This Banker Breaks Rules

Wilfred Horie riles the Establishment

Wilfred Y. Horie is an old Asia hand. A soft-spoken Japanese American who has lived in the region for years, he's fluent in the rules of deference to authority. In Korea, however, he's known these days as the man who breaks them--the banker who says "no." Horie, chief executive of Korea First Bank, earned his sobriquet on Jan. 4, 2001, when he rejected a government request that local banks roll over maturing debt of failing South Korean corporations. "We aren't going to do something that puts the bank at risk," Horie told Korean officials.

Reaction to Horie's breach of etiquette was swift. Financial Supervisory Service officials threatened punishment. The next day, a government agency pulled, then redeposited, $77 million from a Korea First account. Word spread that all government agencies would cut ties with Korea First.

As the first foreigner to run a South Korean bank, Horie's very presence in the country was galling enough to the Establishment. Newbridge Capital Group of San Francisco bought a majority stake in KFB in January, 2000, and hired him to run it. "My managers wanted me to give in," Horie says of the loan incident. But he didn't blink, and on Jan. 6, after a storm of criticism, the government said it would respect Korea First's independence. "We now have the ability to say `no,"' says Horie. "It set a new standard for Korea."

Perhaps. But Horie knows that he will have to fight at every turn to implement Newbridge's ambitious rescue plan for Korea First, which has already turned a $773 million loss for 1999 into a $235 million profit in 2000. The most recent skirmish occurred in March when Newbridge announced a plan to give Korea First's executives stock options. The plan, which included a provisional price for the options, appeared to skirt a rule that regulators must price such securities for unlisted companies. That riled the conservative state-owned Korea Deposit Insurance Corp., which holds 45.9% of Korea First against Newbridge's 51%. Korea First made peace by clarifying that it would defer to regulators.

PERSUASION. Yet the 55-year-old Horie has also shocked local sensibilities by bringing in outsiders--including several foreigners--as top managers. He and his team are pushing new products, avoiding the chaebol that were once the bank's core clients, and soliciting accounts from Korea's growing middle class. Horie knows, however, that he needs to persuade the media and the public that foreign bank ownership is in Korea's interest. He has wooed unions and tried to instill an esprit de corps in his staff by sponsoring and attending company social events.

Newbridge's investors are certainly pleased, now that Korea First has vaulted from the country's worst-performing bank to its most profitable. The first year's profits blew past forecasts, powered by increases in fee income. Horie is targeting $326 million in profits this year, two years ahead of schedule.

Newbridge can't take complete credit for Korea First's success. The U.S. firm bought the bank after the government agreed to a balance-sheet cleanup worth more than $15 billion, including a guarantee to take over loans predating the sale that go sour within two years. Thus, the new operation started out with a healthy 11.44% capital ratio. The government also nearly halved the staff, to 4,700.

Korea First is only the country's eighth-largest bank by assets, but it's growing fast. It is pulling in $15 million a month through its new Quick Cash on-the-spot loans, which have average interest rates of 17.5%. After writing its first home mortgage in 1999, the bank has become a mortgage factory, writing 2,600 mortgages with a face value of more than $100 million in February alone. "This will be the bank's cornerstone," says Horie.

CONTROVERSY. Horie's vision goes beyond mortgages. He's marketing Templeton mutual funds to break the domestic trust companies' stranglehold on the fund market. Credit cards, especially high-fee "platinum" cards for affluent consumers, are another big growth area. The bank had issued only 62 platinum cards when Horie arrived. Now, there are 5,000.

Still, almost every move Horie makes seems controversial. The $1.50-a-month fee he levied on small, unprofitable accounts, a first for Korean banks, unleashed a hail of criticism that the bank was hurting the poor. And defying the male-dominated culture, Horie hires women. Of his first 60 hires, 32 were female, while six jijomjang, or branch managers, are women, up from four.

More important, Horie and his team have speeded up and Americanized daily operations. Every morning, Horie gets a read on the previous day's business, from mortgage closings to mutual-fund sales. Books are closed monthly, rather than every six months. The bank overhauled its Web site in October, and the number of registered customers has tripled to 110,000. Monthly Internet transactions jumped to 2.5 million from 660,000. Horie has whittled away at the pay and promotion system, challenging Korean notions that promotion should be based on longevity, not merit.

A native of Hawaii, Horie has decades of experience in hard-nosed banking. He moved to Japan in 1979 to start operations for an American finance company, Associates First Capital Corp., now a Citibank unit. Horie spent evenings drinking and eating with his Japanese competitors--men whom conventional bankers dismissed as loan sharks--and soaked up knowledge about the industry. Associates thrived by charging 48% annual interest rates, relatively modest by Japa-nese consumer loan standards.

Horie's blunt manner has made him both a celebrity and an antihero. At a union gathering in February, he listened with growing irritation as the Korea First union leader spoke of the "fight and struggle" against the new foreign management. Horie took the man to task. Pointing to a banner depicting a headband-clad worker with his fist in the air, he said: "You see that banner. That has to go away. That is not the kind of attitude that our customers want to see." So far, the union has cooperated.

Horie's impact goes beyond the doors of Korea First. These days, Jin Nyum, Korea's Deputy Prime Minister and Finance Minister, singles out the bank as the model for other institutions, which he says must be independent, profit-oriented, and vigilant about risk. Recently, when a Hyundai unit's loans from Korea First and another local bank came due, an executive from the other bank called Horie to say he would follow his lead. Korea First rolled the loans over, and the exec followed suit. Wilfred Horie, with his gray hair and winning smile, hardly looks like a revolutionary. But if anyone can get Korea's banking system to change, he may be the one.

By Mark L. Clifford in Hong Kong and Moon Ihlwan in Seoul

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