Standard Chartered has agreed to buy Korea First Bank for $3.3 billion in cash, trumping its bigger rival HSBC to expand in Asia's third-biggest economy.
StanChart is financing its biggest-ever acquisition, and the largest single foreign investment in South Korea, with a £1 billion share placing, the Asia-focused bank said yesterday.
The deal includes buying a controlling 48.6 per cent stake in Korea First Bank, South Korea's eighth-biggest lender, held by US private equity fund Newbridge Capital and the remainder held by South Korean government bodies.
Shares in StanChart were down 3.7 per cent at 918 pence at 10.55 a.m. in London as the new shares were placed. The stock was suspended in Hong Kong yesterday after closing at HK$139.50 on Friday.
KFB, nationalised in the wake of the 1997-98 Asia financial crisis, has more than 3.5 million customers and 404 domestic branches.
"We have repeatedly identified Korea as one of our key priorities," StanChart Chief Executive Mervyn Davies said in a presentation on the bank's website. "We are convinced we can drive rapid earnings growth from this platform."
Korea has a fast-growing wealth management market and a consumer debt market that is recovering from a soured credit boom. StanChart, which makes about two-thirds of its profit in Asia, tried to buy KorAm Bank last year but was beaten by Citigroup of the US.
The UK bank started its own consumer banking business in Korea in 2003 and employs about 200 people there. It has a retail branch in Seoul selling to affluent customers, 300 tied agents selling personal loans, and a branch for its corporate banking business.
Finance Director Peter Sands said StanChart could sell insurance and personal loans to Korea First Bank's mortgage clients, provide trade and cash-management services to its small business customers and expand capital markets services for larger companies.
HSBC, which had been favourite until late last year to win Korea First Bank, has now tried three times unsuccessfully to buy a bank in South Korea.
HSBC declined to comment on losing the deal yesterday. Its shares were trading 0.6 per cent lower at 879 pence.
Korea First will represent about 22 per cent of StanChart's assets post acquisition, making it StanChart's second largest business by assets after Hong Kong, the bank said.
The acquisition should add to earnings in 2006 and will dilute earnings by a "low single-digit" percentage this year, Mr Sands said. He added that the deal should be completed in April.
Analysts said Korea First Bank, with a solid retail banking network and a leaner structure than some rivals, was a good match for a foreign player looking to expand.
StanChart said the purchase price was 1.87 times Korea First Bank's book value as of end-September.
"We're comfortable with the price paid... the key here has been speed and decisiveness in making sure we won," Mr Davies said.
"Korea First Bank has a stronger network in the retail market compared with (similar size) rivals and has also done quite a bit of job cutting," said Wonny Kim, analyst at Hyundai Securities.
The acquisition of Korea First Bank will heat up competition in South Korea's banking industry, where Citigroup has already started a battle with local banks including top local lender Kookmin.
Citigroup, the world's largest banking group, bought KorAm Bank, now Citibank Korea, for 3.18 trillion won last May, worth around $2.7 billion at the prevailing exchange rate.