South Korean banks may need to write off big losses

Wilfred Horie, lured to Korea nearly two years ago to run one of Korea's troubled banks, has a word of advice for investors who are thinking about bankrolling large companies on the brink of failure: Follow his example and don't do it.

In his office in Korea First Bank, Horie talked about what he had done since becoming president of the bank in January 2000 and what he plans when he returns to Hawaii after retiring this month.

His most significant accomplishment, as he looked back on his record as the first president of the bank since Newbridge Capital bought 51 percent of it from the government in late 1999, was his refusal to participate in schemes for providing more credit to companies that should have simply died.

Horie, who spent 17 years establishing the Japanese franchise for Associates First Capital and then built its operation in Dallas before coming to Seoul, avoided accusations against the sources of pressure for extending fresh credit and rolling over loans for Korean companies.

Implicit in his remarks, however, was the sense that the Korean governing establishment indirectly influenced government-owned banks to extend loans to failing companies when all his analysis as well as instincts told him that was not the way to go.

"If you ask the regulators of the ministry of finance and economy, their position is they have significant shares in the banks, but they are allowing the banks to operate on their own," said Horie. "My guess is there was quite a lot of pressure. There's probably indirect pressure."

It was that kind of pressure, he said, that brought about the agreement by the creditors of Hynix Semiconductor, one of Korea's most troubled entities, to agree to a plan for providing about US$500 million in fresh credit along with a debt-for-equity swap of approximately US$3 billion.

"We don't want any part of Hynix," said Horie, talking about the decision of his bank to refuse to participate in any aspect of the plan. He hopes that the government-controlled banks responsible for the bailout plan for Hynix will buy Korea First Bank's loans for more than 25 percent of their face value of more than US$200.