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Goldman Sachs: delicate approach should pay off in Korean wealth management

6th October 2005

Goldman Sachs' move to take a stake in South Korean bank Hana may prove to be a shrewd decision, as Hana has good long term prospects given its wealthy client base. However, potential hazards include the strength of foreign competition and the future growth of the market - but by limiting itself to a 9.5% stake, the US bank is rightly proceeding with caution.

Goldman Sachs is to acquire a 9.5% stake in South Korea's Hana bank for $500 million, with the aim of accessing Hana's wealthy clients and developing its asset management offering. With the purchase, Goldman becomes the bank's largest single shareholder.

Recently, competition in the South Korean banking market - the third largest in Asia - has increased, as global players including Citigroup have bought into the country. Despite this, Goldman Sachs appears to have bought itself a cheap re-entry into the market, as Hana's shares trade at half the market average, relative to earnings.

It is also a shrewd attempt to put itself in pole position for the acquisition of a holding in Hana-owned asset manager Daehan Investment Trust Management, which is rumored also to be a target for UBS and ABN Amro.

The acquisition may also prove beneficial for Hana, which has been searching for a strategic partner to develop its asset management operation. Perhaps this is what Hana's chief executive was alluding to in his comment to Reuters that "this investment will...serve as an opportunity for us to develop into a top-class financial group in the future."

South Korea is potentially attractive to international players such as Goldman Sachs, but they must approach the market carefully. Wealth management services are underdeveloped relative to other markets in the region, and the high value placed on strong brand identity in the Korean sector favors large foreign players.

By acquiring a stake in Hana, Goldman Sachs has signaled its confidence in the future of wealth management in this market. However in the current competitive environment, the two banks will have to work hard to develop Hana's large wealthy client base, particularly as Datamonitor forecasts that market growth is to slow in the medium term. By taking a share of just less than 10%, Goldman Sachs is rightly taking a measured approach.

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