Was Bank Takeover Requirement Faked?

Financial Supervisory Service (FSS) executives pressured its working-level officials to report a document containing the Korea Exchange Bank’s (KEB) capital requirement ratio provided by the bank itself instead of the document provided by the FSS, to the Financial Supervisory Commission (FSC), according to a Board of Audit and Inspection (BAI) investigation into the sale of the KEB in 2003.

BAI official Ha Bok-dong said on April 10, “An official of the FSS who was questioned stated that he intended to report the FSS’s own KEB capital ratio document to the FSC, but that he submitted the document made by KEB because of pressure from the director.”

According to the BAI, the FSS document predicted the KEB would have 9.14 percent capital requirement ratio at the end of 2003. But the document the KEB faxed to the FSS in July 2003 predicted a 6.16 percent ratio.

The subsequent FSS reporting of a 6.16 percent ratio to the FSC enabled Lone Star to take over KEB.

The BAI summoned and questioned related officials who allegedly pressured to report KEB’s ratio prediction, including an examination director of the FSS and Lee Dal-yong, former deputy governor of KEB.

The nation’s auditing agency said that Lee Kang-won, then KEB governor and current president of Korea Investment Corporation, admitted the ratio of 6.16 percent is not correct.

Lee mentioned on the ratio, “There were some degree of mistakes and exaggeration. Yet I did not give the order to fabricate the figures.”

The BAI regards eight percent as the critical point to determine whether KEB faked the ratio. If the BAI’s reexamination result is around seven percent, it implies that KEB made a mistake. If the result is over eight percent, it suggests that the bank forged the ratio.

Ha stated, “Without getting approval from internal management committee, KEB arbitrarily picked Morgan Stanley as its management advisor in March, 2003, to which Lee admitted it was wrong.” “The board does not rule out the possibility that Lee was involved in the contract procedure,” Ha added.

The central investigation department of the Supreme Prosecutors’ Office is said to have obtained important testimony on BIS ratio fabrication from Jeon Yong-jun, then KEB management strategy director, who was issued arrest warrant on charges of aggravated white collar crime.

The prosecution banned additional five KEB officials and government officials who are involved in faking the ratio from leaving the country, bringing up the number of people under foreign travel ban to 30.

Min-Hyuk Park mhpark@donga.com needjung@donga.com