SEOUL, South Korea (AP) -- HSBC has tried three times to buy a bank in South Korea, one of Asia's biggest economies, with a financial industry emerging from a 10-year shakeout.
HSBC's target for a fourth try, Korea Exchange Bank, may be its last and best chance, though South Korean sensitivity to foreign acquisitions could still thwart its plans, analysts said Tuesday.
HSBC Holdings PLC announced Monday that its Hong Kong-based subsidiary Hong Kong and Shanghai Banking Corp. was in talks to acquire a 51 percent controlling stake in KEB from U.S. private equity group Lone Star Funds.
Europe's biggest bank, HSBC under Group Chairman Stephen Green has been turning its focus toward emerging markets. And while acquiring KEB can be seen as part of that strategy, the bank's long-term quest for a bigger presence in Asia's fourth-largest economy is just as important a factor, analysts said.
"KEB would be one of the last, if not the last, sizable banking franchises up for sale" in South Korea, said Simon Ho, head of Asian financial research at ABN Amro Bank in Hong Kong. "It's a rare opportunity."
South Korea's financial industry has evolved dramatically over the past decade since the Asian economic crisis swept through the country. Foreign acquisitions, once virtually unthinkable, are now a vital - yet controversial - part of the banking sector.
Acquiring KEB, the country's sixth-largest bank, 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, which has 11 retail branches in South Korea, has made three attempts since 1998 for two South Korean banks, but lost out due to an unwillingness to make aggressive bids. This time, the bigger challenge may be getting regulators to sign off on the deal.
"At the end of the day everything is up to the approval of the (South) Korean government," said Kim Jin-sang, a banking analyst at Nomura International Ltd. in Seoul.
Lone Star bought KEB in 2003 when the bank, which specializes in foreign exchange, was in deep trouble. The Dallas, Texas-based buyout fund's attempt to sell its stake, however, has run into trouble amid a series of investigations and allegations of wrongdoing regarding the KEB purchase.
That, combined with pressure from nationalistic political and media circles in South Korea suspicious of the role of foreign capital in the country's economy, has so far left the sale in limbo.
Last year, Lone Star dropped plans to sell its KEB stake to Kookmin Bank, South Korea's biggest lender, citing the probes. The fund has vehemently denied all allegations, including that it deliberately underestimated KEB's financial strength to facilitate the purchase.
The sale would have yielded Lone Star a handsome profit. The fund bought its stake for US$1.5 billion in 2003. The sale to Kookmin was valued at more than US$7 billion.
Regulators so far have been silent on the HSBC-Lone Star talks.
A deal would hand HSBC KEB's 327 domestic and 26 overseas branches and its 73.5 trillion won (US$77.9 billion; €57.8 billion) in assets.
HSBC, with an apparent eye on political sensitivities, says that if the deal is successful, KEB would maintain its separate listing and name and that the "protection of employment will be regarded as a significant sector."
Lone Star Chairman John Grayken, who has lashed out at what he says are "groundless" and "politically motivated" accusations against his fund, said Tuesday that the time has come for KEB to be sold.
"KEB is now one of the top performers in (South) Korea and it is now time for Lone Star to sell its share to a strategic investor which can bring the bank to a new level of competitiveness," he said in a statement, confirming the talks with HSBC were under way.
Sunil Garg, an analyst at JPMorgan in Hong Kong, said that despite its failure to acquire a local bank, HSBC has never lost its interest in one of the region's largest consumer banking markets.
"It's an important economy in Asia where you need to have a presence," he said.
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