Standard Chartered said yesterday it had acquired Korea First Bank (KFB) for US$3.3 billion in cash, the largest foreign investment in South Korea's financial industry.
The UK-based bank said it would pay for the acquisition by issuing about ?1 billion (US$1.9 billion) in new shares, and through other funding resources.
It added that the deal, which still requires regulatory approval, would contribute to earnings from next year. It is expected to be finalized by end-April.
"This is a significant acquisition in a key growth market," said Standard Chartered chief executive Mervyn Davies.
"It is a big step towards our aspiration to lead the way in Asia, Africa and the Middle East."
The takeover of KFB puts Standard Chartered in competition with US giant Citigroup in the South Korean banking sector.
Standard Chartered's move followed weekend newspaper reports that rival British banking giant HSBC had withdrawn from talks to buy KFB, citing high acquisition costs caused by the rising value of the South Korean currency against the dollar.
Newspapers have said HSBC was asked to meet a revised sale price of 18,000 won (US$17.13) per share.
KFB is South Korea's seventh largest bank, with a six percent share of a US$44 billion market three times larger than Hong Kong's, Standard Chartered said in a statement.
The South Korean bank is 49 percent owned by US equity fund Newbridge Capital and 51 percent buy the South Korean government.
Newbridge was set to announce the sale of its stake to HSBC on Dec. 24 but the announcement was put on hold, sparking speculation that Newbridge had failed to agree a sale price with HSBC.
Standard and Chartered has long been interested in expanding in South Korea, Asia's third largest economy. It bid for KorAm, South Korea's sixth largest lender, which was acquired by Citigroup last April.
The Seoul-based bank has 404 branches compared with Standard Chartered's two outlets in the nation.
Newbridge purchased its KFB stake at 5,000 won per share in 1999 following the Asian financial crisis which devastated the South Korean banking industry.
Emerging from the 1997-98 Asian financial crisis, troubled South Korean financial institutions were bailed out with state money and then sold on to foreign investors.
Meanwhile, Standard Chartered's Chief Executive Mervyn Davies is also buying stakes in lenders in China, trying to catch up with bigger rivals Citigroup and HSBC in the fastest growing of the world's 20 biggest economies, which will open its banking market to foreign lenders in 2007. The expansion in China and other parts of Asia is driving up Standard Chartered's costs.
In China, the London-based bank bought a 19.9 percent stake in newly-set up Bohai Bank (