Financial regulators endorsed the deal between Hana Financial Group and Lone Star Funds to trade shares of Korea Exchange Bank.

Hana Financial has been allowed to take over KEB, which was owned by the U.S.-based fund since 2003, the Financial Services Commission said Friday.

The FSC ultimately has not accepted the opinion among a group of lawmakers and the KEB union that Lone Star has been ineligible to own the bank and the merger deal is invalid.

There have been continuous speculations that Lone Star has been a non-financial investor, which is barred from controlling a Korean bank under local laws.

Despite the allegations, the buyout fund has been entitled to rake in huge management premiums via the coming sale of its dominant stake in KEB.

The fund also has been convicted of manipulating the stocks of KEB’s credit card affiliate.

Citing the two main issues, stock rigging and the argumentative view over the fund’s shareholder eligibility, a group of lawmakers and civic groups called for regulators to take punitive action against Lone Star.

But the FSC has continued to argue that there is no legal ground for the stern action on the fund.

Market observers in the financial sector predicted a series of lawsuits, including injunctions, and rallies from the political sector and unionized workers at KEB.

A variety of issues surrounding Lone Star includes the noticeable relation between FSC Chairman Kim Seok-dong and the buyout fund controlling KEB for more than eight years.

In 2003, Kim was one of the key figures in generating regulatory approval for Lone Star’s acquisition of KEB. He was serving as FSC director general in charge of the working-level endorsement process.

Kim was also one of the figures from the presidential office, the finance ministry and KEB who participated in a behind-the-scenes meeting to discuss the M&A issue at a hotel in Seoul in July 2003.

Later, between 2004 and 2010, he mostly worked for the finance ministry. He was then appointed to the post of FSC chief in January 2011.

When he came back to the regulatory body, the Lone Star issue was rekindled as Hana Financial applied for the KEB takeover endorsement in December 2010.

“Financial authorities should have not handed over the bank to a fund,” a former high-ranking official of the FSC told The Korea Herald.

Commenting on the indestructible relationship between Kim and Lone Star, he has said “the kind of fund investors are banned from owning a Korean bank unless there is law revision.”

By Kim Yon-se
(kys@heraldcorp.com)