Impact of Leadership Absence
The Financial Supervisory Service recently deferred its decision on whether to allow Samsung Securities to start a new business in the field of bill drawing for the reason that Samsung Electronics Vice Chairman Lee Jae-yong as a major shareholder is currently on trial.
At present, Samsung Life Insurance is the largest shareholder in Samsung Securities with a shareholding of 29.39% and the vice chairman himself has no stock in Samsung Securities. Still, the largest shareholder in Samsung Life Insurance is Chairman Lee Kun-hee with a shareholding of 20.76% and the vice chairman owns 0.06% of the company as an affiliated person. The financial authority is regarding the vice chairman as a major shareholder who is capable of having a substantial effect on Samsung Securities. “According to current law, requirements for major shareholders cover persons specially related to major shareholders,” the Financial Supervisory Service explained, adding, “The vice chairman is likely to be sentenced to imprisonment and it can seriously affect our determination.”
Samsung Securities is expressing its embarrassment. “The vice chairman owns only 0.06% of Samsung Life Insurance, not Samsung Securities, and it seems that the financial authority is interpreting the requirements too extensively,” Samsung Securities commented.
Bills issued are a short-term financial product that is provided for general investors based on the credit of a securities company wishing to carry out financing with ease. Any large investment bank licensed by the authority can issue the bills with a maturity of up to one year if the amount of the bills issued does not exceed 200% of its equity capital. At present, those with an equity capital of at least four trillion won are scheduled to be designated as large investment banks next month, which means each of them can procure at least eight trillion won down the road. Until recently, Samsung Securities was one of such companies.
Samsung Securities’ investment banking business, however, is unlikely to be possible for the time being as the financial authority is going to postpone the decision until the trial ends, which is expected to take a couple of years as the case may be.
According to some in the industry, the postponement is for considerations related to major shareholder eligibility to be better reflected in the determination although the financial authority is claiming the opposite. Five South Korean securities companies currently satisfy the equity capital requirement – Mirae Asset Daewoo, NH Investment & Securities, KB Securities, Samsung Securities, and Korea Investment & Securities. Each of them applied for the designation last month. Korea Investment & Securities has been deemed to have some eligibility problems. Cornerstone Equity Partners, a private equity fund established by Korea Investment Holdings, went bankrupt two years ago. Korea Investment Holdings is the largest shareholder in Korea Investment & Securities.