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HSBC Finally Nabs South Korean Bank

Britain's largest bank will pay U.S. private equity firm Lone Star over $6 billion for 51% of Korea Exchange Bank. Legal problems are likely

HSBC agreed to buy a majority stake in Korea Exchange Bank yesterday after two failed attempts to make acquisitions in Asia's third-largest economy.

Britain's biggest bank will pay Lone Star, a US private equity firm, $6.3bn (£3.1bn) in cash for 51 per cent of KEB, South Korea's sixth-biggest bank, to plug a major gap in its Asian presence. But with regulatory and legal uncertainty hanging over the deal, HSBC and Lone Star have built safeguards into the agreement.

The price will increase by $133m (£65.85m) if the deal does not complete by 31 January, and HSBC has the option to pull out if completion does not happen by 30 April.

The acquisition could be complicated by legal problems, with Korean prosecutors accusing Lone Star of colluding with bureaucrats to buy the bank on the cheap in 2003. Regulatory hurdles could be increased because there is simmering unrest in South Korea about foreign companies buying key businesses. The price is higher than most analysts had estimated, but HSBC is prepared to pay for a stake in the best bank still available in South Korea as it refocuses on Asia and emerging markets after expansion in the US exposed it to the sub-prime loans crisis. HSBC said it was "comfortable" with the price.

HSBC has missed out in South Korea before, leaving the US Citigroup to buy Koram Bank in 2004 and allowing the UK's Standard Chartered to outbid it for Korea First Bank soon after.

HSBC's chairman, Stephen Green, said: "Our stated strategy is to focus on expanding HSBC's presence in important growth economies, particularly in Asia, Africa and the Middle East ... [KEB] would provide HSBC with a significant presence in Asia's third-largest economy."

South Korea's economy is booming, with exports surging in the second quarter of this year, consumer confidence rising and unemployment falling. The country is home to some of Asia's biggest companies, including the electronics manufacturers Samsung and LG, and the car maker Hyundai. It is a major trading partner with China, where HSBC is the biggest international bank.

The British bank will maintain KEB's listing in Korea and will keep its name. KEB's main focus is on commercial banking, and it is South Korea's biggest bank for trade finance and foreign exchange. HSBC would look to drive more business through these divisions and to sell extra retail banking products through KEB's 352 branches to boost its relatively small 2.6 per cent share of retail banking.

Separately, HSBC said it would spend $80m (£39.6m) marketing its new global Premier service for affluent international customers. This budget is close to the bank's spending on its worldwide re-branding as HSBC. Joe Garner, HSBC's head of personal financial services, said the bank aims to increase its number of "mass affluent" customers from the current two million to six million.

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