HSBC walks away from $6.3 bln S.Korea bank buy

By Kim Yeon-hee and Rhee So-eui

SEOUL (Reuters) - HSBC dropped a $6.3 billion offer for 51 percent of Korea Exchange Bank, blaming turmoil in financial markets and ending what would have been the biggest cross-border move in South Korea's bank sector.

Abandoning the long-running deal, which had been beset by regulatory delays, added to speculation HSBC would look to buy a distressed western peer amid a financial sector shakeout that has seen share prices plunge and forced a hasty round of dealmaking.

"In the light of developments around the world, not least changes in asset values in world markets, we do not believe it would be in the best interests of shareholders to continue to pursue this acquisition on the terms negotiated last year," HSBC Asia CEO Sandy Flockhart said in a statement.

Shares in KEB, South Korea's sixth-ranked bank, tumbled 8 percent to 11,600 won by 0455 GMT on Friday in a broader market up 4.7 percent. Global stocks rallied on news the United States government was looking at a comprehensive solution to the financial crisis.

John Grayken, chairman of U.S. private equity firm Lone Star, which was selling the KEB stake, said he was disappointed with HSBC's decision to walk away from the deal.

Shares in HSBC, Europe's biggest bank by market value, rose nearly 6 percent in Hong Kong.

HSBC, less damaged than many from the subprime mortgage meltdown, has been rumoured as a potential suitor for ailing U.S. savings and loan Washington Mutual and UK rival Royal Bank of Scotland.

"Maybe it's better for HSBC to look at other markets. U.S. bank valuations are very depressed. That is very attractive to HSBC," said Y.K. Lee, analyst with Core Pacific-Yamaichi in Hong Kong.