Kookmin sees chance of KEB buy, brokerage set-up

Top South Korean retail bank Kookmin on Wednesday reaffirmed its intention to buy Korea Exchange Bank (KEB), even though its smaller domestic rival is subject to a bid from UK-based HSBC.

HSBC Holdings Plc said last week that it had agreed to buy 51 percent of KEB, South Korea's sixth-largest bank by assets, from U.S. private equity firm Lone Star for $6.3 billion.

The agreement came almost a year after Lone Star scrapped a $7.3 billion deal to sell the lender to Kookmin because of legal disputes in South Korea on whether Lone Star had acted illegally in the way it bought KEB in 2003.

Judging from the current situation, we think there is still a chance we can buy KEB and are preparing for the possibility, Kim Ki-hong, Kookmin's chief vice president, told reporters in a lunch meeting.

His remarks underlined persistent doubt about whether HSBC will be able to win necessary approvals from Korean regulators.

The regulatory Financial Supervisory Service has said it would hold off on any review process for KEB sale before a court ruling was made over Lone Star's KEB purchase.

The stubborn regulatory position heralds a lengthy process in order to seal a KEB sale, which some analysts say could take up to two to three years to produce a ruling if it goes to the Supreme Court as expected.

The HSBC deal was conditional on government and regulatory approvals by April 30, 2008, during which other potential suitors for KEB are not allowed to enter the fray.

Kim, a former assistant governor of the FSS, said the collapse of last year's deal to buy KEB had merely left the deal on hold and was not the end of Kookmin's ambitions for KEB.

He added Kookmin felt it even more necessary now to have KEB than before and may be able to offer a higher price for KEB shares when it is given a chance.

He made no reference to the possibility of a counterbid for KEB against HSBC, while analysts anticipate HSBC might not win regulatory support because of public sentiment against growing foreign influence in Asia's third-largest banking market.

Separately, Kookmin has since May been looking to a number of local securities firms, including unlisted Hannuri Investment and Securities, for an acquisition as part of efforts to expand into non-banking financial services.

But it is now shifting to establish a new brokerage due to soaring premiums on existing securities houses.

Now financial authorities are moving to allow new entrants into the brokerage sector, we have concluded that paying excessive premiums was improper. We think setting up a brokerage company matches our strategy.

The executive acknowledged that Standard Chartered's reported participation in the bidding for Hannuri Investment has sent the premiums beyond what it had expected.

In August, the Maeil Business Newspaper reported StanChart was highly likely to beat Kookmin in buying Hannuri Investment, a deal that could be worth up to $260 million.

Shares in KEB trimmed losses to close down 1.01 percent at 14,700 won, while the broader market fell 1.83 percent. Kookmin closed down 1.35 percent at 72,900 won.