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In 2003, a Korea Exchange Bank official by the name of Heo sent a five-page fax to the Financial Supervisory Service. And here lies the key to suspicions that something may have been foul in the sale of KEB to Lone Star. The fax contained a report on the projected BIS capital adequacy ratio of the bank as of late 2003 under various scenarios. According to the report, the best-case BIS ratio was 11.65 percent at the end of the year, and the worst case was 6.16 percent. The FSS selected the worst-case BIS rate and rated KEB as an ¡°ailing¡± financial institution. Then it approved the acquisition of the bank by the Texas-based investment firm based on that figure.
The problem is that the report was not officially released. It was not even reported to the then governor Lee Kang-won and the board of directors. Why did the FSS approve the sale to an overseas speculator without conducting due diligence and based purely on figures faxed by a banker? Heo may be able to explain it all, but he died of an illness last August.
The reason it is crucial to find out whether the BIS ratio was manipulated is that it alone justified the sale of KEB to Lone Star, which would not otherwise have been eligible to buy the bank. The Financial Supervisory Service approved Lone Star¡¯s acquisition by applying an exception clause after revising the BIS ratio downward based on the report. Financial institutions are classified as ¡°ailing¡± if the ratio is under 8 percent.
The National Assembly¡¯s Finance Committee and the bank¡¯s in-house trade union, who have kept saying the sale was illegal, claim the Finance Ministry and the FSS deliberately manipulated the BIS ratio to justify the sale. Kim Ji-seong, the head of the union, says the government ¡°has been trying to pin the blame on Heo since he died.¡± He adds it may not even have been Heo who wrote the document.
Ex-governor Lee Kang-won says he did not see the report at the time, ¡°but even without the report, the BIS ratio dropped to the 6 percent level because of serious losses in the credit card business.¡± Lee says in 2003 alone, the credit card business suffered losses of around W1.4 trillion (US$1.4 billion). ¡°Without Lone Star¡¯s W1.38 trillion, the BIS ratio would have dropped to the 4 percent level by late 2003,¡± he claims.
It will be left to the investigative skills of prosecutors to find out who actually wrote the facts and whether the government intervened in its writing or the decision that followed.
(englishnews@chosun.com )
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