SOUTH KOREA: Bank run at Tongyang Securities cools since crisis

Fund withdrawals by Tongyang Securities Inc. customers have declined sharply since the immediate aftermath of its parent firm Tong Yang Group's default in September, amid a move underway to sell the brokerage arm, data showed Thursday.

The outstanding amount of deposits at Tongyang Securities stood at 2.3 trillion won (US$2.17 billion) at the end of November, equivalent to only 60 percent of the total it held in late September, according to the data by the Korea Investors Service Inc. (KIS).

Tongyang Securities is an affiliate of Tong Yang Group, South Korea's 38th-largest family-owned conglomerate currently undergoing debt restructuring after it failed to repay maturing debts.

The conglomerate, which originally started off as a cement manufacturer, filed for court receivership for five of its units in September, prompting a bank run by investors.

In October alone, Tongyang Securities customers pulled out a total of 1.46 trillion worth of funds, but the pace of withdrawals sharply slowed to 42.2 billion won in November, the data showed.

"The liquidity risk has certainly eased last month compared with September and October, but (the firm) is facing a massive amount of redemption payments in regards to the suits filed against it," said Ha Tae-kyung, a KIS researcher.

Tongyang Securities is estimated to have sold short-term debts tied to Tong Yang assets worth about 1.57 trillion won to individual investors, KIS data showed.

KIS projected the brokerage firm may need between 160 billion won and 630 billion won as redemption funds.

The Financial Supervisory Service (FSS), the financial watchdog investigating Tongyang Securities on suspected fraudulent sales of such debt instruments, said it has found evidence to prove the firm's negligence and intentional omissions in explaining potential risks to investors.

"We'll have the executives submit their explanations, but there were clearly cases of wrongful sales," Lee Dong-yeop, an FSS director in charge of the probe, told reporters at a briefing.

The FSS plans to finalize the investigation within the first half of next year, at which point the regulator will also have concluded the amount of compensation for the investors, he added.

Tongyang Securities, a mid-sized brokerage house with 15 trillion won in assets, has recently received court approval to find a buyer.

Among the possible bidders are KB Financial Group Inc., the second-largest banking firm in Korea, and Yuanta Securities Co. of Taiwan.