HSBC walks away from $6.3 bln South Korea bank buy

HSBC dropped a $6.3 bln offer for 51% of Korea Exchange Bank, blaming turmoil in financial markets and ending what would have been the biggest cross-border move in South Korea's bank sector.
Abandoning the long-running deal, which had been beset by regulatory delays, added to speculation HSBC would look to buy a distressed western peer amid a financial sector shakeout that has seen share prices plunge and forced a hasty round of dealmaking.
"In the light of developments around the world, not least changes in asset values in world markets, we do not believe it would be in the best interests of shareholders to continue to pursue this acquisition on the terms negotiated last year," HSBC Asia CEO Sandy Flockhart said in a statement.
Shares in KEB, South Korea's sixth-ranked bank, tumbled 8% to 11,600 won by 12:55 a.m. EDT on Friday in a broader market up 4.7%. Global stocks rallied on news the United States government was looking at a comprehensive solution to the financial crisis.
John Grayken, chairman of U.S. private equity firm Lone Star, which was selling the KEB stake, said he was disappointed with HSBC's decision to walk away from the deal.
Shares in HSBC, Europe's biggest bank by market value, rose nearly 6% in Hong Kong.
HSBC, less damaged than many from the subprime mortgage meltdown, has been rumored as a potential suitor for ailing U.S. savings and loan Washington Mutual and UK rival Royal Bank of Scotland.
"Maybe it's better for HSBC to look at other markets. U.S. bank valuations are very depressed. That is very attractive to HSBC," said Y.K. Lee, analyst with Core Pacific-Yamaichi in Hong Kong.
Analysts said big falls in global asset prices and tight funding might have pushed HSBC to look elsewhere. Also, KEB's share price has held up better than its peers because of the merger premium. HSBC may also be looking to preserve capital, they added.
KEB had shed 13% in the past year to Thursday's close, outperforming the MSCI index for Asia-Pacific excluding Japan, which tumbled by nearly a third.
Separately, HSBC said on Thursday its HSBC Overseas Holdings UK Ltd unit agreed to sell its 18.6% stake in Mexican micro credit lender Financiera Independencia for $145 mln.
With the British bank's withdrawal, Lone Star, which has been struggling to exit its $1.2 bln investment in the South Korean bank since 2006, is likely to offload its KEB shares in a block trade at a discount, analysts said.
Rival Kookmin Bank, whose 2006 deal to buy a bigger stake of KEB for $7.3 bln was scrapped by Lone Star, said it was watching the situation with interest, though it is spending about $4 bln as part of the process of setting up a holding company. Kookmin shares were up 5.7%.
"We think the likelihood of Lone Star selling its sake in the market is higher than before due to global liquidity constraints," Morgan Stanley said in a note.