September 8, 2008 5:55 a.m.
SEOUL -- South Korea's Financial Services Commission Chairman Jun Kwang-woo Monday issued words of caution to state-run Korea Development Bank on its plan to buy a stake in Lehman Brothers Holdings Inc.
Mr. Jun said although the FSC, which oversees KDB's operations, respects the bank's efforts to expand globally, now might not be a good time to pursue the acquisition of a stake in Lehman Brothers. He said KDB can review opportunities for investing in a global investment firm after its privatization gets rolling.
"No matter how good an opportunity this provides, timing and priority is essential in convincing us of its necessity," Mr. Jun said at a briefing. Considering that KDB is in the initial stages of its privatization and given the economic and financial market risks on the domestic and global fronts, "KDB should be extremely careful in buying Lehman Brothers," he said.
Later in the day, Mr. Jun told lawmakers that KDB should focus on its privatization and wait for the Korea Development Fund to be established before it looks to invest in a global investment bank.
The privatization of the policy financing bank and its transformation into a global investment bank is scheduled to be completed within five years. The government aims to hive off KDB's public policy finance operations into the soon-to-be-formed state-owned Korea Development Fund by the end of this year.
Mr. Jun said the government recognizes KDB's independence and can't order the bank to pull out from its talks with Lehman. KDB has raised its international profile due to the speculation that it is considering investing in a global financial institute "so it wouldn't be proper to make any comment to denounce its attempts," he said.
A KDB official said Mr. Jun's comments should be enough to strongly deter the bank from pursuing a stake in Lehman Brothers, but he wouldn't say whether talks have officially ended.
Major financial institutions in South Korea -- Kookmin Bank, Woori Finance Holdings, Shinhan Financial Group and Hana Financial Holdings -- said last week that they weren't interested in joining a consortium to invest in Lehman due to economic uncertainties on the local front, spurring speculation that KDB wouldn't go ahead with the plan.
This came after KDB Chief Executive Min Euoo-sung said early last week that KDB was in talks with Lehman Brothers for the acquisition of a stake, and that he was trying to form a consortium of private investors to jointly invest in Lehman.
While discouraging KDB from pursuing its global expansion plans, Mr. Jun at the same time said that the government is seeking more foreign investments in the domestic financial markets and would build trust with the international community by resolving pending issues.
The commission is trying to resolve the delayed sale of a controlling stake in Korea Exchange Bank as soon as possible, Mr. Jun said. "The FSC is reviewing the application submitted by HSBC on Aug. 11 ... because international investors are paying close attention to this issue amid economic uncertainties, we need to resolve the case for the good of the national interest," he said in a radio interview prior to the news briefing.
HSBC needs regulatory approval for its planned acquisition of a 51.02% stake in KEB from U.S.-based private equity firm Lone Star Funds.
The FSC is asking HSBC Holdings to submit additional details in relation to its planned stake purchase. "The 30-day deadline of Sept. 11 for the regulator's decision is nearing. ... The FSC has found reasons for HSBC to submit more amendments, and will ask for them soon," he said.
A spokeswoman at HSBC Korea said, "We are grateful for the FSC's sincere effort to resolve this matter as soon as possible. And we'll provide necessary information as quickly as possible."
