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S.Korea's LG Card to slash jobs, shut branches
( 2003-11-25 16:00) (Agencies)

South Korea's largest credit card issuer, LG Card Co, said on Tuesday it would lay off a quarter of its workers and shut more than half its branches as it scrambled to cut costs after emergency loans saved it from default.

Debt-laden LG Card said it would intensify its search for a strategic investor after narrowly averting a liquidity crunch that threatened to spread throughout the country's financial system.

Days after intervening to ensure the emergency loans were made, Finance Minister Kim Jin-pyo said LG Card should come up with restructuring steps that the financial markets could trust and firmer supervision.

"We will further restructure the company, cutting costs and writing off bad assets, in order to look more attractive to strategic investors," LG Card Chief Executive Lee Chong-suk told a news conference.

LG Card was forced to suspend cash advances over the weekend, raising the spectre of a spiralling series of defaults among South Koreans, many of whom borrow cash against their credit cards to pay bills and service other credit card debts.

LG Card has 14 million customers, almost a third of South Korea's population. They owe $22.7 billion and payments on about 10 percent of these debts are overdue, raising fears a fragile recovery in Asia's fourth-largest economy could stumble.

The LG Card CEO said LG has chosen Morgan Stanley as a financial adviser for a planned stake sale and could give up management control if required.

Analysts said LG Card needed to find a strategic investor with deep pockets.

GE Capital, has expressed interest in Korean card issuers and private equity funds such as Ripplewood, Lone Star and the Carlyle Group have been active buyers of banks and insurers. LG said it was not in talks with GE.

But LG Card may struggle to find a suitor.

British-based and Asian-focused Standard Chartered Plc said it had stopped looking to buy a card issuer.

"We were once interested in Korean card firms, but not any more. We believe it would be very difficult for Korean card firms to survive," Park Yi-cheol, head of global markets in Korea for Standard Chartered, told Reuters.


LG Card said 2,100 jobs out of a total 8,400 would go by the end of this year and the number of branches would be slashed to 50 from the current 109. The company last week announced it was seeking volunteers for retirement.

The move will allow the troubled card issuer to save about 30 percent, or 400 billion won ($333 million), in operating expenses annually, the spokesman said.

LG said it planned to write off five trillion won of bad debts this year and an additional four trillion next year. It targets 400 billion won in net profit in 2005, versus an estimated loss of 1.4 trillion won this year.

"The self-rescue measure itself looks positive," said Jason Yu, analyst at Samsung Securities. "But given its unstable financial condition, we expect the company needs additional fund raising or financial aid. Therefore, I think it is too early to buy into card shares yet."

Shares in LG Card, which have lost a third of their value in a week, fell 5.15 percent to 7,180 won by 0433 GMT while the broader market was up two percent. The Korean won currency and bonds showed signs of recovery from the recent fallout.


Economists are also watching the card crisis closely, fearing it could stifle consumer spending in an economy that has only just emerged from recession.

The card industry is struggling to cope with the aftermath of a credit boom that has left consumers unable to repay loans.

South Korean adults carry more than three credit cards each on average, encouraged by government tax breaks aimed at reviving domestic spending and ensuring transparent tax collection.

Total credit card debt in South Korea at the end of August was 78.43 trillion won, or about 14 percent of annual GDP. Payments are overdue on about 11 percent of the debt.

Credit card firms' problems came to a head in March after an accounting scandal at a conglomerate scared investors off lower-quality securities, making it difficult for card issuers to roll over bonds issued to finance their lending.

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