Korean First Bank and ERBD Harvard Case Solution & Analysis

Korean First Bank and ERBD Case Solution

Question #1: Why did the Korean government choose New Bridge Capital over HSBC (Hong Kong Shanghai Bank Corp?)

Regardless of the Chinese banking system requiring change over various front-risk management, credit authorization, product improvement and innovation, the government has firmly taken the  responsibility for banks by foreign entities. In December 1998, the Korean Government sold 51 % stake in Korea’s First Bank to New bridge Capital of the United States for 500 billion despite the fact that the price was too low.

It was the first occasion when the controlling stake in the Korean bank was sold to foreign financial investors. Mr. Horie, the president of KFB, realized that he put more focus on the bank's short term benefits and not on the stability of long term performance and growth for the bank.

Korea First Bank presented numerous creative services and products, for example, Mortgage loans with long term maturities(of over 30 years were presented in the country where long-term household credit typically matured within 10 years).

New Bridge Capital and Hong Kong and Shanghai Bank Corporation fought against each other to be the proprietary of the bank, Korea First Bank.Due to its history and its reputation,the main point to invest was the government’s interest in possessing larger portion of stake of the bank. Amid the entire offering and the offer period amongst NBC and HSBC for the procurement of Koreas First Bank, both contributed a lot of cash, time and assets. New Bridge Capital offered the alternative of getting 51% of the bank and leaving the government with the other 49%. This benefit dispersion left the Korean government with votes in the bank, yet insufficient to oppose New Bridge Capital.

In the time of its possession, it freed the bank from the problems which it faced because of the loans. Moreover, HSBC, the guardian of Hong Kong and Shanghai Bank, needed a greater stake of around 80%. Sources indicate that the private value firms such as HSBC (‎Hong Kong and Shanghai Banking Corporation) were under no immediate pressure to sell. In any case, there were most likely two strengths at work; one was that HSBC’s private value firms in the district were considering adapting their investments following four to five years’ hold. Another strength comprised of delivering the parcel by these companies that operated in the Korean banking sector.

Along with this, the Korean bank was in the favor of NBC’s offer as they maintained the same name as Korean First bank whereas,HSBC was considering changing its name.

Question #2: Was this a good deal for New Bridge Capital? For the Korean government? For Korea First Bank (KFB)? Evaluate the timing of the sale.

After the severe financial crisis that affected the financial segment, most of the banks filed for bankruptcy and liquidation or they were ready to be sold to the government. KFB was one of these banks, which had a capital infusion of $987 million to be saved in 1998. In the same year, the managements old the bank to New Bridge Capital.

The deal was beneficial for the Korean government as they received a huge sum of assets and resources to recover from the losses, however they were able to keep 49% of the benefits of the bank.

This distribution allowed the Korean government to get the advantage from the agreement which was made by NBC. Then again, New Bridge Capital also made a great deal by bringing new set of superiors, directors and board members, new procedures were implemented and other changes,which led the KFB to make new goals. These accommodations helped the Korean economy and in the meantime, the bank began to generate more income for New Bridge Capital Corporation.

In short, it was a good deal for the acquisition of new bridge capital (NBC), which helped the bank as well as the Korean government to improve the economy and to generate profit from KFB for the NBC by setting new goals and objectives....................

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