Standard Chartered Plc agreed to buyKorea First Bank for $3.3 billion, trumping U.K. competitor HSBCHoldings Plc for control of a lender with more than 3 millionconsumer-banking customers in Asia's third-biggest economy.
The London-based bank, which makes two-thirds of its earningsin Asia, is selling 1 billion pounds ($1.87 billion) of shares tofund the purchase of Korea First from San Francisco-based buyoutfirm Newbridge Capital Ltd. and the South Korean government, itsaid in a statement today. The purchase is the bank's biggest ever.
Chief Executive Officer Mervyn Davies is battling HSBC andCitigroup Inc. for $44 billion of annual banking fees generated inSouth Korea, more than three times the amount in Hong Kong. KoreaFirst has 404 branches in the country and 6 percent of the market.
"Standard Chartered is trying to catch up," said WinsonFong, who helps manage $2.3 billion at SG Asset Management inSingapore. Standard Chartered last year sold its 9.8 percent stakein South Korea's Koram to Citigroup after the New York-basedcompany's $3 billion offer for the entire bank beat its bid.
Shares of Standard Chartered fell as much as 36 pence, or 3.8percent, to 917 pence and traded down 2.4 percent at 930.5 pence asof 12:22 p.m. in London, giving the bank a market value of about10.9 billion pounds.
Negative Impact
Standard Chartered is paying 16,511 won for each share ofKorea First Bank, or 1.87 times the bank's 8,757 won-a-share bookvalue. Citigroup paid 1.8 times Koram's book value, according toHan Jeong Tae, a banking analyst at Mirae Asset Securities Co.
The purchase will dilute 2005 earnings per share by 5 percentor less, Davies, 52, said on a conference call. The sale of as manyas 117.9 million of Standard Chartered's U.K. shares, set to becompleted by tomorrow, is worth about 1/10th of the bank's value.
"The first impact is a negative one," said Kelvin Li, ananalyst who advises managers of $1 billion in investments at EastAsia Asset Management Co. in Hong Kong.
Economic growth in South Korea may slow to less than 4 percentbecause companies and consumers are reluctant to spend, FinanceMinister Lee Hun Jai said Jan. 7. Consumer spending is sliding ascredit-card debts force Koreans to cut back on luxuries. About onein 13 Koreans is three months or more behind on payments.
Biggest Market
After the purchase, South Korea will account for 16 percent ofStandard Chartered's revenue and about 22 percent of its assetbase, meaning the country will surpass Hong Kong as the bank'slargest market by revenue, assets and branches, the company said.
"The acquisition provides us with a very strong platform forgrowth in the world's 10th largest economy," Davies said on theconference call. South Korea's population of about 48 millionpeople gives the country "a very strong banking revenue pool."
Standard Chartered, which first opened in Korea in the late19th century and currently has only two branches in South Korea,wants as much as a tenth of Korea's retail market, Michael DeNoma,Standard Chartered's head of consumer banking, said in Seoul.
The bank will focus on private banking, secured and mortgagelending, credit cards and loans to small businesses, DeNoma said.Korea First has 1.1 million credit cards in issue, and 2,100automated cash machines in South Korea. It has 5,169 employees.Standard Chartered expects 2004 pretax profit to rise about 30percent to $2.1 billion, helped by growth at its consumer-bankingbusiness and a decline in bad debts, DeNoma said. The bank on Dec.8 forecast $1.98 billion pretax earnings.
Doubling Profit
Korea First boosted lending to households and companies by 18percent in 2004, helping profit double, CEO Robert Cohen said onJan. 3, without giving details. The lender posted a pretax profitof 93 billion won in 2003 and had a net loss of 13.5 billion wonbecause of a 106.2 billion-won charge for deferred taxes.
"Standard Chartered is paying a premium to enter this newmarket and for a bank that's already established with a very largenetwork," said Grant Chan, an analyst at BOC International Ltd. inHong Kong, who rates Standard Chartered shares as "outperform."
Standard & Poor's and Moody's Investors Service affirmed theircredit ratings on Standard Chartered with a stable outlook, theratings companies said in statements today.
Newbridge, which paid 500 billion won for control of KoreaFirst in December 1999, will get about 1.7 trillion won for itsstake. The firm is "committed to the Korean economy and intends tomake further investments in this major market in the future," HongKong-based managing partner Weijian Shan said in a statement.
The buyout firm bought a stake in Korea First, founded 76years ago, after a series of corporate customers collapsed during a1997 currency crisis that forced the country to seek anInternational Monetary Fund bailout.
UBS AG and Cazenove Group Plc advised Standard Chartered onthe acquisition. The companies are also arranging the share sale.
With reporting by Christine Harper in London. Editor: Foxwell,Stewart, Foxwell, Snyder
