2 Biggest Investment Trusts Still Floundering After Bailout

Ten months after a 7.8 trillion-won ($5.9 billion) bailout, Korea's two largest and sickest investment trust companies, Korea Investment Trust Co. and Daehan Investment Trust Co., are still in trouble.

"Based on their results for the fiscal year that ended in March, the government will examine how much progress they have made in carrying out their promise to improve their balance sheets," said a high-ranking government official who asked not to be identified. "The government will either reprimand management or write new memorandums of understanding."

Another government official said the government may consider selling the two trusts' assets and liabilities to foreign investors, if they are proved non-viable.

The government poured 4.9 trillion won into Korea Investment Trust and 2.9 trillion won into Daehan Investment Trust to clear them of their bad assets.

Last September, each company signed a memorandum of understanding with the government to improve their management in return for the bailout. Now the government believes that the firms will not be able to make good their pledges, which have proved "unrealistic."

Korea Investment Trust promised to rake in 4.2 billion won of ordinary profits, but instead it suffered an estimated loss of nearly 50 billion won. A company official said, "We signed the memorandum on the assumption that the Korea Composite Stock Price Index would rise from 750 at that time to 990 at the end of March to 1,500 in 2003." He argued that the memorandum should be rewritten to become more "feasible."

Even after the rescue, customer deposits at both firms, a gauge of market confidence, remained stagnant at about 20 trillion won as of the end of last year, compared with more than 27 trillion won in 1999. The deposits have risen lately but still hover below 20 trillion won. Even the slight growth is attributed to the increased deposits in short-term money market funds due to higher volatility in the market.

"Investors' trust in beneficiary certificates are at the worst level, and bond funds have lost their competitiveness in the market," said Woo Jae-ryong, head of Korea Fund Research Co.

Experts say that the two firms should be merged before seeking foreign capital.

by Song Sang-hoon