Hana Bank Provides 50% Interim Compensation on Principal for Loss-Making Italy Fund Investments

Decision at Bank Board Meeting on 23rd
Plan to Increase Bank Revenue Acquisition Also Discussed

Asia Economy DB

[Asia Economy Reporter Kim Min-young] Hana Bank has established investor protection measures after incurring losses from investing in an Italian healthcare private equity fund. Due to the spread of the novel coronavirus infection (COVID-19), the recovery of investment funds is expected to be delayed beyond the maturity date, prompting the distributor to take preemptive action.

According to the financial sector on the 24th, Hana Bank held a board meeting the day before and prepared investor protection measures for subscribers of the Italian healthcare private equity fund sold last year. This fund is structured to reinvest in an offshore fund that invests in medical expense receivables paid from the healthcare-related budget of the Italian local government through derivative-linked securities (DLS).

The fund was created by the US-based asset management company CBIM, and Shinhan Financial Investment entered into total return swap (TRS) contracts with six domestic asset management companies including JB Asset Management to transfer the fund.

The fund has a maturity of 2 years and 1 month (some 3 years and 1 month). According to a recent audit by an accounting firm, due to the financial difficulties of the Italian local government, the recoverability of the underlying receivables is expected to be lower than anticipated, and the timing of investment recovery is expected to be later than the maturity date. Additionally, since the fund issuer has not exercised the call option for 13 months, early redemption has not occurred, leading to this decision from the perspective of investor protection.

Hana Bank sold this product for about two years starting in 2017 through its Private Banker (PB) Center. The compensation target this time is nine funds sold last year, totaling 110 billion KRW.

Hana Bank’s investor protection measures consist of two options. Investors can choose either one.

First, the bank will pay the current standard price equivalent of the fund’s beneficiary certificates along with compensation for damages and acquire the beneficiary certificates. The bank pays the current fair value equivalent of the beneficiary certificates and compensation for damages, then takes over the beneficiary certificates. The compensation amount is calculated based on the loss compensation ratio according to each customer’s subscription conditions.

The other option is for the bank to pay 50% of the principal as an advance payment to investors and settle accounts later. After the bank pays the advance, when the investment funds of the beneficiary certificates are recovered, the advance payment is deducted and settled. In this case, ownership of the beneficiary certificates remains with the customer until the fund’s liquidation.

The compensation plan is reported to have been referenced from cases such as Shin Young Securities’ application to Lime Asset Management product subscribers last month and Shinhan Financial Investment’s 50% loss compensation for the German Heritage DLS.

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