Woori Bank offers compensation, buybacks for Picity trust fund

Woori Bank said Monday it would partially compensate individual investors’ losses on the controversial Picity trust fund, offering to buy back the product to end disputes.

Under arbitration by the Financial Supervisory Service, the bank consented to compensate 40 percent of the investors’ net losses, while denying the investors’ claims that the bank failed to inform them about the risks involved.

“In the settlement, we were suggested to compensate 40 percent of the investor losses, in addition to trust buybacks for allegedly giving insufficient information about extensions of matured trusts,” said Yang Young-joo, the head of Woori Bank’s trust team. 

“Those who agree to resell the (Picity) trust are also passing down all of its gains and losses,” Yang said. With the 40 percent compensation and the buyback offer, the customers will be able to retrieve 55 to 56 percent of the trust’s original purchase price, he added.

Those who choose to reject the buyback offer will have to wait until the trust fund matures to reap what they can. It will take at least one to two more years to receive the interest dividend, according to Woori Bank’s estimate. If they still feel deceived about the return, they can file a class-action suit.

The Picity trust refers to the special trust product, created by the Korean asset management leg of Union Bank of Switzerland, in prospect of the high yields from the construction of a mega office-commercial complex called “Picity” in the heart of Gangnam. The trust was launched in 2007 by some 10 brokerages and Woori Bank. Woori Bank alone sold about 190 billion won worth of Picity trust funds.

The 2.4 trillion won construction project, however, went bankrupt after stumbling between state approval and cancellation, as well as the political bribery scandal involving former Korea Communications Commission chief Choi Si-joong and former vice industry minister Park Young-joon.

The suspension of construction of the 96,000-square-meter project caused investor losses. Following the settlement procedure between Woori bank and the investors, the FSS decided that the bank was partially responsible for letting the customers believe that the trust was as safe as a fixed deposit.

The authorities failed to collect any recorded investment consulting dialogue from the trust sales in 2007. However, it decided that Woori’s investment proposal repeated the word “safe” several times but only once asserted that the product has risks, at the very bottom.

By Chung Joo-won (joowonc@heraldcorp.com)