Lime bad bank to take bad assets

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Lime bad bank to take bad assets

Financial institutions that sold shares in Lime Asset Management’s problematic funds last year are considering setting up a separate asset managing entity to take over Lime’s distressed funds and liquidate them to minimize investors’ losses.

The new entity will serve as a bad bank, which is a temporary financial institution that removes illiquid assets from an insolvent financier.

The Financial Supervisory Service (FSS) on Monday said that 19 retailers gathered Monday to discuss the possibility of setting up the separate asset managing company, after concluding that Lime Asset can no longer be trusted to resolve the issue effectively. The retailers were all involved in the sale of four funds operated by Lime Asset for which principle withdrawals were suspended since last year. Among the retailers are Woori Bank, Shinhan Bank, Daishin Securities and KB Securities.

“It is true that retailers of Lime Asset Management funds are considering setting up an asset management company that acts as a bad bank, although nothing else can be confirmed as of now,” Lee Suk-joo, head of the financial watchdog’s public affairs team, said Monday.

Lime Asset Management since last July has suspended the four funds - Pluto TF-1, Tethys 2, Pluto FI D-1 and Credit Insured 1 - that placed its money into private securities, mezzanine instruments and other assets due to a liquidity issue, locking investors out of about 1.6 trillion won ($1.3 billion) in principal.

Additionally, a total of 19.5 billion won from one of the suspended funds was allegedly transferred to a company called Star Mobility by its owner, Kim Bong-hyun. Prosecutors say Kim’s embezzlement happened after the fund was suspended on Jan. 13, banning investors from withdrawing their money from the fund. Kim has been on the run since.

The Seoul Southern District Prosecutors’ Office on Monday indicted a former executive at Lime Asset on charges including bribery and breach of trust for allegedly helping Kim Bong-hyun embezzle money from the suspended fund. Local media reports have referred to the executive by his surname Kim.

Early this month, Seong Un Accounting Corporation, which was in charge of conducting an external audit on Lime, also refused to issue its audit opinion, citing a lack of sufficient evidence for an external audit to rely on.

The accounting firm said it also couldn’t release the results because external audits are conducted under the condition that the company continues its business in the future, and the investigation and cessation of business at Lime doesn’t guarantee its future existence.

According to the Financial Services Commission, it takes at least 1 billion won to register a new asset management company in Korea. How much each retailer will contribute to establish the entity has yet to be determined. If each retailer chips in a share proportional to its share of the problematic funds, the bulk of it would be paid by Shinhan and Woori, which together account for more than 60 percent of the sales.

Woori Bank sold the most shares of the funds, accounting for 357.7 billion won. Shinhan Investment and Shinhan Bank each sold 324.8 billion won and 276.9 billion won, respectively.

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