S.Korea agency eyes distressed U.S. loan assets

By Yoo Choonsik

SEOUL (Reuters) - A South Korean government agency said on Monday it may buy $500 million of bad loan assets in the United States as Wall Street banks struggle to clean up balance sheets dented by the subprime mortgage crisis.

An official at Korea Asset Management Corp (KAMCO) said it was considering buying the non-performing mortgage loan assets from an investment bank operating in the United States but declined to name the seller or disclose more details.

The move comes after global investment banks such as Citigroup (C.N) and Merrill Lynch MER.N have had to open up to investment from sovereign funds outside the U.S. to rebuild their capital standing shaken by the credit crisis.

KAMCO came to prominence in the fallout of the Asian financial crisis of the late 1990s when it spearheaded a government-led restructuring of the local financial industry, then struggling with piles of distressed assets after a series of South Korean corporate bankruptcies.

"Beyond this $500 million deal, the U.S. financial system needs capital and Asia needs outlets to spend capital, so there is a natural fit," said Tim Condon, chief economist at ING. "The endgame will see larger foreign ownership of the U.S. financial system."

The KAMCO official, Kim Jin-man, said by telephone that the deal was still at an early stage, and added his agency was also talking to state-run pension and other public funds on setting up a separate fund to invest in U.S. loan assets.

"By law, my agency is allowed to invest only in loan or equivalent assets, and so the fund to be set up will also likely invest mainly in loan assets," he said.

KAMCO said in a statement that some estimates put the U.S. bad loan assets to be created in the aftermath of the subprime mortgage crisis as high as $600 billion.

KAMCO spent 40 trillion won ($42.48 billion) buying bad assets with a combined face value of 110 trillion won from the local financial industry after the Asia crisis in the late-1990s and has since recovered more than the principal, Kim added.

The planned deal to buy U.S. loan assets would mark KAMCO's second overseas buy after it purchased non-performing loan assets with a book value of 1.1 billion yuan ($153.1 million) in December.

($1=941.7 Won, 7.184 Yuan)

(Editing by Keiron Henderson & Ian Geoghegan)