FT 02/14/05 Push for Korean directors puts pressure on StanChart

Financial Times (London, England)
February 14, 2005 Monday
USA Edition 1
SECTION: FRONT PAGE - COMPANIES & MARKETS; Pg. 15
LENGTH: 424 words
HEADLINE: Push for Korean directors puts pressure on StanChart
BYLINE: By ANNA FIFIELD
DATELINE: SEOUL

Seoul's financial watchdog is putting pressure on Standard Chartered, the UK-based bank, to ensure Koreans make up half the board of directors at Korea First Bank when it completes its Pounds 1.75bn (Dollars 3.27bn) takeover in April.

The Financial Supervisory Service's guidance is likely to pose a challenge for London-based StanChart as only three of KFB's 16 directors are Korean.

Although just a recommendation, the advice is part of a broader push in South Korea to curb foreign influence over domestic banks - a drive that could also affect Citigroup, which last year acquired KorAm bank, and Lone Star, the US private equity fund that controls Korea Exchange Bank.

The FSS wants to institute regulations limiting the number of foreigners allowed to sit on the boards of domestic banks and impose residency requirements on non-Korean directors.

The National Assembly is due this month to consider a revision to the Banking Act that would require at least half of bank directors to have Korean nationality. It would also require directors to have lived in South Korea for at least a year before being appointed and live in the country throughout their tenure.

"At the moment, there is no law that can compel banks to limit the number of foreign directors," a senior FSS official told the JoongAng Daily newspaper.

The watchdog confirmed to the Financial Times at the weekend that it was asking StanChart to follow its recommendation. It expected StanChart to respond positively because of its commitment to "localisation".

A StanChart official could not confirm whether the bank had received the request but repeated the company's commitment to "diversity" on its board. StanChart's existing Korean business is headed by Tom McCabe, a US citizen, while KFB is led by Frenchman Robert Cohen.

StanChart last month clinched a deal to buy the country's seventh largest lender for Won3,400bn, its biggest acquisition and the largest foreign investment in South Korea.

The regulator's request comes amid public anxiety over the Dollars 1bn-plus profits made by Carlyle and Newbridge, the private equity funds, when they sold their stakes in KorAm and KFB respectively.

Lone Star will be able to sell its half-share in KEB, the country's fifth largest lender, when its lock-in period expires in October. HSBC, initially the front-runner for KFB but whose offer was trumped by StanChart, is expected to be interested in KEB.

Investors are attracted to South Korea because of the improving profit opportunities after a clean-up of underperforming institutions.