Korean government hints Seoulbank sale may fail

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

By staff and wire reports

SEOUL, South Korea -- The South Korean government has signaled that its almost four-year-long effort to sell the country's ailing Seoulbank may fail.

On Monday the country's finance minister hinted he was looking at contingency plans for the bank, the ninth largest in South Korea, a move analysts suggest could mean a forced merger with another nationalized lender.

South Korea's Financial Supervisory Commission (FSC) chairman Lee Keun-young told state-run Korea Broadcasting System that talks to sell Seoulbank were still underway, but the government has prepared "contingency plans just in case."

Amid signs South Korea is facing its second-worst year of economic growth in two decades, the government has redoubled its efforts to sell stakes in many banks, including Seoulbank.

Lee said last week a 1.1 trillion won ($863.4 million) deal to sell stakes in Hyundai financial units to a consortium led by American International Group would be done "within 10 days."

Limited options

But Korean authorities face a tough sell as foreign capital has all but dried up.

South Korea has tried to sell Seoulbank, one of several lenders nationalized in the wake of the Asian financial crisis, since late 1997.

Selling the bank to a foreign investor was one of the promises the government made to secure a $58.35 billion rescue from the International Monetary Fund in late 1997.

The government had hoped to sell the lender to a foreign investor to boost banking practices.

Talks to sell Seoulbank to HSBC, the world's second largest lender, fell through and most recently it has eyed DB Capital, a private equity unit of Deutsche Bank AG.

The government now aims to sell the bank by year's end.

If the DB Capital talks fail, analysts say the government might ask another state-run bank to merge with Seoulbank or place it in a state-run financial holding company set up in April.

Lee's remarks have triggered speculation the government might ask Chohung or Korea Exchange Bank to take over Seoulbank, though officials for both lenders were quick with denials.

But the government has forced mergers in the past and might try again.

Analysts have been quick to slam such a move, which they see as being aimed more at keeping jobs than boosting balance sheets.

Korea Exchange shares rose 3.6 percent to 3,130 in Monday trading.