US fund Lone Star has issued a statement defending its acquisition of Korea Exchange Bank, after Korea’s Board of Audit and Inspection said on Monday that the Financial Supervisory Commission illegally and improperly approved the 2003 transaction.
John Grayken, chairman of Lone Star, questioned the board’s accusation that a mid-level government bureaucrat together with the former bank president and the bank’s sale advisors had conspired to exaggerate the bank’s financial troubles
Grayken said it was “impossible to accept” the conclusions of the board, which according to news agency Yonhap said: “The 2003 approval was inappropriate and flawed because it was based on financial data that inflated the bank’s losses, and the FSC approved the deal knowing that Lone Star was not qualified to take over the bank.”
In a detailed rebuttal, Grayken argued that the auditors’ conclusion drawn on the basis of the bank’s BIS ratio – a measure of its financial status – was flawed in itself.
Grayken said: “The current status of a bank’s operations, assets and macroeconomic environment is important but more critical to its evaluation are the future projections of these factors. There is never an absolutely correct answer to what a bank’s BIS ratio will be because it is based on many assumptions about future events which are inherently uncertain.” In fact, the forecasted BIS ratio later proved too high, he said.
Grayken went on to challenge conspiracy theories surrounding the sale of KEB, asking how government agencies, regulators and shareholders could all be convinced the bank was on the verge of failure if the information was so bad. “Unless these questions can be answered it is impossible to accept the conclusions in the BAI report,” he said.
Grayken concluded that Lone Star has been unfairly prevented from selling its stake in KEB. “Ironically, even if the [board’s] allegation that the BIS ratio was lowered as a result of a conspiracy [was true], and that approval of the sale of KEB to Lone Star was therefore inappropriate, the [regulator’s] remedy would be to order Lone Star to sell its stake in KEB to below 10%. This is exactly what Lone Star has stated it intends to do, and has been prevented from doing because of the ongoing controversy.”