South Korea’s Hyundai Securities 03450 accepted the resignation of Chairman Lee Ik-chi in a move widely expected as Hyundai Group companies make changes aimed at bolstering market confidence.
The departure of the colourful Lee, who last week signed a memorandum of understanding (MOU) to draw 1.1 trillion won ($994 million) in investment to the company and its affiliates, had been expected as part of the government’s pushed to get the Hyundai Group 1/8HYGR.UL 3/8 to relinquish management by its founding family.
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Lee is not related to founder Chung Ju-yung but was a loyal secretary.
He had been under pressure from the government and creditors to take responsibility for financial troubles at Hyundai Investment Trust and Securities, currently saddled with a negative value of 1.2 trillion won.
“Lee was obsessed with expansion and showed a lack of risk management skills,” said Lee Jeong-ja, head of research at HSBC Securities. “He now has to pay the price and markets will welcome it.”
Lee received a suspended two-year prison sentence last November for stock trading violations. His close relations with the Hyundai Group’s founding family allowed him to resume his post.
FORCED RESIGNATION
Hyundai Securities officials said Lee’s resignation under government pressure was unfair.
“Honestly, we don’t know why he had to resign,” said a Hyundai Securities spokesman. “In a way he had been framed. His contribution to our company and the country’s economy should be fairly evaluated.”
In 1999, Lee crisscrossed the country promoting the Buy Korea fund that drew retail investors back into Seoul’s withered stock market and contributed to the market’s rebound from the economic crisis that hit Korea from late 1997.
“At the peak, the fund was estimated as high as 11 trillion won,” said the brokerage’s spokesman. “No one at that time thought of turning the depressed stock market around in such a way.”
Helped by the launch of the Buy Korea fund in March 1999, the Korea Composite Stock Price Index (KOSPI) doubled to 1050 points during the following four months.
But analysts said a rebound was anticipated anyway because the International Monetary Fund had allowed a relaxed money supply policy, realising rigorous belt-tighting had choked the economy too excessively.
DEAL-MAKER, AS WELL AS VIOLATOR
“Lee’s campaign for the fund actually sparked an overshooting, leaving individual investors with mountains of losses later, when bubbles burst,” said J. Kim, economist at the state-funded Korea Development Institute.
Some analysts praised Lee as a deal-maker but said he had not helped foster much-needed transparency in financial markets.
Under last week’s MOU, a U.S. consortium, led by insurer American International Group AIG and private equity fund WL Ross & Co, plans to invest in three of Hyundai’s financial firms.
The plan calls for U.S. investors to take a 23.7 percent stake in the brokerage for 500 billion won while investing 600 billion won in the brokerage’s investment trust and asset management units.
Lee will stay on as an executive at Hyundai Asan Corp, which leads the Hyundai Group’s projects in North Korea.
Hyundai Securities president Hong Wan-soon will serve as acting chairman.
Hyundai Securities shares ended down 400 won at 9.850.
