HSBC to pay $6.3 billion for Korea Bank Stake

HSBC to pay $6.3 billion for Korea Bank Stake

A South Korean man passes by the headquarters of Korea Exchange Bank(KEB) in Seoul, Tuesday, Sept. 4, 2007.

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Story Published: Sep 4, 2007 at 8:07 AM PDT

Story Updated: Sep 4, 2007 at 8:07 AM PDT

By Associated Press

LONDON (AP) - HSBC Holdings PLC, Europe's biggest bank, agreed to buy a 51 percent stake in Korea Exchange Bank for $6.3 billion as it attempts to boost its presence in the fast-growing Asian market.

The purchase of the stake from U.S. private equity group Lone Star Funds would mark the exit of the Dallas, Texas-based Lone Star from a controversial investment.

South Korean tax authorities last week raided Lone Star's office in Seoul, the latest development in a series of legal and tax disputes.

Korea Exchange Bank in South Korea's sixth-largest bank, and the deal is subject to regulatory and government approval here.

London-based HSBC said on Monday that it does not intend to launch an offer for the remainder of KEB's shares and that the bank would remain listed on the Korea Exchange.

HSBC Group Chairman Stephen Green said that the purchase fits the bank's strategy of focusing on growth economies, particularly in Asia, Latin America and the Middle East.

"It would provide HSBC with a significant presence in Asia's third-largest economy and reinforce our position as Asia's No. 1 international bank," he said.

HSBC has been trying for almost 10 years to build its presence in South Korea - it currently has a small network of 11 retail branches - where the economy has evolved dramatically over the past decade since the Asian economic crisis swept through the country.

It previously mounted unsuccessful bids for three local banks: Seoulbank in 2002, Koram Bank in 2004 and Korea First Bank in 1998 and 2005.

Acquiring KEB would catapult HSBC past foreign rivals Standard Chartered and Citigroup. Both have bested HSBC in the past in purchasing local banks during the post-Asian crisis turmoil.

HSBC said it would finance the purchase from its own resources and the acquisition will be accretive to HSBC's earnings per share in its first full year of operations with the HSBC group. It added that it had identified "a number of areas of potential business growth."

Alex Potter, an analyst at Collins Stewart, said the price paid is "reasonable."

A local court in South Korea has been investigating allegations that Lone Star manipulated the stock price of KEB's credit card unit in 2003 so that the bank could take over the business at a lower price.

The fund is also alleged to have played a part in deliberately underestimating KEB's financial strength to facilitate its purchase of a 65 percent controlling stake in the bank in 2003. Lone Star sold 13.6 percent of KEB in June to institutional investors, but retained the 51.02 percent it is selling to HSBC.

HSBC shares dipped 0.1 percent to 896 pence ($18.07) in London.

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