HSBC has used a swing in the political mood in South Korea to request approval of its $6.3 billion (£3.2 billion) takeover of Korea Exchange Bank (KEB).

The deal has become a sensitive issue in South Korea, with the present owner of the bank, the Dallas-based private equity fund Lone Star, criticised for the tax-free profits the fund will make.

Regulators have refused to approve a buyer until related trials — which could drag on for years — are concluded.

HSBC, which entered exclusive talks to buy Lone Star’s 51 per cent stake in KEB in September, filed its application on Monday, two days before the pro-business Lee Myung Bak won the South Korean presidential election.

“We hope the regulators will consider the KEB acquisition issue independently from any other issues,” David Hall, HSBC’s head of public affairs in Asia, said. “We believe the regulators will carefully review our application.”

HSBC may be banking on the alleged pro-business credentials of the new South Korean administration.

Mr Lee, the President-elect, who will take office at the end of February, said on this morning that he would establish a transition committee to advise him on economic affairs and foreign investment.

HSBC’s exclusive negotiating agreement with Lone Star expires in April.

Foreign investment in Korea has dropped for three straight years, sparking concerns that the highly publicised Lone Star issue was driving off potential investors worried about apparent economic nationalism and a stuttering bureaucracy.

A former government official and a former head of KEB are on trial for allegedly misstating the bank’s financial woes in 2003, paving the way for Lone Star to buy it for $1.3 billion.

Lone Star itself is on trial over alleged price manipulation of KEB’s credit card unit and is appealing retroactive tax applications on earlier deals in Korea.

Lone Star has complained that as it is not on trial over the actual bank sale, regulators should allow a deal to go ahead

A deal between Lone Star and Kookmin Bank, the largest lender in South Korea, fell through in 2006 because of the trials.

The Singapore-based DBS tried next but did not file an application when it became clear that regulators would not approve.

HSBC, expanding in Asia, has tried and failed three times to acquire Korean banks. Citigroup and Standard Chartered have both succeeded in local acquisitions.

However, regulators are believed to favour a Korean buyer.

Should a local bank merge KEB, significant redundancies would be expected, but domestic lenders covet KEB’s overseas branch network, the broadest of any South Korean bank.

With Korea anticipating a “Big Bang” in its financial markets with the implementation of the Capital Markets Unification Act from January 2009, local financial institutions are consolidating.

M&A activity is lively as banks acquire asset management firms and securities companies.

KEB, lacking a strategic owner, is unable to do so.

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