updated 4/30/2004 8:13:33 AM ET 2004-04-30T12:13:33

Citigroup has acquired a 97.5 percent stake in KorAm Bank, South Korea's sixth largest lender, for about $2.6 billion, the U.S. financial services giant said Friday.

The deal marks the largest foreign investment in South Korea's fragile financial sector, and the first takeover of a local bank by a foreign commercial lender.

Citigroup's attempt to buy KorAm began in February when it agreed to buy a 36.6 percent stake held by a consortium led by U.S.-based Carlyle Group and JP Morgan Corsair II.

At the time, Citigroup offered to buy all remaining shares. In a statement Friday, Citigroup said it has so far bought 97.5 percent of the South Korean bank for 3.07 trillion won.

KorAm Bank, established in 1983, has 43 trillion won ($36.8 billion) in assets and operates 222 branches.

The deal helps Citigroup's Citibank unit to expand its consumer banking business in South Korea. It could also boost KorAm's image as Citigroup has a good reputation in South Korea with a local branch posting strong returns in the past several years.

When the economy slowed and companies began collapsing during the 1997-98 Asian financial turmoil, South Korean banks were saddled with bad loans, triggering a sudden loss of international confidence.

South Korea vowed to reform its ailing banks by inviting foreign investment. Bank reform was a key condition for a $58 billion economic bailout package from the International Monetary Fund that helped the South Korean economy regain its feet.

Last October, Lone Star Funds, a Texas-based investment firm, bought a controlling stake in Korea Exchange Bank for about $1.2 billion.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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