo-chan, a researcher at Samsung Economic Research Institute.

Lee Chang-seon, an economist at LG Economic Research Institute, said, “The deal is likely to be transferred to the next government. Although there is a year and six months left for the Lee administration, the incumbent government may be averse to handle it to avoid becoming embroiled in a political row.”

In the wake of the Asian financial crisis, the government in 1998 spent 12.8 trillion won in public funds to bail out Woori Bank and several financial companies that in April 2001 merged to become the first financial holding company in Korea.

In collecting public funds, the KDIC began trimming its stakes at its initial public offering (IPO) in June 2002. Four block sales between September 2004 and April 2010 reduced its stake to the current level.