After Lone Star, did Korea’s financial sector evolve?

Cheong Chul-gun
 
The author is a columnist at the JoongAng Ilbo. 
 
 
An email sent in May 2001 by a staffer at the Carlyle Group’s Korea office bragging of his sexual exploits in Seoul, titled “Living Like a King,” sent the local financial industry into shock. The Washington Post described it as “an ugly glimpse into Korea’s banking sector.”
 

Prime Minister Kim Min-seok gives an emergency briefing at the Government Complex Seoul on Nov. 18 regarding Korea’s request to annul the Lone Star investor-state dispute settlement ruling. The government said the annulment committee of the International Centre for Settlement of Investment Disputes ruled in favor of Korea. [YONHAP]

 
Still reeling from the Asian financial crisis, struggling Korean banks competed desperately for foreign capital. Hanmi Bank was acquired by Carlyle, while Korea First Bank went to Newbridge Capital, both U.S. private equity funds. Joheung Bank and Seoul Bank were also seeking buyers. Private equity executives dispatched to Korea received VVIP treatment.
 
Lone Star, a Texas-based private equity fund, entered the race to acquire a troubled Korean bank. It first sought to buy Seoul Bank but lost to Hana Bank. In court testimony in 2008 on allegations that Korea sold Korea Exchange Bank too cheaply, former Finance Minister Jeon Yun-churl stated that Lone Star applied to acquire Seoul Bank, but was disqualified under banking and financial regulations because it was a private equity fund.
 
Korea repaid its entire US$19.5 billion IMF bailout in August 2001. Its sovereign rating rose from B+ (speculative) after the crisis to A- (stable) in 2002. The situation was far more stable than when Korea hurried to sell Hanmi and Korea First Bank to private equity investors. Regulators declared that banks should be sold to investors in the financial sector, not speculative funds.
 
 
Yet Lone Star, despite questions over eligibility, succeeded in buying Korea Exchange Bank in 2003. A Morgan Stanley executive involved in the deal said at the time, “Having received more than 1 trillion won of investment from Lone Star is something we will be proud of 10 years from now.” But Lone Star sold the bank to Hana Financial for triple the purchase price while contributing little to innovation.
 
Despite its gains, Lone Star filed a lawsuit in 2012 against the Korean government at the International Centre for Settlement of Investment Disputes, seeking roughly 6 trillion won in damages. It argued that government delays prevented a higher-priced sale to HSBC. The 22-year dispute ended with Korea winning the case. Prime Minister Kim Min-seok called…