Deutsche Bank looks at SeoulBank stake

The South Korean government is keen to sell off stakes in the banks it took over after the financial crisis

By CNN's Alex Frew McMillan in Hong Kong

SEOUL, South Korea -- Deutsche Bank is negotiating a stake in SeoulBank, South Korea's ninth-biggest bank.

Deutsche Bank said Tuesday its private-equity arm, DB Capital Partners, has submitted a letter of interest to buy part of SeoulBank to the Korea Deposit Insurance Corp. (KDIC).

"Discussions with KDIC are still in its infancy stage," the bank said, with the price and size of the stake still being worked out.

Deutsche Bank is interested in buying more than 4 percent, since it has asked for approval from the Financial Supervisory Commission, Korea's bank regulator.

The Financial Times reports Deutsche is seeking a controlling interest.

Looking at a revamp

Deutsche Bank has been advising SeoulBank's management on overhauling its business. SeoulBank has been trying to revamp its image after coming close to collapse.

It launched a rebranding campaign focused on retail banking at the start of the year.

DB Capital Partners makes venture-captial investments in various industries, from software to food. A Deutsche Bank spokesman said the bank was not looking to get into Korean retail banking.

HSBC was originally negotiating a takeover of SeoulBank but pulled out after talks broke down with the Korean government.

The government took over SeoulBank in 1998, in the aftermath of the Asian financial crisis. It has pumped $4.2 million (5.5 billion won) into it.

In all, the government injected close to $20 billion (over $25 trillion won) into the financial system.

But the International Monetary Fund has pushed it to reduce its stake in the institutions it owns, such as SeoulBank, Hanvit Bank and Cho Hung Bank.

Government keen to sell

"The government is fairly desperate for restructuring the government-fund injections they've made," said Daniel Yoo, Korean bank analyst with Salomon Smith Barney. "Either they realize losses, or [they] clean up through a one-time sale, which is a better idea."

So Korean banks have looked for overseas partners. U.S. venture-capital company Newbridge Capital recently bought 51 percent of Korea First Bank.

Goldman Sachs owns around a 20 percent stake in Kookmin Bank, Korea's biggest bank. CommerzBank, ING Barings and Allianz have bought into other Korean banks.

But the government has not found willing takers for SeoulBank. It lost 520 billion won last year but hasworked its way back into the black in 2001.

HSBC pulled out after it failed to land guarantees about SeoulBank's nonperforming loans. Deutsche Bank's consulting role has led to speculation it might take a stake in the bank.

"It's not really an extremely profitable company, but it is profitable," Yoo said. "So the chances of selling have increased."