Investors in the first batch of Hana Bank’s derivative-linked fund (DLF) products, which are to mature on Sept. 25, will suffer a 46 percent loss of their principal. The figure, although devastating, is better than the 60 percent loss suffered by investors in Woori Bank’s DLF products which matured on Sept. 19.
The balance of Hana Bank’s DLFs to come due on Sept. 25 is about 1 billion won (US$838,715), according to investment banking (IB) industry sources on Sept. 22. It is part of the 46.30 billion won (US$38.83 million) worth of “Meritz Interest Rate-linked AC-type Lizard” products sold from September to December last year.
The products’ rate of return was determined based on the Sept. 20 interest rate on the five-year U.S. constant maturity swap (CMS), which was 1.585 percent, and the interest rate on the seven-year U.K CMS on the same day, which was 0.776 percent. The loss ratio reaches 46.4 percent, including the coupon rates of the derivatives. It means that investors are set to lose almost 50 percent of their principal in just one year.
As DLF products sold by Hana Bank and Woori Bank fall due, investors are moving to file lawsuits against the banks. Two retail investors and a corporate entity are planning to file a damage suit in cooperation with law firm Logos on Sept. 25. They claim that the two banks need to give back principal and interest calculated from the first day of investment until the day of filing the suit since there is a valid reason for cancellation of product subscription in the first place.
Until now, 159 requests for dispute arbitration have been submitted to the dispute arbitration committee under the Financial Supervisory Service (FSS) as of Sept. 20. The FSS is planning to hold a meeting of the DFL dispute arbitration committee as early as the end of next month. It is proceeding with the first procedural step for the requests for dispute mediation over the repurchase before the maturity. This is to come up with guidelines by type before it is flooded with arbitration requests over the confirmed loss ratio after the maturity. The FSS will recommend that banks compensate up to 70 percent of principal if they are found to have “incompletely” sold the products.