Why did the Korean government choose New Bridge Capital over Hong Kong and
Shanghai Bank Corporation Limited (HSBC)?
The Korean government faced with challenges when it was looking for the foreign buyer that could have interest in acquiring Korea First Bank. There were many reasons behind it, such as the vulnerable bank situation in Korea at that time that was caused by many failing chaebols and their debts, the economic and banking instability in Korea at that time and many other reasons. Most of the foreign capitals and banks looked at the Korean government’s sale of Korea First bank with cautiousness as no one wanted to invest into the troubled bank.
However, two New Bridge Capital and Hong Kong and Shanghai Bank Corporation Limited (HSBC) submitted their bids for purchasing Korea First Bank from the Korean government. At the end, the Korean government chose New Bridge Capital over HSBC for many reasons. First, New Bridge Capital proposed the deal that the Korean government would still have “49 percent of the ownership” (Huang), while the New Bridge would have “51 percent of the bank ownership” (Huang). Both parties were satisfied with such ownership percentage situation. HSBC wanted to have more percentage of the ownership and the negotiations did not work out well with the Korean government regarding the ownership topic. Secondly, New Bridge Capital and the government found mutual agreement and understanding in terms of “NPL that would be removed from the balance sheet of KFB” (Huang), or in case of bad financial loans, the Korean government would “supply a fund equivalent to 3.5 percentage” (Huang). In case with HSBC, the bank and the Korean government did not find mutual agreement in terms of price and “mutually accepted terms” (Huang). Thirdly, New Bridge capital had more experience in “having strong customer base with the capital and industry expertise” (Huang), while HSBC was just focused on “financial, personal, commercial and investment, and private banking services” (Huang).
Was this a good deal for New Bridge Capital? For the Korean government? For Korea First Bank (KFB)? Evaluate the timing of the sale.
This was a good deal for everyone – for New Bridge Capital, for the Korean government and for Korea First Bank. All three parties benefitted from each other, and it is important to remember that in any negotiation process the mutual benefit and agreement is the most important.
The New Bridge Capital acquired Korea First Bank at 51 percentage and with this acquisition, New Bridge Capital expanded its assets and industry expertise. Besides, in case if the bank could face with the bad loans, “the Korean government would supply those loans at 3.5 percentage according to the agreement” (Huang). After the acquisition, New bridge Capital started to work towards the change of the management, the CEO, and implementing new changes for the bank.
The Korean government benefitted from the ability to sell the bank at 51 percentage, besides, it showed the rest of the world that South Korea is going out from the old management way to new democratic management way of doing the deals and changing economic environment of the country.
The Korea First bank benefitted from the innovation and new management team led by foreigners for the first time in the history of Korean banks. It meant stepping up forward from the dependency of chaebols, corruption and bureaucracy. Besides, according to the text, “Newbridge will try to do things differently, and that will stimulate other banksThe better they do the better for all of us in the banking market” (Huang).
The timing of the sale was quite a long and tedious process, but at the end, it was totally worth it. New Bridge Capital waited a lot from the Korean government, as the negotiations were stopped for several times in terms of closing the deal, but thankfully, at the end the deal and the mutual agreement were reached.
References
Huang, Yasheng. "Korea First Bank (A)." (2002): n. pag. Print.
