S. Korea drops plan to sell SeoulBank to Deutsche

Judy Lee, Reuters, Seoul

South Korea said on Wednesday it had ended talks to sell SeoulBank to Deutsche Bank AG, the latest in a series of failed deals involving foreign banks as Seoul tries to clean up its troubled financial sector.

DB Capital Partners had been in exclusive talks with the Korean government for three months to buy between 30 percent and 51 percent of SeoulBank. DB's exclusive negotiating rights expired on September 30.

"The government will decide later whether to try again to find a buyer, or help bolster the bank to survive on its own," Park Seung, head of the Public Fund Oversight Committee, told reporters.

The failed sale came a week after Citibank withdrew from a bid to buy a credit card unit of Korea Exchange Bank, with the U.S. lender saying it could not afford a new overseas investment due to the Sept. 11 attacks on the United States.

Plans to sell ailing Korea Life and Hyundai Group's financial units to foreign investors also have been delayed.

SeoulBank was one of several lenders bailed out by the government after the Asian financial crisis, which toppled big corporations and saddled financial institutions with a mountain of bad loans.

With the overseas investment environment worsening, the government may seek to merge SeoulBank with a stronger bank or combine it into state-run Woori Financial Holding Co, Park said.

Analysts were pessimistic.

"SeoulBank has too many branches and employees, compared with its asset size, which is the biggest stumbling block for a sale," said Yoon Yong-chul, a banking analyst at Goldman Sachs in Seoul. "Without more aggressive restructuring or just selling assets and deposits, the sale would be difficult."

SeoulBank, with total assets of 21.2 trillion won (US$16.35 billion), has 294 branches and 3,925 staff.

The government tried to sell SeoulBank to HSBC Holdings in 1999, but the first attempt failed because of a price gap. Korea then selected Deutsche Bank as an adviser in April 2000 to help turn the ailing lender around.

Korea has spent 174.5 trillion won on the financial reforms to buy bank stakes, bad loans and bail out troubled lenders since the economic crisis and has so far recovered 15 percent of the total, the Finance and Economy Ministry said.