Korean Government Targeted SBI for Anti-Graft

The Reluctantly-Acquired SBI Savings Bank Caused a Trouble. Another Profit Generation Scheme?

May 20, 2015

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Park Geun Hye, the beleaguered Korean President, trying to boost her popularity, attempted to emulate Xi Jing Ping’s Chinese administration by launching her version of anti-graft campaign. On March 17th, President Park urged: “We cannot leave grafts intact for we pursue economic resurrection. Concrete measures are needed to counter corruptions rooted in many areas of our society, not limited to the defense industry.” Ironically, the righteous sword unintentionally headed to Lee Wan-koo, the prime minister and the President’s sidekick. As the prosecutor’s office searching the connections of Lee Myung-bak, the predecessor of Park Geun Hye, Sung Wan Jong, self-made owner of Keangnam Enterprises committed a suicide. The dead man left a list of distributed money, and Lee Myung-bak’s name was on it. Thus Lee Wan-koo was forced to resign premiership, and Park lost her protégé. Unexpectedly, a Japanese firm was entangled with this anti-graft campaign. SBI Savings Bank, a Korean bank owned 98.09% by SBI Group, as SBI Holdings on its core. On April 1st, Chosun Ilbo, an influential Korean newspaper wrote an article, a week from Park Geun Hye’s declaration of anti-graft, with a sensational catch of “a scalpel was wielded to a Japanese company disturbing the Korean order”. The article said; “Korean Prosecutor Office has launched a compulsory search to a Korean entity of Japanese financial firm SBI Group on April 1st, and the outcome of the search is awaited and its implication.” The search was conducted at SBI’s Korean holdings company, SBI Korea Holdings and Veritas Investment. Also, one manager Y, the person who initiated SBI’s Korean investment and allegedly received a substantial rebate, ended up that his house investigated. The article refers to Southern District of Seoul Prosecutor’s Office, the usual outpost to investigate financial institutions, is in charge of the case. Also, it reports that the authority will review SBI Group’s Korean investment as a whole, including the case of SBI Savings Bank (formerly Hyundai Swiss Savings Bank, acquired by SBI Group in 2013) tried to sell nonperforming loans which extinctive prescription on collection already passed.

Arrested Former Manager

On May 1st, the manager Y was arrested by the prosecutors, allegedly receiving 400million won (or 43.6 million yen) of rebate. As declared by President Park, Korean government bodies are busy exposing corruptions. The government bodies allow aggressive investigations, thus making mass populations applauding on the arrest scenes reported day-by-day, and the SBI Group was one of those targeted. Japanese financial companies in Korea have been always deemed as potential villains. In a society that individual debt reaches 1000 trillion won (108 trillion yen), consumer loan companies, aka “sala-kins” are regarded evil, but necessary. The top companies in the area include “Apollo Finance”, “Sanwa Money”, and “KJI” of J Trust Group, all of them funded by Japanese capital. From time to time, Korean financial authority fretted on these companies as “fattening with Korean blood and sweat”, but it could not kick them out with fears of financial unrest. The authority has similar view on the SBI Savings Bank, funded by SBI Group. It seems that the compulsory search followed by indictment on petty crime is a threat and a way of gaining general public support. A SBI Group-related person commented the incident as “an improper deal of former manager retired a few years ago”, which sounded so simplistic. In fact, SBI Holdings in Japan never made any release on the case. Moreover, in the fiscal result of May 12th, SBI announced that it registered a record operating profit in the term ended March 2015, emphasizing the Korean banking business contributed with a substantial operating profit. These remarks sound puzzling, with a former manager arrested and there remains a possibility of investigation at the SBI Savings Bank, even though the compulsory search being Korean political campaign.

Target Japanese, the Blue Office Eyes

Doesn’t Yoshitaka Kitao, CEO of SBI Holdings, care the ongoing arrest case? In fact, SBI acquired 19.8% of Hyundai Swiss Savings Bank in 2006 at mere 800 million yen. As the earnings dwindled, it could write off easily, but it kept the shares, and eventually committed to control the management. FACTA revealed SBI’s profit generating operation on this Hyundai Swiss Holding (1.4 billion yen for March 2011, and 7.3 billion yen for March 2012) on the October 2012 issue, titled “SBI’s Investee in Korea Deceiving as a Masayoshi Son’s Company”. Korean Financial Authority asked SBI to choose a bust of the bank, or a subscription of new capital, and SBI paid 20 billion yen for the new share subscription in March 2013, and making the bank as de-facto subsidiary. Afterwards, SBI serially subscribed new shares, and kept on injecting cash to the bank; 21.7 billion yen in August 2013, 17.5 billion yen in November 2013, 32.6 billion in March 2014, and 18 billion yen in June 2014, totaling to 110 billion yen. As a result, SBI’s consolidated balance sheet now carries 90.3 billion yen of “goodwill”, just from this savings bank. In Korea, black turns white depending on a decision of prevailing political forces. The rumor in Seoul had it that the government is asking SBI for further capital injection. The Presidential Blue Office may call for “evidence of graft by Japanese firms”. SBI could be in jeopardy. We asked an interview to SBI on April 28th, but there is no reply yet, with a perfunctory word, “we will get back from the person in charge”.