Anybody Want to Buy a Bank?

Selling off financial institutions rescued with public funds is becoming harder.

It is still a matter of controversy whether the government sold Korea First Bank to Newbridge Capital, a United States equity fund, at a dumping price. Now comes DB Capital Partners, showing its intention to invest in Seoul Bank, but attaching the condition of a 120-day exclusive negotiating period.

DB Capital Partners is the only entity so far that has expressed any desire for a stake in Seoul Bank. If the negotiation with the private equity arm of Deutsche Bank fell through, the sale of the troubled bank itself could be threatened.

The government and the Korea Deposit Insurance Corporation are especially troubled by the four-month exclusive negotiation period demanded by DB Capital, because the longer the exclusive period, the weaker the position of the seller. The government is already under criticism that it gave away too much to Newbridge in the process of selling Korea First Bank when it awarded a one-year exclusive negotiation period.

Another problem lies in the fact that DB Capital said it sought only an investment stake of less than 50 percent in Seoul Bank. The International Monetary Fund stipulated that Seoul Bank and Korea First Bank be sold to foreign investors as part of its $58 billion rescue package for Korea following the 1997 financial crisis. Some could argue that selling stakes without managerial rights does not meet the conditions of the international financial organization.

Seoul Bank reported 45.3 billion won ($35 million) in profit in the first half of the year. The bank's BIS equity ratio reached 9.93 percent as of the end of March. Though achieved largely by the input of more than 6 trillion won in public funds, the performance looks good, at least on the financial statements.

Industrial analysts said that the reason for the slack interest in buying Seoul Bank despite the good figures is that Korean banks still do not earn confidence from the international financial market.

Another block in the sales process is negative public sentiment toward sales of financial firms to foreign companies. For example, the government poured more than 10 trillion won into Korea First Bank, and sold the bank for 600 billion won.

Some people think that the sale was not productive enough to offset the huge spending of public money, industry experts said.

by Suh Kyoung-ho