DeutscheƆs Korean double whammy

Events between Deutsche Bank and SeoulBank are taking an interesting turn.

After a Financial Times story reported that Deutsche Bank was bidding for a controlling stake in SeoulBank, the German institution has sought to clarify the situation.

It has stated categorically that its private equity arm, DB Capital Partners, is making the bid -- and not Deutsche Bank AG.

The situation gets more interesting when you consider that Deutsche Bank is the advisor to the Korean government on the sale of SeoulBank --  a situation which might seem to the naked eye to be a conflict of interest.

FinanceAsia understands that Deutsche has not put itself in this rather strange position on a whim.

Deutsche was given until June 30 to try and find a buyer for SeoulBank, and was under instructions from the Korean government to try and find a strategic buyer (that is, a foreign bank). However, conditions in Korea have made this less than easy. As a result, Deutsche's M&A team managed to get an extension to the government's June 30 deadline.

Over and above this, FinanceAsia can only speculate.

One interpretation of events might be that it is politically-expedient to give its client, the Korean government, a 'backstop option' . In this case, DB Capital Partners has stepped in with an offer to look at the bank.

If the government takes the private equity firm up on its proposal, Deutsche Bank will step back from its advisory role, and another investment bank may be appointed in its place.

Deutsche would thus sacrifice an M&A fee, although its private equity arm might end up owning part of a Korean bank.

However, the strategy might be perceived equally as one of buying time. Korea's financial institutions reported rapidly improving profits this week, and SeoulBank's performance is reckoned to be recovering in line with many of its peers.

The due diligence carried out by DB Capital Partners could take several months and while that is going on, Deutsche Bank will still hold the mandate to find separate strategic bidders (the DBSs and HSBCs of this world).

Meanwhile, if that fails, what is the alternative? Should there be no future interest from strategic bidders, DB Capital Partners may prove successful in its bid and will thus be following in the wake of private equity firms Newbridge and Carlyle, which both successfully bought Korean banks (Korea First and Koram respectively). 

At the end of the day, Deutsche should at least be comfortable with the management of SeoulBank. Its CEO, Chungwon Kang was, until last May, the chief country officer of Deutsche Bank in Korea.

 
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