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(LEAD) Samsung braces for impact of leadership vacuum after arrest of Lee

All Headlines 16:00 February 17, 2017

(ATTN: ADDS closing stock prices in para 3, analyst's comments in last 2 paras)

SEOUL, Feb. 17 (Yonhap) -- Samsung Group is bracing for the impact of a leadership vacuum on Friday after its de facto chief, Lee Jae-yong, was arrested over an investigation into corruption and influence-peddling that led to the impeachment of President Park Geun-hye.

Some executives of Samsung voiced worries that the arrest of Lee, vice chairman of Samsung Electronics Co. and heir apparent of the sprawling Samsung Group, could affect the group's strategic business decisions.

(LEAD) Samsung braces for impact of leadership vacuum after arrest of Lee - 1

Shares of Samsung Electronics closed down 0.42 percent on Friday. Most Samsung affiliates traded lower, but pared earlier losses with Samsung C&T declining 1.98 percent and Samsung Card down 1.67 percent.

Special prosecutors investigating the scandal filed an arrest warrant against Lee for a second time in a month with expanded charges.

A Samsung official expressed "regrets" because the same court approved the arrest warrant against Lee, although the charges are largely the same.

"We will make utmost efforts to ensure that the truth is revealed in future court proceedings," the official said.

The investigation has focused on Samsung's ties with Park as prosecutors accused Lee of allegedly paying bribes totaling 43 billion won (US$37.8 million) to two foundations set up by Park's longtime friend, Choi Soon-sil.

(LEAD) Samsung braces for impact of leadership vacuum after arrest of Lee - 2

Prosecutors alleged that the bribes were paid to win favor from the country's state pension fund in 2015, when Samsung merged two of its affiliates, a move seen as critical for Lee's succession plan.

Prosecutors can detain Lee for up to 21 days before formally pressing charges against him.

Lee is a third-generation leader of Samsung Group. Although his father and grandfather were mired in corruption and other investigations in the past, it was the first time that a chief of Samsung has been detained.

Koo Yong-wook, an analyst at Mirae Asset Daewoo, said a leadership vacuum at Samsung has a negative impact on the group's stocks.

"With the top leader absent, worries grow that Samsung may not make decisions on key business policies," Koo said.

Kim Byung-yeon, an analyst at NH Investment & Securities, said the arrest of Lee would become a "short-term unfavorable factor" on Samsung stocks because the group's efforts to revamp its governance structure could be behind schedule.

Some analysts said the arrest of Lee may have a limited impact on shares of Samsung Group affiliates, with the group's day-to-day operations managed by senior executives.

Yang Ki-in, senior researcher at Shinhan Investment, said the stock market could show a "short-term reaction" from the arrest of Lee, but there would be little impact on the stock price of Samsung Electronics and the broader stock market.
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