Be Careful What You Wish For (Credit Cards and Unions)

As you may have come to learn...Korea is a land of (if anything) extremes. Extreme friendliness to some, hostility to others. Extreme affluence for some, poverty for others (although not as pronounced as other Asian countries). Studying, working, playing and (especially) drinking are taken to the nth degree as well. You can see it in language as well. In Korean 'extreme' is 아주/a-joo, but most use the word 너무/neo-moo which technically does not mean extreme or 'a lot/much' but, rather, 'too much'. So here too much is not too much, it is just a lot. (You may have to be here a little while to really figure that out.)

Now, add to the mix credit cards. A few years ago (just in time for the 2002 World Cup and a few years after the 1997 Financial Crisis here: just long enough for people to forget the lessons, it seems) credit cards were all the rage. People and businesses (including restaurants and hotels for their World Cup supplies ordering) didn't even have to line up to get cards...the card companies went to the street (literally) and dragged them over to sign-up tables where they made them (immediately fulfilled) promises of tens of million of won (tens of thousands of dollars) worth of this fabulous thing called credit. Nevermind that the card companies didn't have any where near the sophisticated screening and portfolio management (portfolio of cardholders' ability to pay, occupation classes) systems of the West: they were after market share. Because, this is the broken record, once something succeeds in Korea EVERYONE has to do it too...and nothing succeeds like excess. In the end, Koreans had multiple cards (all individually scored and with individual credit limits, many of which exceeded their gross income).

There were even tax-breaks for using cards. If you charged 10% or more of your income on your card you got a 20% tax credit for that amount...or a 2%+ deduction in your tax rate! Unreal! Card firms also offered cash advance services which made it convenient (if expensive) to get money in a hurry. This was welcomed by the masses as banks here cut off ATM operations at midnight until 8AM so those late-night drinking or gambling binges couldn't be financed from a normal cash machine. Thus, men, women, children and even infants could, and did, get cards.

But it can't last forever. People started to get behind in their bills. They started to rob Peter or pay Paul by using cash advances to fund the minimum payments on their other cards. This happens in the West too, but there are also systems to check on this kind of thing (as far as I know) but not here. They also got home equity or insurance policy loans out (thanks to the telemarketters at the life companies here...a manager of the loan division I know said it was really quite easy to churn their book of customers to get loan business) but how long could that last?

Eventually some Koreans took thing to their 'natural' (too much) conclusion and committed suicide (but the debts of the parents flow to their kids, so they had to find a way to shield them from such a burden). Some of the horrors of Koreans in debt are in this article. Of course some cardholders are getting things under control, but some of that could be due to changing the standards of how the debts are categorized...you never quite know sometimes. Others are taking advantage of revolving debt that some card firms are offering (basically they change the credit card payment system to that of an unsecured line of credit).

So, have the companies and cardholders learned something? Well I hope so, because many of both groups are either bankrupt or on the way there. Card companies are worried about the Korean economy but they seem to be back to their old tricks (with the help of the government) as the newest plan is that it's ok to go in debt so long as it's to buy a digital TV. Here we go again.

Now for my second topic: the sale of the local ITC (Investment Trust Companies); namely: KITC (Korea ITC) and DaeHan ITC. Both are for sale (after having been taken over by the government after the 1997 Financial Ka-Boom) and both had/have foreign companies interested in them. However, the unions are getting pretty vocal about all of this takeover business (whether foreign or local firm is in the running). Take a look at the signs they've plastered on their marquis buildings:


KITC and DaeHan ITC's landmark buildings in Yeouido. Both are vehemently opposed to almost any takeover.

They've also (as of last Thursday) threatened a massive strike if the deals go through--something that any potential investor doesn't want to hear. Union strife has been a very problematic part of life in Korea for a long time (well, maybe it was needed when Park Chung Hee and the other dictators were doing their thing...but that was more of a human rights thing). So much so that many foreign firms simply will not even look at Korean firms as they believe that sometime (sooner or later) they will be held hostage by their workers no matter the pay or treatment.

Well, today PCA dumped the idea of buying DaeHan ITC, leaving Hana Bank to try to salvage the deal. We may never know why they pulled, but I have to think that labor leaving their desks for an indeterminate amount of time might have factored in some. So the unions got their wish. Instead of begin bought by a well-capitalized foreign firm they will be either bought by a poorer local firm (and have at least as many job losses due to redundancies) or (later) by another foreign company.

Update: The next day I passed DaeHan ITC's building and the sign was gone...I guess they like Hana Bank better than PCA.

This just in...I just found this little story about bribery in Korea. It seems a local bank (that had the lock on managing exchange rate and other risks for the massive KTX-Korea's bullet train-expansion) was set to get a little cash from good ol' Deutsche Bank in order to get the business. Nevermind that the bank's personnel didn't have the wherewithal to understand the products being sold, that didn't stop them from entertaining the idea. Bribery isn't a way of everyday life in Korea as it is in some countries (the passport office only collects the required amount, no greasing needed) but in some areas there is obviously room for improvement. Having such a global behemoth as Deutsche Bank implicated makes things even more interesting (although it may have been a local phenomenon). (I find it interesting how the Korea Times article linked above gives quite a different spin as this Bloomberg piece.)