March 27, 2003.
In the chairman's office at Bluehole Venture Investment's headquarters, located in the 63 Building in Yeouido, Seok-won sat in the central seat of honor on the sofa, while President Yoon Gi-hoon, Bluehole Securities President Cha Sang-woo, and WB Bank President Ko Young-il sat facing each other on either side.
"The large-scale redemption crisis in MMFs triggered by the ST Group's accounting fraud scandal is setting off a domino effect—leading to a sharp rise in interest rates and paralysis in the bond market, with the shock spreading across the entire financial sector, including banks, securities firms, and even credit card companies."
Looking at President Ko Young-il, who wore a distinctly grave expression, Seok-won leaned back into the plush sofa and responded,
"Since ST Global, the company at the center of the issue, has come under joint creditor management through the Corporate Restructuring Promotion Act, the returns of bond-type funds—including MMFs that hold ST Global bonds—have dropped significantly. It's only natural that redemption requests would increase."
Bluehole Securities President Cha Sang-woo interjected in a firm voice.
"That's correct. Once the Corporate Restructuring Promotion Act is applied, bonds or commercial paper issued by ST Global would inevitably have to be written down by more than 50%. If ST Global bonds are included in MMFs or bond-type funds, their assets would effectively be cut in half, so from an investor's perspective, they'll rush to withdraw their money before the law takes effect."
"Not only would fund returns be reduced, but there's also the possibility of losing even the principal, so it's only natural they'd feel even more anxious."
As Seok-won gave a slight nod, President Cha Sang-woo continued,
"Fortunately, thanks to your foresight, Chairman, we did not handle ST Group bonds, including those of ST Global. We were also able to avoid losses by liquidating all previously held positions before the incident broke out."
As the bond market plunged into panic, interest rates surged, and a wave of massive redemptions hit MMFs and bond-type funds, financial institutions—including investment trust companies—were forced to dump even healthy bonds onto the market at fire-sale prices just to secure the cash needed to repay investors.
As a result, the sudden flood of supply drove bond prices down further, amplifying investors' fears and leading to even more redemption requests—trapping the market in a vicious cycle.
"The truly serious issue is that the heightened credit risk triggered by the ST Group crisis is now spreading to credit card bonds, which had long been regarded as a ticking time bomb in the bond market."
Seok-won said this with his arms crossed.
"If interest rates surge and the prices of credit card bonds plummet, the returns on MMFs and bond-type funds will deteriorate as well—so investors' fears will grow, and redemption demands will increase even further."
At that, President Yoon Gi-hoon, who was seated to the left, spoke up with a deeply concerned expression.
"Several investment trust companies and securities firms have already begun suspending redemptions or placing limits on the amount that can be withdrawn per day."
After hearing this, Seok-won spoke in a low, subdued voice, almost as if he were stating the obvious.
"Then even investors who had remained calm will panic, fearing they might not be able to withdraw their money."
"That's not the only problem. As credit card bond yields soar and the bond market falls into turmoil, there's no longer anywhere to absorb those bonds—making it increasingly difficult for credit card companies to secure funding."
Seok-won picked up the teacup in front of him, took a sip of coffee, then set it back down before speaking.
"The structure is to raise funds in the market by issuing corporate bonds or ABS, and then generate profits by charging interest to card users. But if that flow gets blocked midway, it could even lead to a situation where companies default despite being profitable."
At that, President Ko Young-il spoke with a worried expression.
"With the MMF redemption crisis triggered by the ST Group and growing concerns over credit card bond insolvency overlapping, the entire financial sector is facing difficulties."
Indeed, after the ST Group's accounting fraud scandal broke, nearly all financial stocks—across banks, securities firms, and investment trust companies alike—were hit by the fallout and plunged sharply.
Although ST Group stocks rebounded across the board when Sovereign launched a hostile M&A and the management control dispute erupted, financial stocks were still scraping the bottom.
To make matters worse, rising concerns over credit card bonds were dragging financial stocks even deeper into the mire.
'Since most financial institutions have heavily invested in bonds as safe assets, the impact is bound to be even greater.'
In particular, credit card bonds had been highly favored by financial institutions because they offered higher interest rates than government bonds or other corporate bonds, along with strong liquidity.
"How large is the total volume of credit card bonds currently circulating in the market?"
At Seok-won's question, President Ko Young-il responded immediately.
"As of last month, corporate bonds stand at 29.2 trillion won, while CP and ABS are estimated at 20.9 trillion and 35.4 trillion won, respectively."
At that, President Cha Sang-woo, who was seated beside Ko Young-il, added,
"On top of that, credit card companies have approximately 4.2 trillion won in additional individual borrowings."
"Then, roughly speaking, the total debt related to credit card companies is approaching 90 trillion won."
"That's correct."
At the staggering figure, the air in the room grew heavy.
Seok-won uncrossed his arms and interlaced his fingers as he spoke.
"Although the government has decided to mobilize the National Pension Fund to purchase credit card bonds, if they only select high-grade one-year bonds and buy them at an annual interest rate of 10%, it will be difficult to relieve the pressure in the market."
President Ko Young-il nodded in agreement.
"As you said, the conditions are too unfavorable, so hardly any transactions are taking place."
Seok-won showed no surprise.
"If they sell the credit card bonds they hold under those conditions, they'd have to take losses well exceeding an average of 4%, so of course that's what would happen."
President Cha Sang-woo also spoke with a dark expression.
"With credit card delinquencies rising sharply, all card companies have turned unprofitable. And with the government measures falling short of expectations, card company stocks have been plunging day after day. Among them, the leading stock, TG Card, dropped as much as 4.34% in just one day yesterday, and the situation is no different for the other card companies."
Swallowing a sigh, President Cha Sang-woo shook his head.
"The government is pushing for additional capital increases from major shareholders to prevent insolvency among credit card companies, but that alone won't be enough to stabilize the situation."
Seok-won turned his gaze to President Ko Young-il and asked,
"Come to think of it, I heard there was a Financial Policy Coordination Meeting held this morning at the Bankers' Association building in Myeong-dong, chaired by the Vice Minister of Finance and Economy. Did anything come out of it?"
At that, President Ko Young-il spoke with a bitter expression.
"Since the root cause of the poor management lies in the lax operations of the card companies, the policy is to demand approximately 2 trillion won in capital increases from major shareholders to strengthen responsible management. In addition, they agreed to prepare comprehensive measures to stabilize the financial market, such as halting excessive competition like long-term interest-free installment plans and cutting cash advance limits in half."
Hearing this, Seok-won immediately clicked his tongue in disapproval.
"I understand the intention to somehow reduce the scale of insolvency, but suddenly cutting cash advance limits in half is a major mistake."
At that, President Yoon Gi-hoon asked with a puzzled expression,
"If cash advance limits are reduced, consumption will shrink accordingly, so card companies' revenue will decrease—but wouldn't it also help reduce the volume of credit card bonds?"
"On the surface, it seems that way. But if you understood the inner workings of the credit card market, you would never have taken such a measure."
The other two men also looked at Seok-won with puzzled expressions.
"You've probably read in the news that most Korean adults carry an average of four to five credit cards."
"Ah, yes."
"I remember seeing that as well."
The three men nodded as they listened.
"As you all have credit cards, you probably already know this—but in reality, people usually rely on just one primary card. The others are kept for emergencies, so having two or three at most is typical."
Seok-won gave a slight shrug.
"Honestly, carrying more than that in your wallet is inconvenient, and there's no real reason to have so many. So what does it mean that people still hold multiple cards?"
Quick-witted and well-versed in market conditions due to WB Bank's credit card subsidiary, President Ko Young-il grasped the implication and let out a low murmur.
"You're saying they're rolling over debt between cards."
Seok-won nodded.
"They're barely avoiding delinquency by taking cash advances from multiple cards and using them to pay off other card bills. In that situation, what do you think will happen if the limits are suddenly cut in half?"
Only then did President Yoon Gi-hoon grasp the situation, his face turning serious as he spoke.
"They won't be able to cover their card payments and will immediately fall into delinquency."
President Cha Sang-woo also frowned slightly.
"In that case, the already high credit card delinquency rate could skyrocket."
Looking at the three of them, Seok-won replied briefly.
"That's why I said it's not stabilizing the market—it's setting off a bomb with their own hands."
His gaze darkened.
"If the credit card bond issue is compounded by a surge in delinquency rates, the situation will spiral completely out of control."
At that, President Cha Sang-woo leaned forward and spoke.
"Since most credit card companies are owned by banks or conglomerates, if problems arise, couldn't they get through the crisis like this time—by increasing capital or receiving emergency funding from their parent groups?"
"That would be ideal, but as I mentioned earlier, the total debt carried by credit card companies amounts to 90 trillion won. Even if only half—or even just a third—of that were to go bad, that's 30 trillion won. Do you think the parent groups could really absorb that?"
Not only President Cha Sang-woo, who had raised the point, but the other two as well immediately showed skeptical expressions.
"Even under normal circumstances it would be difficult, but with the economy as weak as it is now—and with the bond market shaken by the ST Group incident, leaving liquidity extremely tight—providing tens of trillions of won in support would be virtually impossible."
President Cha Sang-woo continued in a heavy tone.
"If the parent groups step back, the credit card companies will quickly find themselves unable to resolve their problems on their own. Just thinking about 90 trillion won in debt exploding all at once is truly terrifying."
"If things go wrong, it could escalate into a financial crisis comparable to the IMF foreign exchange crisis."
With a stiff expression, President Ko Young-il looked at Seok-won with renewed respect and added,
"Now I fully understand why you were so strict about credit management at the card companies and why you paid such close attention to delinquency rates, Chairman."
The other two also couldn't hide their admiration, astonished by Seok-won's foresight in preparing for what lay ahead.
Seok-won accepted their gazes calmly and spoke.
"If delinquency rates surge and the credit card bond problem snowballs, then just like during the IMF foreign exchange crisis, when the government stepped in to save the banks, there will be no choice but to inject massive public funds into the credit card companies."
As if in agreement, President Ko Young-il gave a small nod.
"If we leave a chain of defaults among the card companies unchecked, it could escalate into a financial crisis and cause even greater problems. Reluctant as they may be, that will be the only option."
Seok-won looked back and forth between President Cha Sang-woo and President Yoon Gi-hoon as he gave his instructions.
"Right now, the bond market is gripped by fear, and corporate bond prices have plunged across the board—but that doesn't mean they're all worthless. Even among them, there will be bonds from fundamentally strong companies, like Samsung Electronics, that have been dragged down indiscriminately and are now undervalued. Identify those carefully and scoop them up at low prices while no one else is paying attention."
"Yes, sir."
"Understood."
The two men replied, their eyes gleaming.
Although prices had collapsed due to market panic and massive sell-offs, once the storm passed, they would return to their original levels—making it easy to secure substantial profits.
Seok-won turned his head and looked at President Ko Young-il.
"Once public funds are injected, the government will begin looking for buyers to take over the insolvent credit card companies."
"The government won't be able to run credit card companies itself, so that would make sense."
As if he already understood what was coming, President Ko Young-il's eyes lit up.
"You're planning to acquire one of the card companies that will come onto the market."
"That's right."
"Do you have a specific one in mind?"
At that, Seok-won answered with a faint grin.
"If we're going to do it, wouldn't it be best to take the biggest piece?"
"You don't mean… you're planning to take over TG Card?"
President Ko Young-il asked back, his eyes widening.
"If we do that, we can merge it with Diners Club Korea and instantly rise to number one in the industry. There's no way we can pass up an opportunity like this."
"That's absolutely right."
President Ko Young-il said, his face filled with admiration.
While other card companies were locked in brutal competition, bleeding each other dry, Seok-won had stepped back to conserve strength—only to aim for a single decisive move that would seize control of the entire market. At that realization, Ko Young-il felt a chill run down his spine at the depth and precision of Seok-won's strategy.