By Kim Jae-kyoung
The prosecution decided Wednesday to charge Shinhan Financial Group CEO Shin Sang-hoon and Shinhan Bank CEO Lee Baek-soon with embezzlement, while dropping charges against former Shinhan Chairman Ra Eung-chan.
Following the prosecution’s announcement, Lee offered to step down to secure stability in the organization. With the decision, Shin is likely to lose his seat at the group’s board of directors, which will speed up the group’s move to reform its governance structure and find a new leader to fill the management vacuum.
Ironically, the internal strife caused by a power struggle between Ra and Shin has ended up in having all of them step down, only leaving scars on the group’s image and exposing the hidden fractures within the local financial group’s governance structure.
According to the prosecution, the 62-year-old Shin was charged with illegally extending 43.8 billion won in loans to his relative’s companies while serving as Shinhan Bank’s chief from 2006 to 2007. He was also charged with embezzling some 1.5 billion won in consulting fees that should have been paid to Lee Hee-gun, the honorary chairman of the banking group, between 2005 and 2009. He was also prosecuted for receiving 800 million won from Korean-Japanese shareholders.
Lee was charged with embezzling 300 million won in consulting fees that should have been paid to the honorary chairman. However, the prosecution cleared Ra of the charges that he violated the real-name financial transaction law by holding illegal bank accounts under borrowed names and pocketed consulting fees. It concluded that Ra did not use the money for private purposes.
On Nov. 8, the Financial Supervisory Service imposed the penalty of a three-month suspension of duties on Ra for violating the real-name financial transaction law.
The Seoul Central Prosecutors’ Office launched the investigation on the country’s third-largest financial services company in September when Shinhan Bank filed a complaint amid internal strife involving Shinhan’s top three executives.
Since CEO Lee tendered his resignation voluntarily following the prosecution’s announcement, the group plans to hold a subsidiary management committee meeting Thursday to name a new bank CEO.
“To minimize the management vacuum, the group will convene a meeting Thursday morning to appoint a new chief,” a Shinhan official said.
The candidates being rumored include Shinhan Financial deputy president Wi Sung-ho, Shinhan BNP Paribas Asset Management CEO Choi Bang-gil and Shinhan Investment Corporation CEO Lee Hyuw-won.
Among them, Wi is considered the leading candidate as he is known to have had the full confidence of former Chairman Ra. Since he is younger than the other candidates and entered the bank in the first open recruitment, he is considered the right person to reform the organization. Previously he had stints at a number of key posts, including the group’s merger planning team and HR team.
Lee, one of the key founding members of the group, served as the vice president of Shinhan Bank in charge of investment banking. He was credited with establishing the thorough risk management system and helping the lender weather the global financial crisis. He has also the confidence of bank employees as he served as the head of the labor union.
Choi, also one of the founding members, served as the vice president of Chohung Bank for three years before Shinhan and Chohung merged. He is considered the ideal candidate to strengthen organizational unity.
Together with the selection of a new bank CEO, the group is expected to speed up its move to find a new leader. The group is now temporarily controlled by Chairman Ryoo Shee-yul. Ryoo has been leading the group since former Chairman Ra Eung-chan resigned on Oct. 30, taking responsibility for the group’s internal strife.
At Shinhan, a special committee, led by Ryoo, was set up to name a new boss by March 2011, following Ra’s resignation. The committee consists of nine directors excluding the big three. It will run the group until March, when a general meeting of shareholders is to be held.
In early December, the committee decided to go for the sole chairmanship system by eliminating the presidency in order to avoid disputes between top executives. It plans to appoint a new boss at the board meeting in February or March.
Among likely candidates for new chairmanship are former CEOs of Shinhan Financial Lee In-ho and Choi Young-hwi, Kim Pyung-joo, a professor emeritus at Sogang University, former vice finance minister Kim Seok-dong and former KAMCO chairman Lee Chul-hwi.