Woori to compensate 40 percent of HK-tied ELS investor losses

Finance

Published: 21 Mar. 2024, 19:09

Woori to compensate 40 percent of HK-tied ELS investor losses

Investors in troubled Hong Kong-linked derivatives hold a rally in front of the Financial Supervisory Service office in western Seoul on Dec. 15 ahead of their imminent maturity. [YONHAP]

Woori Bank will likely cover an average of 40 percent of the losses brought on by the sales of Hong-Kong-linked derivative products, according to an industry source.

Woori will be the first to get on board with the Financial Supervisory Service's (FSS's) recent voluntary-basis compensation plan if its board of directors approves it, according to an exclusive report that the JoongAng Ilbo, an affiliate of the Korea JoongAng Daily, published Thursday.

A Woori Bank spokesperson did not confirm the report but said that the bank is currently looking through the compensation guidelines put forth by the financial regulator.

Details of the compensation plan will be discussed during a board meeting on Friday, according to Woori Bank.

On March 11, the FSS laid out a compensation plan for sellers of the high-risk equity-linked securities (ELS) linked to the movement of the Hang Seng China Enterprises Index (HSCEI), the value of which has collapsed to half of its 2021 peak.

Under the financial regulator’s suggestions, the compensation ratio for investors would range from 20 to 60 percent of the total losses. The actual amount of compensation payment would vary based on several criteria, such as the characteristics of the traders — like their previous experience with ELS investment — and whether investors were given adequate explanation.

For Woori Bank, the compensation ratio is likely to range between 20 and 60 percent — which is in line with the FSS’s estimation —, resulting in a tentative average of around 40 percent, according to the industry source.

Woori Bank has been relatively less affected by the Hong Kong-tied ELS incident compared to other sellers, as its sale volume of the derivatives in question only amounted to 41.3 billion won ($31.2 million).

Of the securities sold by Woori Bank, those set to mature in April are expected to see an average loss rate of about 45 percent. A compensation ratio of 40 percent would render the total compensation less than 10 billion won.

Other major sellers may face bigger financial burdens. KB Kookmin Bank sold 7.8 trillion won worth of the HSCEI-linked ELS, Shinhan Bank 2.4 trillion won, NongHyup Bank 2.2 trillion won and Hana Bank 2 trillion won.

KB Kookmin Bank, in particular, has 4.75 trillion won worth of the securities set to mature in the first half of the year. Assuming a loss rate of 50 percent and a compensation ratio of 40 percent, the total amount of compensation payment is estimated to be 950 billion won in the first half of this year if the bank complies with the FSS’s plan.

“It will take some time to assess individual cases to determine the compensation ratio,” said another unnamed industry source, who added that “it is likely that [the sellers] will come up with, or at least outline, their compensation plans by early April.”

BY OH HYO-JEONG, KIM NAM-JUN AND SHIN HA-NEE [shin.hanee@joongang.co.kr]