Shinhwa Bank, one of Korea's top five financial institutions, had assets exceeding 200 trillion won. It was, in many ways, a financial kingdom.
The second-in-command of that kingdom, Deputy CEO Jeong Taesub, wielded enormous influence not just within Shinhwa Bank but across the entire Korean financial market. He was now meeting with Han Jeonghun, CEO of Taewoo Securities.
"It's a pleasure to see you again. I am now representing Taewoo Securities as CEO," Han said.
"Haha, I never thought Taewoo Securities would bring someone from Wall Street into a CEO position. And yet, here you are, still doing business with small and medium enterprises?"
A blatant sneer.
Deputy CEO Jeong spoke as if belittling Han, who had been going around selling KIKO-related insurance products. Despite Han now holding the title of CEO, Jeong made it clear where he believed the real hierarchy lay.
"I continue to maintain good business relationships with SMEs," Han replied calmly.
"Did you come today to introduce another promising business? If it comes recommended by the CEO of Taewoo Securities, I'd be happy to hear it," Jeong added, treating Han like a door-to-door salesman.
Han could have been irked, but he smiled and continued speaking.
"I'm not here to recommend a new venture. I want to discuss a project we've already been working on. Do you remember the KIKO products? I've heard that with the recent surge in exchange rates, the returns on KIKO aren't looking good."
"They did spike with the Lehman crisis, yes. But I consider that temporary. Once the situation calms down, won't the exchange rate drop again?"
Han raised the corner of his mouth slightly.
The second-in-command of Shinhwa Bank had such a lax mindset. Predicting that the exchange rate would fall once the Lehman crisis settled? Not only was his mindset loose, but his ability to read market trends seemed cloudy.
"Analysts on Wall Street estimate the exchange rate could rise to 1,400 won. If that happens, SME owners who subscribed to KIKO could face losses in the trillions."
"Could that really happen? Even if it did, it was their personal choice. There's nothing the bank can do about it."
"Shinhwa Bank has already done its part. Haven't you launched KIKO-related insurance products and signed numerous contracts to help SME owners?"
Deputy CEO Jeong Taesub widened his eyes and fell into thought.
He remembered selling the KIKO insurance products. After all, they had brought in decent profits just last month—how could he not remember?
Yet he had never once considered that the conditions of the KIKO insurance might actually be met, requiring the company to pay out claims.
"We did launch the KIKO products for SMEs, yes. But why are you bringing this up now?"
"I wanted to point out that SME owners are likely to come requesting payouts before the end of this year. If you're going to pay out five trillion won in cash, wouldn't you need to start preparing now?"
"······Wait a moment. I'll need to discuss this with the relevant staff. It shouldn't take long."
Deputy CEO Jeong was quite impolite. He left the room, leaving Han alone.
Yet despite this rudeness, Han seemed amused, crossing his legs and whistling softly.
Meanwhile, Deputy CEO Jeong went to find the staff in charge.
The person overseeing the KIKO business as a whole was Assistant Manager Yang Seongsu.
Being a junior from the same school, Jeong had invested considerable effort in nurturing him as a potential future executive.
"Assistant Manager Yang! What are the chances that the conditions for the KIKO insurance will actually be met?"
"Sir, what are you saying all of a sudden? For the KIKO conditions to be satisfied, the exchange rate would need to hit 1,400 won. I understand you're worried since the rate has been rising recently, but it's only at 1,000 won now. It would need to go up another 40%. Even in a severe economic crisis, it would barely reach 1,200 won."
"Phew, that's what I thought. There's no way the rate will hit 1,400, right?"
"Sir, why are you worrying like this? The exchange rate isn't like a penny stock; it can't just jump 40% at once."
Deputy CEO Jeong exhaled in relief.
Hearing the confident voice of his favored junior, all traces of anxiety melted away.
"A strange person came by, saying the exchange rate could hit 1,400 won, so I got worried and came to find you."
"Don't worry. The dollar has been weakening steadily. That means the won is strengthening. The rate did rise briefly, but if the dollar's weakness continues, we can expect the exchange rate to fall back to the 900-won range."
Assistant Manager Yang spoke loudly to reassure Deputy CEO Jeong.
Because of this, other employees in the office couldn't help but overhear their conversation.
Among them was Section Chief Park Daehun, who had remained stuck in a mid-level position for years, overshadowed by Yang.
"Excuse me for interrupting, but you shouldn't equate a weak dollar directly with a strong won. And judging by current market conditions, it wouldn't be unusual for the rate to rise even further."
"Section Chief Park! How dare you speak so recklessly! Even considering you my junior has limits," Yang snapped.
But Park didn't stop. Instead, he spoke faster and louder.
"The dollar shortage is beginning to show signs. Exporters in Korea aren't releasing dollars; rather, they're buying more. Meanwhile, overseas equity funds have been cut in half, resulting in huge dollar losses. This shortage could drive the exchange rate sharply upward."
"Quiet! Keep such thoughts to yourself!" Yang shouted, trying to silence Park.
His voice was so loud that Taewoo Securities' President Han Jung-hun, waiting in the reception room, came out to see what was happening.
"In the worst-case scenario, the exchange rate could reach 1,500 won this year. If that happens, we'd have to pay out over five trillion won in KIKO insurance claims."
"Park, right? In your opinion, how likely is it that the rate will reach 1,400 won?"
"The probability of hitting 1,500 won is about 20%, but the chance of reaching 1,400 won is over 70%."
President Han fixed Park with a sharp gaze.
Here was someone who understood the flow of the exchange rate more accurately than anyone else in the room.
And yet he was just a section chief? Must be that his political skills didn't match his talent, keeping him from promotion. I should tell HR to make a scout offer.
While Han was thinking this, Deputy CEO Jeong's anxiety surged again.
"The probability of the exchange rate hitting 1,400 won is over 70%? When do you expect that to happen?"
"Could be as soon as next month, and even in the latest case, by November at the latest."
"Next month?"
"Sir! You don't need to believe Section Chief Park. He's the worst-performing employee in our department."
Park couldn't have been performing well.
The projects with real potential were monopolized by Assistant Manager Yang and his team, while Park had been handed only the ones bound to fail.
"Very well. Everyone, get back to work."
Deputy CEO Jeong turned and left.
President Han also turned and went back into the reception room.
He sat on the sofa, lacing his fingers together as if nothing had happened, just as Deputy CEO Jeong returned.
"Sorry for the delay."
"No problem. But it sounded noisy out there. Was something happening?"
"Hmph, nothing of importance. What exactly is your relationship with the small business owners who purchased the KIKO insurance?"
"I'm their agent. Also, 60% of the insurance shares belong to me."
Deputy CEO Jeong thought carefully.
Sixty percent of the shares meant Han's portion alone accounted for three trillion won.
Even for a bank with over 200 trillion won in assets, a three-trillion-won loss was no small matter.
The company might survive, but his own neck was certainly on the line.
"From what I've heard from the people in charge, the likelihood of the exchange rate reaching 1,400 won isn't that high. But to protect the small business owners who are being affected by recent fluctuations, I plan to refund all premiums paid if they cancel their KIKO insurance now."
"So you're saying you'll return the premiums, not pay out the insurance itself."
Han muttered a curse under his breath.
There was no other way to describe this man—he wasn't just ruthless; he was audacious.
Someone trying to settle a potential five-trillion-won insurance payout for less than a tenth of that? Only a brazen thief could pull something like that.
"That won't be possible."
"The discussion isn't over yet. In addition to refunding all premiums, we'll provide five hundred billion won as compensation upon cancellation. This fund is for the development of small businesses, managed by Shinhwa Bank."
"It seems you're not ready to discuss this right now. I'll return next month to continue the conversation."
Without another word, Han rose and left.
Deputy CEO Jeong Tae-seop didn't stop him, still unable to fully grasp that the exchange rate could exceed 1,400 won.
It was a critical mistake—and one he would regret for the rest of his life.
***
A few days later.
Han visited the chairman's office.
"Chairman, I've been to all the financial institutions. Every single one of them is certain the exchange rate will never reach 1,400 won."
"That's because they haven't personally felt the scale of the Lehman crisis. We've experienced the situation firsthand on Wall Street, so we know better."
"Ah! And there's some new information. Nomura Securities of Japan is planning to purchase a large portion of Lehman Brothers' assets following its bankruptcy."
Nomura Securities was a globally recognized financial firm, not just in Japan.
With its enormous capital, it wasn't surprising that they would buy parts of Lehman Brothers' assets.
"Nomura's financial strength is well known. It's entirely feasible."
"They're acquiring the entire Asian division of Lehman Brothers, and even the European division."
"Even the European division? They must be spending an enormous amount."
"It seems they decided to make aggressive investments after seeing our acquisition of AIZ. Shouldn't we counter them?"
"There's no need to counter. Just watch as the little bird tears itself apart."
This marked the beginning of the worst ten years for Nomura Securities.
By taking over Lehman Brothers' Asian and European divisions, they would incur annual deficits amounting to trillions of won.
"And we also received a message. They expressed interest in purchasing some of the derivative insurance we hold to aid in the Lehman acquisition."
"Sell it at a reasonable price."
"Is that alright? If we hand over our insurance to Nomura, they'll be able to acquire even more divisions."
"That's exactly what we want. The more divisions they acquire, the bigger their losses. Transfer the remaining certificates to them after giving some to the Korea Development Bank."
There was no ill will toward Nomura Securities.
They were buying the insurance we held with Lehman Brothers, which was of little real use, so selling it was a straightforward matter.