Exchange Bank Sale Had Bureau Approval

The Board of Audit and Inspection (BAI) concluded that the shady acquisition of Korea Exchange Bank (KEB) by Lone Star, a U.S. private equity fund, was led by management with the approval of the financial supervisory bureau.

Reporting the BAI’s final inspection results on June 19, Ha Bok-dong, first deputy secretary general, said, “The KEB management exaggerated KEB’s insolvency and falsely raised the BIS capital adequacy ratio at 6.16%.”

Ha added, “The bank supervisory bureau did not examine it closely and bended related rules unreasonably to make KEB sold to Lone Star whose qualification was questioned according to regulations on bank.”

However, Ha explained that the approval cannot be called off as the BAI could not find any evidence that Lone Star was involved in the process.

According to the report, the KEB management asked Samil PricewaterhouseCoopers to turn in its results of a property credit inspection based on an overestimate of the KEB’s insolvency in 2003.

Thus, KEB’s stock price was fixed at minimum 1,718 won lower than that when general accounting standards were applied.

The BAI is going to hand over to the prosecutors’ office its report of inspection results, which includes the charge of malfeasance in office and abuse of authority for Lee Kang-won, former president of KEB, Lee Dal-yong, former vice president of KEB, Cheon Yong-jun, former chief deputy of business strategy of KEB, and Byeon Yang-ho, former deputy director general for financial policy of Ministry of Finance and Economy.

The Supreme Public Prosecutors’ Office began its investigation of the KEB scandal on June 19. Prosecutors will investigate whether there were any transgressions of law in the process of selling KEB and whether bribes were given to officials.

Min-Hyuk Park Tae-Hoon Lee mhpark@donga.com jefflee@donga.com