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More Korean BS in Regard to Lone Star

August 22nd, 2007 . by Gerry-Bevers

UPDATE 2: Korean Banks Feel “Duped” by Lone Star

UPDATE 1:  Speak of the Devil–Another tax office raid on Lone Star 

An August 22, Chosun Ilbo article, “Lone Star in Talks to Sell KEB to HSBC,” said the following on the negotiations between Dallas-based buyout company, Lone Star Funds, and London-based HSBC to sell Lone Star’s majority stake in Korea Exchange Bank (KEB):

The FSC earlier rejected a bid by Development Bank of Singapore to purchase KEB, saying it was a non-financial company. HSBC has no such problem with its qualifications, but Korean financial authorities apparently frown on HSBC’s bid since the firm has a history of pulling out, withdrawing bids for the takeover of Seoul Bank in the late 1990s and Korea First Bank in the early 2000s.

Why would HSBC’s history of withdrawing bids cause Korea’s Financial Supervisory Commission to “frown on HSBC’s bid” to buy KEB? Isn’t that something that Lone Star should be worried about, not Korean authorities? It sounds to me like Korean authorities are just looking for another excuse to turn down a Lone Star deal to sell its stake in KEB. 

I think it is obvious that the real reason Korean authorities frown on such a deal is that they dislike the fact that Lone Star was able to come to Korea, invest in a failing Korean bank, and make a huge profit in a short time by restructuring that bank. For reasons that may stem partly from Joseon-era thinking, Koreans do not seem to like foreign companies coming to Korea and making what they consider excessive profits. Of course, Koreans do not seem to have any problem with Korean companies going abroad and doing the same thing. On the contrary, they seem to be quite proud when Korean companies have success abroad. It seems like a clear double standard.

Anyway, I am interested to see what Korean authorities will come up with next in their attempt to screw Lone Star.


33 Responses to “More Korean BS in Regard to Lone Star”

  1. comment number 1 by: Matt

    Sounds like protectionism at work – which is a really bad idea because Korea is going to be on the losing end of virtually any trade war.

  2. comment number 2 by: dogbert

    HSBC did not “pull out” its bid for Korea First Bank — it was outbid. It’s been clear for a long time that HSBC has serious plans for its business in Korea and a dedication to growing its operations there.

  3. comment number 3 by: Ken

    Almost all of major banks in Korea are owned and over 70% of profit taken away by foreign investers.
    Lone-star was sued for stock price control with only rumor last year while Samsung have not been sued for window dressing though there are apparent evidences for a decade.
    The US and UK investers started escaping from Korea with watching the unfair legal system.
    Now seems the high time to withdraw though they invested to help Korean banks from the last crisis but must have repaid the cost.
    They will say, “I’ll be not back.”.

  4. comment number 4 by: Richard

    Is anyone going to blog about the Japanese gentleman that chopped his finger off and sent it to Prime Minister Abe?

  5. comment number 5 by: egg

    Richard
    I suspect your motives refering to an incident which has nothing to do with this topix.(Kidding) 🙂
    Well, it is sad to know, there is a stupid, brutal guy in Japan too. It is a good thing to know he was arrested for threatening Abe.

  6. comment number 6 by: egg

    Going back to topix, it reminded me of Shinsei bank former known as LTCB and Ripplewood.

    1.LTCB bankruped.
    2.The government bought all of it`s stocks.
    3.Afterwards the government sold them to Ripplewood.
    4.There was an article in the contract, Deposit Insurance Corporation of Japan should buy bad debs of LTCB. (The loss will finally be paid by tax.)
    5.In order to use the article, LTCB forced some of their customers(Sogou and such)to bankrupt.
    6.After getting rid of bad debts, LTCB listed again and Ripplewood gained tremendous amount of profit(at the cost of Japanese tax payers).

    I don`t know whether there is a similarilty between these incidents. If there is, I can understand angers of S.Korean people.
    But at the same time it is like

    1.You are in danger of dying from thirst.
    2.Someone sells you water at perhaps $1,000/litter.
    3.After your thirst has gone, you begin to think you have paid too much.

    I feel it is wrong to start complaining afterwards. At least it will not be respected in a modern society.
    Besides, do the authorities have the basis of law, taking these behaviours? Even if they have, aren`t they abusing their power?
    It is a pity because it gives an impression that S.Korea is not following the rules of law.

  7. comment number 7 by: HanComplex

    Is anyone going to blog about the Japanese gentleman that chopped his finger off and sent it to Prime Minister Abe?

    Funny you should mention finger chopping. Either you missed this one about a Korean woman doing just that or just have selective memory.
    https://www.occidentalism.org/?p=12

  8. comment number 8 by: GarlicBreath

    1.You are in danger of dying from thirst.
    2.Someone sells you water at perhaps $1,000/litter.
    3.After your thirst has gone, you begin to think you have paid too much

    .

    This isn’t realistic.
    .
    Maybe this:
    1) Someone is thirsty, but the normal water seller has been selling sewer water and has no clean water.
    2) Someone sells you water at the market rate. Its clean refreshing and sets a new standard of good water.
    3) After the thirst is gone, you start to complain that the water was poised and anything else you can think of. You then do what you can to scare anybody else from getting water from that vender. Now you want the money back and extra money.

  9. comment number 9 by: Gerry-Bevers

    I think a better analogy is as follows:

    A man has a well, but he cannot get water from the well because the pump on the well is broken. The owner does not have the money to fix the pump, so he decides to sell the well at a fair-market price. The new owner comes in, invests the money to fix the pump, and begins selling needed water to his thirty neighbors. Soon the new owner becomes rich, and the old owner becomes green with envy and begins plotting how he might recover his old well, or at least get some of the profits being made by the new ower. The old owner will do almost anything to get his well back.

  10. comment number 10 by: egg

    Gerry-Bevers
    I had Shinsei bank on my mind. If Loan Star has fixed Korean Exchange Bank only with their expences, I think your metaphor will be better, with a little reservation.
    .
    The reservation is about a fair market price. I have no intention to say the price was not fair. I have no skills to prove it wasn`t. But at the same time, I have a hesitation to say it was fair price.
    I think you will agree with me that price under monopoly can not be called fair.
    I guess you wll say it was under the bid or something so it was not monopoly. But if Loan Star was the only player in market who could evaluate the risks accurately, will existence of other players matter?
    Of course the fact that they could calucalate and take the risks better than others is worth praising. Generally talking they have the right to price their skills in Capitalism as long as they are under competition. But was the ability to take risks really under competition?
    Suppose Loan Star calucalated the risks to be $100. If another competitor calucalated them to be $100, there is a competion. But if he calucalated them to be $1000, can you say it was under competition? Isn`t Loan Star benefitting from invisible monopoly which they made with their skills?
    My question is, did they really evaluate the risks honestly? I mean weren`t they over-estimating the risks to pull down the price, taking advantage of the fact that no one else could evaluate the risks accurately, when they bought the Bank? If the risks were evaluated honestly and their effort to reduce the risks lead to the result of huge profit, I will call it fair but is it really so?
    If you say that is called fair in Capitalism, I have nothing more to say but I can`t help wondering, especially seeing the tremendous profits they are going to make, is it really, only from their effort to reduce and control risks, if it is not, can you really call it fair?
    If you can, in my analogy, if there was a competitor who sells water at $2000/litter at the cost of $1000, $1000/litter(even if the cost was merely $1) will be a fair market price, no matter how low the price goes down later. (I admit Selling and Buying is opposite though.)
    It is a question which I have always been thinking and I have no conclusion yet. But whatever my answers will be in the future, I believe complaining afterwards is wrong.
    .
    By the way I consider contracts restrain people because they agreed and not because it is fair.
    .
    Sorry for writing long in poor English. If you have read through, I thank you much.

  11. comment number 11 by: egg

    Again I had Shinsei bank on my mind. The government was in a hurry to sell the stocks and stabilize the financial markets.
    Did Loan Star buy all of the stocks through market? If they did, the tale will be a bit different. Indivisual owners could chose whether they should sell their stocks at that timing or not. If it was through stock market, I guess you will have to call it fair market price.
    hmmm. My reasoning above doesn`t sound sence.If my reasoning in the above post is true, I will have to admit there are times when market price is not fair. I hesitate to say that. I must say I am confused. What can be the difference…?

  12. comment number 12 by: Gerry-Bevers

    Egg,

    Korea Exchange Bank (KEB) was not the only bank in Korea, so KEB could not have sold its water for $1,000 a litter. There was no monopoly.

    As for the selling price of KEB, I do not understand your logic. The price of KEB was negotiated between the buyer and the seller, and I am pretty sure the Korean government would have taken higher offers if there were any to be had. At the time, Korea probably felt lucky that they were able to get what the did for the bank, not expecting that Lone Star would do such a good job of turning the fortunes of the bank around. Let’s use another analogy.

    You have a broken computer, and you do not know how to fix it, so you decide that it would be better to sell it in a garage sale rather than having it clutter up your house. If someone then buys the computer, fixes it, and sells it for a higher price, is that unfair? Is the world unfair because you do not know how to fix a computer or run a bank?

  13. comment number 13 by: egg

    Gerry-Bevers
    Thanks for your reply.

    The price of KEB was negotiated between the buyer and the seller, and I am pretty sure the Korean government would have taken higher offers if there were any to be had.

    I understand what you want to say. I searched Chosun Ilbo Japanese version with “Korean Exchange Bank”. It seems,

    1.Loan Star invested new money 1,075 Billion won.
    2.Loan Star bought KEB stocks from Commerzbank and Export-Import Bank of Korea at the price of 308 Billion won with negotiation.
    3.No record of tax poured into KEB after Loan Star took over KEB.

    Under these recognitions, I agree your analogy is much better than mine. (Considering Loan Star is unguilty.)
    I admit I am quite confused yet, but one thing I feel uncomfortable is
    You have a broken computer, and you do not know how to fix it, so you decide that it would be better to sell it in a garage sale rather than having it clutter up your house. If someone then buys the computer, fixes it, and sells it for a higher price, is that unfair? Is the world unfair because you do not know how to fix a computer or run a bank?
    My concern is, if that someone could fix the broken computer with $10 and can sell it at $1,000, is it fair to buy the broken computer at the price of $1. Shouldn`t he buy it higher, for perhaps $490, even if there are no competitors? It isn`t my conclusion yet but I can`t help wondering what is fair.

  14. comment number 14 by: egg

    Gerry-Bevers
    Sorry I misposted. I will post it again.
    Thanks for your reply.

    The price of KEB was negotiated between the buyer and the seller, and I am pretty sure the Korean government would have taken higher offers if there were any to be had.

    I understand what you want to say. I searched Chosun Ilbo Japanese version with “Korean Exchange Bank”. It seems,

    1.Loan Star invested new money 1,075 Billion won.
    2.Loan Star bought KEB stocks from Commerzbank and Export-Import Bank of Korea at the price of 308 Billion won with negotiation.
    3.No record of tax poured into KEB after Loan Star took over KEB.

    Under these recognitions, I agree your analogy is much better than mine. (Considering Loan Star is unguilty.)
    I admit I am quite confused yet, but one thing I feel uncomfortable is

    You have a broken computer, and you do not know how to fix it, so you decide that it would be better to sell it in a garage sale rather than having it clutter up your house. If someone then buys the computer, fixes it, and sells it for a higher price, is that unfair? Is the world unfair because you do not know how to fix a computer or run a bank?

    My concern is, if that someone could fix the broken computer with $10 and can sell it at $1,000, is it fair to buy the broken computer at the price of $1. Shouldn`t he buy it higher, for perhaps $490, even if there are no competitors? It isn`t my conclusion yet but I can`t help wondering what is fair.

  15. comment number 15 by: GarlicBreath

    My concern is, if that someone could fix the broken computer with $10 and can sell it at $1,000, is it fair to buy the broken computer at the price of $1. Shouldn`t he buy it higher, for perhaps $490,

    Lonestar bought KEB for 1.8 billion and wants to sell at around 5 billion. That isnt the same as buying for $1 and selling for $1000. More importantly, lonestar was the highest bidder at 1.8 billion. After they bought LS they invested even more money developing the operations to the level of an industry leader in Korea. Would you suggest adding more money to the deal on the assumption that they would sell later? Egg you are sounding more and more Korean with your anti-business logic.
    .
    Egg, what if you buy the computer and you find out its worthless and it costs 10 more dollars to dispose of it. When you buy a bankrupt bank in a country that has a bad reputation for labor disputes do you think there is any risk involved?
    .
    Lonestar took a huge risk by investing in Korea. Now they must pay the price. I think investing anything in Koera is folly.

  16. comment number 16 by: tocchin

    Kia-Honda was established as a joint venture to manufacture motorcycles in Korea. A few days before Park Chung Hee was assassinated, Soichiro Honda, president of Honda Motor was told by his Korean partners that the joint venture should be terminated since they had learned everything from Honda. Soichiro Honda was so angry about the notice that he declared Honda Motor should never have any business relationship with Korean thereafter.

  17. comment number 17 by: tocchin

    Kia-Honda was established as a joint venture to manufacture motorcycles in Korea. A few days before Park Chung Hee was assassinated, Soichiro Honda, president of Honda Motor was told by his Korean partners that the joint venture should be terminated since they had learned everything from Honda. Soichiro Honda was so angry about the notice that he declared Honda Motor should never have any business relationship with Koreans thereafter.

  18. comment number 18 by: egg

    GarlicBreath
    Thank you for responding.
    First, I want to make it clear, I don`t think Loan Star is going to earn huge profit only from unfair trade. (I am using the word unfair to express my question, or my hesitaion to use the word fair. I have no intention to claim it was unfair.) They have invested quite an amount of new money, seem to have done a great contribution to the S.Korean financial business such as bringing some kind of internet banking, changing the mindset of workers in KEB etc. I think these efforts should be valued properly.
    The only question I have in mind is “What is fair price?”. Will negotiation always gurantee fair price? I guess to say it was a fair price, many competitors are needed. When the authorities gave permission to Loan Star, was the condition truely maintained? If the condition cannot be maintained, in my view fair price can only be decided by showing the costs and risks they are estimating and the profits they are calucalating to earn. I have no skills to prove it wasn`t or they haven`t shown the appropiate costs. And please understand I am thinking now it is a trivial question compared to the contribution Loan Star has done. I consider S.Korean lawmakers making new law aimed at Loan Star to make them pay taxes is wrong. It is out of rules of law. But inspite of that my question still remains. Can you really call it fair price? I have no intention to claim it was unfair, but at the same time I have a hesitation to declare it was a fair price.
    .

    That isn`t the same as buying for $1 and selling for $1000. More importantly, lonestar was the highest bidder at 1.8 billion.

    I agree my metaphor was too exagerating. Instead of $1, I should have said maybe about $300.

    More importantly, lonestar was the highest bidder at 1.8 billion.

    My question is, will the fact that they were the highest bidder gurantee that $1.8 Billion is a fair price? I have no intention to claim it was unfair, I only want to say that might not always gurantee fair price.

    After they bought LS they invested even more money developing the operations to the level of an industry leader in Korea.

    I admit they have done a great contribution.

    Would you suggest adding more money to the deal on the assumption that they would sell later?

    Speaking generally it can be, but about this case in my view, Loan Star didn`t have the intention to sell it at first.

    your anti-business logic

    Hmmm maybe you are right. My arguments maybe inmature.

    When you buy a bankrupt bank in a country that has a bad reputation for labor disputes do you think there is any risk involved?

    I think there was a tremendous risks. I will say nothing if the risks were not over-estimated when buying the KEB. There is a chance of overestimating, so that is why I hesitate to say it was a fair price.

  19. comment number 19 by: egg

    I am suggesting, isn`t there an area where especially outsiders can`t decide whether it is fair or not.

  20. comment number 20 by: kjeff

    tocchin,

    Kia-Honda was established as a joint venture to manufacture motorcycles in Korea. A few days before Park Chung Hee was assassinated, Soichiro Honda, president of Honda Motor was told by his Korean partners that the joint venture should be terminated since they had learned everything from Honda. Soichiro Honda was so angry about the notice that he declared Honda Motor should never have any business relationship with Koreans thereafter.

    Could it not have been because Kia didn’t want to produce motorcycles anymore? President Park was assassinated at the end of 1979, and Kia stopped its motorcycles’ production in 1981. I think it’s more likely that it ended the venture(I’ve never heard of it) because it planned to dissolve the division altogether given the timing.

    Gerry,

    Koreans do not seem to like foreign companies coming to Korea and making what they consider excessive profits.

    Hmmm…I wonder if this is uniquely Korean…
    From the little that I know, timing had a lot to do with the increased value, and not restructuring. Maybe, Lone Star had a magic ball back in 2003, but I guess I’m a little bias, and wary, when it comes about a buy-out company in general. Anyhow, I think Korean government should just let this one go. They screwed up on the double taxation loophole thingy(I guess we’re loving the guys who used tax loophole here…well, I guess we have plenty millionaires in this blog). Whatever happened(if they’d been duped, then it’s their fault to begin with), it’s turning out to be a PR nightmare; they should just move on.
    P.S. Even the KookMin attempt was unsuccessful, so I don’t think there’s any nationalistic thing going on with HSBC’s, or the earlier DBS’s.

  21. comment number 21 by: GarlicBreath

    Koreans do not seem to like foreign companies coming to Korea and making what they consider excessive profits

    .

    I would modify that and change excessive to any.
    .
    When foreign companies make ANY profit it is upsetting in Korea. Just look at the ongoing anti-starbucks campaign in Korea. However Korean companies that copy Starbucks can expect govt support.

    Soichiro Honda was so angry about the notice that he declared Honda Motor should never have any business relationship with Koreans thereafter.

    More evidence of the wisdom of Honda. Don’t do business in Korea.

  22. comment number 22 by: GarlicBreath

    The only question I have in mind is “What is fair price?”. Will negotiation always gurantee fair price?

    Egg, both sides of this deal had very smart people involved. If anything LS was at a disadvantage because of the opaque nature of Korean businesses. But LS did pay a 13% premium to the bank’s market value at the time
    .
    Egg, do you think after you sell something to another party, who fix it up and resell it at a profit, you have should have the right to revisit the deal because the other party makes a profit that you deem is too large? If Koreans believe this, then they should apply it all business and not just foreigner ones.

    Speaking generally it can be, but about this case in my view, Loan Star didn`t have the intention to sell it at first

    Egg do you know what lone star does?

    In corporate sponsorships, the firm provides capital to companies in a bankruptcy or similar legal proceeding to allow the company to recapitalize, emerge from the legal proceeding, and turnaround its operations

    It gets assets and fixes operations and then resells them. Lonestar is not a bank and has never claimed to be. HSBC is a bank, but isn’t a turnaround company. What is going on is called capitalism, and Koreans are against it if it means a foreign company will make money.
    .
    Smart money stays out of Korea.

  23. comment number 23 by: GarlicBreath

    Egg your quote should have been “b-quoted”

    Speaking generally it can be, but about this case in my view, Loan Star didn`t have the intention to sell it at first

  24. comment number 24 by: egg

    GarlicBreath
    I will surrender to you.
    I couldn`t read the part where the article says Lone Star(I have been mistaking, I thought it was oan Star.)paid a 13% premium to the bank’s market value at the time because I need to subscrive, but I guess it says that.
    If there was a market price and if the price which Lone Star presented was over that, I think you must say it is fair price. The basis of my arguments were wrong and my concern was needless.
    I will applogize to you and Gerry for confusing the arguments. Sorry.

    Egg, do you think after you sell something to another party, who fix it up and resell it at a profit, you have should have the right to revisit the deal because the other party makes a profit that you deem is too large?

    No, I wasn`t saying that. I was just saying I have a hesitation to call the price fair. I had no intention to say that they have the right to complain. Whether it is fair or not, agreements should be kept.

    Egg do you know what lone star does?

    I knew that they are funds. But reading this article, (Sorry, it is in Japanese) I misunderstood them. I thought they were going to use KEB as an Asian Hub.
    Anyway thanks for showing me the facts.

  25. comment number 25 by: egg

    The above is, under the assumption that Lone Star is unguilty about the suspection of decreasing the ratio of owner’s equity.

  26. comment number 26 by: GarlicBreath

    No worries Egg. I hope people will read and understand what happened to LoneStar and in the future it will help deter wasted investment in Korea.

  27. comment number 27 by: General Tiger

    Matt:

    Sounds like protectionism at work – which is a really bad idea because Korea is going to be on the losing end of virtually any trade war.

    Right about the first part, half-right about the second.
    .
    The only POSSIBLE problem I see with the Lone Star situation is that some idiots on the Korean side messed up on the ratio of owner’s equity(whether intentionally or by mistake, we may never know), making this seem like Lone Star trying to rip off people.
    .
    Both Korea and Japan are “protective” about their main companies and firms, as can be seen by this incident and the Japanese “poison pills.” I’m personally against being too protective of the market.

  28. comment number 28 by: GarlicBreath

    as can be seen by this incident and the Japanese “poison pills.”

    the Korean meme of claiming japan “does it too” rears its ugly head again.

  29. comment number 29 by: General Tiger

    Garlic:

    the Korean meme of claiming japan “does it too” rears its ugly head again.

    Just stating the facts, mate. It is true that the three Northeast Asian countries are “protective” of their economy.

  30. comment number 30 by: GarlicBreath

    Just stating the facts, mate. It is true that the three Northeast Asian countries are “protective” of their economy

    Tigg, I mean mate… all nations are protective of their economies ..but a poison pill is used to avoid a takeover, Korea took the takeover, like a drunk whore grabbing at cash, and then after LS fixed everything is now trying to steal back the assets.
    .
    Tigg.. come on now.. admit I am right.. quit bringing up japan everytime korea does dumbass things… come on now ‘mate’..
    , ..

  31. comment number 31 by: Ken

    The book I recommended to Egg seems attracting the attention in Korea as follows.
    http://usinsideworld.com/article/view.php?bbs_id=news&doc_num=3399
    I have discussed with the author in a blog.
    He knew the gimmick of window dressing of Korean national economy.

  32. comment number 32 by: egg

    General Tiger

    Both Korea and Japan are “protective” about their main companies and firms,

    Is Japan that protective? I guess she might be a little, about agriculture business and labor market but else I am not sure.
    And talking even about agriculture (except rice), are there absolute limit of amount in import? Are tariff ratio especially high compared to other countries?

    as can be seen by this incident and the Japanese “poison pills.”

    I am not sure whether you can call it protectionism. This time it went towards foreign funds. But before, same kind of thing happened against a domestic company such as Livedoor.
    It is changing especially among young people, but from my view, Japanese people tend to think companies as a main community where they belong. As a community it is much more important than a regional community. An outsider changing the board members is felt like an outsider changing a mayor. That is why TOB is hard in our country, I believe. Companies are not just a mechanism to earn profit in Japan, I feel.
    It is just my view so please feel free to criticize me. (Especially Japanese people.)

  33. comment number 33 by: GarlicBreath

    Corea is getting worse and worse to do business in. More reasons to boycott Corea.