HSBC to Acquire Stake in Korea Exchange Bank

In South Korea, the best way to increase your market presence is to buy the bank, literally, it seems. Buying a bank or acquiring a majority stake in one of them is perhaps the only option there, as Korean authorities do not seem too enthused by the idea of newcomers prowling around in the market. This is exactly what HSBC Holdings seems to be attempting.

In another attempt to have a bigger slice of the pie in the South Korean banking market, HSBC Holdings announced it was in the midst of dialog to acquire majority stake from Lone Star in Korea Exchange Bank (KEB), the fifth largest South Korean bank. The stake would be worth $4.8 billion, it said.

HSBC’s announcement makes for another chapter in a long drawn and messy legal and financial tangle involving the Dallas-based Lone Star, a private equity fund, and the South Korean government authorities. Lone Star is currently holding 51 percent of KEB stock.

The legal and financial mess has thrown a spanner in the works during earlier attempts by Lone Star to dispose off KEB. A $7.3 billion deal wherein Kookmin Bank, South Korea’s biggest lender, was planning to acquire KEB fell through last year.

South Korea is number four in the ranking list among Asian economies. HSBC has so far had limited success in expanding its presence in this vibrant economy, with other heavyweights like Citibank and Standard Chartered beating it to the punch in acquiring stakes in the local market.

Banking analysts are predicting this acquisition would be a good way for HSBC to increase its market presence in South Korea. The announcement by HSBC had an immediate impact on KEB shares. Prices shot up 7.3 percent, ensuring the shares closed at 13,950 won.

Analysts, however, are divided over how the whole scenario is going to play out. It is not going to be one of those quick and smooth buys for HSBC, according to some. They are predicting a long and winding road ahead.

Some analysts have warned of a possible backlash against the prospect of another major Korean banking player, the third such entity, going over to outside companies, and that is something they are not comfortable with.

However, there is a segment that is of the opinion the deal would pull through, as HSBC seems to fit the profile of what the Korean government is looking for currently. This seems to be the case especially after the previous prospective buyer, DBS from Singapore, ended talks mid-way.

On its part, Announcing its intentions to acquire the stake, HSBC also said it would not change the bank’s name or listing on the market if it ended up acquiring the bank. There has been no comment on this issue so far either from Lone Star or the South Korean authorities.