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South Korean Banks 'Duped' by Lone Star Feint

South Korean banks are disappointed at the news that U.S. private equity fund Lone Star is in negotiations with global financial giant HSBC for the sale of Korea Exchange Bank.

Potential South Korean bidders said they were “deceived” by Lone Star into thinking they stood a chance of buying KEB themselves.

The U.S. fund sold 13% out of its 64% stake in the Korean bank after talks with Singapore's DBS Group for the sale of KEB collapsed in June. Since then, Lone Star had appeared to shelve the sale, telling reporters that it could sell the remaining stake several years down the line.

It turned down offers from Korean banks for KEB, saying it would consider them after an ongoing trial over suspected irregularities in the 2003 sale to Lone Star ends.

However, analysts say Lone Star had apparently already launched negotiations with HSBC immediately after talks with DBS broke down. The fund chose HSBC in expectations that unlike Korean banks, the London-based financial firm would be able to escape a public outcry for helping Lone Star get out of Korea without paying taxes on profits made here.

A senior Korean financial industry insider said that some Korean banks prepared to launch negotiations with Lone Star after the ruling. “They were taken in,” he said.