Losses from troubled HK-tied ELS surpass 100 billion won

Confirmed losses for troubled Hong Kong-linked derivative products have totaled more than 100 billion won ($76.1 million) so far this year amid an ongoing probe into their sellers by the financial watchdog.

Alleged victims of the equity-linked securities tied to the Hong Kong’s Hang Seng China Enterprises Index protest in front of the Financial Supervisory Service office in Yeouido, western Seoul, on Dec. 15. [YONHAP]

Confirmed losses for troubled Hong Kong-linked derivative products have totaled more than 100 billion won ($76.1 million) so far this year amid an ongoing probe into their sellers by the financial watchdog.

Total losses incurred from the securities tied to the Hang Seng China Enterprises Index (HSCEI) at the five largest banks — KB Kookmin, Shinhan, Hana, Woori and NongHyup — stood at 106.7 billion won last week, according to local media reports citing the banking industry. The total loss rate was around 51 percent.

Returns of the securities, known as equity-linked securities (ELS), are linked to the upward and downward movements of the underlying stocks. Investors who allege to be the victims argue they were not adequately informed of the potential losses associated with the fluctuations in the HSCEI, which has plunged to less than half of its 2021 peak following U.S.-China tensions and an economic slowdown in China.

The HSCEI includes the 50 largest and most liquid Chinese companies traded on the Hong Kong Stock Exchange.

The HSCEI-linked ELS, which was sold at the index’s peak in 2021, is set to mature from this year. Around 10.2 trillion won worth of the products are set to mature in the first half of the year.

The balance for sales of the ELS stood at 19.3 trillion won as of November with 15.9 trillion won from banks and 3.4 trillion won from brokerage firms. Combined, there are more than 400,000 accounts, with 22 percent held by investors aged 65 and above.

The Financial Supervisory Service (FSS) said earlier this month that it is expanding on-site probes into sellers of the products to prevent major losses.

The loss rate for the products sold by Mirae Asset Securities and KB Kookmin Bank, which were issued by Meritz Securities, stood above 50 percent when they matured this month.

The financial authorities plan to conclude measures for the losses, including the compensation plans for the alleged victims, by March at the latest.

BY JIN MIN-JI [jin.minji@joongang.co.kr]