But the bid has left a power vacuum at Kookmin Bank listed on the New York Stock Exchange and raised investor fear of government interference in the financial sector, which has led to tumbling stock prices.
The country's chief economic policymaker denied any retaliatory measures on Kookmin's CEO Kim Jung-tae again on early Wednesday, but the market remained sluggish.
Its shares fell as much as 3.45 percent to 37,750 won in Wednesday trading, underperforming the broader market which was down 0.79 percent, as investors unloaded a large stake. The selling spree was led by foreign investors who hold a combined 78 percent of stake at the bank, such as ING Group, Capital Group, J.P. Morgan, Morgan Stanley, UBS and Goldman Sachs.
Analysts say the tumbling share price was mainly attributable to looming uncertainty in the bank's leadership and a risk from government meddling in choosing a successor.
"Kookmin's shares remain unstable as uncertainty is lingering over who will be next leader of the bank," said Yu Jae-sung, an analyst at Samsung Securities. "Doubts are also looming large over whether Kookmin can maintain its status as South Korea's top lender," he said.
Kim, bowing to government pressure, announced on Monday that he would step down next month when his stint at the bank's helm expires, following an accounting scandal.
He also said he would not file for a court injunction to prevent the Financial Supervisory Commission (FSC) issuance of a disciplinary action against him for alleged accounting irregularities from going into effect.
Kim was accused of engineering the accounting irregularities involving 550 billion won ($480 million). In August, Kookmin was found to have overstated the losses of Kookmin Card Co., a troubled credit card subsidiary, to evade taxes and inflate income.
The financial watchdog issued a "disciplinary warning" to Kim last Friday, a stern measure that bars him on from seeking a second spell in charge or from holding an executive post at any local bank for three years. Two other Kookmin vice presidents were also reprimanded.
It is first time for an incumbent bank president to be given such a harsh punishment by the financial authorities. The punishment follows a decision by the Securities and Futures Commission (SFC) to fine Kookmin Bank two billion won ($1.7 million) for accounting irregularities last month.
Regulators said Kookmin had breached the rules by manipulating its accounts in order to reduce its tax burden and it signaled a high level of negligence by the bank chief.
But the bank denies any wrongdoing, defending its actions as part of efforts to deal with high levels of credit card debt. Kookmin, which consolidated its loss-making credit card affiliate Kookmin Credit Card in September 2003.
The punishment was widely considered here as retaliation for Kim's uncooperative attitude toward the government's handling of troubled companies and financial institutions, raising concern over possible government interference in the financial sector.
Many analysts say the accounting irregularities did not warrant such a harsh reprimand. Netherlands-based ING Group, Kookmin's single largest shareholder with a 4.05 percent stake, protested the punishment by filing complaints with the SFC.
Jang Ha-sung, a finance professor at Seoul's Korea University, said the measure highlights the government's attempt to take firmer grip on the bank. "The market has responded negatively to Kim's exit, showing doubts about government's intention behind the punishment," said Jang, who leads the People's Solidarity for Participatory Democracy, the nation's largest shareholder-rights group.
Kim Tae-dong, a member of the monetary policy committee, the central Bank of Korea's policy-setting body, also said the punishment is the result of the government's aggressive intervention in the financial market.
The 57-year-old Kookmin chief has been popular with foreign investors and often dubbed as "a spokesman for market economy," but has often sparred with the government over his reluctance to bail out struggling firms.
Kim was at odds with the government over joining a $4.5 billion bailout plan for troubled credit card firm, LG Card Co. Ltd. early this year. He was also reluctant to help debt-laden SK Global stay afloat. In 2001, Kim refused to join a state-run bank in a government-led bailout of Hynix Semiconductor Inc, the world's No. 2 maker of computer chips. Kim also knocked heads with the government over interest rates.
To dismiss allegations, Minister of Finance and Economy Lee Hun-jai, who is also deputy prime minister, denied any retaliation on Kim. "There were accounting irregularities and the government cited them in issuing the reprimand," Lee said.
Kim Dae-pyong, a senior financial regulator said its was "necessary to discipline Kookmin's executives given its weak points in asset soundness, profitability, capital adequacy and management."
Lee and regulators said that the government will not interfere in the selection of Kookmin's next president. "There is no clearly emerged leader within the bank to succeed Kim," a bank official said.
Analysts say the Kookmin dispute tests government commitments not to interfere in bank management. The government seems to favor someone friendly with it because it wants to exert stronger influence on Kookmin which has huge impact on economic activity in the country.
But foreign investors have vowed to veto any candidate supported by the government to express their displeasure and protest the unseating of Kim. In theory, if foreign shareholders join forces, they can install a foreign CEO at the South Korean tip lender.
"The dispute over Kookmin's next CEO could be a litmus test of whether the government will stop its old practices of intervention," said Jang of Korea University. Kookmin is scheduled to hold a special shareholders meeting on Oct. 29 after it selects a candidate to be the next president by Oct. 14.
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