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The prospective buyers of Korea Exchange Bank, currently owned by the U.S. equity fund Lone Star, have all submitted their proposals, with Kookmin Bank and Hana Bank, the nation’s largest and fourth-largest lender, both determined to take over KEB.
It will cost an estimated W6 trillion (US$6 billion) to take over a 77 percent stake in KEB. Since Lone Star paid a mere W1.38 trillion to buy 50.5 percent of KEB in October 2003, it may walk away with at least W2.6 trillion in trading profits less than three years later. That is a much bigger windfall than the W1.15 trillion Newbridge Capital earned from the sale of Cheil Bank or the W700 billion the sale of Koram Bank netted the Carlyle Group.
That is why authorities are investigating whether Lone Star bought KEB too cheaply and critics say the process is depleting national wealth. Some say the fact that an offshore fund was permitted to buy the bank in the first place cannot be kosher. The Board of Audit and Inspection is looking at the original sale, and the prosecution is investigating Lone Star on a portfolio of charges.
Suspicions need to be cleared and wrongs righted. But it does not help if charges are based on an emotional refusal to accept that a foreign investment fund can earn so much money in the domestic market. Perhaps these extraordinary profits should be thought of as a kind of salutary tuition fee for the nation on the road to improving its financial system and increasing its competitiveness.
The fact that Lone Star was able to buy KEB in the first place shows how weak domestic financial institutions were in terms of competitiveness. At the time, there was no domestic financial institution that could think of buying KEB, even for the low price. It would be too easy to blame accounting irregularities at SK Global and massive delinquency faced by credit card companies at the time; the truth is that domestic financial institutions lacked the competence to take long-term risks. Now that KEB has recovered, they are jostling to buy the bank back, and in the process they are increasing the profits for Lone Star. Let us hope that the government and Korean banks will learn the lesson that has cost us so dear.
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