Kim Rahn is the managing editor of The Korea Times. Since joining the company in 2003, she has covered various beats including the presidential office, Seoul city government, the Bank of Korea and the tourism industry. In 2014, she won the Society of Publishers in Asia (SOPA) award for her coverage of the ordeals of migrant women in Korea.
KIC in dilemma over BoA stocks
By Kim Rahn
KIC CEO Ahn Hong-chul
By Kim Rahn
Korea Investment Corp. (KIC) CEO Ahn Hong-chul is facing a dilemma in his bid to sell the state-run firm’s shares in Bank of America (BoA) because the sale will result in losses worth more than 1 trillion won.
There are voices of opposition to the sale because of the enormity of the losses that it will generate but some experts are calling for the sale to be deferred until the value of the stocks rebounds, instead of just abandoning the sale altogether.
Ahn recently told reporters that the KIC is examining whether to sell its shares in Merrill Lynch, which was acquired by BoA. He added that a decision about the issue will be made soon.
It all began in January 2008 when the KIC, the public funds managing organization, bought stocks of Merrill Lynch worth $2 billion (2.1 trillion won). The timing of the purchase coincided with the subprime mortgage crisis in the U.S which also hit the investment bank. The KIC back then argued that the purchase was the right decision, given the opportunity it offered to hold a stake in a globally renowned investment bank.
A few months after justifying its purchase, the contagion, which saw Lehman Brothers go under, caused the price of Merrill Lynch’s stocks to nosedive, paving the way for its acquisition by the BoA.
Even though the value of the stock has marginally risen since, the value of the KIC’s stake has been cut by $830 million, or about 41.7 percent.
Meanwhile, the KIC has been holding on to the stocks despite the huge losses, out of fear of being lambasted for poorly managing public funds.
Since becoming head of the KIC in December, Ahn has pledged to resolve the issue.
During a recent visit to the U.S., he told Korean reporters there that the KIC has formed a team to discuss what to do with the stake and its recommendation will be made in a month.
Ahn is said to have been opposed to the stock purchase right from the beginning ― in 2008 he was an auditor of the KIC when the purchase was made. He cited the poor timing of the transaction to explain his opposition.
“After inauguration, Ahn said we have to address the issue rather than just leave it as it is. He said selling the stock will be a right choice if we can invest the money acquired from the sale into other funds or stocks and get more earnings than the BoA one. So we are reviewing it,” said an official at the KIC.
He said that even if they decide to sell the stock, they may not disclose when and how to sell it because the decision could affect the market.
Market analysts are upbeat about the planned move. “The Government of Singapore Investment Corp., which also invested in Merrill Lynch in 2008, sold its shares and suffered losses. Then it made up for the losses through other investments. The KIC needs to learn investment strategies from other state-run investment bodies,” said researcher Lee Jong-woo at I’M Investment & Securities.
There is, however, caution against a hasty decision to sell the stocks with indications that vitality is returning to the BoA. The bank reported a 6.7 percent increase in its annual revenue for 2013 from a year before. Economists are predicting a strong rebound for the American banking sector. That makes the decision to sell the stocks a very tricky one.
Should the KIC even decide to sell, it must be approved by its steering committee, where Ahn, Finance Minister, Bank of Korea Governor, and six other experts are members.
“We expect a heated debate over the issue at the committee meeting. The committee may have to hold more than one meeting to reach a final conclusion,” the KIC official said.