[EDITORIALS]The Seoul Bank deal

The Public Funds Oversight Committee, which oversees the use and recovery of bailout funds the government has given to banks, on Monday selected Hana Bank as its preferred bidder for a controlling stake in Seoul Bank. The decision has brought the government one step closer to the privatization of Seoul Bank that has dragged on for about five years since the onset of the financial crisis. But there are two challenges down the road.

First, the government has to recover as much money as possible from the 5.5 trillion won ($4.6 billion) used to bail out the troubled commercial lender. Second, a Hana-Seoul combination should make the new entity an institution with global competitiveness and touch off a merger mania among other local banks. The two challenges are not separate ones. The committee picked Hana Bank, which wants to pay for Seoul Bank with shares in the new entity, over the cash bid of Lone Star, a U.S. investment fund. Both groups bid about 900 billion won for Seoul Bank. The sooner the new entity can get on its feet and increase competition and competitiveness in the local market, the more bailout money the government can recoup through higher share values.

To reach that happy ending, the bank will have to slim down. Seoul Bank's assets are just half those of Hana Bank, although the two institutions have a similar number of employees and overlapping branches. The inevitable downsizing must be done with sensitivity; in particular, Hana Bank should especially be considerate of Seoul Bank workers.

The government should also do its best to prevent the sale from becoming another Korea First Bank deal, which was a failure. The government should proceed with the rest of the sale procedures quickly and help the new bank become successful, as befits its status as the country's third-biggest commercial lender with assets of 84 trillion won.

Seoul Bank once merged with another local bank in a government-led restructuring drive, but the combination proved a failure when the post-merger Seoul Bank became insolvent. If the Hana-Seoul merger also fails, the government must rescue it again with taxpayers' money. The sale of Seoul Bank has only begun.