[Invest&Law] Sangsangin vs Financial Services Commission 'Appeal Against Severe Disciplinary Follow-up Measures' First Trial Verdict by Year-End

Financial Services Commission's Administrative Lawsuit on 'Savings Bank Sale' Order
Challenges in M&A Amid Savings Bank Recession...
Burden of Enforcement Penalties Due to Sale Delays

The first trial verdict in the administrative lawsuit filed by Sangsangin Group regarding the Financial Services Commission's order to "sell the shares of Sangsangin Savings Bank and Sangsangin Plus Savings Bank" will be announced this December. If Sangsangin loses the case, the longer the sale of the savings banks is delayed, the greater the burden from accumulating enforcement fines, drawing significant attention from the investment banking (IB) industry to the lawsuit's outcome.

According to the legal community on the 24th, the Seoul Administrative Court Administrative Division 13 (Chief Judge Park Jeong-dae) recently scheduled the first trial verdict for the lawsuit filed by Sangsangin against the Financial Services Commission, which requests the cancellation of the order to maintain major shareholder eligibility and the order to dispose of shares, for December 12.

Previously, CEO Yoo Jun-won of Sangsangin and the company received a heavy disciplinary action from the Financial Services Commission in 2019 for allegedly conducting a public auction that allowed the major shareholder to purchase convertible bonds at a low price. The Financial Services Commission found that Sangsangin illegally lent 38.17 billion KRW exceeding the credit limit to individual borrowers and imposed a fine of 1.521 billion KRW. CEO Yoo was also suspended from duty for three months. Yoo and Sangsangin filed a lawsuit against this heavy disciplinary action, but the Supreme Court confirmed their loss.

As a follow-up to the heavy disciplinary action, the Financial Services Commission ordered Sangsangin last October to dispose of its shares in Sangsangin Savings Bank and Sangsangin Plus Savings Bank by April 4, 2024. It judged that Sangsangin did not meet the requirements to maintain major shareholder eligibility. Sangsangin owned 100% of the shares of Sangsangin Savings Bank and Sangsangin Plus Savings Bank, while CEO Yoo was the largest shareholder of Sangsangin with a 23.44% stake.

Sangsangin again took the administrative lawsuit route despite the follow-up measures. They also filed a request to suspend the effect of the Financial Services Commission's order, and the court decided to suspend the effect of some orders until the main lawsuit is judged. However, since the Supreme Court had already ruled on the original heavy disciplinary action, many in the industry view Sangsangin's current lawsuit as an attempt to "buy time for the sale of the savings banks." This is because they must pay large enforcement fines the longer the sale is delayed, and it was practically impossible to sell the two savings banks by last April.

The problem is that the sluggish market conditions continue to make the sale of the savings banks difficult. Last year, apart from the government order, Sangsangin tried to sell Sangsangin Savings Bank but failed in negotiations with Woori Financial Group. The main reasons for the failed deal are reported to be concerns over real estate project financing (PF) defaults and differences in views on the acquisition price. Additionally, as of the first half of this year, the Basel III (BIS) capital adequacy ratios of Sangsangin and Sangsangin Plus Savings Banks were 10.45% and 9.72%, respectively, falling short of the recommended standard (11%). Based on this, the Financial Supervisory Service requested capital procurement plans from the two savings banks.

Meanwhile, CEO Yoo is also undergoing a criminal trial related to the 'illegal loan' charges and has been in the first trial for over four years. The first trial of the criminal case, heard by the Seoul Central District Court Criminal Division 34 (Chief Judge Han Seong-jin), concluded its hearing last month, and the sentencing hearing is scheduled for January 16 next year.