Lone Star terminates lucrative Korean bank sale

Lone Star will not proceed with a planned lucrative exit from Korea Exchange Bank because of continuing investigations surrounding its investment in 2003.

Lone Star has terminated a $7.3 billion agreement to sell its controlling stake in Korea Exchange Bank to Kookmin Bank because of continuing prosecutors’ investigations into the private equity firm’s investment in 2003.

John Grayken, Chairman of Lone Star Funds, said: “We have concluded that we cannot move forward with the sale of KEB to Kookmin Bank due to the continuing investigations surrounding Lone Star’s investment in KEB and KEB’s subsequent rescue of its credit card subsidiary, which have been extended several times and now have no firm completion date.”

On 20 November, local prosecutors indicted Korea Exchange Bank and Lone Star on stock manipulation charges. This came after a Korean court granted prosecutors warrants to arrest Ellis Short, co-founder and vice-chairman of Lone Star, and Michael Thomson, the firm’s general counsel, on charges of manipulating stock prices of the bank’s credit card unit in 2003.

“Once the investigation is finally completed, we will again consider our strategic options. Until then, we will continue to vigorously defend our company and our officers against the Prosecutors’ groundless accusations.”

A spokeswoman for Kookmin Bank said of Grayken’s statement: “We are a little surprised by the decision, but we believe the impact of Lone Star’s decision will be limited. We are prepared for a stand-alone asset growth strategy.”

Another source said Kookmin had been hopeful the agreement with Lone Star would be followed through even though a termination was not completely ruled out.
Grayken said: “We appreciate Kookmin Bank’s hard work on this transaction and regret that it could not be consummated.”

Lone Star would have made more than $4 billion in profit if the sale was successful. The planned tax-free exit roused nationalistic sentiment and triggered probes into the 2003 bank sale to Lone Star, and the subsequent merger of Korea Exchange Bank’s troubled credit card unit.