JPMorgan, SocGen earn W7.7 bil. from DLF fiasco

22-Oct-2019 Intellasia | KoreaTimes | 6:02 AM Print This Post

J.P. Morgan and Societe generale (SocGen) were found to have enjoyed a combined commission income of 7.77 billion won ($6.6 million) from their sales of derivatives-linked funds (DLFs) which caused major investor losses here, according to a lawmaker, Monday.

Financial Supervisory Service (FSS) data given to Rep. Je Youn-kyung of the ruling Democratic Party of Korea showed the US and French investment banks made 1.74 billion won and 2.28 billion won, respectively, in commissions on Woori Bank’s sales of DLFs tied to German Treasury bond yields.

SocGen gained an additional 3.68 billion won in commissions on KEB Hana Bank’s sales of DLFs tied to the constant maturity swap rates of the US dollar and the UK pound.

Considering the earnings of domestic brokerages and asset management firms, the amount of commission on sales of DLFs reaches 9.2 billion won, according to the lawmaker.

As for local brokerages, IBK Securities, NH Investment & Securities and Hana Financial Investment earned 283 million won, 354 million won and 335 million won, respectively.

The nation’s 10 asset management companies, including HDC Asset Management, Ryukyung PSG Asset Management and Meritz Asset Management, collectively made a 551 million won profit for managing the funds.

The lawmaker pointed out the financial services companies did not bear any risks in the process.

According to the lawmaker, the foreign investment banks proposed DLFs, and brokerages sold the products after discussing their maturities and rates of return with Korean banks.

Local brokerages signed contracts with the foreign investment banks to avoid risks, and the foreign investment banks hedged with futures markets overseas, the lawmaker said.

“Every financial services company involved in the DLFs fiasco avoided risks, so they were able to make profits regardless of the movement of the Treasury bond yields,” Rep. Je said. “Given that individual investors with little financial knowledge bore the entire risks and financial firms avoided the entire risks, DLFs were fraudulent products.”

She urged the financial authorities and companies to consider fundamental reform of the whole sales procedure for products with risks of losing principal.

In response to the criticism, FSS Governor Yoon Suk-heun said in a National Assembly audit Monday that financial companies were responsible for the DLFs fiasco, likening the sales of derivative products to gambling.


Category: Korea

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