As Daewoo Shipbuilding & Marine Engineering (DSME) logged an operating loss of over 3 trillion won in the second quarter, eyes are on the next move of the embattled chairman of Korea Development Bank (KDB).
The news on the DSME’s astronomical operating loss has added fuel to criticism of his negligence in overseeing and supervising matters, rekindling the controversy over how Hong Ki-taek was parachuted into the top job at KDB in the first place. Critics say revolving-door appointments never fail to disappoint people.
As part of a workout program for the DSME back in 2000, KDB bought a 31.46% stake in the DSME, becoming the largest shareholder of the DSME. KDB has injected 2.4 trillion won, including a 1.13 trillion won loan, to the DSME.
Amid allegations of accounting fraud by the DSME, KDB has recently said it will make an emergency capital injection of 2 trillion won into the cash-strapped shipbuilder. Government-run banks’ money is taxpayers’ money. With the DSME’s Q2 operating loss of 3 trillion won factored in, the shipbuilders’ debt ratio balloons up to 1000%.
Things just went from bad to worse, but KDB Chairman Hong has been tight-lipped. In April 2013, President Park Geun-hye tapped him to serve as KDB Chairman. Despite strong opposition from her closest advisors and the public, President Park parachuted Hong, who hails from the same alma mater (Sogang University), into the top job at KDB. Hong, who taught economics at Chungang University, may be a member of the academic elite but is hardly a seasoned financier. Though he served as a nonexecutive director of credit card and securities companies, nonexecutive directors are nothing but “yes” men.
Hong is known to have assisted then presidential candidate Park Geun-hye in the 2007 primary and joined Park’s economics study group.
His appointment to the chairmanship was the first public enterprise personnel reshuffle by President Park, who had made a campaign pledge to make her government cronyism-free. Since President Park went so far as to break her campaign pledge, any fallout from her personnel decision affects not only the president herself but also the public. The Park Geun-hye government’s revolving door appointments, however, have continued since then.
At that time, KDB’s labor union said: “At the critical junction for determining the future of KDB, an inexperienced financier with a poor understanding of managing relationships with the government was nominated for chairman.”
“Appointee Hong is a figure who pulled no punches in criticizing the “the separation of industrial and financial capital” for shackling the advancement of the financial industry. There’s no explanation for his appointment other than endemic cronyism,” said Kim Ki-sik, a lawmaker of the New Politics Alliance for Democracy Party.
Their skepticism over his ability tuned out to be legitimate. Since he took the helm of KDB, its management conditions have worsened. Its BIS capital adequacy ratio fell from 17.6% in 2010 to 13.7% last year, lower than the banking-sector average of 15%.
His flip-flops were also bandied around. He said KDB was considering a takeover of shipping company STX Pan Ocean. A month later, he changed his tune, consequently sending STX Pan Ocean filing for court receivership. Some called him a pushover.
He also got a thumbs-down on his handling of Dongbu Group’s restructuring: major subsidiaries (e.g. Dongbu Construction) of the group went into court receivership.
Hong has recently been accused of having committed a willful dereliction of duty in the process of Harim Grouop’s acquisition of Pan Ocean (formerly known as STX Pan Ocean). In May, Pan Ocean’s minority shareholders filed a complaint with the District Attorney's Office, accusing Hong of unfairly selling off Pan Ocean on the cheap. Besides, KDB has yet to walk the talk when it comes to selling off KDB Daewoo Securities.
What Chairman Hong said boomerangs against him. Right after Hong took office as chairman, he pompously said in an interview: “I admit that it is a revolving door appointment. But I will prove my worth with good results.” The phrase “proving worth with good results” is nothing but controversial appointees’ favorite rhetoric.
No one knows whether he made such a comment out of self-confidence or a scholarly conscience. However, a series of bungled jobs after his inauguration and the DSME’s accounting scandal have many people think that Chairman Hong should be held accountable. Given President Park Geun-hye’s personnel decision-making style that prefers belated regret, however, Chairman Hong is unlikely to be dethroned. The tenure of Chairman Hong ends in April next year.
