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.