Shinhan Chairman Ra Said to Face Sanction by South Korea's Bank Regulator

Shinhan Financial Group Co. Chairman Ra Eung Chan will be punished by South Korean regulators for allegedly breaking the law by opening accounts at Shinhan’s bank unit in other people’s names, an official at the agency said.

The Financial Supervisory Service yesterday informed Shinhan Financial that it will impose a “heavy penalty” on Ra, the official said, speaking on condition of anonymity. Sanctions may include recommending Ra’s dismissal, the person said.

Shinhan, South Korea’s largest financial company, fell as much as 3 percent today in Seoul trading on concern that recent controversy surrounding senior executives may spark a management shakeup.

“The FSS’s plan amplifies uncertainty over the top management at Shinhan,” said Han Jeong Tae, an analyst at Hana Daetoo Securities Co. in Seoul. “No investor welcomes such risk and it’s still a question mark who will lead Shinhan if Ra really leaves the company.”

Shares of Shinhan Financial lost 1.8 percent to 46,500 won at 11:29 a.m. in Seoul compared with the 0.7 percent drop in 60- member Korea Financial Industry Index.

A spokesman for Shinhan, who declined to be identified, had no comment. A call to Ra’s office went unanswered. Yonhap news earlier today reported that Ra will be penalized, citing unidentified people.

On Sept. 2, the company’s banking unit asked South Korean prosecutors to probe Shinhan Financial President Shin Sang Hoon over alleged breach of duty and embezzlement. Four Shinhan shareholders filed a lawsuit in September seeking the dismissal of Shinhan Bank Chief Executive Officer Lee Baek Soon.

Reputation ‘Undermined’

The regulator said Aug. 25 it had requested information from prosecutors on whether Ra, 71, broke the law by opening an account in another person’s name.

Ra has been Shinhan’s chairman since 2001. Before that, he was chief executive officer of Shinhan Bank for a decade.

The “heavy penalty” involves three potential sanctions: a recommendation for dismissal, suspension from duty, or a disciplinary warning that would bar Ra from seeking another term as chairman, the FSS official said. Ra’s current term at Shinhan ends in March 2013.

Regulators will make a final decision on Ra’s penalty in two to three weeks after getting a response from the executive, the official said.

Moody’s Investors Service said Sept. 13 that the charges have “meaningfully undermined the reputation of Shinhan Bank.” Fitch Ratings on Sept. 20 downgraded its ratings outlook for the lender to negative, reflecting “governance issues and the potential financial and reputational impact of the series of lawsuits” against Shinhan Financial.

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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