It turns out it was five fax messages that played the decisive role in the sale of Korea Exchange Bank (KEB) to Lone Star in 2003. In it, KEB's capital adequacy ratio was estimated at 6.16 percent. That was under the 8 percent that was the cutoff line for a sound financial institution. KEB was found to be unsound as a result, and that is what ultimately let to its sale to Lone Star. All this time that most important process in which officials determined KEB's capital adequacy ratio had been hidden in secrecy. Now the curtain is lifted away.
Additional information uncovered by the Board of Audit and Inspection (BAI) and the prosecution add to the suspicions. It is hard enough understanding how the tiny firm Elliot Holdings was paid W1.2 billion for consulting services, but part of the consulting fees went to the head of the KEB task force, of which the author of the fax was a member. Then KEB president Lee Kang Won has now reportedly told BAI that the capital adequacy ratio "seems to have been a little exaggerated." It is utterly impossible to understand how the bank's president at the time can talk about something that would determine the fate of his institution as if he were discussing issues pertaining to someone else. And what is one to make of the fact that the responsible department director at the Financial Supervisory Service (FSS) ignored the previously established estimate and ordered his people to report the contents of the fax up the chain of command? By all appearances, it looks like things had been arranged ahead of time.
It is more than your usual serious situation if there were activities pre-scripted between the bank and the government or internally at the bank, and if then things were wrongfully orchestrated along those lines. That would be inexcusable however much the country was in need of foreign investment in order to return to normalcy. If Lone Star was involved, there could be calls for the sale to be annulled. One should be careful making assumptions at this stage. The whole process needs to be retraced step by step from whence it started three years ago, and the results of the subsequent audit and inspection must leave no suspicion unanswered. Otherwise the government, which decided to sell KEB in the first place, will be mired by distrust, and the people will have no way to heal the scar that will exist in the form of a massive loss of the national wealth.
The Hankyoreh, 11 April 2006.
[Translations by Seoul Selection]
[Editorial] Retrace The Sale of KEB |
