KEB union gives conditional backing to ANZ bid

‘Termination of current Lone Star ownership desired’

By Kim Jae-won

The union of the Korea Exchange Bank (KEB) would welcome Australian & New Zealand Banking Group’s (ANZ) acquisition of the nation’s fifth largest lender, as long as it keeps their bank’s name and forces no layoffs.

“We definitely prefer a financial services provider to a private equity company as a major shareholder, if the firm can keep KEB’s identity and protect job security for the employees,’’ the KEB union leader Kim Kwi-chul said.

Kim said that his union is planning to send its four conditions to ANZ for its endorsement of the KEB bid.

“The other two conditions are that ANZ keep KEB listed on the Korea Exchange and pursue an expansion of domestic and overseas branches,” the KEB union leader said. The four conditions presented to ANZ or any other banking group as the new KEB owner are the same it offered HSBC, when the British banking giant was interested in taking over.

ANZ has been conducting a due diligence on KEB since Aug. 31.

ANZ is now the lone bidder for a controlling 51 percent-stake of the KEB, now held by Lone Star Funds, the U.S. private equity fund. Lone Star’s KEB purchase came at a time when Korea tried to find a new owner without success.

Lone Star’s attempt to sell and leave Korea has been repeatedly foiled. First, its negotiations with Kookmin fell apart amid a controversy concerning what is widely seen as nationalistic sentiment over the great amount of profits it could get away with. Multiple investigations followed with few convicted.

Then, HSBC tried but failed to buy KEB because of differences in the price between the buyer and seller. Most recently, MBK Partners, a private equity fund, also tried but failed to find partners for a joint bid and dropped off.

Sources said that there is a significant gap between the prices ANZ is valuing KEB to be worth and that quoted by Lone Star.

If the price obstacle is overcome and an agreement is made between Lone Star and ANZ, the KEB union is bound to hold the key to finishing off the smooth deal. Kim puts the highest priority on the preservation of its existing manpower, saying that the current payroll has been slimmed down already.

“KEB has laid off 3,500 employees since 1997. We need no more restructuring right now,” he said.

The union leader also takes the examples of other foreign acquisitions of Korean banks to say that depriving them of a Korean identity has compromised their competitiveness, citing the examples of Citigroup’s takeover of Hanmi and Standard Chartered (SC)’s acquisition of Korea First.

Regarding Lone Star’s ownership of KEB, Kim said that it would be everybody’s interest to have Lone Star sell the stake and leave as soon as possible.

“A private equity fund has essentially a limited interest as a long-term manager of a bank, focused more on short-term profits rather than long-term strategy,” he said.

He cited as an example of Lone Star’s short-term interest is its failure to launch a holding firm. Other Korean banks and foreign banks in Korea are operated around the nucleus of a holding firm.

Kim said it is good evidence of Lone Star’s short-term profit policy that KEB still remains without a holding company.

He also pointed out that KEB under Lone Star’s control has paid dividends too much without making any long-term investments.

In August, KEB decided to pay an interim dividend of 64.5 billion won ― 100 won per common share ― marking the fifth straight yearly dividend payout. With the decision, Lone Star could recoup 97 percent of its 2.15 trillion won investment in KEB from dividends and by selling part of its stake.

Kim is planning to run as union leader for reelection next month.

The election comes at a time when the lender’s employees are not convinced of ANZ’s bid, since it comes after a series of failed attempts.

“Well, at first, we were looking forward to a ‘tenant’ life and finding a permanent new owner but now many employees even lost interest,” an employee of KEB said on condition of anonymity.

He said he does not care who will be KEB’s major shareholder as long as he remains employed.

“The most important thing is job security. If any new major shareholder can guarantee it, I will support it,” he said.