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   Strategies & Market TrendsKorea


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From: Julius Wong9/17/2008 6:48:00 AM
   of 214
 
South Korea Turns Tables on Wall Street After Bailout (Update2)
By Bomi Lim

Sept. 16 (Bloomberg) -- In 1999, Kim Jung Yul sat at a table negotiating the sale of Korea First Bank to San Francisco-based Newbridge Capital LLC as it sought cash to stay afloat during the Asian financial crisis. Nine years later, he's scouting for a Korean buyer for a U.S. bank.

``I was determined to squeeze one more dollar out of them,'' said Kim, recalling four months of talks in Seoul as the state- run company he worked for sold its controlling stake. ``Now, it's U.S. institutions that desperately need capital.''

Kim's new role, working as a consultant for a bank he declines to identify, underscores the resurgence of the financial industry in a nation that a decade ago was bailed out by the International Monetary Fund. As banking writedowns from the implosion of the U.S. mortgage market swelled past $510 billion, Merrill Lynch & Co. has received cash from South Korean investors and Lehman Brothers Holdings Inc. held unsuccessful talks about selling a stake to state-owned Korea Development Bank.

Korean investors are seeking to use cash and expertise amassed as they emerged from the country's debt crisis to hunt for bargains among U.S. banks. Even so, they're encountering resistance from Wall Street firms unwilling, like Kim in 1999, to sell out too cheaply.

KDB's talks with New York-based Lehman stalled last week because of disagreements over price, as did Korea Asset Management Corp.'s bid to buy bad loans from Merrill.

Lehman yesterday filed for Chapter 11 bankruptcy protection after failing to find a buyer. Bank of America Corp., the biggest U.S. consumer bank, agreed to acquire Merrill Lynch & Co., the third-biggest U.S. securities firm by market value, for about $50 billion in stock.

`Buyer's Market'

``The tables have turned, and U.S. banks have to realize that,'' said Lee Chol Hwi, chief executive officer of state-run Korea Asset Management Corp., known as Kamco, who was trying to buy $200 million of nonperforming loans from Merrill. ``It's practically a buyer's market there.''

Kamco, which helped liquidate distressed assets in South Korea after the 1997 to 1998 financial crisis, is seeking to buy as much as 1 trillion won ($904 million) of bad loans in the U.S. CEO Lee says there are plenty of U.S. companies seeking Korean money. Fund managers, companies and even state governors in the U.S. have requested a few minutes of his time during a trip he's planning there later this month, Lee said.

``That was unthinkable in the past,'' he said.

Banking Overhaul

South Korea's economy shrank 6.9 percent in 1998, during the worst recession since the Korean War ended in 1953, prompting citizens to turn over $2.2 billion of gold to the treasury as the crisis pushed the country to the brink of a sovereign default.

During the banking overhaul that followed, the government allowed more than 630 financial companies to fail and sold two of the biggest lenders to overseas investors. Korea also began building its foreign exchange holdings to prevent another crisis. Its foreign currency reserves swelled from $8.9 billion at the end of 1997 to $243.2 billion on Aug. 31, the sixth-largest in the world, as exports of ships, cars and electronic goods rose.

``Korea's financial industry has made remarkable progress over the past 10 years,'' said Chung Duck Koo, who led the South Korean delegation to talks with the IMF in late 1997, resulting in a $57 billion bailout. Today's credit market turmoil ``sets the stage for Korean financial firms to go global.''

Expansion Plans

Min Euoo Sung, the former Lehman executive who took the helm at Korea Development Bank in June, said last week that he plans to make it Asia's third-largest bank within five years. The government plans to sell its 100 percent share in the lender by 2012, with an initial public offering planned next year.

KDB's talks with Lehman started in July and collapsed on Sept. 10, Min told reporters today. The Korean bank sought to buy a controlling interest for a third the price Lehman was offering, with the investment to be made in late February, 2009, he said.

``I am certain Lehman wouldn't have been pushed to bankruptcy had the deal gone through,'' Min said. ``It would have been a win-win situation.''

South Korean firms have invested about $720 million in securities linked to Lehman, the country's financial regulator said in a statement released yesterday.

South Korea flexed its financial muscles in January when Korea Investment Corp., the $30 billion sovereign wealth fund known as KIC, invested $2 billion in New York-based Merrill. Hana Bank, Korea's fourth-biggest, bought a $50 million stake in Merrill in February.

Merrill plunged more than 60 percent in the year to Sept. 12 in New York Stock Exchange composite trading. Bank of America will pay $29 a share in stock, 70 percent more than the Sept. 12 closing price, for Merrill.

Regional Challenge

Chin Young Wook, KIC's chief executive officer, said July 29 the fund will approach future U.S. deals ``carefully.''

KIC's investment in Wall Street is smaller than Singapore's Temasek Holdings Pte, which invested more than $5 billion in Merrill, and China Investment Corp., which put $8 billion into Morgan Stanley and Blackstone Group LP during the past year. Morgan Stanley is the second-largest U.S. securities firm and Blackstone manages the biggest leveraged buyout fund. Both are based in New York.

``Korea faces challenges from other players in the region like Temasek who have much more expertise in making such cross- border investments,'' says Kim Ja Bonn, a researcher at the Korea Institute of Finance in Seoul. ``It's important to seize a chance when it comes, while accurately assessing the deal.''

Stuttering Economy

Jun Kwang Woo, chairman of the Financial Services Commission, has cautioned Korean firms about the risks of buying U.S. banks twice in the past month.

The regulator's warning comes as Korea's economy stutters. Inflation is at a 10-year high and the won has slumped 19 percent this year against the dollar, making it the worst-performing Asian currency.

That hasn't damped enthusiasm among South Korean investors, said Kim, 51, who started DW Consulting in 2004 and advised Seoul-based LIG Insurance Co. on the sale of its life insurance affiliate to Seoul-based Woori Finance Holdings Co. and London- based Aviva Plc, the U.K.'s biggest insurer, earlier this year.

``This is the chance of a lifetime for Korean companies to enter the U.S. market,'' said Kim, who was an official at state- run Korea Deposit Insurance Corp. when it sold a controlling stake in Korea First Bank to Newbridge. The buyout firm made a $1 billion profit selling its interest to London-based Standard Chartered Plc in 2005.

``We were naive back then,'' Kim said. ``We paid a high price to learn from the crisis, and it's time to put what we've learned to use.''

bloomberg.com

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From: Paul Kern10/6/2008 11:46:24 PM
   of 214
 
Korean Won Falls to 7-Year Low; Government Says to Use Reserves

By Kim Kyoungwha and Seyoon Kim

Oct. 7 (Bloomberg) -- South Korea's won slumped, touching the lowest level since 2001, even as the government said it will use its foreign-exchange reserves to provide funds to the local financial system.

The currency, Asia's worst performer this year, tumbled as much as 7 percent, the most since December 1997 when the nation sought an emergency loan from the International Monetary Fund to meet debt payments. The government will use its currency reserves, the world's sixth-largest, to provide funds when needed, Deputy Finance Minister Shin Je Yoon said today.

``The government should try to ease the won's drastic drop, to calm investors, with its ample reserves,'' said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. ``South Korea is much sounder in terms of economic fundamentals than it was during the 1997-1998 financial crisis.''

The won, the worst performing major currency, is now down 30 percent this year. Investors are concerned the deepening global credit crunch is creating a funding shortage for the nation's banks, exporters and manufacturers, eroding confidence and threatening the economic outlook.

South Korea has been building up its foreign currency reserves since Asia's financial crisis struck the region a decade ago. Those reserves fell for a fifth month in August to $243.2 billion, according to the central bank, as policy makers intervened to stem the won's slide.

Investors shouldn't overreact as the government can cope with the global financial turmoil, said Rhee Chang Yong, vice chairman of South Korea's financial regulator. The government is preparing ``various'' measures in response, he said at a meeting today in Seoul.

`Clearly Different'

``The deteriorating overseas borrowing situation is mainly due to the global credit crunch,'' Rhee said. ``The situation is clearly different from the financial crisis'' in 1997.

The won tumbled 5.5 percent to 1,338.75 per dollar as of 12:06 p.m. local time, according to Seoul Money Brokerage Services Ltd. The currency touched a low of 1,364.05 today, the weakest since April 2001.

Korea's Kospi stock index fell 1 percent today, and is down 29 percent this year, headed for its first annual loss since 2002. Investors overseas sold more of the country's shares then they purchased on all but 15 days since May as the financial turmoil prompted investors to exit emerging-market assets. Eight of the 10 most-traded Asian currencies weakened this year.

``Sentiment is extremely unstable as the crisis seems to be spreading fast,'' said Jay Won, a currency dealer at Korea Exchange Bank in Seoul. ``People are panicking and they only want to hold dollars.''

Stabilize Currency

The government's priority is to stabilize the currency, Finance Minister Kang Man Soo said yesterday. Traders said the central bank yesterday intervened in the market after the currency slumped as much as 5.6 percent.

Kang yesterday urged banks to sell overseas assets to raise cash they can use to lend to local companies struggling with rising offshore borrowing costs. Lack of access to funds makes it harder for companies to pay wages and buy raw materials.

``This is not typically a fundamental problem,'' said Mirza Baig, a currency strategist in Singapore at Deutsche Bank AG, the world's top currency trader. ``But when you are in the middle of a crisis, it does become a fundamental problem because nobody is prepared to refinance your maturing loans.''

Bonds Fall

Korea's government bonds fell on speculation policy makers will ease their monetary stance after a local newspaper reported the central bank may cut the reserve requirements for banks to help increase liquidity in the market.

The central bank may reduce the reserve ratio requirement and increase lending via repurchase agreements, the Korean- language Seoul Economic Daily reported, citing a government official it didn't identify.

Bank of Korea Governor Lee Seong Tae and fellow policy makers meet Oct. 9 to review interest rates. The bank kept its benchmark rate at an eight-year high of 5.25 percent last month.

The yield on the 5.5 percent note due June 2011 fell 4 basis points to 5.72 percent, according to Korea Exchange. The price rose 0.11, or 118 won per 10,000 won face amount, to 101.25. A basis point is 0.01 percentage point.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net; Seyoon Kim in Seoul at skim7@bloomberg.net.
Last Updated: October 6, 2008 23:09 EDT

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From: Paul Kern10/26/2008 3:50:56 PM
   of 214
 
Bank of Korea Calls Emergency Meeting, May Lower Interest Rates

By Seyoon Kim

Oct. 27 (Bloomberg) -- The Bank of Korea monetary policy board called an unscheduled meeting for today, possibly to discuss an interest rate cut after the stock market lost a fifth if its value last week.

``There will be an interim monetary policy board meeting'' today at 8 a.m., the Seoul-based central bank said via a text message sent to the media yesterday, without providing further information.

President Lee Myung Bak yesterday convened a meeting of the nation's top economic policy makers, including Finance Minister Kang Man Soo and central bank Governor Lee Seong Tae, to discuss measures against the financial-market turmoil. The benchmark Kospi stock index plummeted 20 percent last week and the won closed near the lowest level against the dollar in a decade on Oct. 24, extending this year's loss to 35 percent.

``I'm almost certain they'll cut and it's highly likely to be 50 basis points,'' said Lim Jiwon, economist at JPMorgan Chase & Co. in Seoul. ``A rate cut may help boost the stock market a bit, but all in all, the authorities need to restore investor confidence and for this, a concerted effort and more preemptive steps are needed.''

The President urged his aides to come up with appropriate measures ``so that the financial turmoil doesn't link to a recession in the real economy,'' a statement on the Web site of the presidential house said yesterday.

Beijing Summit

Lee returned from a weekend Beijing meeting of Asian and European leaders at which they called for an overhaul of World War II-era banking rules. It was the first meeting of Asian and European Union chiefs since calls for coordinated action mounted amid bank failures and plunging stock prices that began last month.

South Korea's government will probably come up with steps soon to encourage companies to expand investment in factories and create jobs, Yonhap News reported yesterday. The news agency also said the central bank's policy board may discuss cutting interest rates as much as a half-percentage point.

The bank cut rates for the first time in four years on Oct. 9, by 25 basis points, to 5 percent.

Federal Reserve policy makers, meeting this week, are forecast to lower interest rates for a second time this month.

South Korea's economy expanded at the slowest pace in four years last quarter, sparking concern the nation is headed for its first recession since requiring an International Monetary Fund bailout 10 years ago.

Global Crisis

``The global crisis has been brought home to Korea with a rapid deceleration in growth, and there's worse to come,'' Daniel Melser, a senior economist at Moody's Economy.com in Sydney said after the release of the gross domestic product figures on Oct. 24. ``The state of the economy demands a rapid easing in monetary policy from the Bank of Korea.''

South Korea's central bank said Oct. 24 it will inject 2 trillion won ($1.4 billion) into the financial system through repurchase-agreement operations.

The government last week pledged $130 billion to support lenders as the credit crunch saps local banks' access to foreign funds, and said they will spend as much as 8 trillion won to rescue builders struggling with unsold apartments.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net
Last Updated: October 26, 2008 11:00 EDT

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To: Paul Kern who wrote (194)10/26/2008 9:47:14 PM
From: Paul Kern
   of 214
 
Bank of Korea Cuts Key Rate a Record 75 Basis Points (Update1)

By William Sim and Seyoon Kim

Oct. 27 (Bloomberg) -- The Bank of Korea slashed interest rates by the most ever in an attempt to restore confidence after stocks lost a fifth of their value and the won fell to a decade low last week. Stocks rose.

Governor Lee Seong Tae lowered the seven-day repurchase rate by 75 basis points to 4.25 percent, the central bank said in a statement in Seoul today. The cut follows the first reduction in four years on Oct. 9. The meeting was still taking place at 9:55 a.m. in Seoul and a briefing will follow.

President Lee Myung Bak yesterday convened an emergency meeting of the nation's top economic policy makers, including Finance Minister Kang Man Soo and central bank Governor Lee, to discuss measures to combat financial market turmoil. The bank said today it would ease rules on foreign-currency lending to help local exporters.

``There isn't much President Lee's administration can do to shield the economy from external shocks, but their efforts will help the markets and the economy,'' said Oh Suktae, economist at Citibank Korea Inc. in Seoul.

Japan's government will compile a package of measures after stocks slumped last week, Finance Minister Shoichi Nakagawa said last night. The Nikkei 225 Stock Average fell today to the lowest since 1982 before rebounding.

Stocks Slump

``Emergency meetings by policy makers around the world reflect their fear and the severity of financial turmoil,'' said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. ``They are on the right track and this excessive volatility in markets should calm soon.''

South Korea's Kospi stock index rose 1.3 percent at 9:65 a.m. in Seoul. The index plummeted 20 percent last week. The won traded at 1,421.45 against the dollar from 1424 late Oct. 24. The won closed near the lowest level against the dollar in a decade on Oct. 24, extending this year's loss to 35 percent.

Under the new currency lending rules announced today, South Korea will allow exporters to borrow dollars to pay for the currency-related losses. Also small businesses, which borrowed mostly in Japanese yen, can extend their foreign-currency loans for another year. The won has plummeted 45 percent against the yen this year.

``The Bank of Korea seems determined to stop the market panic from the U.S. financial crisis spreading,'' said Chun Chong Woo, an economist at SC First Bank Korea Ltd. in Seoul.

President Lee returned this weekend from a Beijing meeting of Asian and European leaders at which they called for an overhaul of World War II-era banking rules. It was the first meeting of Asian and European Union chiefs since calls for coordinated action mounted amid bank failures and plunging stock prices that began in September.

Federal Reserve

Federal Reserve policy makers, meeting this week, are forecast to lower interest rates for a second time this month to try to thaw frozen credit markets and prevent a deepening recession.

South Korea last week pledged $130 billion to support lenders as the credit crunch saps local banks' access to foreign funds, and said they will spend as much as 8 trillion won to rescue builders struggling with unsold homes. The central bank said Oct. 24 it will inject 2 trillion won ($1.4 billion) into the financial system through repurchase-agreement operations.

Economy Cools

A report last week showed the $970 billion economy expanded 3.9 percent in the third quarter from last year, the slowest pace since 2005, and down from 4.8 percent growth in the second quarter.

``We have turned more cautious on the economic outlook on the ongoing turbulence in the global financial markets,'' said Kwon Goohoon, economist at Goldman Sachs Group Inc. in Seoul in a note.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net
Last Updated: October 26, 2008 20:57 EDT

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From: Julius Wong10/30/2008 6:55:01 AM
   of 214
 
South Korea Stocks Surge by Record on Fed Dollar Swap (Update3)
By William Sim and Saeromi Shin

Oct. 30 (Bloomberg) -- South Korea's stock index rose by a record and the won surged after the central bank signed a $30 billion currency swap with the Federal Reserve and President Lee Myung Bak said he's ready to take more steps to aid the economy.

The swap line is part of the Federal Reserve's efforts to alleviate a credit freeze in emerging nations, with the U.S. also providing dollars to Singapore, Brazil and Mexico. Korean lawmakers today approved the government's $100 billion guarantee of bank debts to help lenders struggling to access foreign funds.

Korea's currency jumped 14 percent, the most in a decade, as policy makers' actions allayed concern the nation was headed for a repeat of 1997, when it needed an International Monetary Fund bailout to help repay offshore debt. The Fed's dollar provisions are part of increased global endeavors to thaw money markets, with Hong Kong and Taiwan lowering interest rates today following cuts yesterday by the U.S. and China.

``This is the strongest measure so far,'' said Chang In Whan, chief executive officer of KTB Asset Management Co. in Seoul, which manages the equivalent of $4.3 billion in equities.

The Fed deal ``will create a buffer for Korea's foreign- currency supply and improve foreigners' confidence in the country,'' Chang said. ``It shows the Fed won't just sit back and watch overseas markets go down.''

Default protection costs on South Korean government debt fell by the most in more than four years. Five-year credit- default contracts on the country's external debt fell 130 basis points to 435, according to a Bloomberg survey of three dealers.

bloomberg.com

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From: Paul Kern11/6/2008 11:52:51 PM
   of 214
 
South Korea Cuts Rate to 4% to Stave off Recession Amid Turmoil

By William Sim

Nov. 7 (Bloomberg) -- The Bank of Korea lowered interest rates for the third time in four weeks and signaled it's ready to act again to prevent the economy from sinking into the first recession in a decade.

The bank reduced the key rate by 25 basis points to 4 percent, the lowest since 2006, adding to 100 basis points of cuts in October. Policy makers are focused on keeping ``the economy from weakening too much,'' Governor Lee Seong Tae said, adding he's prepared to ``take bigger actions if necessary.''

Lee has undertaken the most aggressive round of cuts since the bank began setting a policy rate a decade ago, striving to limit economic damage from the global credit crisis that has sent Korea's won down 32 percent this year and the stock index plunging 43 percent. India, Japan and Australia lowered rates in the past week as the financial turmoil that has pummeled the U.S. and Europe threatens to engulf Asia's export-dependent economies.

``The Bank of Korea is joining global efforts to prevent a recession and can't afford to be an outsider,'' said Park Sang Hyun, an economist at HI Investment & Securities Co. in Seoul.

The Bank of England slashed its benchmark rate by 1.5 percentage points yesterday and the European Central Bank lowered its rate by a half-point. The International Monetary Fund yesterday predicted economic contractions in the U.S., Japan and euro region next year, calling for further interest- rate cuts and fiscal stimulus.

Twelve of 16 analysts surveyed by Bloomberg expected Korea to cut borrowing costs today. Economists from Capital Economics Ltd. and SC First Bank Ltd. forecast the benchmark rate will be reduce to 2 percent by mid-2009 as the economy falters.

`Do What's Needed'

``The committee will do what's needed to ward off the risk of a severe slowdown in economic activity brought about mainly by financial-market unrest,'' the Bank of Korea said today, adding inflation pressures are moderating.

The Kospi stock index rose 0.2 percent to 1,094.11. The won was little changed at 1,330.8 per dollar at 12:39 p.m. in Seoul.

``The central bank probably will cut rates further because, like other countries, Korea is clearly under a lot of pressure going through this financial turmoil,'' said David Cohen, director of Asian forecasting at Action Economics in Singapore. That said, South Korea has been ``very aggressive'' in taking steps to aid its economy compared with Asian neighbors, he added.

South Korea has pumped funds into the banking system, guaranteed lenders' debts and secured an Oct. 30 agreement from the Federal Reserve to provide $30 billion in U.S. currency as the nation tackles its biggest crisis since needing an IMF bailout in 1997.

Liquidity Measures

The measures are aimed at easing the freeze in credit markets and a shortage of U.S. dollars that has stoked concern the nation's banks wouldn't be able to refinance their offshore borrowing.

Korea's won rebounded after the Fed swap deal was announced from the lowest level in 10 years and default protection costs on government debt fell by the most in more than four years.

``Concerns about foreign-currency liquidity seem to have mostly diminished and now is the time to take more close care of the real economy,'' President Lee Myung Bak said this week.

Finance Minister Kang Man Soo unveiled a 14 trillion won ($10.5 billion) package of extra spending and corporate tax breaks this week, adding to almost $20 billion in income-tax reductions announced in September.

South Korea's slowdown is deepening. Economic growth cooled to the weakest in four years last quarter as exports declined the most in almost seven years and consumer spending stagnated.

Exports Falter

Exports, the main engine of the economy's expansion, rose at the weakest pace in 13 months in October as shipments to China, South Korea's biggest market, fell for the first time since 2002. Retail sales gained by the least in nine months in September.

Hyundai Motor Co., South Korea's second-biggest exporter, on Oct. 23 slashed its global vehicle-sales forecast for the year. Posco, the region's biggest maker of stainless steel, said last month it will cut output by about a third this quarter to cope with slowing demand.

``The central bank probably didn't cut rates more than 25 basis points today because more reductions are on the way,'' said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. ``You don't want to use up all your bullets at once.''

Consumer prices rose 4.8 percent in October, the smallest gain in six months. Inflation peaked at 5.9 percent in July.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net

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From: Paul Kern1/1/2009 9:44:02 PM
   of 214
 
South Korea’s Exports Decline 17.4% in December (Update2)

By William Sim

Jan. 2 (Bloomberg) -- South Korea’s exports fell by more than 15 percent for a second straight month in December, adding to signs the economy is headed for its first recession since 1998.

Overseas shipments dropped 17.4 percent from a year earlier after tumbling 19 percent in November, which was the biggest decline since 2001, the Ministry of Knowledge Economy said today. The median estimate of nine economists surveyed by Bloomberg News was for a 16 percent drop.

Asia’s export-driven economies are slowing as demand for their products diminishes amid recessions in the U.S., Japan and Europe plus weakening growth in China. President Lee Myung Bak said today South Korea will run an “economy-emergency government” this year to fight the worst economic crisis since its 1997 $57 billion bailout by the International Monetary Fund.

“The economy is cooling much faster than expected as the global economic downturn takes a bigger toll on our exports,” said Chun Chong Woo, an economist at Standard Chartered First Bank Korea Ltd. in Seoul. “The government and the central bank will have to take more and stronger action to save the economy.”

Exports are expected to rise 1 percent and imports will likely fall 4.7 percent this year from 2008, resulting in a trade surplus of $11.9 billion, the ministry said. The government will “make its best efforts” to achieve its target of boosting exports by 6.5 percent in 2009, it said.

Interest Rates

Policy makers are pumping funds into South Korea’s financial system, boosting public spending, cutting taxes and slashing interest rates to cushion the economy from fallout from the global financial crisis. The Korean won fell 26 percent and the Kospi stock index dropped 41 percent in 2008.

The Korean won, the region’s worst performing currency last year, dropped 5.2 percent to 1,324.5 per dollar at 10:48 a.m. in Seoul. The Kospi stock index lost 0.4 percent to 1120.14.

South Korea’s economy is cooling fast as the deepening global recession takes a toll on demand at home and abroad. Factory output fell by the most on record in November and confidence among manufacturers tumbled to a record low. The jobless rate climbed to 3.3 percent in November, the highest since July 2007.

Trade Deficit

Exports rose 13.7 percent and imports surged 22 percent in 2008 from a year earlier, posting an annual trade shortfall of $13 billion. The nation has a trade surplus of $667 million in December as imports plunged 21.5 percent because of declining oil prices.

South Korea’s consumer prices rose 4.1 percent in December from a year earlier, the smallest increase in eight months, giving the central bank room to cut interest rates next week to revive the economy.

The Bank of Korea will focus its rate policy on reviving the flagging economy and stabilizing financial markets this year, Governor Lee Seong Tae said this week. The bank cut its key rate by 100 basis points to a record low of 3 percent on Dec. 11, extending the most aggressive round of easing since it began setting the policy rate in 1999.

Auto Sales

Hyundai Motor Co., Hynix Semiconductor Inc. and LG Display Co., South Korea’s largest exporters, have joined global rivals in cutting output amid sagging demand.

Hyundai Motor’s sales in the U.S., its biggest overseas market, dropped 40 percent in November. South Korea’s largest automaker said this month it will reduce factory operations and freeze wages for administration staff.

Hynix Semiconductor, the world’s second-biggest maker of memory chips, said this month it will eliminate 30 percent of its executives and cut labor costs by more than 15 percent.

LG Display, the world’s second-largest maker of liquid- crystal displays, this month lowered its profit forecast for the fourth quarter, citing a bigger-than-expected decline in panel prices amid the global recession.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.
Last Updated: January 1, 2009 21:00 EST

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From: Sam Citron1/21/2009 12:17:03 PM
   of 214
 
Behind Korea's Bearish Call on Treasurys [seeking alpha]
by: Elliot Eisenberg January 21, 2009
seekingalpha.com

Much was said this week when a Korean pension official made a bearish call on US Treasury bonds.

The Wall Street Journal highlighted the comment on January 19 when it reported:

SEOUL -- An investment manager at South Korea's national pension fund said Monday it might sell U.S. Treasurys because of the prospect that they will become less profitable and stoke inflation.

There was undoubtedly some effect as the story moved along Dow Jones wires. It might even be the correct call by Korea's pension official. It is important to note, however, that this was not the first time Korean pension managers had spoken out against Treasurys.

In March, Korea's pension system announced it would no longer buy American Treasurys. The FT reported,

"It is difficult to buy more US Treasuries because the portion of our Treasury investment is already too big and Treasury yields have fallen a lot," said Kwag Dae-hwan, head of global investments at the NPS. "We need to diversify our portfolio away from US Treasuries and we find asset-backed securities and corporate debt more attractive because of wider credit spreads."

While we are negative on the prospects for long-dated Treasury bonds, and long the TBT shares, it is important not to misunderstand Korea's mistake. To the extent that the $220 billion fund bought asset backed notes rather than dollar governments, it was horribly wrong.

To the extent that it was converting US dollars into local, Korean currencies, it was even more wrong. In March, 2008, it took an average 981.7 won to purchase a dollar. It now takes 1,445 won to do so. Historic exchange rate data is here.

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From: Sam Citron2/6/2009 9:09:35 AM
   of 214
 
Hyundai, Using a Safety Net, Wins Market Share [NYT]
nytimes.com
By NICK BUNKLEY

TWENTY-THREE years after it started selling cars in the United States, and in the midst of an industrywide slump that has pushed some competitors to the brink of bankruptcy, the Korean automaker Hyundai spent $3 million to tell Americans watching the Super Bowl how to say its name correctly.

“It’s ‘HUN-day,’ like Sunday,” said one of its two ads during the game.

Few carmakers have the luxury to be concerned about pronunciation these days. New-vehicle sales fell 37 percent last month, the industry’s worst January since 1963.

Then again, more car shoppers are saying Hyundai’s name. The company’s market share nearly doubled last month as sales rose 14 percent, the largest year-over-year increase that any big automaker has posted in the United States since last May.

One reason for the jump in January, after a dismal December, appears to be Hyundai’s new marketing strategy of promising to let buyers return their vehicles, at no cost in most cases and with no penalty to their credit rating, if they lose their job or income within a year.

“To their credit, they struck at the core of what’s bothering people, and that’s obviously uncertainty,” said Jeremy Anwyl, the chief executive of Edmunds.com, a Web site that gives car-buying advice to consumers. “It’s just the fear and the uncertainty that’s holding people back.”

Mr. Anwyl said the program, called Hyundai Assurance, would probably lead to similar deals from some rivals after they see that Hyundai’s offer is resonating with consumers.

“It gives them a whole new audience — people for whom it would have never popped up on their shopping list,” he said.

Sales of the Hyundai Sonata, a full-size sedan that costs less than $20,000, surged 85 percent in January, making it one of the country’s top-selling vehicles. And Hyundai sold more passenger cars last month than Chrysler, which has four times as many dealers.

“Hyundai is the right franchise for the times right now,” said Rick Case, who in February 1986 opened the first two Hyundai dealerships in the country and now owns six Hyundai stores, in Florida, Georgia and Ohio. “With this economy, a lot of people don’t want to be seen in Mercedeses and BMWs and Lexuses.”

While 2009 has started well for Hyundai, the final months of 2008 were rather turbulent. The company named its fifth American chief executive in five years. And from September to December, sales at Hyundai and its Kia subsidiary plunged 37 percent, more than any other mass-market automaker except Chrysler.

The company lost many potential buyers when most banks stopped approving loans for customers with subprime credit.

“It really wasn’t something that we had faced before, and I don’t want to live through another fourth quarter like that again,” said David L. Zuchowski, Hyundai’s vice president for sales.

Last fall Hyundai began testing the idea of a return policy rather than simply piling more discounts onto its already low-price vehicles. The program covers every buyer of a leased or financed vehicle who involuntarily loses a job; becomes physically disabled; loses a driver’s license for medical reasons; is transferred to another country; is self-employed and files for bankruptcy; or dies in an accident.

The guarantee covers the difference between the value of the car and the amount the buyer owes, or negative equity, up to a maximum of $7,500.

“It doesn’t matter how many zillion dollars you put in rebates, or what A.P.R. you give them,” Mr. Zuchowski said. “If people are worried about their job, they don’t really care and they’re just not going to get off the fence. But we had to walk a really fine line. We wanted to make sure we didn’t come off as panicked or distressed.”

Mr. Zuchowski declined to reveal the cost of the program but said it was negligible, especially weighed against the expected increase in sales.

In mid-January, Hyundai had another boost when its first luxury sedan, the Genesis, which costs $15,000 to $20,000 less than many competing models, was named North American car of the year at the Detroit auto show.

Mr. Zuchowski said Hyundai can benefit from merely putting itself in front of American consumers, hence the Super Bowl ads and its sponsorship of the Academy Awards this month — after General Motors backed out.

The company has 7 percent of the market in the United States, where it has one plant, but last year it became the world’s fifth-largest automaker, ahead of Honda, Nissan and Chrysler.

“A lot of people still think we’re this little import that builds cars in corrugated tin shacks in South Korea,” Mr. Zuchowski said.

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From: Sam Citron3/3/2009 6:42:37 PM
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Koreans Take Pay Cuts to Stop Layoffs [WSJ]
By EVAN RAMSTAD

ANSAN, South Korea -- Shinchang Electrics Co. offered union leaders a proposal that would reduce wages at the auto-parts company by 20% in exchange for no layoffs among its 810 workers this year. Eight days later, the union agreed.

The deal is one sign of the unusual way South Korea is grappling with the global economic crisis. Across the country, executives, salaried employees and hourly workers at companies from banks to shipbuilders are joining to slash wages and other costs with the goal of avoiding layoffs.

" We have to go through this together. We are colleagues and friends," says Shim Ho-yong, a seven-year employee who molds ignition components for Shinchang. "If one disappears, it's awkward and uncomfortable."

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Leaders of major industry groups, unions, civic organizations and the government hold hands after having struck a 'grand bargain for social unity' to preserve jobs in exchange for wage freezes or cuts.
Yonhap

The global recession has been marked by a steady onslaught of layoff announcements around the world. Even in Japan, once the home of lifetime employment, big-name firms like Sony Corp. and Toyota Motor Corp. have eliminated tens of thousands of jobs in recent weeks.

In South Korea, job preservation is the government's biggest goal in shaping its response to the onset of recession, President Lee Myung-bak declared in January. Last week, leaders of major industry groups, unions, civic groups and government ministries struck a "grand bargain for social unity." Under the plan, which isn't legally binding, employers won't fire workers, unions will accept wage freezes or cuts, and the government will provide tax breaks to companies that preserve jobs.

The handshake deal raises the question of whether South Korea can survive the global recession while hanging on to traditional views about work, which include a deep aversion to layoffs. The country accomplished one of the great economic miracles of the 20th century with government-led development that embraced centuries-old notions of putting community ahead of individual achievement.


Until the 1997-98 Asian financial crisis, laying off workers was illegal, in large part to preserve that deep sense of community. And even during that crisis, which South Korea weathered better than most countries, layoffs only happened when companies collapsed -- not when they were trying to save costs, as is happening in much of the world today.
[Shim Ho-yong]

Shim Ho-yong

Some other countries and companies are also attempting to stave off massive job cuts by asking workers to scale back hours, take pay cuts or schedule time off without pay. Last week, Ford Motor Co. Chairman Bill Ford and Chief Executive Alan Mulally agreed to take 30% cuts in salary for two years to help win union support for capping wages. In Canada, a United Steelworkers union of nearly 600 salaried employees agreed in January to a four-day work week to avoid layoffs.

However, no place seems to be making such a coordinated national push as South Korea. It's too soon to tell precisely what the country's no-layoff drive will produce, whether a viable means to cope with recession or a mere delay of painful job cuts.

Economic indicators -- led by a sharp drop in exports, which account for nearly two-thirds of the country's gross domestic product -- show that South Korea is on the verge of its worst downturn since the country industrialized in the 1960s. Today's global recession is likely to hit South Korea harder and longer than the Asian financial crisis did largely because of the disintegration in the exports market. Companies' survival may ultimately hinge on the ability to cut jobs.

"If exports continue to fall, companies will either have to take a loss or they will have to make a hard decision," says David Eldon, a former chairman of HSBC Holdings PLC, who served on an economic advisory committee to South Korea's president for the past year.

For now, companies across a range of industries are holding firm. In the southern city of Gwangyang, steel maker Posco is wrestling with a problem never faced in the company's 41-year history: how to reduce production as world-wide demand slows. So far, the company hasn't cut any jobs.

South Korea's unemployment rate hit 3.6% in January, compared with 7.6% in the U.S. and 4.1% in Japan. Job growth turned negative only in December.

Many developing countries still study South Korea because of the way it embraced global trade and built local firms into world-class competitors in industries such as electronics, cars and steel. Last week, Iraqi President Jalal Talabani spent four days in South Korea visiting factories and learning about its rapid economic development.


"In a way, for the brighter future of the global economy, South Korea has to be successful in getting through this crisis," says Jun Kwang-woo, who just finished a yearlong stint as the country's chief financial regulator. "If we are, other countries will follow our footsteps. Otherwise, they will be cautious about globalization."

'Lifetime Employment'

A major factor behind the push to save jobs is avoiding the acrimony and violence that occurred when South Korean companies attempted layoffs in the 1997-98 crisis. At that time, the International Monetary Fund and others loaned South Korea about $60 billion. The loans required the country open its stock market and banks to foreign investors, lift constraints on currency trading and reduce corporate debts.

It also forced South Korea to change the layoff law to allow healthy companies -- or more importantly, the foreign investors who would take over poorly performing Korean companies -- to restructure as they saw fit.

"The concept of lifetime employment vanished and it was shocking
," says Kim Kyeong-won of Samsung Economic Research Institute in Seoul.

The government passed a law in February 1998 that let companies impose layoffs at will. But because of union pressures, no South Korean company attempted to do so until July of that year, when Hyundai Motor Co. announced it would fire 1,600 of its 36,000 workers. In response, the company's union shut down and occupied its main factory for a month. The strike ended when Hyundai agreed to lay off only 277 workers, most from its cafeteria service.

Overall, nearly one million people lost their jobs during that crisis, largely a result of major conglomerates closing and weak subsidiaries merging. When South Korea started to recover, companies compensated for union resistance to job cuts by hiring people in lower numbers than before. It took two years for employment to climb back to its pre-crisis level.

In the third and fourth quarters of last year, job growth trailed the nation's GDP growth, as it did for portions of the past few years. As a result, South Korean companies have some room now to hold off on job cuts. "They didn't go through a boom in employment so they're more covered on the way down," says Fred Neumann, economist at HSBC in Hong Kong.

Most of the hiring that did occur happened in temporary jobs, where workers by law can only stay at a company for two years and are provided few benefits. In a 2006 report, the IMF expressed its dissatisfaction with the country's rigid labor market, saying the inability of management to cut jobs and the related rise of the use of temporary workers had worsened income inequality in the country.

The current economic crisis hit South Korea later than other countries because its banks had little exposure to distressed property investments in the U.S. But South Korea was slapped hard when the banking crisis turned into an economic one, leading to job losses and lower consumer spending in the U.S. and Europe.

Demand for the electronics, steel, cars and other products South Korea sells to those places fell sharply, sending its fourth-quarter gross domestic product down at an annualized rate of 21%, the biggest drop of any developed country -- and more than three times the U.S. rate of 6.2%.

South Korea didn't face a drop in exports during its two previous recessions, which meant it could recover relatively quickly. Today, exports account for about two-thirds of South Korea's near-$1 trillion GDP, up from about one-third in 1998. And the shock of a rapid drop in shipments -- down 17% in February from the previous February after a decline of 32.8% in January -- is rippling through the country's manufacturing base. The country's weakened currency has provided some cushion to corporate profits, since it means that money earned abroad is worth more when converted to the Korean won.

An entrenched cultural force is also at the heart of the push to avoid layoffs at all costs. Like many Asian societies, South Korea's is more communal than individualistic. The loss of a job can be deeply humiliating and also mean the loss of a kind of second home. All but the smallest employers offer benefits such as education and weekend getaways.

Shinchang Electrics, the auto-parts maker, provides meals, education subsidies, and sports and activity clubs for workers. While it idled production for a week in February, some workers showed up just to get out of their house and socialize.

Shinchang's management began preparing for the downturn last September, when executives estimated that declining auto sales would push its 2009 revenue down about 23% to around $132 million. By December, the company identified a way to cut 10 billion won ($6.5 million) in costs, with about half that coming from cuts in pay.

Company Chairman Sohn Byung-whuy and Chief Executive Lee Chul-hwan each offered to take a 40% reduction in pay. Other executives followed with a 30% cut, and office and union workers agreed to 20%.
[Park Jong-nam]

Park Jong-nam
Sharing the Cuts

In the 1998 recession, Shinchang and its union agreed to a similar pay cut. A year later, as the country started to recover, the company boosted pay for workers above their pre-recession salaries by 20% for the next two years before returning to its normal wage agreement.

Nothing in the latest agreement specifies that Shinchang will boost wages above current levels after the economy recovers, but Park Jong-nam, the company's personnel manager, says it is likely. And Mr. Shim, who molds ignition components, says, "They didn't say they would reward this, but we trust them."

In January, the Federation of Korean Trade Unions, the second-largest umbrella group of unions, and the Korean Employers Federation, a group representing midsize companies, proposed the building of a national consensus on layoffs and wage cuts. A series of meetings followed that produced the broad agreement last week.

"We find it's getting more serious than the [1997-98] period," said Kang Choong-ho, a spokesman for the Federation of Korean Trade Unions. "This time we thought we must keep jobs and yield what we can, sharing the pain."

But the endgame in South Korea may turn out to be more painful. At a news conference early last month, LG Electronics Co. CEO Nam Yong said he's watching the cost savings that the firm's Japanese rivals are achieving by cutting jobs, and he will try to match them. "There are no reasons to lay off staff for now," Mr. Nam said. Down the line, he added, "It's difficult to give a clear answer."

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