fuqua school of businesscharvey/teaching/663... · web viewkorea exchange bank – cash flow...

HSBC’s Acquisition of KEB

Finance 663: International FinanceProfessor Campbell R. Harvey

May 26, 2023

Prepared by:

Alok ChakrabortyChris Donghui LeeArindam Mandal

Harsh Singh

Finance 663.301 International Finance

Alok Chakraborty, Chris Donghui Lee, Arindam Mandal, Harsh Singh Locker # 188

Exhibit 1

Korea Exchange Bank (KEB) Timeline (Y-axis represents share prices in KRW):

2



Exhibit 2

Korea Exchange Bank – Balance Sheet Till 2007 (Source: Capital IQ)

Balance SheetBalance Sheet as of: Reclassified

Dec-31-2002ReclassifiedDec-31-2003

RestatedDec-31-2004

ReclassifiedDec-31-2005

ReclassifiedDec-31-2006

RestatedDec-31-2007

Currency KRW KRW KRW KRW KRW KRWASSETSCash And Equivalents 4,101,781.0 4,837,878.0 2,789,231.0 3,123,260.0 2,684,610.0 4,216,788.0

Investment Securities 10,738,496.0 13,243,236.0 12,455,450.0 11,470,384.0 9,192,535.0 8,560,861.0 Trading Asset Securities 1,904,203.0 1,254,241.0 2,496,149.0 2,365,553.0 2,656,375.0 3,895,557.0 Total Investments 12,642,699.0 14,497,477.0 14,951,599.0 13,835,937.0 11,848,910.0 12,456,418.0

Gross Loans 41,994,859.0 44,775,773.0 40,852,966.0 43,486,483.0 49,108,671.0 58,129,735.0 Allow ance For Loan Losses (1,075,890.0) (2,441,778.0) (912,467.0) (598,422.0) (648,642.0) (753,696.0) Other Adj. to Gross Loans - - (1,271.0) (2,667.0) (14,519.0) (31,792.0) Net Loans 40,918,969.0 42,333,995.0 39,939,228.0 42,885,394.0 48,445,510.0 57,344,247.0

Gross Property, Plant & Equipment 1,558,127.0 1,579,829.0 1,619,179.0 1,578,897.0 1,623,937.0 1,666,440.0 Accumulated Depreciation (603,335.0) (619,543.0) (716,223.0) (691,004.0) (732,969.0) (756,551.0) Net Property, Plant & Equipment 954,792.0 960,286.0 902,956.0 887,893.0 890,968.0 909,889.0

Goodw ill - - - - - -Other Intangibles - - 3,133.0 2,083.0 1,291.0 788.0 Investment in Real Estate - - 1,077.0 895.0 - -Accrued Interest Receivable 441,968.0 470,498.0 287,920.0 348,496.0 361,952.0 320,582.0 Other Receivables 3,077,931.0 1,684,802.0 2,757,882.0 3,569,567.0 4,384,431.0 6,933,777.0 Restricted Cash - - - - 1,503,711.0 1,891,856.0 Other Current Assets - 103,253.0 98,565.0 66,748.0 50,041.0 68,625.0 Deferred Tax Assets, LT 211,121.0 208,009.0 207,814.0 8,240.0 8,366.0 10,948.0 Other Real Estate Ow ned And Foreclosed - - 70.0 73.0 - -Deferred Charges, LT - - 40,098.0 82,415.0 81,009.0 80,271.0 Other Long-Term Assets 2,380,707.0 1,460,184.0 1,150,466.0 1,773,031.0 1,221,734.0 701,977.0 Total Assets 64,729,968.0 66,556,382.0 63,130,039.0 66,584,032.0 71,482,533.0 84,936,166.0

LIABILITIESAccounts Payable 3,090,767.0 1,817,754.0 2,726,722.0 3,623,890.0 4,684,241.0 -Accrued Exp. 905,773.0 806,260.0 787,744.0 640,854.0 731,524.0 757,469.0

Interest Bearing Deposits 42,642,982.0 27,452,534.0 24,652,729.0 21,759,333.0 21,517,239.0 26,919,773.0 Non-Interest Bearing Deposits - 18,115,805.0 16,604,135.0 18,978,740.0 20,286,701.0 21,751,581.0 Total Deposits 42,642,982.0 45,568,339.0 41,256,864.0 40,738,073.0 41,803,940.0 48,671,354.0

Short-term Borrow ings 1,996,513.0 2,759,661.0 3,654,207.0 3,734,227.0 4,163,659.0 5,757,507.0 Long-Term Debt 12,265,172.0 10,657,394.0 9,895,296.0 9,654,918.0 10,797,683.0 13,197,227.0 Curr. Income Taxes Payable - - - - - -Other Current Liabilities 43,542.0 54,247.0 19,750.0 41,336.0 154,230.0 256,757.0 Unearned Revenue, Non-Current 92,195.0 79,736.0 52,323.0 54,143.0 67,360.0 186,748.0 Pension & Other Post-Retire. Benefits 32,914.0 44,515.0 34,446.0 46,014.0 50,780.0 92,600.0 Def . Tax Liability, Non-Curr. - - - 31,740.0 139,606.0 178,817.0 Other Non-Current Liabilities 1,422,551.0 2,525,756.0 1,750,118.0 2,335,735.0 2,485,464.0 9,166,774.0 Total Liabilities 62,492,409.0 64,313,662.0 60,177,470.0 60,900,930.0 65,078,487.0 78,265,253.0

Pref. Stock, Convertible 740,000.0 130,000.0 - - - - Total Pref. Equity 740,000.0 130,000.0 - - - -

Common Stock 1,110,875.0 3,064,625.0 3,224,534.0 3,224,534.0 3,224,534.0 3,224,534.0 Additional Paid In Capital 214,306.0 156,805.0 - - - 940.0 Retained Earnings (93,754.0) (1,036,845.0) (567,312.0) 1,358,864.0 2,036,379.0 2,359,658.0 Treasury Stock - - - - - -Comprehensive Inc. and Other (121,670.0) (98,693.0) 286,963.0 1,098,558.0 1,141,823.0 1,084,293.0 Total Common Equity 1,109,757.0 2,085,892.0 2,944,185.0 5,681,956.0 6,402,736.0 6,669,425.0

Minority Interest 387,802.0 26,828.0 8,384.0 1,146.0 1,310.0 1,488.0

Total Equity 2,237,559.0 2,242,720.0 2,952,569.0 5,683,102.0 6,404,046.0 6,670,913.0

Total Liabilities And Equity 64,729,968.0 66,556,382.0 63,130,039.0 66,584,032.0 71,482,533.0 84,936,166.0

3



Exhibit 3

Korea Exchange Bank – Income Statement Till 2007 (Source: Capital IQ)I ncome Statement

For the Fiscal Period EndingReclassified

12 monthsDec-31-2002

12 monthsDec-31-2003

Reclassified12 months

Dec-31-200412 months

Dec-31-2005

Reclassified12 months


Dec-31-2007Currency KRW KRW KRW KRW KRW KRW Interest Income On Loans 2,445,379.0 2,561,586.0 2,934,111.0 2,891,860.0 3,278,637.0 3,811,763.0 Interest Income On Investments 766,323.0 944,089.0 617,949.0 548,835.0 538,451.0 593,390.0 Total Interest Income 3,211,702.0 3,505,675.0 3,552,060.0 3,440,695.0 3,817,088.0 4,405,153.0 Interest On Deposits 1,585,308.0 1,243,134.0 1,133,596.0 999,457.0 1,113,830.0 1,429,539.0 Total Interest On Borrow ings 512,170.0 743,286.0 644,402.0 561,308.0 668,546.0 834,722.0 Total Interest Expense 2,097,478.0 1,986,420.0 1,777,998.0 1,560,765.0 1,782,376.0 2,264,261.0 Net Interest Income 1,114,224.0 1,519,255.0 1,774,062.0 1,879,930.0 2,034,712.0 2,140,892.0

Trust Income 33,696.0 23,808.0 13,261.0 14,809.0 16,157.0 21,985.0 Income From Trading Activities 149,435.0 135,436.0 269,970.0 231,853.0 26,162.0 89,308.0 Gain (Loss) on Sale of Loans (Rev) - 223,711.0 - - 47,487.0 18,439.0 Gain (Loss) On Sale Of Assets (Rev) 32,933.0 16,293.0 (834.0) (4,624.0) (7,479.0) (1,963.0) Gain on Sale of Invest. & Secur (Rev) (486,592.0) (239,785.0) 177,196.0 468,130.0 540,402.0 137,575.0 Income (Loss) On Equity Invest. (Rev) 14,317.0 13,118.0 22,535.0 535.0 593.0 694.0 Total Other Non-Interest Income 1,701,069.0 1,223,499.0 679,685.0 513,311.0 3,583,251.0 4,216,864.0 Non-Oper. Income (Exp.) 200,955.0 53,151.0 123,954.0 181,180.0 56,065.0 80,406.0 Total Non Interest Income 1,645,813.0 1,449,231.0 1,285,767.0 1,405,194.0 4,262,638.0 4,563,308.0 Revenue Before Loan Losses 2,760,037.0 2,968,486.0 3,059,829.0 3,285,124.0 6,297,350.0 6,704,200.0

Provision For Loan Losses 1,414,877.0 2,866,032.0 1,001,057.0 43,341.0 181,715.0 304,777.0 Total Revenue 1,345,160.0 102,454.0 2,058,772.0 3,241,783.0 6,115,635.0 6,399,423.0

Salaries and Other Empl. Benefits - - - - - -Amort. of Goodw ill & Intang. Assets - - - - - -Occupancy Expense - - - - - -Selling General & Admin Exp., Total 844,339.0 909,480.0 954,037.0 1,086,460.0 1,097,395.0 1,158,765.0 (Gain) Loss on Sale of Loans (Rec) - - - - 7,219.0 7,246.0 (Income)/Loss from Affiliates - - - - - 109.0 Total Other Non-Interest Expense 467,924.0 427,663.0 422,461.0 476,151.0 3,385,783.0 3,665,790.0 Non Oper. (Income) Exp. 81,139.0 66,761.0 180,128.0 42,010.0 17,641.0 30,902.0 Total Non-Interest Expense 1,393,402.0 1,403,904.0 1,556,626.0 1,604,621.0 4,508,038.0 4,862,812.0

EBT Excl. Unusual Items (48,242.0) (1,301,450.0) 502,146.0 1,637,162.0 1,607,597.0 1,536,611.0

Restructuring Charges - (2,844.0) - - - -Impairment of Goodw ill - - - - - -Gain (Loss) On Sale Of Assets - - - - - -Gain (Loss) on Sale of Invest. - - - - - -Other Unusual Items 12,830.0 5,517.0 17,675.0 16,690.0 - - EBT Incl. Unusual Items (35,412.0) (1,298,777.0) 519,821.0 1,653,852.0 1,607,597.0 1,536,611.0

Income Tax Expense (68,307.0) 16,518.0 20,771.0 (281,052.0) 601,020.0 575,468.0 Earnings from Cont. Ops. 32,895.0 (1,315,295.0) 499,050.0 1,934,904.0 1,006,577.0 961,143.0

Earnings of Discontinued Ops. - - - - - -Extraord. Item & Account. Change - - - - - - Net Income to Company 32,895.0 (1,315,295.0) 499,050.0 1,934,904.0 1,006,577.0 961,143.0

Minority Int. in Earnings 20,150.0 446,718.0 27,585.0 (1,013.0) (163.0) (198.0) Net Income 53,045.0 (868,577.0) 526,635.0 1,933,891.0 1,006,414.0 960,945.0

Pref. Dividends and Other Adj. - - - - - -

NI to Common Incl Extra Items 53,045.0 (868,577.0) 526,635.0 1,933,891.0 1,006,414.0 960,945.0 NI to Common Excl. Extra Items 53,045.0 (868,577.0) 526,635.0 1,933,891.0 1,006,414.0 960,945.0

Per Share ItemsBasic EPS 212.4 (2,039.45) 817.83 2,998.71 1,560.56 1,490.05 Basic EPS Excl. Extra Items 212.4 (2,039.45) 817.83 2,998.71 1,560.56 1,490.05 Weighted Avg. Basic Shares Out. 249.7 425.9 643.9 644.9 644.9 644.9

Diluted EPS 127.0 (2,039.45) 817.83 2,997.26 1,558.27 1,490.05 Diluted EPS Excl. Extra Items 127.0 (2,039.45) 817.83 2,997.26 1,558.27 1,490.05 Weighted Avg. Diluted Shares Out. 416.1 425.9 644.1 645.3 645.9 644.9

4



Exhibit 4

Korea Exchange Bank – Cash Flow Statement Till 2007 (Source: Capital IQ)

Cash Flow

For the Fiscal Period Ending 12 monthsDec-31-2002

Restated12 months

Dec-31-2003

Restated12 months


Dec-31-2005

Restated12 months


Dec-31-2007Currency KRW KRW KRW KRW KRW KRW Net Income 53,045.0 (868,577.0) 526,635.0 1,933,891.0 1,006,414.0 960,945.0 Depreciation & Amort. 106,729.0 127,301.0 112,434.0 95,305.0 98,379.0 107,305.0 Amort. of Goodw ill and Intangibles 8,214.0 9,599.0 9,445.0 19,935.0 24,751.0 30,026.0 Depreciation & Amort., Total 114,943.0 136,900.0 121,879.0 115,240.0 123,130.0 137,331.0

Other Amortization - - - - - -Minority Int. in Earnings (20,150.0) (446,718.0) (27,585.0) 1,013.0 - -Gain (Loss) on Sale of Loans & Receiv. (14,129.0) (223,711.0) (50,073.0) (9,110.0) - -(Gain) Loss On Sale of Assets (11,199.0) (16,293.0) 834.0 4,624.0 7,479.0 1,963.0 (Gain) Loss On Sale Of Invest. 415,489.0 225,023.0 (157,504.0) (482,749.0) (245,557.0) (62,197.0) Provision for Credit Losses 1,414,877.0 2,841,426.0 987,232.0 34,061.0 175,687.0 295,948.0 (Income) Loss on Equity Invest. (14,620.0) (13,118.0) (22,173.0) 315.0 (593.0) (585.0) Stock-Based Compensation - 928.0 6,493.0 7,310.0 4,965.0 5,417.0 Change in Trad. Asset Securities - - (703,723.0) (110,704.0) (164,848.0) (1,090,574.0) Change in Unearned Rev. 10,449.0 (12,459.0) (26,142.0) 1,820.0 13,217.0 43,410.0 Change in Def. Taxes - - - - 215,905.0 42,638.0 Change in Other Net Operating Assets 33,953.0 (125,251.0) 102,958.0 (224,756.0) (3,526,576.0) (8,864,900.0) Other Operating Activities (685.0) 52,583.0 164,279.0 (176,988.0) 225,282.0 43,894.0 Cash from Ops. 1,981,973.0 1,550,733.0 923,110.0 1,093,967.0 (2,165,495.0) (8,486,710.0)

Capital Expenditures (134,065.0) (456,881.0) (109,761.0) (145,889.0) (117,277.0) (134,659.0) Sale of Property, Plant and Equipment - - - - 8,344.0 7,028.0 Cash Acquisitions - - - - - -Divestitures - - - - - -Purchase/Sale of Intangibles (14,248.0) - - - (22,553.0) (29,064.0) Purch./Sale of Real-Estate Prop. - - - - 73.0 -Net Cash from Investments 574,973.0 (555,639.0) 1,454,963.0 1,736,070.0 28,965.0 (4,000.0) Net (Increase)/Decrease in Loans Orig/Sold (7,577,853.0) (4,736,729.0) 943,045.0 (1,732,103.0) 69,300.0 (1,548,684.0) Deferred Charges - - - - - -Total Other Investing Activities 208,440.0 2,244,282.0 (2,224,201.0) 2,509,028.0 (560,814.0) (6,290,557.0) Cash from Investing (6,942,753.0) (3,504,967.0) 64,046.0 2,367,106.0 (593,962.0) (7,999,936.0)

Short Term Debt Issued - - - - - -Long-Term Debt Issued 2,347,283.0 - 212,304.0 606,061.0 17,956,815.0 7,754,975.0 Total Debt Issued 2,347,283.0 - 212,304.0 606,061.0 17,956,815.0 7,754,975.0 Short Term Debt Repaid - - - - - -Long-Term Debt Repaid - (818,788.0) (696,713.0) (587,953.0) (16,484,632.0) (3,559,114.0) Total Debt Repaid - (818,788.0) (696,713.0) (587,953.0) (16,484,632.0) (3,559,114.0)

Issuance of Common Stock - 1,075,000.0 - - - -

Common Dividends Paid - (1,620.0) - - - (644,907.0) Common and/or Pref. Dividends Paid (28,757.0) - - - - -Total Dividends Paid (28,757.0) (1,620.0) - - - (644,907.0)

Net Incr. (Decr.) in Deposit Accounts 5,438,698.0 2,938,324.0 (4,295,300.0) (502,101.0) 1,077,941.0 6,879,112.0 Special Dividend Paid - - - - - -Other Financing Activities (2,174,755.0) (182,743.0) 1,464,839.0 (2,482,070.0) 269,470.0 7,388,934.0 Cash from Financing 5,582,469.0 3,010,173.0 (3,314,870.0) (2,966,063.0) 2,819,594.0 17,819,000.0

Misc. Cash Flow Adj. - (29,128.0) (30,291.0) - - - Net Change in Cash 621,689.0 1,026,811.0 (2,358,005.0) 495,010.0 60,137.0 1,332,354.0

5



Exhibit 5.1

Preparing Cost of Capital Work Sheet (Following Prof. Harvey’s guidelines)

ICCRC: Institutional Investor country credit rating (0-100)Rf: US risk free rate

Calculate:Anchored Cost of Equity Capital for project of average risk in country (ICCRC) = Rf + 100*(0.898-0.177*LN(ICCRC of Korea))-((Rf+100*(0.898-0.177*LN(ICCRC of US)))-(Risk Premium(US)+Rf))

Country Risk Premium = Anchored Cost of Capital - Rf - Risk Premium (US) Sector Adjustment = Rf + Beta (Industry)* Risk Premium (US) - Rf - Risk Premium (US)

Now we have adjust for Project Specific Risks, as per the guidelines mentioned below, and compute the Impact on Country Premium:Project Risk Mitigation (-10 to 10; where 10=risk completely eliminated, 0=average for country)

Weights Score

Impact on Country Premium

Sovereign0.40 0.00 0.00 Currency (direct, e.g. convertibility)0.10 0.00 0.00 Currency (indirect, e.g. political risk caused by crisis)0.15 0.00 0.00 Expropriation (direct, diversion, creeping)0.05 0.00 0.00 Commercial International partners0.05 0.00 0.00 Involvement of Multilateral Agencies0.05 0.00 0.00 Sensitivity of Project to wars, strikes, terrorism0.05 0.00 0.00 Sensitivity of Project to natural disasters

Operating0.05 0.00 0.00 Resource risk0.03 0.00 0.00 Technology risk

Financial0.05 0.00 0.00 Probability of Default0.03 0.00 0.00 Political Risk Insurance

1.00 Sum of weights (make sure = 1.00)

The weights are fixed, whereas we have to input the scores based on our perception of project risk on specific criteria relative to the country risk. Here is how we calculate Impact on Country Premium:

Impact on Country Premium = Country Risk Premium * Weights * Score

Project Cost of Capital = Rf + Risk Premium (US) + Country Risk Premium + Sector Adjustment + Sum of Impact on Country Premiums

6



Exhibit 5.2

Cash Flow Check List:Operating-PrecompletionResources available (quantity/quality) -part not in discount rateTechnology (proven technology) -part not in discount rateTiming risks (penalties for milestones)

Operating-Post-completionMarket risks (prices of outputs)Supply/input risk (availability)Throughput risk (material put through plus efficiency of systems operation)Operating costs

SovereignInflation assumptions/Exchange rates

Real OptionsInput mix or process flexibilityOutput mix or product flexibilityAbandonment or terminationTemporary stop or shutdownIntensity or operating scaleExpansionContractionInitiation or defermentInterproject/intraprojectGrowthShadow costsFinancial flexibilityComplex options which might diminish or augment value of other options

7



Exhibit 6

Korean Banks – Price to Book Value ratios, Return on Equity, and 5 year Beta respective to markets they are listed in (Based on Aug, 2007).

Bank Name P/BV LTM - LatestLTM Return on Equity % Beta (5 Yr)Kookmin Bank Co. Ltd. 1.7 16.00% 1.07Busan Bank Co., Ltd. 2 15.20% 0.74Daegu Bank Ltd. 1.8 20.60% 0.62Shinhan Financial Group Company Limited (KOSE:A055550) 1.3 1.06Woori Finance Holdings Co., Ltd. (KOSE:A053000) 1.3 1.02Industrial Bank of Korea (KOSE:A024110) 1.5 19.40% 1.04Hana Financial Group Inc. (KOSE:A086790) 1.1Korea Exchange Bank 1.5 16.70% 0.95

Source: Capital IQ (Aug, 2007)

Exhibit 7

Korean Banks – Price to Book Value ratios, Return on Equity, and 5 year Beta respective to markets they are listed in (Based on Aug, 2008).

Bank Name P/BV LTM - LatestLTM Return on Equity % Beta (5 Yr)Kookmin Bank Co. Ltd. 1.2 16.70% 0.73Busan Bank Co., Ltd. 1.2 19.70% 0.83Daegu Bank Ltd. 1.2 19.40% 0.61Shinhan Financial Group Company Limited (KOSE:A055550) 0.9 12.10% 0.72Woori Finance Holdings Co., Ltd. (KOSE:A053000) 0.8 10.60% 0.73Industrial Bank of Korea (KOSE:A024110) 1 18.30% 0.77Hana Financial Group Inc. (KOSE:A086790) 0.9 12.20% 0.43Korea Exchange Bank 1.3 14.70% 0.53


Exhibit 8

Global Banks (Ex US) – Price to Book Value ratios, Return on Equity, and 5 year Beta respective to markets they are listed in (Based on Aug, 2007).

Bank Name P/BV LTM - Latest LTM Return on Equity % Beta (5 Yr)Barclays PLC (LSE:BARC) 1.9 20.40% 0.97Standard Chartered PLC (LSE:STAN) 2.3 16.00% 0.81Bank of China Limited (SEHK:3988) 2.5 14.40%Lloyds Banking Group plc (LSE:LLOY) 2.7 29.00% 1.29BNP Paribas SA (ENXTPA:BNP) 1.3 16.00% 0.87The Royal Bank of Scotland Group plc (LSE:RBS) 1.3 16.20% 0.83Societe Generale Group (ENXTPA:GLE) 1.7 19.60% 1.05Deutsche Bank AG (DB:DBK) 1.3 21.10% 1.51Banco Santander, S.A. (CATS:SAN) 1.8 17.30% 1.34Wells Fargo & Company (NYSE:WFC) 2.6 19.80% 0.37


8



Exhibit 9

Global Banks – Price to Book Value ratios, Return on Equity, and 5 year Beta respective to markets they are listed in (Based on Aug, 2008).

Bank Name P/BV LTM - Latest LTM Return on Equity % Beta (5 Yr)Barclays PLC (LSE:BARC) 1 12.90% 0.68Standard Chartered PLC (LSE:STAN) 2.1 16.90% 0.98Bank of China Limited (SEHK:3988) 1.8 16.80% 1.83Lloyds Banking Group plc (LSE:LLOY) 1.6 20.60% 0.72BNP Paribas SA (ENXTPA:BNP) 1.3 12.40% 0.72The Royal Bank of Scotland Group plc (LSE:RBS) 0.6 4.90% 0.57Societe Generale Group (ENXTPA:GLE) 1 0.60% 1.09Deutsche Bank AG (DB:DBK) 0.9 8.80% 1.32Banco Santander, S.A. (CATS:SAN) 1.4 17.40% 1.17Wells Fargo & Company (NYSE:WFC) 2.1 15.40% 0.53


9



Exhibit 10.1

Institutional Investor Country Credit Ratings 2007:

10



Exhibit 10.2

Institutional Investor Country Credit Ratings 2008:

11



Exhibit 11

Korea Nominal GDP (1988 – 2007)

Period Value Simple Growth Rate%Dec-31-2007 975013000 7.29%Dec-31-2006 908743800 5.03%Dec-31-2005 865241100 4.64%Dec-31-2004 826892700 7.79%Dec-31-2003 767113700 6.46%Dec-31-2002 720539000 10.61%Dec-31-2001 651415300 7.99%Dec-31-2000 603235900 9.88%Dec-31-1999 549005000 9.58%Dec-31-1998 501027100 (1.04)%Dec-31-1997 506313600 9.84%Dec-31-1996 460952700 12.52%Dec-31-1995 409653600 17.05%Dec-31-1994 349972700 17.14%Dec-31-1993 298761600 13.17%Dec-31-1992 263993200 14.07%Dec-31-1991 231428200 20.92%Dec-31-1990 191382800 20.65%Dec-31-1989 158620000 12.88%Dec-31-1988 140524800 19.15%

12



Exhibit 12

CLSA Analyst projection on possibility of the deal going through

No govt. appeal HSBC deal proceeds25% 13%

Lonestar wins20% 8%

Lone Star wIns Lonestar settlesTo superior court 40% 15%

50% 100% Placements40% 15%

Lonestar losesGovt. Appeals 0% 0%

75%Court case in Progress Lonestar suffers

0% 0%Lonestar settles

20% 10%Lonestar wins

40% 20%Placements

Government wins 40% 20%75% Lonestar loses

0% 0%No appeal

0% 0%

13



Exhibit 13

Lone Star and KEB Time Line

2003.08 Lone Star acquired KEB (acquistion price of W2,155bn) - KEB Valuatio was lowered by W340bn ~ W825bn <- BIS ratio at 6.16%

2003.11 KEB credit card announced captial decrease (but it didn't implement the plan. KEB credit card's stock price tanked, valuation down by W43bn)

2005.10 Lone Star was accused of tax evasion by Korea Tax Service2005.11 Hana and KB displayed their interests in purchaing KEB2006.03 KB was selected as preferential buyer2006.11 Lone Star ended sales talk with KB, citing the tussel with prosecutors2006.12 Former Government officlas and two former KEB employees (who were accused of making KEB's financial condition

look worse than it actually was to facilitate Lone Star's 2003) were cleared of accusations by court 2007.09 HSBC agreed to buy 51.02% of KEB for $6.3bn cash from Lone Star (KRW 18,045/per share).

The offer is conditional upon completion of deal before April 30, 20082008.02 Disctrict court held Lone Star guilty of manuplating stock price of KEB credit card (subsidiary of KEB).

FSC announced that it would postpone the approval of acquisition.2008.06 High Court throws out Lone Star guilty verdict. Lone Star was cleared of stock price manipluation2008.09 HSBC dropped bid2010.03 Lone Star announced its intention to resume KEB's sales talk2010.11 Hana announced that it began talks with Lone Star2011.03 Supreme Court overturned High Court's acquittal on charges of Lone Star. It sent back the case to the High Court.2011.05 FSC deferred its approval on Hana - Lone Star deal2011.07 Hana and Lone Star agreed to extend the deal by six months (W 14,250 per share)2011.10 High Court found ex-Lone Star Korea CEO, Mr. Yoo guilty of stock price manipulation on KEB credit card.

Mr. Yoo was sentenced to three year in prision. The Court also fined Lone Star W25bn for the violation of Security & Trading Act2011.10 Lone Star lost its status as major shareholder in KEB in accordance with Korean Banking Law2011.10 FSC ordered Lone Star to sell off 41.02% of its stake in KEB2011.12 Hana and Lone Star reached an deal agreement (W11,900 per share/ transaction value of W3,916bn)2012.01 FSC approved the deal, KEB become subsidiary of Hana Financial Group

Exhibit 14

Main controversies over “Lone Star – KEB Deal”

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Exhibit 15

Lone Star’s Investment Activities in South Korea

Note) all the figures are in Korean Won (KRW). Roughly, U$1 = KRW1,000

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Exhibit 16: Financial performance metrics of HSBC

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Exhibit 17: Snapshot of HSBC’s performance

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fuqua school of businesscharvey/teaching/663... · web viewkorea exchange bank – cash flow...

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