Money Games

Chapter 3White Knight

We didn't know it at the time, but one of the reasons we seemed to be getting along so well with our new friends at the FSC was that negotiations between the government and the other banks had bogged down.

Chairman Lee of the FSC later recounted the situation in his memoir:

The market was chilly. Nobody wanted to buy the banks. I knocked on the doors of more than 40 foreign banks following the advice of Morgan Stanley. Citibank suggested it would want to buy 100 good branches of Korea First Bank. If so, who would buy the remaining ones? … HSBC, the only interested bank, showed nerve. But they were so arrogant. They required put-back options and also said, “We will own 100 percent of the shares.” … The government argued “We have to hold at least 40 percent of the shares.” But HSBC insisted “no more than 20 percent.”

As we learned, even the 20 percent of equity that HSBC was prepared to let the government own came with conditions. HSBC wanted the right, known as a call option, to purchase the remaining 20 percent after four years, at the bank's net asset value. In normal times, banks trade at a premium to net asset value; such a call option would have left the government without much upside. Morgan Stanley was pushing the government to accept HSBC's proposal as the only credible one, and the government was desperately in need of a way out.

The government was counting on Newbridge to make an acceptable bid. We were prepared to engage immediately once the ...