Selling KEB quickly is imperativeThe scandalous dividend payout by Korea Exchange Bank raises serious questions about the authority of our country’s financial supervising system. Our financial authorities tolerated the bank’s record dividend payout of nearly 70 percent of its second-quarter net profit to shareholders - amounting to 973.7 billion won ($915.7 million).
The bank explained that the move was to meet expectations of shareholders. Shareholders are, of course, entitled to dividend payments to share corporate profit. But financial companies usually pay out 30 percent of their net profit. A figure nearing 70 percent can seriously undermine a company’s profitability and value. Such demand would be disproportionate use of shareholders’ rights.
U.S. buyout fund Lone Star, which holds a 51 percent stake in KEB, is behind the recent dividend fete. It raked in dividends worth 496.9 billion won in a recent payout, the largest since it bought interest in the Korean bank in August 2003. So far, the equity fund, which is attempting to sell off KEB, has earned 2.9 trillion won from the bank it bought for 2.15 trillion won.
Although talks have stalled because of legal problems, Lone Star plans to sell its stake to Hana Financial Group for 4.69 trillion won. It can also profit from the planned sale of the bank’s stake - worth 680 billion won - in Hynix Semiconductor, and cash reserves worth 4 trillion won. If the U.S. fund continues to gnaw away the bank’s profit this way, there will be little left by the time the bank is sold off to a Korean buyer. Moreover, under Lone Star’s management, the bank’s competitiveness and operation have weakened substantially.
Yet financial authorities are nowhere to be seen. They are even suspected of interfering with the sale of KEB. They said they have done their part by warning Lone Star against hefty payouts. If Lone Star refused to listen, they should have heightened the warning or sought out other measures to prevent the ridiculous dividend payout.
Financial authorities made the current mess because they delayed endorsing the bank’s sale to Hana Financial Group, citing an ongoing legal dispute over an alleged stock manipulation involving Lone Star executives.
They may have feared that if they approved the sale ahead of a verdict, they would be swept up by criticism that they let Lone Star get away with profit-and-run. But the sale of KEB should not be deferred any longer for the sake of the bank’s viability.
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