KB Financial head penalized for investment losses

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SEOUL, Sept. 9 (Yonhap) -- South Korea's financial watchdog decided Wednesday to
penalize the chairman of KB Financial Group Inc. for inflicting investment losses
on a state-owned bank.
The Financial Services Commission (FSC) decided to suspend Hwang Young-key from
exercising his duties for three months. Hwang is responsible for Woori Bank's
1.62 trillion won (US$1.3 billion) worth of losses from investments in derivative
products from 2005-2007, while he headed the bank and its parent, Woori Finance
Holdings Co.
The FSC approval came one week after the Financial Supervisory Service (FSS), the
implementing body of the FSC, decided to penalize Hwang.
"We approved original decisions made by the FSS," the watchdog said in a
statement, adding that it judged that Hwang "effectively" ordered the expansion
of investment in derivative products carrying high risks by setting lofty targets
for asset and profitability growth.
The FSC also gave "institutional warning" to Woori Bank.
Although the penalty was finalized, Hwang will still be able to retain his
current position by South Korean law. However, he will be barred from seeking a
second term as KB Financial's chief and holding executive posts at any domestic
financial firm for four years.
Hwang was named CEO of KB Financial, South Korea's top financial services
company, in September last year, when the holding company was established.
According to the watchdog, Woori Bank incurred the loss by investing in overseas
credit default swaps, which protect investors against the risk of default, and
other derivatives. The bank posted its first loss in almost seven years in the
fourth quarter of last year.
In the wake of the 1997-98 Asian financial crisis, the government injected more
than 12 trillion won into Woori Bank to turn it around. The government holds a 73
percent stake in the lender.
Regarding the FSC's decision, Hwang said in a statement that it is regrettable
his argument was not accepted. "After more deliberation, I plan to respond to the
FSC's reprimand."
The punishment for Hwang has sparked a debate over the appropriateness of the
penalty. Opponents argue that the financial regulator shares responsibility
because of its lax supervision, saying the watchdog belatedly handed down
disciplines and sat idly by until the bailed-out Woori Bank suffered huge losses.
sooyeon@yna.co.kr
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