Ending Lone Star trauma

By Oh Young-jin

Assistant managing editor

For eight years since it bought a majority stake in the Korea Exchange Bank (KEB), Lone Star has sometimes served as a source of our heartbreak and at other times acted as a whipping boy to lash out at for our frustration.

It caused us envy when Lone Star turned KEB around and reaped a great deal of profits through dividends and stake sale.

The fact that we invited it to take over KEB when there was no willing buyer appears to have been erased from our memory.

Whenever it tried to sell its stake and leave, we came up with one excuse after another and held it back.

When Kookmin Bank tried to buy KEB, we blocked it, not being able to bear to see Lone Star get away with big capital gains. If the deal had been consummated then, chances are that “our losses” would have been significantly less.

Besides, the protracted tug-of-war over the KEB sale must have adversely affected Korea’s wish to become a financial center.

Of course, this doesn’t mean that we should circumvent legal processes to prompt Lone Star’s exit.

Still, we appear to learn little from the eight-year Lone Star saga.

Even now, our collective judgment can sway from one direction to another because different interests are competing to influence the final stage of the process to loosen Lone Star from KEB.

It goes without saying Lone Star wants the biggest payoff possible from its sale of the KEB stake to Hana Financial.

Hana also wants the deal to be promptly sealed. After all, it has built its future on the acquisition of KEB.

KEB’s union doesn’t want the deal to be completed because it could mean a dent to the job security of its members and their handsome paychecks. The KEB unionists have the backing of other unions.

Regulators are pondering what their clearance for the deal will mean at a time when the administration is in its last year of governance. Wrapping all these up spells election-year volatility. With National Assembly elections scheduled for April and a presidential poll for December, politicians are ready to bend in whichever direction they think they need to in order to get more votes.

All these confusing circumstances come down to two core issues.

First, regulators have to decide whether Lone Star is a non-financial firm. If it is, this will mean that Lone Star was not qualified to take over KEB in the first place.

Second, if so, they could order Lone Star to sell its stake through the stock market, in the process nullifying the Lone Star-Hana deal.

If Lone Star is ruled to be a non-financial firm, it would be as good as regulators admitting that their predecessors committed a major dereliction of duty.

Thus, it would be little out of the ordinary if the current regulators try and find a way of minimizing the extent of the mistake committed by their predecessors. After all, they are intertwined with each other by school ties or the same regional backgrounds or a sense of camaraderie as senior bureaucrats.

The regulators who approved the deal would also argue that they did their best to keep KEB afloat at a time when it was under siege in the aftermath of the 1998 currency crisis.

But the bigger problem would be if regulators rule that Lone Star is a non-financial firm and apply that ruling retroactively. They would certainly feel tempted to do so, because they could argue that they followed the rules strictly so they were safe from attempts by the succeeding administration to right the wrongs of the previous government.

When they do, this could mean unhinging the Hana-Lone Star deal and depriving Lone Star of a significant amount it is promised as a “premium” from Hana, forcing the fund to deleverage its stake through the market.

One doesn’t have to be a Lone Star proponent to say that this is not fair.

We may feel vindicated to tell Lone Star to leave with what you can, pointing out that it has earned enough already.

On the other hand, enough is a very relative term in the arena of investments. We know it and Lone Star knows it.

It is worth putting ourselves in Lone Star’s position not out of sympathy but in preparation for when we might find ourselves in its shoe.

If Lone Star invested what it paid KEB for in other entities, it could have earned more. Quite possibly, it could have earned less. But that is the game we decided to play, when we took Lone Star in.

So we need to play by the rules.

If we don’t, it wouldn’t immediately chase away foreign investors. They would flock to where they think they can make money but chances are that they have a doubt or two in the back of their minds, while thinking about doing business with us. That could prevent us from fulfilling our potential to be a global financial player.

The choice is ours to make: Do we prove to be a sore loser vexed over an immediate loss or take it in stride and move on for a bigger payoff?

There is little dispute that the Lone Star case is a costly lesson but, if we put it into better use, we may actually get away with more than we think.

So let Lone Star and everything in the past associated with it go. There is no reason to suffer from the Lone Star heartburn anymore and use it as our whipping boy. We have outgrown that stage.