By Oh Young-jin
Hana Financial CEO Kim Seung-yu faces the biggest crisis in his 40-year-old banking career over dimmer prospects of taking over the Korea Exchange Bank (KEB).
Kim’s current plight strikes a contrast with six months ago, when he made a secret trip to London to cut a deal for a controlling stake in KEB from Lone Star Chairman John Grayken. The 68-year-old veteran banker, who played a key role in acquiring three banks, received kudos for his sharp judgment that would steer the trophy bank his way.
“Kim knows how to play the games,” a senior banker complimented Kim for dropping his bid for Woori Financial at that time and going after KEB in a surprise move. Back then, Kim met Woori Financial Chairman Lee Pal-sung on nearly a dozen occasions, giving birth to speculation that a marriage was close at hand.
Nowadays, there are few who would praise Kim for his business acumen. Rather, Kim is either depicted as a reckless banker who has fallen for a wrong advisor or a man of misfortune.
“I chided Kim’s legal advisor for suggesting that the deal would be completed in six months,” a former senior regulator remembered. “This caused Hana to get down on its knees for an extension from Lone Star.”
The Kim-Grayken deal initially gave each other six months to complete the deal, in hindsight, an ambitious timeline since Kookmin, HSBC and ANZ all took their turn in trying to take over KEB without success over the past six years.
The brakes were slammed on by regulators, who respected the Supreme Court’s ruling that overturned the lower court’s not-guilty verdict on the Texas-based fund’s chief in Seoul on charges of stock price manipulation. It meant no deal by their mutually-agreed deadline of the end of May.
This led to a sell call on Hana stocks. Hana tried to salvage the deal to the best of its ability, with Kim flying to Tokyo for a secret tryst with Grayken for an extension. Despite repeated assurances about a deal coming shortly, the two sides have come up with no fixed extension. It was widely speculated that Lone Star was demanding a big compensation package in return for an extension. A Hana official said that efforts to secure more time are still under way.
There have been two other developments related to the KEB sale.
First, rumors had it that Lone Star would be classified as a nonfinancial entity, forcing it to unload its controlling stake in KEB. This was seen as a solution, giving another chance to work out a deal between the two.
Except that Lone Star doesn’t want an exit that risks tarnishing its reputation.
During the recent hearing of the case overturned by the highest court, Lone Star’s legal representative disclosed the private equity fund’s plan to file a legal petition against the clause of dual punishment in the banking regulation.
The petition would raise a question about the regulation that an entity may not be recognized as majority shareholder of a bank, if an employee is convicted for bank-related business in the latest five years. The rub is why both the individual, the former Lone Star chief of Seoul operations, and Lone Star should be held responsible for the same violation.
Of course, the ruling by the Constitutional Court would be important but, for Hana, it would mean an additional delay of one or two years in its pursuit of KEB. More preciously, it is an expression of intent by Lone Star to take the matter to long haul, knowing that it would have little to lose by pocketing dividends. Although some experts argue that Lone Star is opting for its global image at the risk of a protracted legal dispute over quick profits, there are some who see it as a pressure tactic on regulators, the judiciary and the public at the same time.
“We mean what we say,” said one banking official who has connections with Lone Star.
All this sends the question back to square one ― Hana CEO Kim.
Kim has insisted that the KEB acquisition remains his top priority.
His bid for KEB is also being affected by a bigger picture related to Korea’s banking industry reorganization that has lost steam amid signs that the current government is becoming a lame duck.
The Korea Development Bank (KDB)’s bid for Woori has been dashed. Now, Kim Seok-dong, chairman of the Financial Supervisory Commission (FSC), has repeatedly said that he will sell Woori. Although KB Financial and Shinhan Financial say that they are not interested in Woori, the FSC chief promised that at least two big domestic financial groups would be making bids by the June 29 deadline.
Bajk Jae-wan, the new finance minister, recently told reporters, “There should be no arm twisting,” when asked about the FSC’s behavior regarding the Woori sale. A Hana official expressed no interest in Hana.
That is why the Hana CEO is being repeatedly asked whether he is interested in Woori, Kim has so far said “no.” But it remains to be seen how the June 29 bid will turn out, considering the clout the government can wield over the banks.