By the latter part of 1998, the financial system of South Korea (the tenth largest economy in the world) was basically insolvent. Many banks failed as bad loans mounted. Capital flight so reduced Korea’s foreign exchange reserves that the country was teetering on the verge of defaulting on its sovereign debt obligations. Korea had to request an emergency funding from the International Monetary Fund or IMF, which, working closely with the US Federal Reserve, eventually provided the country with a $58 billion rescue package.
The package came with some strings attached, one of which was for the Korean government to sell off to foreign investors a couple of failed and nationalized big banks including Korea First Bank. The IMF reasoned that the failure of Korea's banking system was due to a total lack of a "credit culture," as lending had typically been done on the basis of either government policies or collaterals without much regard to the credit-worthiness of, or the ability to pay by, the borrowers. Credit culture was thought to permeate western banking and it was hoped that foreign investors would bring such a culture into Korea's banking system.
The U.S.-based Newbridge Capital was one of the only two bidders, among more than 40 invited, to have showed up at the government-mandated auction. I represented Newbridge as its partner. We finally reached a preliminary agreement with the Korean government on New Year’s Eve in 1998, after weeks of non-stop negotiations, to give us the exclusive right to acquire Korea First Bank. The key part of the deal was that all the assets be priced at fair market value. The memorandum of understanding specifically called for all the assets to be “marked to market” on a loan-by-loan basis, after which Newbridge and the government would jointly invest into the bank to recapitalize it.
The government agreed to give all its voting rights to Newbridge, so with 51% ownership, Newbridge would have 100% voting and operating rights. To its credit, other than asking
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