South Korea best hope for Asian financial sector M&A
South Korea best hope for Asian financial sector M&A
HONG KONG (Reuters): Bank privatization and lucrative retail finance businesses are making South Korea the hot spot for Asian merger and acquisition (M&A) activity in the sector this year, analysts say.
"Korea is attractive because banks are more transparent than a few years ago and it is one of few Asian countries with an active middle class that has a relatively high per capita income," said Anthony Lok, regional banking analyst at Nomura International (HK) Ltd.
M&A activity in the financial services sector in Asia ex-Japan has been slow so far this year with just 665 deals, against 4,038 in 2000 and 3,044 in 1999, Thomson Financial says.
Of the 665 transactions, 58 were among investment and commodity firms and dealers; 22 involved insurers and 20 were between commercial banks.
All were predominantly intra-national as Asian governments, notably in South Korea, Taiwan and Malaysia, pushed ahead with deregulation to force consolidation in the financial services sector to help build domestic financial heavyweights.
Actual cross-border M&A business may have been slow but there is plenty of interest.
Banks are eying relatively wealthy North Asia to diversify into credit card and related businesses to offset shrinking margins in traditional services.
First off the mark could be the sale of Korea Exchange Bank's [04940.KS] credit card business, with U.S.-based Citigroup [C.N] among likely contenders for a 51 percent stake, analysts say.
"Credit cards are flavor of the month at the moment," said James von Moltke, regional vice-president for financial institutions at JP Morgan.
"The multiples from the sale of Chase's retail business caught people's eye," Moltke said.
Standard Chartered Bank became the largest credit card issuer in Hong Kong when it paid a hefty $1.3 billion for Chase Manhattan's retail banking business there last September.
Hong Kong continues to be a target of foreign banks, notably Singaporean and mainland Chinese banks, wanting to expand beyond their domestic borders.
But unlike their South Korean counterparts, Hong Kong's banks are not under pressure to raise funds and find partners.
"Hong Kong banks' retail business is still very profitable so where is the incentive to sell?" said David Law, head of Asia corporate finance at investment bank Fox-Pitt, Kelton (Asia) Ltd.
Taiwan is another potential center of M&A activity.
Citigroup made inroads last year, buying a 15 percent stake in financial services group Fubon, and recently said it would be interested in buying Taiwan banks' credit card businesses.
Standard Chartered is also looking to acquire a Taiwan bank. For the moment though, progress is lagging behind Korea where the sale of Seoulbank could also be close at hand.
The retail bank is one of a handful nationalized in the aftermath of the Asian economic crisis, which the government is now trying to privatise. Seoulbank says 18 foreign players ave shown interest in buying it, and it hopes to do a deal by June.
This month the bank said losses for 2000 fell sharply to 510 billion won ($390 million), from 2.23 trillion a year earlier.
Investment house Dresdner RCM Global Investors estimates that the ratio of non-performing loans at South Korea's largest listed commercial banks has shrunk from about 32 percent in 1998 to about 12 percent last year.
Besides banking, South Korea offers potential in the insurance sector as one of the few Asian markets outside Japan with an indigenous insurance industry.