South Korea's largest credit card issuer, LG Card Co, said on Tuesday it would lay off a quarter of its workers and shut more than half its branches as it scrambled to cut costs after emergency loans saved it from default.
Debt-laden LG Card said it would intensify its search for a strategic investor after narrowly averting a liquidity crunch that threatened to spread throughout the country's financial system.
Days after intervening to ensure the emergency loans were made, Finance Minister Kim Jin-pyo said LG Card should come up with restructuring steps that the financial markets could trust and firmer supervision.
"We will further restructure the company, cutting costs and writing off bad assets, in order to look more attractive to strategic investors," LG Card chief executive Lee Chong-suk told a news conference.
LG Card was forced to suspend cash advances over the weekend, raising the specter of a spiralling series of defaults among South Koreans, many of whom borrow cash against their credit cards to pay bills and service other credit card debts.
LG Card has 14 million customers, almost a third of South Korea's population. They owe US$22.7 billion and payments on about 10 percent of these debts are overdue, raising fears a fragile recovery in Asia's fourth-largest economy could stumble.
The LG Card CEO said LG has chosen Morgan Stanley as a financial adviser for a planned stake sale and could give up management control if required.
Analysts said LG Card needed to find a strategic investor with deep pockets.
GE Capital has expressed interest in Korean card issuers and private equity funds such as Ripplewood, Lone Star and the Carlyle Group have been active buyers of banks and insurers. LG said it was not in talks with GE.
LG Card said 2,100 jobs out of a total 8,400 would go by the end of this year and the number of branches would be slashed to 50 from the current 109. The company last week announced it was seeking volunteers for retirement.
The move will allow the troubled card issuer to save about 30 percent, or 400 billion won (US$333 million), in operating expenses annually, the spokesman said.
LG said it planned to write off five trillion won of bad debts this year and an additional four trillion next year. It targets 400 billion won in net profit in 2005, versus an estimated loss of 1.4 trillion won this year.
"The self-rescue measure itself looks positive," said Jason Yu, analyst at Samsung Securities. "But given its unstable financial condition, we expect the company needs additional fund raising or financial aid.
"Therefore, I think it is too early to buy into card shares yet," he said.