Banks seeking to minimize fallout from Lime, DLF

By Kim Bo-eun

The launch of a "bad bank" that will take over the troubled Lime Asset Management's funds will likely be delayed, as the financial firms tasked with setting it up have yet to reach an agreement over which entity will become the largest shareholder. A bad bank is a corporate structure set up to buy poorly performing assets from another financial institution.

The 20 financial firms that sold Lime's funds have been tasked with the launch of the bad bank. Financial Supervisory Service Governor Yoon Suk-heun stated the entity would be established this month, but the financial firms have yet to reach a decision over which will be the largest shareholder.

The principle is that the company that sold the largest amount of Lime's funds becomes the largest shareholder of the bad bank. As an individual financial firm, Woori Bank sold the largest amount at 357.7 billion won, but as a financial group Shinhan's amount becomes the largest because both its brokerage unit and bank each sold 324.8 billion won and 276.9 billion won.

The entities appear to be trying to avoid becoming the largest shareholder as this would stigmatize them as the financial firm with the greatest involvement in the Lime scandal.

The FSS, which took part in the first meeting of the 20 financial firms over the launch of the bad bank, said it did not take part in further meetings.

"The role of the FSS was to encourage the companies to take part in the launch, and we can provide assistance in administrative procedures in setting up the entity, but the issue of which firm should become the largest shareholder is entirely up to them to decide," an FSS official said, Monday.

Meanwhile, Woori and Hana Bank have filed objections to financial authorities over fines imposed for a separate scandal involving the mis-selling of financial derivative products referred to as derivative-linked funds (DLF).

On March 25, the Financial Services Commission notified Woori and Hana of 19.7 billion won and 16.8 billion won in fines, respectively, for their misconduct. Both banks filed objections on Friday.

Woori stated in a regulatory filing on March 30 that it planned to file an objection to the fine.

With the objection, the measure imposing the fine has lost effectiveness, and the conclusion on the fine is set to be made based on a court ruling.

Woori is seen to have filed the objection based on an ongoing suit over sanctions imposed on the bank's former CEO Son Tae-seung, who currently serves as chairman of Woori Financial Group.

Woori is engaged in a suit against the sanction which bars Son from serving his second term. The measure was imposed on Son for his responsibility as the CEO in failing to ensure that the bank had a functioning internal control system.

Woori, however, is seeking to cancel the sanctions as the group does not have an adequate replacement for Son in case he needs to step down from his position as chairman of Woori Financial Group.

Paying fines for the DLF case as required by financial authorities would put Woori at a disadvantage in the suit involving Son.