A Seoul court ruled Monday that the 2003 sale of Korea Exchange Bank to U.S. equity firm Lone Star Funds was an "unavoidable" decision amid the country's slumping economy, clearing involved officials of breach of trust charges.
"The Korea Exchange Bank needed a large capital injection at the time," Yonhap News quoted Judge Lee Kyoo-jin of the Seoul Central District Court as saying. "And there were no new major investors stepping out at that time except for Lone Star... Pursuing the management-rights transfer was unavoidable."
Lone Star paid $1.5 billion to take over a 51 percent stake in KEB, Korea's fifth-largest lender, which had been plagued by ill finances in the aftermath of the 1997-98 Asian financial crisis.
Prosecutors said the price was up to 825.2 billion won ($550 million) lower than its market value and indicted a finance ministry director at that time, Byeon Yang-ho, for conspiring with then the bank's chief, Lee Kang-won, to artificially understate the lender's value.
The court dismissed the breach of trust charges against Byeon and Lee, saying there was simply no other choice but to resuscitate the bank.
"The bank was weaker than other banks in terms of operation size," the judge said. "Capital increase through a third party was the only choice for KEB."
The verdict belatedly cleared the long-delayed case that has held the KEB deal in limbo.
Amid the legal dispute, Lone Star scrapped a deal with Korea's top retail lender Kookmin Bank to sell its KEB stake in 2006.
The U.S. fund reached a new deal with London-based HSBC Holdings Plc in 2007, but HSBC terminated the $6.3 billion deal in September this year, citing falling asset values and global financial turmoil.
KEB recently set up a task force to help find a new investor. Kookmin Bank has expressed interest in buying KEB in a second attempt.
Prosecutors presented no opinion for sentencing. Protesting the court's decision to rule as scheduled with no additional hearings, prosecutors had abruptly left the courtroom in the final hearing on Nov. 10 and did not appear for Monday's verdict.
As evidence of manipulation, prosecutors had cited KEB's capital adequacy ratio, which was 9.55 percent at the time of its sale, higher than the 8 percent ratio required under the Bank for International Settlements guidelines to survive on its own.