Korea opportunity as HSBC looks at $10bn credit card bid

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HSBC is considering making a bid of up to $10bn (£5.8bn) for the South Korean credit card provider LG.

The cards business is being put up for sale by the South Korean government, which is its majority shareholder, and the Korea Development Bank, which took a stake in the business as part of a financial reconstruction two years ago.

Investment banker JP Morgan Chase has been hired to find a buyer for the operation, which dominates the country's fledgling consumer credit sector.

Credit cards were only introduced into South Korea in 2000 as part of the government's attempt to sort out the economy following the Asian debt crisis of the late 1990s. But the ploy was too successful, and by 2003 the average Korean had five different credit cards and a mountain of debt.

LG Card was part of a retail lending business, which had to be bailed out and restructured.

HSBC, which is keen to expand its successful Korean business, approached the Korean Development Bank earlier this year, wanting to buy LG. However, at that point it was rebuffed.

Now cleaned up, the auction of LG is expected to attract a great deal of interest, with Citigroup and Texas venture fund Newbridge Capital also tipped to make offers. Standard Chartered, which in January took a leap into Korea with the $2bn purchase of Korea First Bank, is expected to take a look at LG, but is unlikely to be able to raise the sort of money needed to buy the operation.

HSBC was the underbidder when Korea First was sold to its UK-listed rival, and is also understood to have made an offer in the region of $4bn for Korea Exchange Bank, but had its bid rejected.

Since failing to win Korea First, HSBC's chairman, Sir John Bond, has been saying that the bank can do well enough growing organically in Korea's $44bn-a-year financial services market.

But few analysts believe him, and argue that this is a market that HSBC is desperate to make its own to complement its fast-growing Chinese and Indonesian operations.

HSBC, though, is wary of the financial controls - or lack of them - that have operated in the Korean banking market.

It will been keen to ensure that LG Card has no exposure to its sister bank, which is the largest operator in the volatile Korean home loans sector.

HSBC gives a trading update on Thursday, which is expected to be upbeat.