LG Card Experience Turbulence

The leading domestic credit card company, LG Card -- with 14 million members, has stopped cash withdrawal service for three days due to its low cash supply.

Unless LG Card creditors and the LG Group reach a compromise for supporting capital during the November 23 discussion, the impact of LG Card “crisis” will spread uncontrollably.

“The cash service from cash drawers (CD) of some financial companies was stopped on the morning of November 22, and all the cash services stopped since 3:30 p.m. today,” an LG Card official said on November 23.

It is the first time that a domestic credit card company has stopped its cash service due to a lack of money. The cash service did not work temporarily on November 21.

“The suspension of cash service is due to the depletion of account balances deposited at 17 banks,” said Choi Young-taek, the Executive Director of LG Card. “Without the financial support of creditors, it will be hard to resume the cash service even on Monday (November 24),” he added.

If multiple credit card holders using LG Card join together to other credit card companies, then these other companies will experience strong pressure on capital. The possibility of a total crisis in the credit card industry cannot be ruled out in the financial market. Since LG Card customers use cash withdrawal service amounting to 100 billion won a day during weekdays and 40 billion won during weekends on average, the halting of the service has inconvenienced many customers.

Meanwhile, creditors and LG Group continued private negotiations on November 22 to 23 -- ahead of the 10 a.m. deadline on November 24 for the decision by eight credit banks. No agreements were reached until 5 p.m. on November 23.

The creditors requested that LG President Koo Bon-moo provide his properties of LG Stock Company as a security and guarantee a joint liability, but LG rejected the requests.

Lee Deok-hoon, head of Uribank, and Kang Yu-sik, vice president of LG Stock Company, met secretly in downtown Seoul and had a final “private negotiation.” “LG Group should accept the joint assurance requirements of the creditors if it wants to show confidence in normalizing LG Card,” an Uribank official said. “It is still possible that a dramatic compromise will be reached since there is still time until the final deadline.”