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Civic groups urge probe into KEB-Lone Star damages deal

February 3, 2015
Financial Services Commission (FSC) Chairman Shin Je-yoon speaks at a parliamentary hearing in Seoul on Jan. 12, 2015. Shin said he may approve a merger of Hana Financial Group Inc., South Korea's third-largest banking group by assets, and the Korea Exchange Bank (KEB), which Hana bought in 2012 from U.S. buyout firm Lone Star Funds for 3.9 trillion won (US$3.57 billion), without an agreement with the labor union, a change from his earlier stance. The merger attempt had been deadlocked for months due to opposition from KEB's union, which says the move violates a prior promise to keep KEB independent for five years. (Yonhap)

Financial Services Commission (FSC) Chairman Shin Je-yoon speaks at a parliamentary hearing in Seoul on Jan. 12, 2015. Shin said he may approve a merger of Hana Financial Group Inc., South Korea’s third-largest banking group by assets, and the Korea Exchange Bank (KEB), which Hana bought in 2012 from U.S. buyout firm Lone Star Funds for 3.9 trillion won (US$3.57 billion), without an agreement with the labor union, a change from his earlier stance. The merger attempt had been deadlocked for months due to opposition from KEB’s union, which says the move violates a prior promise to keep KEB independent for five years. (Yonhap)

SEOUL (Yonhap) — Local civic groups said Tuesday they have asked the financial regulator to look into allegations that Korea Exchange Bank (KEB), South Korea’s fifth-largest bank, paid the majority of damages its American stakeholder was ordered to pay for manipulating stocks in 2003.

In 2012, the Supreme Court convicted Lone Star Funds of artificially reducing the share prices of KEB’s credit card unit by spreading false rumors of its plans for a capital reduction. The Texas-based equity firm did this so it could buy the South Korean firm for cheap after it merged with the credit card unit in 2003.

Lone Star was ordered to pay 71.3 billion won ($64.8 million) in damages to shareholders of the card unit, the majority of which was paid by KEB, an opposition lawmaker said last month. The South Korean bank was cleared of stock rigging charges in 2012 and thus bore no obligations to pay any damages.

KEB, furthermore, did not consult with its board of directors and civic groups, including the Korea Finance Consumer Association, on the payment plan.

They asked the Financial Services Commission to open an inquiry into suspicions of an underhand dealing between Lone Star and Hana Financial Group Inc., which now owns KEB. Lone Star sold KEB to Hana Financial Group at a profit margin of 4.66 trillion won in 2012.

“Lone Star and Hana Financial Group may have used KEB assets in a wrongful manner in the process of selling it,” the groups said. “In addition, the unilateral decision by KEB and Hana Financial Group’s management to pay for more than half Lone Star’s damages constitutes malpractice.”