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(News Focus) Shinhan patches up internal feud amid fear of fallout
By Kim Soo-yeon
SEOUL, Sept. 14 (Yonhap) -- Shinhan Financial Group Co. has managed to patch up a high-profile internal strife by suspending its chief executive, but it has made a big dent in the group's image and reputation, analysts said.

   The 12-member board of South Korea's No. 3 financial services company on Tuesday voted 10-1 to freeze chief executive Shin Sang-hoon's duties after about a five-hour marathon discussion, which was in the crosshairs of local media.
"The board concluded that Shin is unable to perform his duties normally amid investors' concerns and increased uncertainties," Chun Sung-bin, chief of the board, told reporters in a briefing.

   "The move to suspend his duties came out in an effort to recover the group's fallen image and reputation."

   The decision was an outcome of a noisy internal feud that was sparked after the group's flagship banking unit, Shinhan Bank, lodged a complaint with the prosecution against Shin on Sept. 2., accusing him of being involved in embezzlement and an illegal lending practice.

   Shinhan accused him of illegally extending 95 billion won (US$82 million) in loans to companies involving one of his relatives while serving as the bank's president between 2003 and 2009. Shin was also suspected of embezzling advising fees worth 1.5 billion won, which the group's honorary chairman was supposed to receive.

   Shinhan's internal strife came as a surprise to industry watchers as the group had been deemed as the financial services company with well-balanced business and a stable governance structure.

   Speculation has risen that the accusation may be engineered by Group Chairman Ra Eung-chan, who is under investigation by the financial watchdog on allegations that Ra opened bank accounts with borrowed names years ago in connection with a scandal-ridden businessman.

   Ra has reportedly suspected Shin of prodding lawmakers into bringing up the issue again so that the regulator will launched the probe.

   Market watchers said the group cannot avoid its reputation from being dented because it will take time for the situation to settle down.

   "Claims of impropriety against the president and chairman of Shinhan Financial have already meaningfully undermined the reputation of Shinhan Bank and will continue to do so for some time," Beatrice Woo, a vice president at Moody's Investors Service, said in a report.

   Woo said although the situation is not likely to harm the bank's profitability, "the damage to its so far unblemished reputation, particularly in terms of corporate governance and internal controls, has already been significant and will linger.

   Other experts pointed out that Shinhan's case may serve as a catalyst for overhauling the governance structure of financial services firms operating in South Korea.

   Under Ra's leadership, Shinhan Financial, whose market capitalization stood at around 21 trillion won, pulled off the successful acquisition of Chohung Bank in 2003 and LG Card Co. in March 2007.

   But Ra, who has been at the helm of the group since 2001, was allowed in March to extend his tenure to a fourth term until 2013, spawning concerns among some watchers that there need to be measure in place to limit the long-term tenure of a head of a local financial firm.

   The government is seeking to strengthen the role and qualification of outside directors in a bid to prevent a president at a financial institution from exerting excessive power on the management. It aims to submit a bill on improving financial institutions later this year.