HSBC ready to be patient over stalled Korean bank deal

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The Independent Online

HSBC is pressing ahead with its long battle to buy Korea Exchange Bank despite the passing on Friday of the UK bank's deadline for regulatory approval of the deal.

Europe's biggest lender said yesterday that it would continue to work with Lone Star, the private equity firm which holds a majority stake in KEB, to secure the deal.

The South Korean authorities have insisted that they will not approve Lone Star's sale of KEB to HSBC until the country's highest court rules on alleged share price manipulation by Lone Star.

HSBC and Lone Star extended their joint deadline by three months in April to allow time for regulatory approval. HSBC's top executives have repeatedly tried to apply pressure by saying they were prepared to walk away from the deal.

An HSBC spokesman said: "We don't lose anything by being patient to get the deal done."

The bank's willingness to press on indicates the importance it places on securing a major business in South Korea, which is a key trading partner with China and other Asian economies where HSBC is a big player. HSBC could look to pay a reduced price to reflect the changed economic outlook since it agreed the deal.

HSBC announced in August last year that it was in talks to buy a majority stake of KEB, South Korea's sixth-biggest bank. It unveiled the $6.3bn (£3.2bn) deal to buy 51 per cent of KEB from Lone Star for cash in early September. But regulators have held up the deal because of allegations of price manipulation by Lone Star in the purchase of KEB.

The wrangle centres on a criminal investigation into whether Lone Star bought KEB at an artificially low price. Lone Star and its South Korean boss, Paul Yoo, were cleared in June of price manipulation charges when the Seoul high court overturned a lower court's decision. Prosecutors have appealed to the Supreme Court.

Regulators also allege that Lone Star's acquisition of KEB was the subject of a political conspiracy to do the deal at too low a price.

Korea is split between those who suspect foreign companies of buying their companies on the cheap and others who want to encourage outside investors into the country.

The election of Lee Myung Bak as President in February had raised hopes that the deal would get through before the deadline because of his openness to foreign investment. Hopes remain that the Government could apply pressure to the authorities to push the deal through.

HSBC wants to buy KEB to plug a gap in its network as it refocuses on Asia and emerging markets.

The bank has missed out in South Korea before, leaving Citigroup of the US to buy Koram Bank in 2004 and allowing the UK's Standard Chartered to outbid it for Korea First Bank soon after.

HSBC reports first-half results today and is expected to stress its thriving business in Asia to distract attention from continued losses at its US sub-prime business.