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BAI Wants KEB Takeover Overturned

Posted March. 13, 2007 03:16,   

한국어

The Board of Audit and Inspection (BAI) announced its conclusion on March 12 that the approval of Lone Star’s Korea Exchange Bank (KEB) takeover by the Financial Supervisory Commission (FSC) in 2003 can be nullified because it was illegal. The BAI told the FSC to come up with appropriate measures such as revoking the deal under its authority.

On the same day, the BAI disclosed the audit result of the KEB takeover process. The audit, which started last March, pointed out that the FSC’s approval of Lone Star to be KEB’s biggest shareholder was illegal because the U.S. private equity fund was not eligible for the post.

“The FSC gave its seal of approval to Lone Star even though the PEF was ineligible to take over KEB according to Korean Bank Law. The consent was inappropriate and illegal since it was based on a distorted BIS capital adequacy ratio,” said a BAI official at the briefing.

“Appropriate measures include the FSC revoking its approval for Lonestar’s takeover using its authority. We used the term ‘appropriate measures’ to expand the scope of FSC’s discretion. This is to allow FSC to use its own power to take appropriate measures after broadly reviewing consequences of revoking approval, such as changes in the economic situation, benefits and losses,” added BAI’s finance audit director Kim Byung-chul.

With regard to Morgan Stanley staff members and other workers who gave inaccurate advice regarding the buyout of KEB by arbitrarily lowering KEB’s stock value, the BAI notified the FSC to take disciplinary action against it under the Securities and Exchange law and other regulations.

In addition, the board told the biggest shareholder at that time, the chairman of the Export-Import Bank (EXIM Bank), to file for damages against Morgan Stanley and KEB management, including former chairman Lee Kang-won. The BAI issued a correction order to the KEB to revoke stock options for 120,000 shares (5,000 won or $5.30 each) that were given to seven outside directors.

The Board called for institutional caution regarding organizations that inappropriately dealt with the KEB takeover. Those organizations include the Ministry of Finance and Economy, the FSC, the Financial Supervisory Service and the EXIM Bank. The BAI urged eleven related officials to take cautions. Their statute of limitations for disciplinary action has already expired.

The prosecution also concluded that it was illegal for the FSC to approve Lone Star to become KEB’s majority shareholder.

Since the BAI’s notification is not legally binding, now the ball for fixing the complicated work of KEB takeover is on FSC’s side.

After BAI’s announcement, the FSC said, “We will decide on follow up measures after assessing the audit result.”



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