HSBC Cancels Bid to Buy Korea Exchange Bank

British banking giant HSBC announced yesterday that it has canceled a deal to buy 51.02 percent of Korea Exchange Bank from U.S. private equity fund Lone Star.

With HSBC out of the race, competition is expected to intensify between Korean banks Kookmin and Hana to buy Korea Exchange Bank.

In a report, HSBC said, "Taking into account all relevant factors, including current asset values in world financial markets, HSBC Asia exercised its right to terminate the acquisition agreement.”

The British bank apparently dropped its bid due to global jitters over the U.S. financial crisis and the significant fall of Korea Exchange Bank’s share price due to the slowdown in the Korean stock market.

After the July 31 deadline passed for HSBC’s agreement with Lone Star to buy a controlling stake in Korea Exchange Bank for 6.018 billion dollars, or 18,045 won per share, HSBC continued to renegotiate with Lone Star to lower the sale price. Yesterday, Korea Exchange Bank’s stock stood at 11,350 won per share.

Korea Exchange Bank CEO Richard Wacker said, “I’m disappointed. We’ll begin the process of finding new buyers.”

Kookmin Bank CEO Kang Chung-won and Hana Bank CEO Kim Jung-tae told reporters that they are interested in buying Korea Exchange Bank.

Experts, however, say domestic financial institutions will be unwilling to acquire the bank due to a credit crunch stemming from the U.S. mortgage loan crisis.

sanjuck@donga.com crystal@donga.com