Korea In­vest­ment faces triple whammy

The Korea Times - - FINANCE - By Park Jae-hyuk [email protected]­re­atimes.co.kr

Korea In­vest­ment & Se­cu­ri­ties may face set­back in achiev­ing its grand scheme of be­ing the na­tion’s first bro­ker­age firm that posts a 1 tril­lion won ($844 mil­lion) an­nual op­er­at­ing profit, as it has been in­volved in a se­ries of scan­dals re­cently.

The com­pany is fac­ing grow­ing crit­i­cism for its em­ployee’s in­volve­ment in du­bi­ous in­vest­ments made by Jus­tice Min­is­ter Cho Kuk’s fam­ily.

Ac­cord­ing to in­dus­try sources, the Seoul Cen­tral District Pros­e­cu­tors’ Of­fice has been in­ves­ti­gat­ing a Korea In­vest­ment & Se­cu­ri­ties pri­vate banker sur­named Kim, 37, on charges of de­stroy­ing ev­i­dence show­ing sus­pi­cious in­vest­ments made by Cho’s wife.

The pros­e­cu­tors also raided the firm’s pri­vate bank­ing cen­ter in Yeongde­ungpo, Sept. 5, to con­fis­cate com­puter hard disks and key in­ter­nal doc­u­ments con­cern­ing the as­sets man­age­ment of Cho’s fam­ily.

On top of the pros­e­cu­tors’ in­ves­ti­ga­tion, Korea In­vest­ment & Se­cu­ri­ties has been un­der a Na­tional Tax Ser­vice au­dit which will con­tinue through Oc­to­ber at the bro­ker­age’s head­quar­ters on Yeouido, Seoul.

Al­though the tax agency and the firm said the on­go­ing tax in­spec­tion is part of a reg­u­lar au­dit, some ob­servers ex­pect an in­ten­sive in­spec­tion, con­sid­er­ing the com­pany’s link with Cho’s fam­ily.

Korea In­vest­ment & Se­cu­ri­ties CEO Jung Il-mun told re­porters Sept. 9, “The pri­vate banker may have tried to do his best,” adding, “As you know, every sales­man does his best.”

An­other un­fa­vor­able fac­tor fac­ing the bro­ker­age is its failed in­vest­ments of the na­tion’s em­ploy­ment in­sur­ance fund in de­riv­a­tives-linked funds (DLFs) com­prised of de­riv­a­tives-linked se­cu­ri­ties (DLSs) tied to yields on Ger­man Trea­sury bonds.

It suf­fered a 47.6 bil­lion won ($40 mil­lion) loss in July, as it had in­vested 58.4 bil­lion won from the em­ploy­ment in­sur­ance fund in the DLFs a year ear­lier.

Be­cause of the fail­ure, the se­cu­ri­ties firm is feared to lose its right to man­age the em­ploy­ment in­sur­ance fund.

Fur­ther­more, FSC Chair­man Eun Sung-soo said dur­ing his con­fir­ma­tion hear­ing Aug. 29 that he would in­spect the com­pany to find out whether it was re­spon­si­ble for the huge loss.

His re­marks hinted that the fi­nan­cial reg­u­la­tor may in­spect the se­cu­ri­ties firm in the near fu­ture.

The Fi­nan­cial Con­sumer Agency has al­ready urged fi­nan­cial au­thor­i­ties to carry out an in­ves­ti­ga­tions of the firm, us­ing spe­cial law-en­force­ment of­fi­cers.

CEO Jung said, how­ever, “A rot­ten part of an ap­ple does not mean the whole part is rot­ten,” em­pha­siz­ing its man­age­ment of the em­ploy­ment in­sur­ance fund has gen­er­ated a 3 per­cent re­turn, de­spite the loss.

Mean­while, the bro­ker­age is also grap­pling with its hold­ing firm’s dif­fi­cul­ties in un­load­ing its stake in Kakao Bank.

Since Kakao was al­lowed in July to be the big­gest share­holder of the in­ter­net-only bank, Korea In­vest­ment Hold­ings, the bro­ker­age’s hold­ing firm, has been sup­posed to re­duce its stake in the bank to 34 per­cent mi­nus 1 share from 58 per­cent.

Al­though Korea In­vest­ment & Se­cu­ri­ties was sup­posed to ac­quire shares in its hold­ing firm, there has been a glitch in the plan, due to a mon­e­tary penalty the bro­ker­age firm was hit with in 2017 for its vi­o­la­tion of the An­titrust Law.

Korea Times file

Korea In­vest­ment & Se­cu­ri­ties’ pri­vate bank­ing cen­ter in Yeongde­ungpo, south­west­ern Seoul

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