(News Focus) Shinhan patches up internal feud amid fear of fallout

By Kim Soo-yeon
SEOUL, Sept. 14 (Yonhap) -- Shinhan Financial Group Co. has managed to patch up a
high-profile internal strife by suspending its chief executive, but it has made a
big dent in the group's image and reputation, analysts said.
The 12-member board of South Korea's No. 3 financial services company on Tuesday
voted 10-1 to freeze chief executive Shin Sang-hoon's duties after about a
five-hour marathon discussion, which was in the crosshairs of local media.
"The board concluded that Shin is unable to perform his duties normally amid
investors' concerns and increased uncertainties," Chun Sung-bin, chief of the
board, told reporters in a briefing.
"The move to suspend his duties came out in an effort to recover the group's
fallen image and reputation."
The decision was an outcome of a noisy internal feud that was sparked after the
group's flagship banking unit, Shinhan Bank, lodged a complaint with the
prosecution against Shin on Sept. 2., accusing him of being involved in
embezzlement and an illegal lending practice.
Shinhan accused him of illegally extending 95 billion won (US$82 million) in
loans to companies involving one of his relatives while serving as the bank's
president between 2003 and 2009. Shin was also suspected of embezzling advising
fees worth 1.5 billion won, which the group's honorary chairman was supposed to
receive.
Shinhan's internal strife came as a surprise to industry watchers as the group
had been deemed as the financial services company with well-balanced business and
a stable governance structure.
Speculation has risen that the accusation may be engineered by Group Chairman Ra
Eung-chan, who is under investigation by the financial watchdog on allegations
that Ra opened bank accounts with borrowed names years ago in connection with a
scandal-ridden businessman.
Ra has reportedly suspected Shin of prodding lawmakers into bringing up the issue
again so that the regulator will launched the probe.
Market watchers said the group cannot avoid its reputation from being dented
because it will take time for the situation to settle down.
"Claims of impropriety against the president and chairman of Shinhan Financial
have already meaningfully undermined the reputation of Shinhan Bank and will
continue to do so for some time," Beatrice Woo, a vice president at Moody's
Investors Service, said in a report.
Woo said although the situation is not likely to harm the bank's profitability,
"the damage to its so far unblemished reputation, particularly in terms of
corporate governance and internal controls, has already been significant and will
linger.
Other experts pointed out that Shinhan's case may serve as a catalyst for
overhauling the governance structure of financial services firms operating in
South Korea.
Under Ra's leadership, Shinhan Financial, whose market capitalization stood at
around 21 trillion won, pulled off the successful acquisition of Chohung Bank in
2003 and LG Card Co. in March 2007.
But Ra, who has been at the helm of the group since 2001, was allowed in March to
extend his tenure to a fourth term until 2013, spawning concerns among some
watchers that there need to be measure in place to limit the long-term tenure of
a head of a local financial firm.
The government is seeking to strengthen the role and qualification of outside
directors in a bid to prevent a president at a financial institution from
exerting excessive power on the management. It aims to submit a bill on improving
financial institutions later this year.
sooyeon@yna.co.kr
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