Rethinking Role
The Korean government withdrew its plan to establish a corporate restructuring company on Sept. 17.
It is being said that this is the result of a recent behind-the-scenes meeting between domestic banks and Financial Services Commission Chief Lim Jong-ryong, in which the former suggested that the expansion of the role of the United Asset Management Corporation is more desirable than the establishment of a new organization.
“Each bank has to invest about 120 billion won [US$103 million] in the corporate restructuring company, and this results in a 10 bp or so decline in the BIS capital adequacy ratio,” one of the banks explained, adding, “Besides, banks have to hand over distressed debts to the company at discounted prices, while 45 percent of the price of disposal has to be re-invested in the private equity fund set up by the restructuring company, which leads to immediate losses and double financial burdens.”
The expansion of the United Asset Management Corporation’s role was offered as a suggestion with the banks opposed to the creation of the new organization. “It seems that the presidents of the banks and the head of the Financial Services Commission managed to reach an agreement in regards to this point,” said an industry source.