Lone Star(k) Contrast

by Dram_man on June 4, 2009

Given all the fun foreign investment has had in the Korean banking sector the past couple years, this reception is rather thought provoking.

{ 10 comments… read them below or add one }

1 Wedge June 4, 2009 at 2:13 pm: What, you missed Roh Moo-hyun’s trip to Dallas to present John Grayken an award for buying KEB and by extension saving the Korean financial sector?
2 Linkd June 4, 2009 at 3:09 pm: Seems reasonable. There seems to be 25 foreign banks in Cambodia already, and KB is the fifth Korean bank to open there, so the process is well-rehearsed. KB also only had to hand over $8mil to get 51% of the local bank, which is insignificant in relation to the size of KB Financial Group. And, Cambodia has its own currency, but the economy is pretty much dollarized, which will give the Koreans some foreign currency access. Probably most important is the long-term growth prospects.

As for any Lone Star comparison, do remember that KB is a BANK that has acquired another BANK so as to go about the business of BANKING. Lone Star is a PE fund that purchased an asset so as to optimize its balance sheet and then flip it. I’m not saying there’s anything wrong with that, but the operational differences are significant enough that you can’t expect politicians, whose main concern is local jobs, growth and their own careers, to treat both types of investors with equal graciousness.
3 Dram_man June 4, 2009 at 3:28 pm: Linkd> The choice of title was more for originality than comparison. You are right, because I remember similar presentations being done to Citibank and Standard Chartered, and Roh was just gassing up the plane to bless the HSBC/KEB merger (all three meet your criteria of: 1. Coming after significant other foreign investment 2. Done for a price that was, then, a sliver of their capitalization 5. BANKS acquiring other BANKS to go about the business of BANKING.)
4 Hatch SZ June 4, 2009 at 3:51 pm: Isn’t it getting the money OUT that might have a slightly different reception?
5 Linkd June 4, 2009 at 4:02 pm: Not really. It was the size of the (potential) profit that really got the locals upset.
6 Sperwer June 4, 2009 at 4:55 pm: Seems reasonable. … As for any Lone Star comparison, do remember that KB is a BANK that has acquired another BANK so as to go about the business of BANKING. Lone Star is a PE fund that purchased an asset so as to optimize its balance sheet and then flip it. I’m not saying there’s anything wrong with that, but the operational differences are significant enough that you can’t expect politicians, whose main concern is local jobs, growth and their own careers, to treat both types of investors with equal graciousness.

This is specious twaddle. Whether a bank or a PEF, an acquirer of a bloated, unprofitable banking operation is going to do what is necessary to rationalize the operation and make it as profitable as possible. The same sorts of pain will result in either case. The only possible difference between the case of Lonestar’s acquisition of KEB, and KB’s acquisition of the Cambodian bank is likely to inhere in the Cambodian bank’s needing less of that sort of rationalization and more modernization – a difference that does not justify the shabby treatment accorded Lonestar by the Hub of Broken Promises.
7 Wedge June 4, 2009 at 5:48 pm: I’d also like to add that as a bigger risk taker, if anything, PEFs should get more love from politicians/prosecutors/FSS-men than banks. PEFs take on distressed banks that other banks wouldn’t touch with a 10-foot pole. In the KEB case, only Newbridge had any interest, and that was lukewarm at best. Nobody else, and that includes a galaxy of Korean and foreign entities, wanted to take on KEB.

So, Lone Star takes KEB on when nobody else wants it, puts in a highly competent management team, brings it back from the brink to being the most profitable back in Korea, and gets shat upon by the press/society/prosecution for their trouble when they want to sell it to a BANK and realize the profit which they have justly earned for their investors. Truly no good deed goes unpunished. And in fact Lone Star still owns KEB, despite their best efforts to unload it, since the FSS clowns wouldn’t let them sell it to a real BANK when the market was good.
8 Linkd June 4, 2009 at 6:41 pm: Thank you Sperwer, for restating my point so well. It’s great to find us once again in complete agreement. Cheers!
9 Sperwer June 4, 2009 at 8:31 pm: You’re welcome, Linkd; I prefer the Farragut approach to trimming sail when it comes to dealing with the Hubba Hubba. Pip, pip!
10 cmm June 5, 2009 at 1:46 pm: Wow, another Jewish mother’s dream!