FSS, banks in talks to launch bad bank to save Lime losses

By Kim Bo-eun

The Financial Supervisory Service (FSS) and financial firms that sold Lime Asset Management funds are in talks to set up a bad bank to help companies recoup losses from the troubled hedge fund, according to the financial regulator Monday.

A bad bank is a corporate structure set up to buy poorly performing assets from another financial institution.

Nineteen banks and securities firms including Woori Bank and Shinhan's banking and brokerage units will likely comprise the body to take over Lime's assets. The three are the top three distributors, accounting for 64 percent of the total amount distributed.

The new entity will be in charge of selling assets of Lime's funds in order to issue payments to investors. About 1.67 trillion won of investors' money is in Lime's funds, for which redemptions have been suspended.

"Six of the major distributors shared with others the plan at the meeting today," an FSS official said. "It will take time to decide how much the firms will contribute to the new body."

He noted that once key decisions are made, the bad bank could be set up in June at the earliest.

The decision was made after 19.5 billion won in investments for which withdrawals were frozen were found to have been transferred to Smart Mobility, a firm listed on the secondary KOSDAQ bourse. The company's owner Kim Bong-hyeon is suspected to be one of the key figures behind the Lime fiasco.

Lime is alleged to have covered up massive losses and continued to draw investors for its funds. Investors of Lime's funds face huge losses due to the investment firm's poor management of assets.

The FSS said setting up the bad bank was a separate issue to revoking Lime's registration.

“Revoking Lime's registration is part of sanctions that could be imposed on the investment firm,” the FSS official said. “It will take time for the sanctions to be finalized.”

The FSS completed inspections of Lime last year and is currently in the process of drawing up sanctions for the company. The sanctions will be finalized after a Financial Services Commission-affiliated committee approves the draft the FSS comes up with.

However, Lime's registration is widely expected to be revoked, considering the weight of the case. Up until last year, Lime was Korea's largest hedge fund.