I am indebted to David T. Coe, Paul Gruenwald, and Peter Hayward of the IMF; to Dong-Won Kim of Maeil Business Newspaper for encouragement and useful comments; and to Maryse Dubé for assistance. I am also thankful to the Asia and Pacific Department and the Monetary and Financial Policy Department for inviting me to visit the IMF in early 2003 to write this paper.
A historical summary of Seoul Bank’s financials and overall size is presented in the attached table.
This was not based on the forward-looking criteria (FLC) introduced after the crisis.
For a comprehensive background discussion on the causes of the financial crisis in Korea crisis and the subsequent recovery, see Ajai Chopra and others (2002), “From Crisis to Recovery in Korea: Strategy, Achievements, and Lessons,” in David T. Coe and Se-Jik Kim, eds., Korean Crisis and Recovery, (Washington, D.C.: IMF; Seoul, Korea: KIEP). The LOIs are available on www.mofe.go.kr and www.imf.org.
The market generally perceived Woori as a vehicle for collecting bad banks. As Seoul Bank had already started its restructuring efforts in June 2000 with a new management, Seoul Bank employees and management viewed inclusion in the holding company as self-defeating. For the employees, it meant heightened job insecurity. For the management, it meant compromised autonomy as it created another layer of management. For the government, the bank holding company was a way to reduce the number of problem banks in what is considered to be an “over-banked” sector, albeit at the cost of increasing the magnitude of the restructuring task.
For a detailed account of the government’s negotiations with Newbridge and HSBC, see Su-Gil Kim, Jung-Jae Lee, Kyung-Min Chung, Sang-Ryul Lee, “The Vault is Empty: A Documentary of Korean Economy during Five Years of DJ Government,” January 2003, Chung-Ang M&B, pp. 138–147.
As noted above, the hierarchy of employees is determined by grades. Grade four is the lowest ranking officer with authorized signing power; it takes between five to eight years to obtain this level. All employees in grade four and below are union members. When grade-one officers become executives, they get their accumulated severance payments and sign a new one- to two-year contract that may or may not be renewable.
Perlin, Gary, 1996, “Foreword,” In Andrew Sheng, ed., Bank Restructuring: Lessons from the 1980s (Washington, D.C.: World Bank).