Shinhan stocks caught in tailspin amid scandal

By Kim Bo-eun

Shinhan Financial Group solidified its leading status in 2019 by reaping the largest net profit for the second consecutive year, but it is losing luster in the stock market with its share price plunging amid a series of scandals involving improper investments.

The share prices of all four major financial groups ― Shinhan, KB, Hana and Woori ― have continued to decline, with their market capitalization shrinking by 12 trillion won in the first two months of this year.

Among them Shinhan has seen the largest fall, with the group's stock hitting rock bottom Tuesday at a closing price of 32,050 won the lowest in a decade. This compares with 55,500 won at its highest point in August 2017.

KB's market capitalization at 16.4 trillion won exceeded that of Shinhan at 16.16 trillion won, Feb. 27.

Analysts said despite the groups posting record earnings last year, they were affected by the low interest rate, and the ongoing COVID-19 crisis. They also attributed Shinhan's fall to a scandal involving Lime Asset Management.

The share prices of the four groups fell by an average 17 percent in the first two months of 2020 ― although Shinhan fell by more than 24 percent.

"Share prices have been affected by the ongoing coronavirus crisis, as its effect on the economy may lead to defaults on business loans," Kiwoom Securities senior analyst Seo Young-soo said.

"This is an additional burden for banks, which are facing a fall in their net interest margins because of the low interest rate," he said. "The Lime scandal has affected wealth management divisions, and all of these collective factors have led to the fall in stock prices."

Daishin Securities senior analyst Choi Jeong-wook shared this view.

"Bank stocks are affected by forecasts for the economy, and the interest rate is expected to fall further, after the Fed's rate cut,” he said.

"Shinhan group is seen to have been hit by the Lime case in which both its bank and brokerage are involved."

The stock price is seen to have fallen based on expectations that its bank may see major losses due to the sales of Lime's funds.

Shinhan's two main affiliates, its bank and brokerage, are among the top three agents in selling funds that Lime managed poorly.

A recent report from Hana Financial Investment shows banks could see up to a collective 270 billion won in losses due to their sales of Lime funds, as they face compensations based on allegations of mis-selling.

The financial groups are in a difficult situation as under current circumstances they are unable to travel overseas to meet foreign investors in an attempt to boost their share prices. The coronavirus has largely restricted cross-border movements.

The analysts said it will likely take time for their stock to rebound, because of the coronavirus and Lime scandal.