Shinhan Bank’s four branches in Los Angeles have become a magnet for currency investing.
That’s because the bank started offering won accounts as the Korean currency began to fall against the dollar last year amid the financial meltdown.
“We started offering Korean won accounts in October,” said Tae-han Kim, vice president at New York-based Shinhan Bank America’s L.A. office. “The phones were ringing off the hook with investor interest.”
The goal of the won accounts was to build business, and the plan seems to have worked.
Since introducing the won accounts, the bank has tallied 6,000 new accounts at its 15 branches in the United States, with some of the new business credited to the won accounts.
As Los Angeles is home to the largest Korean community outside Korea, much of the activity occurred here.
“This was an opportunity for us to significantly raise our profile among the first-generation of Korean-Americans,” said Jung-Ju Lee, senior vice president of Shinhan in Los Angeles.
And that customer boost was not restricted to just Korean-Americans.
“I’ve seen a lot of overseas Koreans from Brazil and Argentina who flew in just to invest,” Kim said.
The typical won account opened was about $150,000 when the exchange rate was at about 1,200 won per dollar, but rose to about $400,000 when the exchange rate hit 1,500 won.
The trend was driven by the weakening won, which was pushed along by the collapse of some American financial institutions.
At the beginning of 2008, a dollar bought 950 won. By the second quarter, the exchange rate was up to 1,000 won; by the third, 1,100; and by December, 1,500. (For comparison’s sake, when the currency crisis hit Asia in 1997, $1 bought about 2,000 won.)
As fears about the viability of American financial institutions have eased, the exchange rate has strengthened some to $1 buying 1,250 won.
So if someone invested $100,000 in December when the dollar was trading at 1,500 won, 150 million won would been deposited in the Korean won account. If the won were converted back to dollars in March when the exchange rate was 1,250, the customer would have $120,000 deposited in a dollar account. That would be a 20 percent profit in three months.
The won accounts brought Korea more dollars than usual. Many Koreans send routine remittances to their home country in normal times and foreign interests also send investment dollars. In 2008, the total dollars sent from the across the world to Korea was $7.9 billion, well up from $5.9 billion the year before. For the first quarter of 2009, the total was $2.1 billion, according to figures from the Bank of Korea.
The bump in won accounts also helped local Korean banks, which have been struggling with the sluggish economy and commercial loans. (See story on page 22.)
The number of Korean banks in Los Angeles has grown over the past decade from six to 15; the Korean population in Los Angeles is estimated at 340,000.
While the won accounts appear to have been successful for Shinhan, it might not be a long-term advantage, said Susanna Rivera, senior vice president and chief marketing officer for Nara Bank.
“The currency rate is unpredictable. So if the rate dropped sharply, the customer might have a grudge,” Rivera said.
Regardless, L.A.-based Korean banks have an investment in the local community, so they’re not always enthusiastic about the concept.
“It means that currency gets out of Los Angeles,” Rivera said. “And it has a bad effect on the L.A. economy.”
