Citigroup fought off strong challenges from Standard Chartered and Temasek to snap up Korea's Koram Bank in 2004 -- a transaction that FinanceAsia called "a great M&A deal" and later that year selected as its 2004 Deal of the Year.
The $2.7 billion acquisition was viewed to have ramifications for the Korean banking industry as well as for Citi's acquisition strategy in the rest of the region and was also credited with having validated the role that private equity can play in Asia.
Four years earlier US private equity firm Carlyle and J.P. Morgan Corsair had bought a 40.5% controlling stake in the bank, Korea's fifth biggest lender, for just $450 million in the wake of the Asian financial crisis. The consortium had hired a team of bankers, led by YK Ha, from Citigroup Korea to run the bank, so Citigroup knew what it was buying. Ha is still in charge today.
This was the first major private equity exit in Korea since the crisis and the Carlyle consortium was well rewarded for its efforts, making an internal rate of return of 28%, and analysts speculated it netted profits of close to $1 billion. Goldman Sachs and J. P. Morgan advised Carlyle, while Citigroup investment bankers advised its own shop.
Citigroup's purchase of Koram Bank, the US bank's first major acquisition in Asia, was characterised by FinanceAsia editors at the time as demonstrating the depth of change that the country's banking sector had undergone since the dark, crisis days in 1998. More significantly, perhaps, they were confident that the deal would, in time, be considered a "seminal investment" for Korea.
Korea's banks had been used as agents for promoting the country's rapid industrialisation since the mid-1950s. But the Asian financial crisis in the late-1990s exposed the weaknesses of a model which had led to poor lending practices and dangerous share cross-holdings. By 2004, the banking sector was already becoming more transparent in its governance and more commercially-oriented in its operations. Citigroup's ambitious entry into the top-tier of Korean lenders was heralded as a catalyst that could shift the sector to an even higher level.
At the time, Citigroup was the world's biggest bank and could offer a huge menu of products, innovative solutions and risk management skills to any country it was allowed to transact business in. The Korean government and regulators must have hoped that those qualities would rub off on the country's major domestic lenders: Kookmin, Shinhan, Woori and Hana. In addition, foreign competitors Standard Chartered and HSBC were forced to play catch-up; the former was successful, the latter was notoriously disappointed.
In January 2005, Standard Chartered paid $3.3 billion to buy Korea First Bank (KFB) from Newbridge Capital, the Korea Deposit Insurance Corporation (KDIC) and Korea's finance ministry, which together held100% of the bank. The sale of KFB had been heavily rumoured since late November 2004, although initially many thought HSBC would buy the bank. Indeed, having been close to buying Seoul Bank, then missing out on the purchase of Koram, there were many who forecast HSBC had to make a big acquisition in Korea soon, and that KFB would be it.
But, it wasn't to be, and HSBC had to set its sights on Korea Exchange Bank (KEB), controversially bought by Lone Star, another US private equity firm, in 2003. In September 2008, however, after a year of enduring regulatory obstacles and political controversy, HSBC gave up its attempts to buy Lone Star's 51% stake in Korea's leading trade bank, ostensibly over price.
Meanwhile, the bank that was created out of Citigroup's acquisition of Koram Bank -- Citi Korea Inc -- has thrived. It has 230 branches and in addition to consumer and corporate banking, it has made significant inroads into investment banking.