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After Lone Star, did Korea’s financial sector evolve?

Published: 24 Nov. 2025, 00:02 Updated: 24 Nov. 2025, 14:42

Cheong Chul-gun

The author is a columnist at the JoongAng Ilbo.

An email sent in May 2001 by a staffer at the Carlyle Group’s Korea office bragging of his sexual exploits in Seoul, titled “Living Like a King,” sent the local financial industry into shock. The Washington Post described it as “an ugly glimpse into Korea’s banking sector.”

Prime Minister Kim Min-seok gives an emergency briefing at the Government Complex Seoul on Nov. 18 regarding Korea’s request to annul the Lone Star investor-state dispute settlement ruling. The government said the annulment committee of the International Centre for Settlement of Investment Disputes ruled in favor of Korea. [YONHAP]

Still reeling from the Asian financial crisis, struggling Korean banks competed desperately for foreign capital. Hanmi Bank was acquired by Carlyle, while Korea First Bank went to Newbridge Capital, both U.S. private equity funds. Joheung Bank and Seoul Bank were also seeking buyers. Private equity executives dispatched to Korea received VVIP treatment.

Lone Star, a Texas-based private equity fund, entered the race to acquire a troubled Korean bank. It first sought to buy Seoul Bank but lost to Hana Bank. In court testimony in 2008 on allegations that Korea sold Korea Exchange Bank too cheaply, former Finance Minister Jeon Yun-churl stated that Lone Star applied to acquire Seoul Bank, but was disqualified under banking and financial regulations because it was a private equity fund.

Korea repaid its entire US$19.5 billion IMF bailout in August 2001. Its sovereign rating rose from B+ (speculative) after the crisis to A- (stable) in 2002. The situation was far more stable than when Korea hurried to sell Hanmi and Korea First Bank to private equity investors. Regulators declared that banks should be sold to investors in the financial sector, not speculative funds.

Yet Lone Star, despite questions over eligibility, succeeded in buying Korea Exchange Bank in 2003. A Morgan Stanley executive involved in the deal said at the time, “Having received more than 1 trillion won of investment from Lone Star is something we will be proud of 10 years from now.” But Lone Star sold the bank to Hana Financial for triple the purchase price while contributing little to innovation.

Despite its gains, Lone Star filed a lawsuit in 2012 against the Korean government at the International Centre for Settlement of Investment Disputes, seeking roughly 6 trillion won in damages. It argued that government delays prevented a higher-priced sale to HSBC. The 22-year dispute ended with Korea winning the case. Prime Minister Kim Min-seok called it “a national victory that affirmed Korea’s financial sovereignty.”

But the acquisition itself took place under the Roh Moo-hyun administration. The key decision maker was Finance Minister Kim Jin-pyo, who later became Democratic Party floor leader and National Assembly speaker. In short, responsibility for handing financial assets to speculative capital lies with the Democratic Party government of the time.

Regardless of which administration was right or wrong, the real question is whether foreign capital helped develop Korea’s financial sector. After the Lone Star episode, did Korean finance advance?

A sign of Lone Star at a building in Gangnam District, southern Seoul, in 2006 [YONHAP]

Today, the Korean banking industry is dominated by five major institutions. The structure was intended to build scale to compete with global banks, but size has not translated into competitiveness. Korean banks remain focused on mortgage lending rather than on productive sectors. Support for innovative startups or technology-driven manufacturing remains weak. Their international competitiveness lags behind Chinese and Singaporean banks. If housing prices plunge, another crisis is not unimaginable.

The government should not be celebrating with a so-called chimaek gathering, referring to fried chicken and beer. It must revisit the lessons of Lone Star and overhaul the financial sector. Political appointments that parachute allies into top bank roles must end.

A senior official involved in public-fund injections during the crisis put it starkly: “Right after the crisis, banks at least had the will to survive. Now they have changed little except for IT spending.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.