Samsung Securities Co., which made an unprecedented financial blunder of wrong dividends payment in the history of the domestic capital market, is highly likely to suffer a major setback in its future growth strategy. In particular, the company will have to shrink down in the securities industry, which is a regulated industry, for a while due to an insufficient apology and no concrete plan for compensation, according to experts. Financial authorities are aiming at Samsung Securities president Koo Sung-hoon first.
In regard to the apology statement issued by CEO Koo on April 8, the Financial Supervisory Service (FSS) said on April 9, “We met CEO Koo in the morning and expressed our regret for the insufficient apology.” The FSS said that Samsung Securities focused on it employee’s fault and didn’t apologize enough about the company’s internal control system or management in its apology statement. On the same day, Samsung Securities posted the apology statement in all its branches after getting rebuked by the FSS.
Vice Chairman Lee Jae-yong, who returned to Seoul on April 7, a day after the incident, is also grappling with Samsung Securities’ dividend chaos. As the incident destroyed the trust of the capital market, Samsung Securities’ management is expected to be strictly censured, including resignation.
Samsung Securities will lose ground in the industry as well. Some say that the company’s plan to start short-term financing business, the core of its long-cherished mega-size investment banking (IB) business, will practically fall through. Samsung Securities ranked third in terms of equity capital with 4.4 trillion won (US$4.12 billion) among domestic securities firms as of the end of last year. Financial authorities will launch the probe but Samsung Securities is forecast to face a heavy punishment, which is higher than “institutional warning.” Using the past example, KB Securities Co. was warned by financial authorities due to the issue of major shareholder’s credit offering and it failed to receive approval for short-term financing business.
The incident made things worse as it was already unclear that Samsung Securities will be able to expand its business to mega IB on account of the eligibility of Vice Chairman Lee as a major shareholder. Lee cannot satisfy the requirement of the eligibility as a major shareholder as he was released on a four-year suspension of a prison term of 2 1/2 years in February. Under the article 5 of the current governance structure law, those who is given a suspended sentence higher than imprisonment and is in the grace period cannot become an executive of a financial firm. Lee is categorized as affiliated person of the largest shareholder.
However, there is a consensus that Samsung Securities will not face heavy sanctions like suspension of business. An official from the financial authorities said, “The dividend incident is clearly Samsung Securities’ fault but there are too many interested parties to issue a business suspension. So, it will be hard to impose the highest level of sanctions. We are still investigating into the incident so we will make a final decision after completing the probe.”