Hana’s Agreement to Purchase KEB is Still in Doubt
It is pretty
strange idiotic that we are still talking about this. The FSS is still debating whether or not the original purchase of KEB by Lone Star, a US-based private equity firm, was legal. The reason that this is being examined is because there is a question regarding whether or not Lone Star was a financial firm or not. There are restrictions on the amount of equity ownership that a financial firm can own of a Korean financial company. That is different from the attitude expressed in the highlighted post. The highlighted article points out the irrational and factually incorrect rants of KEB employees who, unfortunately, may be at risk due to potential layoffs. Those complaints have nothing to do with the facts or the financial reality that Korea faces as a participant in the global economy.
How Quickly FACTS Are Forgotten
For those of you that do not know what the facts were, or have chosen to disregard them entirely (and irresponsibly), here they are.
A. There were NO OTHER BUYERS OF KEB AT ANY PRICE at the time. This includes KDB, KDIC, and KAMCO.
B. Many regulatory examinations have already occurred, and the buyout of KEB by Lone Star was approved.
C. The price of KEB bonds, which are paid first, was around 10% out of 100% at the time. AND STILL NO BUYERS.
To the international community, nothing could be more clear. A buyer accepted the risk at the time, and the seller agreed. This is very similar to the person that sold an apartment in Gangnam 25 years ago, and then going back and saying “Hey, you ripped me off.” There is no difference in that (laughable) example to the KEB sale to Lone Star. By the way, please know that there are other examples even within Korea where the reaction is not the same. The Gangnam Finance Building is owned by the Singapore’s GIC. Why do you not have demonstrations in front of that building??? To apply one set of logic in one case, and another set of logic for a parallel case makes Korea seem juvenile, and rightfully so.
Complaints of Hana’s Proposed Purchase are Misguided
You don’t need a law degree to understand that when you sign a contract, then you are expected to abide by it. If anything, the seller had the superior knowledge, not the buyer. In this case, Hana Financial is the buyer of Lone Star’s remaining stake. In this case, it is a matter of PRICE, not of outcome. If Hana wasn’t going to buy, the Lone Star would have found the next highest bid for its stake. ANZ was originally interested, and decided that it was a matter of price. In addition, other Korean-based banks also have had the right to buy that stake. These other Korean-based banks would have the knowledge of the local market, much like Hana does. They have been unwilling to pay what Hana is willing. Whose fault is that? Hana’s? No.
The Complaints of KEB Employees Exhibit the Underlying Problem
The highlighted article points out that many KEB employees are angry, or worried, due to the fact that their jobs may be in jeopardy. That is a separate matter. The board of directors of a bank work for the benefit of their bosses, the shareholders. The best way for employees to have benefit under this type of situation? Employees must have greater equity stakes in their employers. Now, this isn’t riskless, but if employees owned more of KEB’s equity, then they could have represented a different set of priorities. Is it unfortunate that some of the KEB employees’ jobs are at risk? Yes. Will it be difficult to find a similar job at a different bank in Korea’s overcrowded financial sector? Yes. Does this mean that Lone Star or Hana is doing anything wrong? No.
The Article is Right in One Way (at most): Korea Must Choose
“You can’t have your cake and eat it, too” is the way that the Seoul Gyopo Guide views this situation. Korea cannot expect other nations to simply accept this type of behavior on a case-by-case basis. Let’s use this analogy. Let’s say that in five years, Hyundai-Kia increases its market share by 10% in the United States. Does the US get to re-impose the tariffs that are being reduced by the KORUS FTA, by claiming that Hyundai-Kia ripped them off? Those same people that are demonstrating against the KEB-Hana merger would be forced to agree with the US in that case, right?
So yes, the highlighted article is correct in one way: Korea must choose to join the international league of nations, a league that has benefited Korea and its companies enormously, or remain an insulated, isolated country. Choosing isolation will hurt all Korean citizens over time, because other countries and companies will know that Korea cannot be trusted to abide by its business contracts. Those that disagree with this may suggest that this happens in the case of China all the time: they would be right. But, KOREA DOESN’T HAVE 1,400,000,000 CUSTOMERS LIKE CHINA DOES. Even China is being pressured (with mixed results) to adhere to international standards. Korea doesn’t have that luxury, and it isn’t as if other countries are standing still, and willfully letting Korean competitors outperform. A final analogy. Let’s say that you are trying to invest 100,000 KRW somewhere. Would you choose to invest it in a place where you have no idea of what the rules are, and that the rules can change without logic or political whim (Korea), or with a similar company in a country where the laws are known and upheld over time? Is this even close? By continuing this debate over the KEB debacle, Korea continues to risk its place amongst the global leaders. Korea needs to understand that the rest of the world understands this situation in this way.