Shinhan Suffers 1.1 Trillion Loss Solely from 'Rhyme'... Damage Inevitable Due to Internal Control Failures (Comprehensive)

Shinhan Financial Group Faces 1.1242 Trillion KRW Lime Fund Risk Exposure in Banking and Securities
Shinhan Investment Corp. Suspected of Complicity, Shinhan Bank Exploited for Lime Fund Circular Transactions Including Normal Funds
Urgent Calls for Strengthening Internal Control Systems

[Asia Economy Reporter Kwon Haeyoung] Shinhan Financial Group, which avoided the fallout from overseas interest rate-linked derivative-linked securities (DLS), is now suffering from the Lime incident. This is because the sales amount and loans of Lime Asset Management funds, which have managed returns through 'rolling over' debts, exceed 1 trillion won, making it the largest among domestic financial holding companies. As Shinhan Investment Corp. is also suspected of being involved in Lime Asset Management's fraud, concerns are growing that not only will the approval for issuing commercial papers face difficulties, but the issue could also spread to the group's internal control problems, deepening Shinhan Financial's worries.

According to the financial sector on the 16th, Shinhan Financial's exposure to Lime Asset Management funds exceeded 1.12 trillion won as of the end of November last year.

Looking at the sales balance by financial holding company affiliates, Shinhan Financial sold a total of 774.2 billion won worth of Lime Asset Management funds through Shinhan Bank (393.4 billion won) and Shinhan Investment Corp. (380.8 billion won). In addition, if the 350 billion won loan that Shinhan Investment Corp. provided to the troubled Trade Finance Fund through a total return swap (TRS) contract with Lime Asset Management is added, a total of 1.1242 trillion won of company and investor assets are tied up with Lime Asset Management.

Woori Financial Group ranked second with 518 billion won (Woori Bank) in Lime Asset Management fund sales, followed by KB Financial Group with 357.7 billion won (KB Securities), NH Nonghyup Financial Group with 166.7 billion won (NH Investment & Securities 120.5 billion won, NH Nonghyup Bank 46.1 billion won), and Hana Financial Group with 145.4 billion won (KEB Hana Bank 141.5 billion won, Hana Financial Investment 3.9 billion won).

Although Shinhan Financial has been regarded as the 'management expert,' its exposure to Lime Asset Management funds is the highest among financial holding companies, and the problem has spread even to the bank, which was considered safe from troubled funds, putting the entire group on alert.

The biggest problem lies with Shinhan Investment Corp. The Financial Supervisory Service has decided to request an investigation, judging that Shinhan Investment Corp. had prior knowledge of the Trade Finance Fund's troubles and was complicit in the fraud. Shinhan Financial expresses frustration, claiming it was 'victimized' by Lime Asset Management's illegal activities, but it is uncertain where the fallout will spread and fears it could escalate into a group-wide internal control failure issue.

Shinhan Bank is also in a state of emergency. It was confirmed belatedly that out of the 270 billion won invested in normal funds sold by Shinhan Bank, 100 billion won flowed into Lime Asset Management's troubled funds.

Due to this incident, the strengthening of the non-bank sector, which Chairman Cho Yong-byoung of Shinhan Financial has been strongly pursuing, is expected to suffer some setbacks. Chairman Cho, who has experience as the CEO of Shinhan BNP Paribas Asset Management, has a deep understanding of capital markets including banking, securities, and asset management, and planned to develop Shinhan Investment Corp. into a mega investment bank (IB). However, with Shinhan Investment Corp. caught up in the Lime incident, it is widely expected that the financial authorities' designation of it as a mega IB and approval of the key commercial paper business will not be easy.

Within the financial sector, there is a strong view that the responsibility for this incident lies with the asset management company. In particular, Lime Asset Management shamelessly engaged in 'reckless management,' arbitrarily transferring assets from normal funds sold by Shinhan Bank to troubled funds, contrary to the original management guidelines. However, it is also anticipated that the sales companies will find it difficult to completely avoid responsibility.

A financial industry insider said, "With Shinhan Bank also caught up in this Lime incident, the problem is spreading to the entire financial holding company. Especially regarding whether the sales companies responded appropriately during the deterioration of Lime Asset Management funds, whether they intentionally or negligently exacerbated the damage, and whether there was any mis-selling, these are separate issues, so it will be difficult for sales companies to be exempt from responsibility later."

Meanwhile, Shinhan Bank plans to consider legal action, claiming that Lime Asset Management violated the trust contract by arbitrarily managing assets. Shinhan Bank believes that Lime violated the trust contract concerning the Credit Insured (CI) Trade Finance Fund, which recently notified a possible redemption suspension. Shinhan Bank confirmed that the accounts receivable invested in by the CI Trade Finance Fund itself are not problematic and is preparing measures to recover as much of the funds invested outside the original target as possible.

This content was produced with the assistance of AI translation services.