Newbridge eyes $1bn profit on bank exit

Regardless of which bidder ends up buying Korea First Bank, its current 49 percent owner, US private equity firm Newbridge Capital, stands to make a cool $1bn profit on a groundbreaking 1999 investment.

Newbridge Capital stands to make a $1 billion (€733 billion) profit upon the sale of its stake in Korea First Bank, which currently is being bid on by rival strategic buyers.

San Francisco-based Newbridge acquired a 51 percent stake in Korea First directly from the South Korean government in a groundbreaking 1999 deal. That deal was valued at roughly $417 million, with Newbridge pledging to inject as much as $200 million into the then-troubled lending institution over the subsequent two years, South Korean financial regulators announced at the time.

Newbridge, a joint venture between Texas Pacific Group and Blum Capital Partners, retains a 48.56 percent stake in the bank, which is currently accepting takeover offers from banking giants HSBC and Standard Charter Bank. HSBC, reportedly the favoured bidder, has offered as much as $3.3 billion for the combined 97 percent stakes owned by Newbridge and state-run Korea Deposit Insurance Corporation, according to reports. An offer of that magnitude values Newbridge’s stake at $1.65 billion, or $1.2 billion more than the firm reportedly paid for its 51 percent stake in 1999.

When Newbridge, led by managing director Dan Carroll, and the South Korean government announced a definitive agreement on the deal in September 1999, it marked the first time that a foreign investor had acquired a majority stake in a Korean financial institution. The prohibition against such a deal was waived by financial regulators following Asia’s 1997 economic crisis.

At the time, Newbridge announced: “Newbridge intends to rehabilitate [Korea First] by implementing international banking practices and introducing new products and innovations to the Korean market.”

Under its stewardship of the bank, Newbridge recruited Western-trained executives to Korea First and shifted its lending business towards consumers.

The deal came after months of grueling negotiations with the South Korean government. The private equity firm and regulators reportedly could not come to an agreement on the value of the bank’s loan portfolio, which directly influenced the final sale price.

In June 1999, Moody’s Investors Service warned that the South Korean government’s delay on the sale would stifle the country’s economic restructuring.

Once completed, Newbridge’s bank exit will be yet another among several blowout private equity exits of Asian financial institutions. In February, The Carlyle Group and JP Morgan Corsair II Offshore Capital Partners sold a combined 36.6 percent stake in KorAm Bank to Citigroup for $2.73 billion. Carlyle and JP Morgan had invested roughly $400 million in the commercial bank in 2000.

The same month, shareholders in Japanese bank Shinsei – including US private equity firm Ripplewood Holdings, Deutsche Bank and General Electric – sold a 33 percent stake in the bank for Y231 billion ($2.1 billion; €1.7 billion) in an initial public offering on the Tokyo Stock Exchange.

The Ripplewood-led group bought Shinsei – then called Long-Term Credit Bank of Japan – in 2000 for Y121 billion ($1.2 billion). Shinsei’s market value since the IPO has risen to around Y1.1 trillion (€8.1 billion; $10.1 billion). The private equity group still retains a two-thirds stake in the bank worth ro