Global banking giant HSBC said Monday it had agreed to buy half of South Korea’s sixth-biggest bank, but the deal could face regulatory problems because of legal cases involving the current owner.

HSBC has agreed to pay about 6.3 billion US dollars (4.6 billion euros) in cash for 51.02 percent of Korea Exchange Bank (KEB) from US private equity fund Lone Star.
HSBC chairman Stephen Green said the deal for South Korea’s sixth-largest bank in terms of assets would “provide HSBC with a significant presence in Asia’s third-largest economy.”

But in Seoul on Tuesday, South Korea’s financial watchdog, the Financial Supervisory Commission (FSC), said it would not approve the sale until legal cases were settled involving the purchase of the bank by Lone Star.

“It is difficult to approve the deal” because of the pending case on the legality of Lone Star’s 2003 acquisition of KEB, FSC spokesman Hong Young-Man told reporters.

Prosecutors brought charges against six people including a former KEB president last year, accusing them of manipulating figures on KEB’s financial health to pave the way for the private equity fund to acquire the bank.

Lone Star was separately accused of manipulating the share price of KEB’s credit card unit so it could be acquired cheaply by KEB. The US firm denies the allegations and says the charges were driven by hostility towards foreign investors. It has indicated it favours an early sale of its controlling stake.

KEB has more than 5.4 million customers with over 350 branches across 18 countries, making it South Korea’s leading international bank. HSBC said Monday that it would not make an offer for the remaining shares in KEB.

Green said the deal reflected the bank’s strategy of “expanding HSBC’s presence in important growth economies, particularly in Asia, Latin America and the Middle East.”

If the acquisition is completed, the Korean bank will continue to be listed on the Korea Exchange. If the deal is completed after January 31 2008, the purchase price will be increased by 133 million dollars, also payable in cash, HSBC added. In 2003, Lone Star bought 50.5 percent of KEB for some 1.5 billion dollars and later increased its stake to 64.6 percent.

But last November the pending court cases forced it to withdraw from a 7.4 billion dollar deal to sell its entire stake to top lender Kookmin Bank. In June, Lone Star sold 13.6 percent of its holding worth 1.3 billion dollars to buyers including South Korea’s Hana Financial Group and the National Agricultural Cooperative Federation.