The Industrial Bank of Taiwan (IBT, 台灣工銀) yesterday approved the resignation of Lin Chin-hsiang (林慶祥), chairman of its securities arm, over his inadequate oversight of the subsidiary, which recently suffered a bond default.
IBT said in a statement last night that it made the decision following a board meeting earlier yesterday. The board also decided to award a major demerit to IBT Securities Co (台灣工銀證券) president Morris Hsu (許瑞茂) and mete out punishment to heads of the securities unit’s risk management and auditing departments over the matter, the statement said.
Last Friday, IBT Securities said its counterparties failed to honor two reverse repurchase agreements on collateralized bond obligations (CBOs) issued by its parent, IBT, in December 2005, resulting in a default of around NT$2.8 billion (US$84.6 million).
According to IBT, half of the CBOs were linked to US dollar-denominated assets issued by Lehman Brothers Holdings Inc and Washington Mutual Inc, while the other half were New Taiwan dollar-denominated assets issued by local companies.
IBT Securities is 93 percent-owned by its parent bank. On Monday, IBT said it would set aside NT$1.33 billion in provisions this year to cover losses.
IBT said that Hsu would stay in his post in order to deal with the aftermath.
Despite speculation of wrongdoing, the bank said an internal investigation showed that nothing improper took place. Suspicions had been raised over a spousal relationship between a securities employee and the chairwoman of the two counterparties. Both firms are affiliates of IBT Securities.