The prosecution’s investigation into irregularities at savings banks is zeroing in on the alleged involvement of Kim Seung-yu, former chairman of Hana Financial Group, in the paid-in capital increase into troubled Mirae Savings Bank last year.

The prosecution is looking into why one of the nation’s four largest financial groups decided to invest in a secondary lender on the verge of insolvency. Mirae was suspended early this month with three other savings banks as they failed to meet government standards.

Prosecutors raided the main office of Hana Capital in southern Seoul on Wednesday over allegations that Kim pressured the subsidiary to invest 14.5 billion won ($12.2 million) in Mirae last September.

Kim Chan-kyong, the arrested chairman of Mirae, reportedly told the prosecution that he became close to Kim Seung-yu through Chun Shin-il, chairman of Sejoong Namo and close friend of President Lee Myung-bak.

The investigators suspect that the Mirae chairman asked for Chun’s help to avoid the suspension last August, and that Chun introduced him to the then chairman of Hana Financial.

Kim Chan-kyong was indicted on Thursday on charges of embezzlement and breach of trust.

In addition to the investment made by Hana Capital, Hana Bank spent 1.8 billion won to buy 10 corporate memberships for a golf course owned by the Mirae chairman.

Kim Seung-yu is also implicated in the alleged financial favor Kim Chan-kyong did for the brother of a Cheong Wa Dae official. 

A hospital run by the official’s brother went into court receivership in 2009, and the National Agricultural Cooperative Federation sold the hospital’s bonds to UAMCCO, a company that handles non-performing loans, in 2010. UAMCCO sold the bonds at around 5 billion won, much lower than the market price of 9 billion won, to a special purpose corporation set up by Kim Chan-kyong.

Kim Seung-yu is suspected of requesting the president of UAMCCO to make the sale at below-market prices.

The former chairman of Hana Financial told several newspapers that he simply introduced Mirae to UAMCCO, and did not ask for any favors.

Kim, however, denied his involvement in Hana Capital’s decision to participate in Mirae’s capital increase.

He said he received a report on the investment after it was made on Hana Capital’s judgment as Mirae promised an annual return of 10 percent.

He also said he was not close to Kim Chan-kyong, and that the investment was not made on the request of Kim or Chun.

Hana Capital’s investment in Mirae was backed by five paintings owned by Mirae, stocks of Kim Chan-kyong, his apartment in southern Seoul and the main office of Mirae as collateral.

The real estate has little real value, however, as it has already been seized by other creditors. It is also unusual for a financial company to take paintings, the value of which is not easy to appraise, as collateral.

Hana Capital said it has redeemed about 8 billion won by selling three of the five paintings.

By Kim So-hyun (sophie@heraldcorp.com)