FSC chairman dodges issue on Lone Star Funds

Kim should have ordered U.S. fund to sell shares, watchdog official says


Kim Seok-dong, the nation’s chief financial regulator, has once again come under public scrutiny for his allegedly irresponsible policy on U.S. Lone Star Funds, the biggest shareholder of Korea Exchange Bank.

Following the vague stance he assumed on corruption scandals of regulatory staffers, for which he has yet to offer a detailed apology, the chairman of the Financial Services Commission is failing to stand by his promise concerning the Lone Star issue.

He asserted earlier this month that the FSC would unveil the result of its inquiry into whether the Texas-based buyout fund was eligible to buy KEB in 2003 before June.

But the regulatory body said last Thursday that it has decided to indefinitely delay its ruling, citing the unconcluded trial.

FSC vice chairman Shin Je-yoon announced the postponement; Chairman Kim avoided the news conference altogether.

Analysts in major securities firms had widely predicted that the financial authorities would eventually rule that there was little problem in Lone Star’s eligibility, describing Kim as a man of perseverance.

They also had expected that the FSC would, in turn, endorse Hana Financial Group’s plan to acquire KEB from the fund, despite a series of protests among the KEB union and civic groups requesting sincere and fair regulatory ruling.

“Chairman Kim seems to feel heavily burdened over a ruling supporting Lone Star in the face of recent legal reviews of several law firms, as they claimed the fund was ineligible to control the majority stake in a Korean bank,” a research analyst said.

Even one senior FSC official, asking not to be named, expressed skepticism about the postponement.

“I had hoped that the chairman would order Lone Star to dispose of (most of) its KEB shares (under punitive measures of a coercive sale) after ruling that the fund is an investor disqualified.”

Apart from debates on whether the fund was really a “financial investor” entitled to own a Korean bank, the former CEO of the now-defunct Lone Star Korea has been accused of alleged stock manipulation.

The FSC official cast anxiety over distrust in the financial authorities as observers argue Kim acted in a cowardly manner.

Kim Seung-yu, chairman of Hana Financial Group, also generated attention with remarks that the FSC should have taken action on the coercive sale against the fund.

“Even if Lone Star is given a verdict of guilty (from the Supreme Court for stock manipulation), Hana Financial could possibly pay fines instead of Lone Star,” he told reporters last Friday.

As speculation rises that the preliminary deal between Lone Star and Hana Financial may break down with the delayed supervisory ruling, the group is reportedly moving to ask the fund to extend the expiry date of the contract.

FSC Chairman Kim was one of the figures who played a significant role in handing over KEB to the U.S. fund in 2003.

He worked as an FSC director general at that time.

By Kim Yon-se (kys@heraldcorp.com)