An Investor Who Sees The Future

“What are you staring at blankly?”

Snapping back to reality at the sound of the voice, I saw Hyun-joo noona sipping her coffee. The hologram that had just been before me had disappeared.

“I was thinking about whether there might be a good way.”

I asked casually.

“Do you know about Hoseong Savings Bank?”

Hyun-joo noona chuckled.

“Is that what you came up with?”

“Yes. Well…”

“It’s the savings bank run by Park Si-hyeong’s in-laws.”

I nodded as if I knew the answer.

“Right.”

So that’s why it suddenly came to mind?

Hyun-joo noona explained.

The current chairman of Hoseong Savings Bank is Min Jeong-joo, and the CEO is Min Seong-joo. Min Seong-joo’s son, Min Gi-jin, is Park Si-hyeong’s son-in-law.

“Can I get some documents on that?”

Hyun-joo noona set down her coffee.

“It’s true that Hoseong Savings Bank received various preferential treatments. It grew significantly when Park Si-hyeong provided funding for project financing and private investments during his time as Gyeonggi Province governor. Its asset size jumped from 10th to 2nd in the industry, and the number of branches increased several times.”

I recalled the memory.

“There were controversies over the preferential treatments.”

“That issue had been audited several times, so bringing it up again wouldn’t be very useful. You know, in this government, that level of corruption wouldn’t even register.”

Unlike Hyun-joo noona’s perspective, I wasn’t interested in digging into preferential treatment issues. But I couldn’t suddenly claim that the bank would go bankrupt either.

“I’ll take a look for anything else.”

Hyun-joo noona took a drag of her cigarette and nodded.

“Got it. I’ll send it to you by email.”

***

After finishing the conversation, I returned to the OTK Company building.

As I entered the CEO’s office, Taek-kyu was sitting on the sofa.

“Did you meet with my noona well?”

“That’s not what’s important right now.”

“Then what is?”

I told him about what had just happened.

“The bankruptcy of Hoseong Savings Bank? How did you see that?”

“That’s what we need to figure out from here on.”

Opening my inbox, I found an email from noona had arrived.

I printed out all the materials. Like most savings banks, it’s an unlisted company and controlled by the owner’s family.

The asset size is 5 trillion won, with capital of 2.6 trillion won, making it the second largest after IBS Savings Bank.

“A regular bank and a savings bank are different, right?”

“Yeah, they are.”

Though their activities and names may seem similar and cause confusion, strictly speaking, savings banks are not banks.

Commercial banks belong to the first financial sector, while savings banks fall under the second financial sector. Additionally, commercial banks are heavily regulated under the Banking Act and are supervised by the Bank of Korea, whereas savings banks follow the Mutual Savings Bank Act, with various conditions being more lenient compared to banks.

“The original name was mutual credit cooperative, but it was changed to allow the use of savings bank in the law.”

“Why was it changed?”

“To make it look similar to banks.”

In fact, many people confuse the two.

Hoseong Savings Bank, which started as a local savings bank, has grown alongside Park Si-hyeong. It has participated in significant project financing and private sector investments, yielding large profits.

The biggest advantage is simply the fact that they are related through marriage to Park Si-hyeong.

The most important aspect of a savings bank is stability. A savings bank with a presidential son-in-law appears much more stable compared to other savings banks, allowing them to attract many customers.

I looked through the materials diligently but couldn’t find any significant issues. In situations like this, I should seek expert help, right?

I called Team Leader Seo Sang-won.

Moments later, a man in his 40s dressed in a suit walked in.

“I heard you were looking for something.”

“Do you know about Hoseong Savings Bank?”

Team Leader Seo nodded.

“I’ve heard the name.”

I handed him the documents I was holding.

“Please take a look here and check the financial status.”

He was known for analyzing the financial accounting of companies targeted for mergers and acquisitions and deriving appropriate acquisition prices from his time at Redstone.

Team Leader Seo sat down and reviewed the documents he received.

It wasn’t until a considerable amount of time had passed that he spoke.

“I’ll need to analyze a bit more, but it doesn’t look problematic. The capital is solid, and the BIS ratio is normal.”

“Is the reserve ratio okay?”

“That’s fine as well.”

The reason for depositing hard-earned money in a bank is to earn interest. Just because a bank receives 100 million won and stores it in a vault doesn’t mean interest will accumulate automatically.

The bank loans out the deposits it receives to those in need, and from the interest on those loans, it pays interest to the depositors. (The difference between loan interest and deposit interest, known as the interest margin, is the bank’s profit.)

However, if the bank lends out all the deposited money, it might not be able to provide funds when a customer suddenly wants to withdraw their deposit.

To prepare for such situations, the law mandates that a certain portion of customer deposits must be kept in the central bank, which is referred to as the reserve requirement.

“Is that so?”

Is it not yet time for bankruptcy?

As I was thinking this, Team Leader Seo Sang-won paused his hand that was handing over the materials.

“I notice one strange point.”

“What is it?”

“The deposit interest rate is 0.3 percent higher than other savings banks.”

We are currently in an era of low interest rates. Banks are engaged in a game of observation, deciding whether to offer 0.1 percent more or less.

Though 0.3 percent may seem insignificant, if we assume the average rate is 3 percent, it’s like actually offering an additional 10 percent.

Is there a reason to offer more interest?

“Please look into Hoseong Savings Bank. Investigate discreetly, so it doesn’t get out that we’re checking into it.”

Without asking for a reason, Team Leader Seo nodded.

“Understood.”

***

Three days later.

Team Leader Seo Sang-won returned to the CEO’s office.

“Upon analysis, there are no issues. In fact, it’s robust and stable.”

Yet, from his tone, it was clear he had sensed something amiss.

“But…?”

“They’ve established over 100 special purpose corporations and lent out large amounts, which raises some suspicion. Some of these corporations are suspected to be paper companies, and it’s unclear how the loan funds are being used.”

“Are you suggesting they might be non-performing loans?”

“It’s not definite. For now, the interest payments are being received regularly.”

“No matter how well the interest is paid, it’s useless if the principal can’t be recovered.”

Team Leader Seo nodded in agreement.

“Additionally, there’s one more concerning matter unrelated to this.”

“What is it?”

“Since last month, they’ve been sequentially issuing 2.8 trillion won worth of subordinated bonds with a three-year maturity, and these are being sold to general customers at various branches.”

It’s common for companies to issue bonds.

In South Korea, to protect depositors, the Korea Deposit Insurance Corporation guarantees up to 50 million won. Even if the bank fails and all money is lost, depositors can get their 50 million back without a doubt.

On the other hand, while bonds offer higher interest than deposits, they are not insured. In the event of bankruptcy, no one guarantees payment. As a result, as the risk of default increases, bonds are traded at rock-bottom prices.

Moreover, subordinated bonds, as the name suggests, have the lowest priority in repayment.

If Hoseong Savings Bank truly goes bankrupt, those who purchased subordinated bonds would receive nothing.

I was incredulous and asked, “Most people probably don’t even know what subordinated bonds are.”

“It seems the employees are enticing customers by saying they offer double the interest compared to deposits.”

“…….”

The customers of savings banks are mostly ordinary citizens, with a significant number of elderly individuals among them. As a result, when employees recommend something as good, many customers tend to trust it and sign up.

As long as the bank remains stable until maturity, there aren’t any issues. It would indeed be favorable if they get more interest than the deposits…

However, I felt something was off.

“If their financial status is okay, why are they issuing subordinated bonds? If they are going to sell to customers anyway, wouldn’t it be more beneficial to sell deposit products?”

Is there really a need to sell bonds that offer higher interest?

Banks use the money they receive from deposits to provide loans. Conversely, to return the deposited money, they must recover those loans.

But what if the loans aren’t being recovered properly? Isn’t it possible they are selling bonds to return deposits or trying to convert deposits into bonds?

Deposits can be withdrawn at any time, while bonds cannot be redeemed before maturity. The only way for a buyer to recover their money before maturity is to sell the bond to someone else.

Since banks have no obligation to return money until maturity, they could buy themselves three years.

“What do you think?”

Team Leader Seo Sang-won spoke carefully.

“It seems like creative accounting.”

I nodded.

I had a vague suspicion. Having seen predictions of bankruptcy, if there’s no issue in the financial statements, it is highly likely that there is creative accounting involved.

“How large do you think the losses are?”

“It’s hard to tell from just the data.”

“Feel free to provide an estimate, even if it’s not accurate.”

After a moment of thought, Seo Sang-won mentioned an amount.

“At least several hundred billion.”

“What if it’s more?”

“It could exceed 2 trillion.”

“……”

“I was at a loss for words.”

***

Everything in a corporation is represented by numbers on paper.

Moreover, corporate accounting serves as the foundation for all business activities, including wages, investments, management evaluations, taxes, and forecasts. Therefore, manipulating accounting data is strictly prohibited by law, and external audits are conducted to prevent unforeseen issues.

Just by adjusting a few numbers, deficiencies can be hidden, and the temptation for creative accounting is strong since it can inflate revenue and profits.

Perhaps due to this, despite the lessons from history, significant scandals seem to occur every few years.

The Enron scandal in 2007 is a notable example, and the most recent issue emerged with Toshiba, which had concealed losses for years through creative accounting. When the truth came out, it was revealed that they had over 5 trillion won in losses, leading them to sell their profitable semiconductor division to cover the gaps.

The most massive case of creative accounting in South Korea’s history involves Daewoo Group. The scale of the accounting fraud revealed at that time was 40 trillion won, marking it as the largest since the founding of the nation.

Taek-kyu asked, “So how big is the deficit?”

“Well…”

“In any case, it’s enough to lead to bankruptcy.”

“That seems likely.”

While the exact scale of the deficit is uncertain, the fact that bankruptcy is imminent is clear.

If it’s around hundreds of billions, they might manage to pull through this time. If it’s slightly more, they could receive support for recovery.

However, if it exceeds 1 trillion, bankruptcy cannot be avoided.

Fortunately, it’s not a major bank; it’s a local savings bank. The country’s economy shouldn’t wobble just because a savings bank goes under.

“Do you know, Sir?”

“I know there’s a problem, but I didn’t expect it to reach this level.”

If he had known, he would have taken measures sooner.

“If this blows up, won’t you be in big trouble?”

“Yes, it would be a big deal.”

This isn’t just anyone’s affair; it’s a savings bank run by the in-laws. I’m not sure how relevant it is, but there’s no way to avoid responsibility.

‘But isn’t 1 or 2 trillion not that large an amount?’

Compared to the money they’ve siphoned off, it’s just a drop in the bucket.

‘In absolute terms, yes. But this is all ordinary people’s money.’

The loss of several trillion by Seosung Electronics due to the L6 explosion and ordinary people losing 2 trillion are completely different matters.

Most customers of the savings bank are not corporations or wealthy asset holders; they are everyday citizens. If something goes wrong, the local economy will be devastated, and ordinary people will suffer.

‘Shouldn’t we report this to the Financial Supervisory Service?’

‘They’re in on it too. If the Financial Supervisory Service had done its job properly, would things have turned out like this?’

The heads of the Financial Supervisory Service and the Board of Audit and Inspection are all close aides of the president. There are likely several politicians involved with Hoseong Savings Bank as well.

There’s less than a year left in the president’s term. Even if they recognize the severity of the problem, they’ll try to manage it quietly and pass it on to the next administration.

‘So what do we do? They’re still happily selling subordinate bonds, right? That’s just sucking the blood out of ordinary people.’

The best way to address this would be to immediately disclose the size of Hoseong Savings Bank’s bad loans. But to do that, we’d have to verify the details of the loans, collateral, and recovery likelihood, which we have no authority to do.

And it’s unlikely that the supervisory authorities will step in either.

I patted Taekgyu’s shoulder and said, ‘So we have to expose this ourselves.’