A New York court decision has pushed Korea First Bank to the brink of having to pay a total of US$97 million to a Japanese trader. The bank had posted a payment guarantee for the same amount made in a letter of credit (L/C) issued by a Hong Kong affiliate of the ailing Korean Daewoo group.

Japan's Nissho Iwai traded goods with Daewoo on the letters of credit issued by the group's Hong Kong affiliate in 1999. On the basis that Daewoo had failed to abide by the original terms of the contract, the Japanese general trader filed a compensation suit against KFB.

The New York district court made a summary ruling in March 2001 against the Korean bank, which says it is confident of winning at appeal. A final ruling is expected within six months. Meanwhile, the court has ordered KFB to deposit US$97 million as security if the bank wants to appeal to a higher court.

The Korean taxpayer will ultimately pay if KFB loses the appeal and is ordered by the court to pay the Japanese trader. When the Korean bank was sold in 1999, state-run Korea Deposit Insurance Corp. (KDIC) undertook an obligation to take over all non-performing loans incurred until 2002.

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