In a First, S. Korea Sells Control of Bank to Foreign Investors

South Korea took a major step toward revamping its ailing banking system Thursday, selling a 51% stake in Korea First Bank to a U.S. group led by Newbridge Capital Ltd.

Newbridge, an equity firm backed by Texas Pacific Group and Richard C. Blum & Associates of San Francisco, will take over the 69-year-old bank for an undisclosed price, marking the first time South Korea has sold control of one of its banks to a foreign investor. Newbridge will need government consent to sell its shares within two years.

For the foreign investors, control of a South Korean bank means a foothold in Asia’s fourth-largest economy for a fraction of what it would have cost a year ago.

The U.S. group, which includes Richard Blum, the husband of Sen. Dianne Feinstein (D-Calif.), beat out HSBC Holdings, Britain’s largest bank. In an unsuccessful concession to sweeten its offer, HSBC cut the size of the stake it sought.

The government and Newbridge have signed a memorandum of understanding for the sale, said Lee Hun Jai, chairman of the government’s Financial Supervisory Commission.

For South Korea, the sale means “a shift toward better banking practices and new retail customer opportunities,” said James Rooney, president of Ssangyong Templeton Investment Trust.

The sale of Korea First Bank and SeoulBank, stakes of which are also up for sale, is a key part of South Korea’s drive to revive its banking system, which foundered last year sparking a $60-billion International Monetary Fund bailout.

The government said it is in talks with foreign financial institutions about the sale of SeoulBank. HSBC is among the prospective buyers.

Korea First Bank, the favored bank of some of the nation’s biggest business groups, has a market capitalization of $736 million.