Inside Story of the Top SBI Shareholder Dumping

A Korean Savings Bank Used to Create Fake Profit was Severely Punished Withdrawing the Hidden Reserve to Comply with Equity Injection.

January 20, 2013

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Captain Kitao manages to steer the sinking ship, with fire on starboard, and torpedo hole on portside…., but another bomb hitting the ship….

Hyundai Swiss Saving Bank of Korea (20.9% invested by SBI) is ablaze now. It was one of useful vehicle SBI has been using to frame up profits in year ends. SBI invested into Hyundai Swiss Savings Bank 1 and 2. FACTA reported this trick in October 2012 issue, that SBI made fake profits of 1.4 billion yen in March 2011, and 7.3 billion yen in March 2012. We also revealed the fact Koreans misunderstood SBI being an affiliate of the credible Masayoshi Son, a hero of Korean Japanese.

Chairman fired, with heavy levies

This profit-creating vehicle garnered 8.7 billion yen of mock profit for SBI is now pilloried by Korean Financial Service Agency (“KFSA”). The order of KFSA issued on December 24th was unheard of; the Chairman of Hyundai Swiss Bank 2 was recommended for dismissal; a couple dozens of managers -including those of Bank 3-were ordered for work suspension; and 2.75 billion won (approximately 226 million yen) charge was levied. The name Hyundai Swiss reminds us of globally-deployed Hyundai Group of companies, but this bank is nothing but a mixture of credit union and consumer finance, and not at all linked to the chaebol. The bank attracts ordinary depositors with high interest rate. Korean Government is so sensitive on the problem of income gaps between rich and poor, that in May 2012, 20 saving banks such as Solomon, Dae-il, and Pusan were ordered to shut down. A person in Korean media asserts; ” saving banks are known for bad management. They regularly lend to families and friends of insiders. “

Hyundai Swill once survived an inspection by KFSA, as it was regarded as “an affiliate of Masa Son’s Softbank.” But this time, the authority did not tolerate. 583 million won (4.8 billion yen) worth of connected party loans and disguised loans were revealed. Having been upset with the FSA stance, SBI submitted a comfort letter to FSA on December 21st, just before the administrative orders were announced, stating SBI would subscribe new shares of Hyundai Swiss. SBI released as follows: “ Hyundai Swiss Saving Bank is the largest savings bank in Korea with 5.5 trillion won ( 431 billion yen ) of total assets including affiliated banks, possessing branches in all of Korea except for Pusan and Gyeongsang-do, with 11% market share based on lending balance. Due to the recent government-led restructuring, big saving banks except it all withdrew from the market, thus its competitiveness turned very solid.” The background of dismissal of chairman and misconduct within the bank, which all SBI shareholders must know, are neglected, and the details on the new-share subscription would supposedly be announced when the mid-term earnings on FY June 2013 were finalized.

United News Agency of Korea reports that Hyundai Swiss, to fulfill the BIS regulation of 7% equity ratio, needs 200 billion won (16.5 billion yen ) worth of new equity from SBI. According to a person close to KFSA says the mission of the regulators is how to smoothly transfer the depositors of the saving banks to regular commercial banks. Saving banks are destined to disappear from Korean financial landscape.

Cashing out 10 billion yen

SBI simply can reject the new share subscription. But, SBI in turn needs to realize 8.7 billion yen loss—a Catch 22 situation. Simultaneously, the biggest shareholder of SBI, a mysterious fund started to move. This fund is Orbis Investment Management. As FACTA revealed in May 2012 issue, it has been supporting SBI share price, but it is now selling SBI shares. Orbis owned 20.36% of SBI in February 2012, but the recently revealed 5% rule reporting shows 17.87% in December 12th, and 16.85% in January 4th. Why the largest shareholder is hurry to monetize the holdings. It seems to us SBI is trying to protect the bombarded “golden egg” in Korea. We pointed out in last-year’s article that Orbis looked like a dummy to disguise SBI’s acquiring own shares. The piecemeal selling fits well if we interpret the move to generate cash for Hyundai Swiss equity injection. The 5% rule report on January 4th was announcing the sale up to December 21st, thus implying around 10 billion yen was monetized thus far. Another 6 billion yen or so would be required to generate 16.5 billion, so we estimate the sale would continue. The cash will be in hand of Orbis, and how to recycle that to SBI? Ryutaro Hatanaka, the Chief Executive of Japan FSA visited Korea in November, conferring with KFSA, his counterpart. Now it is Japanese FSA and SEFC who must strike the wriggling SBI, following the KFSA’s administrative order to Hyundai Swiss.