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HSBC, KEB Win Antitrust Approval, Hurdles Remain

HSBC Holdings' $6.3 billion purchase of a stake in Korea Exchange Bank (KEB) will not hinder market competition, South Korea's Fair Trade Commission said on Wednesday.

But the antitrust body took pains to emphasize that the final decision on the purchase belonged to the Financial Services Commission (FSC), a separate body. The FSC, in turn, has said it would not approve the sale of KEB shares until all legal issues over Lone Star's KEB investment were resolved.

"The Fair Trade Commission has analyzed the impact of the merger on eight different market segments and has concluded that competition will not be impacted in any segment," the anti-trust body said in a statement.

However, it added, "the FTC's conclusions are separate from those of the FSC."

HSBC agreed in September of last year to buy 51.02 percent of KEB, South Korea's sixth-largest bank, from U.S. private equity firm Lone Star, in a deal that could propel Europe's biggest bank into the top ranks of Asia's third-largest banking market.

UK-based HSBC has tried repeatedly to raise its profile in South Korea in a move seen aimed at capitalizing on booming consumer banking and wealth management.

HSBC's KEB stake purchase is conditional on receiving necessary approvals by April 30. Approvals from the FTC and FSC are two regulatory requirements for buyers of South Korean companies.

The antitrust body's favorable ruling now puts the spotlight squarely on the ongoing legal wranglings and the FSC's final decision.

Last month, a Seoul court found the head of Lone Star's South Korean operations guilty of manipulating the stock price of a KEB credit card unit so it could buy it cheaply.

It was the first court verdict in a long-running legal battle between South Korean prosecutors and Lone Star's South Korean operations, which bought KEB for $1.2 billion in 2003.

Lone Star is appealing against the verdict.

Analysts and domestic banks have questioned whether the HSBC-KEB deal would go through.

"There will be no such thing as a financial regulator decision until the courts sort it out," said Ku Yong-uk, a banking analyst at Daewoo Securities. "Due to an ongoing government reshuffle, no one will take the initiative to make such a sensitive decision for the time being," he said.

"It will be impossible to meet the April deadline because courts will have to restart the case about stock manipulation charges. There's also a separate trial on the pricing of KEB's 2003 sale."

Asked by Reuters in Hong Kong on Tuesday about what HSBC would do if the final approval doesn't go through, Sandy Flockhart, HSBC's Asia CEO, was evasive.

"I think we'd have to consider the options at that moment in time," Flockhart said. "I still think that this transaction from all perspectives looks very positive. I think it's positive for Korea, it's positive for us, and hopefully it's something ... that Lone Star themselves will be happy to have
found ..."

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