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Seoul Will Not Approve KEB Sale Before Court Verdict

South Korea's top financial regulator reiterated on Tuesday that it would not start the approval process for Lone Star's sale of Korea Exchange Bank until a court ruling is made.

A remark by Financial Supervisory Service Deputy Governor Kim Dae-pyung at a weekly briefing affirmed market concerns about the protracted process of selling KEB, which has been stalled by a probe into the way Lone Star acquired South Korea's No. 5 bank.

HSBC Holdings said last week it was in exclusive talks to buy a 51% stake in KEB from U.S. fund Lone Star, which is now valued at $5 billion.

The London-based bank said then if agreement was reached, the transaction would be conditional on obtaining the necessary regulatory approvals in South Korea and elsewhere.

When asked if the regulatory FSS will approve the HSBC's KEB proposed stake acquisition, despite the current legal proceedings over Lone Star's 2003 KEB purchase, Kim told reporters that there was no change in their original position.

"HSBC cannot be an exception," Kim said in a question and answer session at the briefing.

Britain's Sunday Times newspaper reported last weekend that HSBC was prepared to strike a conditional deal on KEB and believed it could secure a definitive agreement in the next two months, citing unnamed bankers.

South Korean prosecutors say a former government official colluded with a lawyer hired by Lone Star and KEB's chief executive to inflate KEB's losses, allowing Lone Star to buy it in 2003 for around $900 million less than it was worth.

The allegation is being reviewed by a Seoul district court.

The protracted legal tussle led the U.S. investment fund to cancel a $7.3 billion agreement to sell KEB to top local bank Kookmin last November.