South Korean tech giant Kakao Corp. faces heightened risks of losing management control over its internet-only lender, Kakao Bank, as the prosecution seeks a harsher-than-expected sentence for its founder and the company.
On Friday, prosecutors requested 15 years in prison and a fine of 500 million won ($360,000) for Kim Beom-su, the founder of Kakao, over suspected stock manipulation, while demanding the same amount of fine for the corporation and its content affiliate Kakao Entertainment.
While the legal pressures on Kim increase stress on Kakao, the fines imposed on the company threaten its broader business operations.
If Kakao is handed a criminal penalty beyond a fine, it could be deemed ineligible to remain a major shareholder of Kakao Bank. Local financial regulators review the eligibility of major bank shareholders on a semiannual basis.
Under current law, any individual or entity convicted of a financial crime within the past five years is barred from holding more than a 10 percent stake in a bank.
In this scenario, Kakao would be required to sell the excess portion of its current 27.6 percent stake in Kakao Bank, making Korea Investment & Securities its largest shareholder. The brokerage firm holds the same stake as Kakao but owns exactly one share less than Kakao.
Industry watchers, however, believe Korea Investment & Securities may not welcome becoming the largest shareholder of the internet lender.
“If Korea Investment & Securities were to become the top shareholder of Kakao Bank, its parent company, Korea Investment Holdings, would be classified as a bank holding company, subjecting it to strict regulatory oversight, including disclosure requirements and capital adequacy rules,” an official from a local brokerage firm said.
The regulatory uncertainty could also put the brakes on Kakao’s push to adopt won-pegged stablecoin businesses to its portfolio. The tech giant has been exploring business opportunities involving the issuance and custody of stablecoins, spearheaded by its finance arms Kakao Bank and Kakao Pay. Without management control of its lender, Kakao may face significant challenges in advancing these initiatives.
Meanwhile, shares of Kakao Bank have struggled amid the prolonged regulatory uncertainty associated with its parent company.
Since plummeting to 15,800 won in October 2022, when Kakao suffered its worst-ever server shutdown caused by a data center fire, Kakao Bank’s stock has remained sluggish, failing to regain investor momentum.
Shares of Kakao Bank plunged from the 31,000 won range in early July to around 24,000 won last week, with increasing legal uncertainties associated with the Kakao founder and the parent company. The dip stands in stark contrast to the share's all-time high of 94,400 won in August. 2021.
silverstar@heraldcorp.com
