Archives for July 2008
Oops! They Did It Again
by Brendon Carr
Law firm mergers seem to be coming on a daily basis, or at least as often as the Law Times turns up on my desk (twice weekly).
This time it’s Kim Chang & Lee ("Korea’s oldest law firm") and Kim & Company who are merging to form a 40-something mid-sized firm, also with ambition to double its mass in the next two years. All of these mergers have the ambition to double their headcount in an impossibly short time, it seems. (Of course, this begs the question—if such hyper-growth is so easy to come by, why weren’t you growing at that rate before? Guess this means the new firm will remain prowling for further merger candidates.)
Kim & Company is a banking and finance-focused practice formed from a team which left Lee & Ko in 2001.
KIm Chang & Lee has been through the merger process before. In 2005 or 2006—I don’t remember—the firm attempted to merge with acquisitive Barun Law, moving most of its lawyers from Kim Chang & Lee’s Insa-dong offices down to Barun’s Samsung-dong (near COEX) offices (at least the biographies disappeared from Kim Chang & Lee’s website and appeared on Barun’s) before reappearing in 2007 in an apparent unwinding of the merger.
The two firms will operate under the Korean name Yang-Heon
That’s Right: When You’re in a Hole, Keep Digging
by Brendon Carr
Business-friendly Pres. Lee Myung-bak has surrendered to the street protestors, and it looks like they’ll get their wish for autarky. What makes me say this?
Foreign investment interest in Korea has all but evaporated, and your international reputation for rule of law has been made a joke by your continued legal harassment of Lone Star Funds? Trying to convince foreign investors with the Big Lie that everything’s okay, and Korea welcomes foreign capital to its “level playing field”?
Although I am sure this will get me in trouble with Korea Law Blog reader H. Chang, I’ve got just the ticket for the Korean government: Even though you’ve lost your attempt to pin criminal liability on the foreign capitalists where no crime occurred (at least one of the Lone Star-related cases), and can’t sandbag anymore on the sale of Korea Exchange Bank to HSBC, go ahead and resuscitate past (failed) attempts to characterize Lone Star Korea as a permanent establishment of Lone Star Funds in the U.S.
That way, you can be seen to be attempting to ignore principles of law to “inevitably” seize US$1.2 billion dollars from a foreign investor you’ve tormented and unnecessarily demonized for years, just as the whole sorry affair was fading into the rear-view mirror!
While you’re at it, be sure to declare that foreign capital won’t be welcome, because of “negative public sentiment” when you privatize state-owned companies. That’s sure to help—if what you want is to chase away foreign investors.
Working as a Lawyer in Pyongyang
by Brendon Carr
I must admit: Part of me hungers for the adventure aspect of being out on a barren frontier, where life is desolate and hard. For this reason, I’ve always been more attracted to by the prospect of a smelly-sock train ride across Mongolia, Manchuria, Siberia, Crapistan or Trashcanistan than hitting the five-star resorts of Bali or Singapore. But then I’m also a weenie when it comes to scary food—your Uncle B wants to boldly go to parts unknown, then find the McDonald’s there. (Did I mention that Singapore is awesome? They have Long John Silver’s!)
Anyway, because of this buccaneering spirit, the prospect of working as a foreign lawyer in Pyongyang has been on my list since I’ve been a lawyer.
Michael Hay, a foreign legal consultant in Seoul since 1990, actually did this—striking out from “Big Four” firm Bae Kim & Lee in 2001 to focus on being a full-time North Korea consultant. He established KoreaStrategic Inc. as a consultancy (its domain lapsed in June 2006, though), then with a splash announced the formation of Hay, Kalb & Associates as the first foreign/North Korean joint venture law firm in Pyongyang. The Hay, Kalb website, too, disappeared sometime in 2005, and I lost touch with Mike Hay around the same time. I remain curious to know about his adventure up North; I’m sure it’s been fascinating. However, he was always extremely tight-lipped about what he was doing there. Other than that he was focusing on North Korea “full-time, all the time” it was hard to get any specifics out of him.
There are two other law firms advertising their services and office presence in North Korea: Italy’s Birindelli e Associati (now Chiomenti after being acquired) and Singapore’s Kelvin Chia Partnership.
But today I found that the International Financial Law Review’s IFLR Legalwire, to which I hadn’t previously subscribed, recently (May 2008) reported on Birindelli partner Sara Marchetta’s experiences in Pyongyang. It’s fascinating stuff, published in two parts—go read Part 1 and Part 2. The article gave the impression that Hay, Kalb was still trading, which is promising, but Marchetta says that Birindelli kept no expatriate lawyer there year-round, because there were only four or five clients a year needing legal services, mostly in resource-extraction and processing ventures.
That’s a pretty discouraging level of business; I hope the rent for those offices in Pyongyang is inexpensive. No wonder there’s no McDonald’s in Pyongyang yet! Looks like it may be Singapore for me just yet.
Law Firms’ Urge to Merge Continues
by Brendon Carr
It’s been a hot summer for the legal market, with firms merging and combining all over. On Friday I noticed the trade newspaper Law Times reporting that Korean law firms continue seeking critical mass:
A three-way merger between Hanbit Law Group, Saegil Patent & Law Firm, and Law Offices of Ha-Yeon Cha, which brings into being a new, 46-member mid-sized firm (with just two foreign legal consultants, so far as I can see, so job-hunters, hint hint...) which expressly states its objective of joining the “100 Club”. Since organic growth is hard to come by, the 100 Club ambition points to this combined firm continuing to seek acquisitions or to be acquired, even as they work on the difficult chore of integration.
Additionally, the paper reports another three-way combination—albeit one short of a merger at this point, instead being a “close cooperation” pledge—was just announced involving Evergreen Law Group (34 attorneys, mostly Shin & Kim alumni), 13-strong SiGong Law P.C., and the eight-member SanGyung Law Firm (also calling itself Law Firm Kim & Kim). Since the firms have only slightly different practice areas and specialties, my guess is a formal merger didn’t happen because of different levels of profitability and expectations for profit-sharing, but that they’re trying to work things out for a fuller integration in the future. Otherwise, given the nature of Korean law firms, I can’t imagine how their cooperation would work.
(P.S.—For reference, the grinning gentleman on the right-hand side of the three-way grip-and-grin is Mr. Yong-Seok Park, the partner who supervised and trained my partner Doil Son and me when we worked under him at Shin & Kim eight years ago. He’s one of the very best teachers and supervisors available to an international lawyer in Seoul, offering encouragement, a gentle but rigorous Socratic method, and benign neglect provided you don’t fuck things up. Young lawyers looking for work, hint hint...)
(P.P.S.—SiGong Law’s Hoon Lee seems to be in the same kind of funk as I’ve fallen into. He’s not updating KoreaLaw.com that often, just like Korea Law Blog this last month. But just like Korea Law Blog—at least I hope you think so—there’s stuff to be learned from reading Hoon’s blog. Check out KoreaLaw.com...)
Leftists’ Fakery Highlights Importance of Translations and “Official Language”
by Brendon Carr
A frequently-asked question put to me from time to time is Are we required to make this contract in the Korean language? The answer to this question, in almost all cases, is NO. As a general rule, Korean statutes and regulations are completely silent on the question of official language, seemingly because whoever’s drafting the statutes presumes that all parties to a transaction are Koreans capable of using the local language. Homogeneity does have certain advantages, you know. One of them is a certainty that there is a common language shared between the parties.
Formation of a contract requires only that the terms and conditions of agreement between the parties be mutually understood. If both parties read and understand Russian well enough to know what they’re agreeing, then Russian is a language suitable for making a contract.
It seems that in other Asian countries there may be some regulation or local rule (maybe a municipal regulation in some Chinese cities, I really couldn’t say), and that foreign businesspeople are inspired by their experiences elsewhere. Or it could be that crafty locals like to tell credulous foreigners that It’s The Law™ to make the contract in Korean, so that the locals retain control of things through the opacity of their language, which is—to put it mildly—as much a world language as Norwegian, or perhaps Faeroese.
But because there’s no official-language requirement for contracts in Korea, you’re free as a bird to transact in English. In fact, English is a better language for contracting, since its vocabulary is so rich and lends itself to clarity.
(That said, it’s important to remember that for virtually all of the Koreans with whom you’re doing business, English is their second language, one which is of little daily utility, and therefore they’re also working at a disadvantage when transaction with you in English.)
In this regard, I am reminded of recent events in the neverending US beef import protests, whereby Amnesty International inspectors here to investigate allegations of police brutality against protestors (it’s interesting how there are no investigations when it’s the other way around) were hoodwinked by their lying, manipulative local staff who prepared false English-language translations of local-language materials for release to the world. (Remember, for leftists it’s not so much about the truth, but about the Truthiness. Fake but accurate is okay with them.) There is a lesson here for foreign businesses.
The Korean Amnesty staff were working to accomplish a goal: Gaining sympathy for their cause from the “court of international opinion.” The language of that court is English—if materials are in the Korean language, the court of international opinion will be ignorant of anything recorded in that language. In other words, evidence must be in English when presented to the court of international opinion, as if it were a rule of civil procedure. And in general, English speakers are not well-equipped to check the accuracy of the translation.
As it happens, there is an official-language requirement in one place in Korea: The courtroom. Evidence submitted to the court must be in the Korean language. Anything that originally comes from a foreign language must be translated by a party into the Korean language. And here’s where we often see misconduct—parties to litigation often deliver to the court Korean-language translations of foreign-language evidentiary materials which are deliberately (I guess if you want to give the benefit of the doubt you could say with gross negligence) inaccurate and misleading to the judge. That puts the party responding to the evidence at a profound disadvantage, because once translated evidence is offered by one party, it’s natural to suspect the other party’s response is self-servingly fake.
Far better, I say, to have agreed Korean-language translations prepared and existing, as an insurance policy (as well as a simple aid to understanding), at the start of your commercial relationship than to leave the job of rendering a Korean-language version to a party seeking to gain advantage in the court. Contract in English, yes, but spend a little extra money on good translations while the sun is shining.
As a practice point, I note that if you’re going to have two versions of a contract extant, the one which is simply a translation prepared for reference should be clearly marked as such, and both versions should contain a clause indicating which version shall control in the event of conflict or error in terms. And for God’s sake, don’t sign both versions! This has caused too many problems to count.
(Tip o’ the hat to the Marmot’s Hole for linking the original story.)
Korea’s Own Coming Mortgage Crisis
by Brendon Carr
While I don’t usually rely on the Korea Times as a source of information, because it’s crappy and there is a self-censorship going on over there, it is in English and that means a link to the story doesn’t require ol’ Brendon to undertake a translation job in order to write about something on this blog. And that has some value in and of itself.
Over the weekend a story appeared on the Korea Times website about the risks associated with Korea’s housing prices and home loans, a topic near and dear to my heart. It seems Korea’s housing finance system puts borrowers at risk in a manner similar to the sub-prime meltdown and coming adjustable-rate mortgage tsunami in the States.
You see, virtually all (90%, according to the Korea Times story) of Korea’s home loans are adjustable-rate mortgages, the kind which are now roiling the US housing market as they reset. Foreign bankers at HSBC, KEB, and Citibank have tried to interest Korean borrowers in fixed-rate loan products, but the market has heretofore been wholly uninterested in such loans. Korean borrowers prefer, and therefore the banks provide, adjustable-rate mortgages. When we bought our apartment, although I specifically instructed my wife (since Korean banks refuse to lend to foreigners, even those with a good job and 12 years’ continuous residency) to get a long-term, fixed rate product, she brought back an adjustable-rate loan—and then argued with me about how stupid the long-term, fixed rate product was. (Why my wife refuses all finance advice from me may be another story.)
But Koreans do Southern California one better. Korean housing loans, in general, are also not “fully-amortizing” loans—instead, borrowers take out an interest-only loan with a term of one to three years, during which time they pay only the interest and none of the principal (although, like my family, they might save separately and pay down the principal that way). At the expiration of the term they roll the note over. Why don’t they pay any of the principal during the term of the loan? Well, for starters, just like the fools in the US housing bubble, nearly all Koreans are convinced that “Real estate only goes up. They’re not making any more land, you know.” But also, the principal balances—even on 50% LTV loans—usually exceed six or seven times the borrowers’ annual income. As a result, the interest expense is too great to add principal repayment to the burden.
Besides, because property always goes up, and lately has gone up like wildfire, only a sucker would pay principal now. You can take care of that when you sell the property, from all the capital appreciation that’s guaranteed to occur! After all, real estate only goes up. They’re not making anymore land, you know.
Now we add the risk factor of the variable-rate loans. Because of the wild property bubble inflation of the last few years, a lot of Koreans have stretched themselves by buying into properties on which they can barely afford the interest-only payments. Interest rates have been quite low of late, with housing loans in the high 5% range available (again, not to you, Mr. Good-Job Foreigner, but any Korean on the street could get one).
But what happens when the interest rate increases, say, to the high 7% range? That interest-only payment, which the homeowner could barely afford in the first place, is now almost 40% greater than it was before. A W1,000,000 payment (which would comprise half the after-tax monthly income of the average Korean wage earner) is now almost W1,400,000. It becomes that much harder to pay the interest. (Remember, most borrowers don’t touch the principal.) Also, since local banks are now required to examine the borrower’s ability to continue to service the loan, by comparing the payment burden to the disposable income of the borrower, many Korean homeowners may find it hard to roll those notes over.
And that means lots of foreclosure sales, or short sales, coming soon. But those tend to depress prices. So mark my words, Korea’s property is entering a deflationary phase. In Japan, Hong Kong, and Singapore, at least, past experience with property bubbles has shown us losses of up to 70% are possible.
Here’s where the 50% loan-to-value ratio hurts the Korean homeowner more heinously than the Americans who’ve lost their homes in the sub-prime crisis: The price decline eats up equity first—the bank’s loan gets paid off in the repossession sale, with the homeowner getting what’s left. This means in the coming bubble deflation, years and years of hard-earned cash savings are about to be lost. In the States, people get dinged on their credit scores and lose a few thousand dollars on the down payment (and no-money-down buyers just lose the imaginary bubble gains)—in Korea, people are going to lose real, hard-to-replace cash.
We’ve been through this kind of thing before—in 1998, interest rates spiked and asset values dropped slightly, putting a lot of apartments into foreclosures and auction sales. What’s different about now and 1998 is that the world economic conditions are different, as well as local ones. In 2009 there will be no American foreign investors galloping to the rescue, that’s for sure. This is going to be ugly.
More Law-Firm Merger Talk
by Brendon Carr
Yes, Dad—I’m still alive. Just been busy. (And disgusted, a bit.)
Seoul’s law-firm merger rumor mill is in high gear, putting one of the “Big Four” law firms at which I used to work in talks with mid-sized Korean law firm KCL (formerly Kim, Choi, and Lim) about bringing the 61 KCL professionals onboard, cementing (only for the moment, I would presume, as this would trigger a cascade effect) the acquiring firm’s position as “Number 2” after Kim & Chang with close to 300 professionals. It seems as if all of the mid-sized law firms which had proven their ability to do some form of corporate work are in play as the Big Four, plus two, continue expanding.
Korean law-firm headcounts are difficult to reckon, because websites are updated very infrequently and some firms also seem to report differently to regional trade media like Asia Law & Business or Korea’s own local Law Times. Some of them don’t include foreign legal consultants or patent attorneys, who are licensed separately, while others—eager to inflate their apparent size, by counting every fee-earner—do.
Since law students at foreign institutions seem to comprise many of Korea Law Blog’s readers, let me offer this: Consolidation in Korean law firms, in my opinion, will paradoxically increase demand for foreign-licensed attorneys, as the larger the firms get the more likely they are to attract domestically-originated international work as well as inbound work from multinationals.
UPDATE 8/8—Word on the street is that KCL and its prospective counterparty were unable to agree on merger terms, with the large firm’s partnership voting down the proposal from KCL. Probably this would be due to different levels of revenue and profitability, as is the case around the world.
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