S. Korea's KDB says buying Lehman a possibility

SEOUL Fri Aug 22, 2008 5:16pm EDT

The exterior of the world headquarters for Lehman Brothers is seen in New York June 4, 2008. REUTERS/Brendan McDermid

The exterior of the world headquarters for Lehman Brothers is seen in New York June 4, 2008.

Credit: Reuters/Brendan McDermid

SEOUL (Reuters) - State-run Korea Development Bank KDB.UL said on Friday that Lehman Brothers Holdings Inc LEH.N is one of its options for acquisitions, as the struggling U.S. investment bank considers securing much-needed capital from investors.

The potential interest lifted Lehman's shares 11.3 percent, a day after a report said KDB and another Asian investor had walked away from a potential deal with the U.S. investment bank.

KDB said Friday it was open to mergers or acquisitions of both domestic and foreign companies to beef up its weak areas.

"We are studying a number of options and are open to all possibilities, which could include (buying) Lehman," a KDB spokesman told Reuters.

He was not specific about whether KDB was seeking to buy a controlling or a minority stake in Lehman.

He later sought to play down his comments, saying the South Korean bank was still at the very early stages of exploring possible acquisitions. He declined to comment on any specific deals it might be working on.

Lehman spokeswoman Monique Wise declined to comment. The U.S. investment bank has suffered about $7 billion in write-downs and credit losses amid the credit crunch. Lehman has more than $60 billion of mortgage assets that investors fear will be written down, eating into its capital and potentially forcing it to raise money.

KDB's possible interest in Lehman comes as other sources said the Korean bank's earlier talks with the U.S. investment bank had stalled.

A South Korean government official told Reuters on Friday, "KDB had said it would consider buying (a stake in Lehman)."

"It seems like KDB internally decided to stop the talks, given that it had not kept the government posted further," the official added, declining to be named because of the sensitivity of the matter.

The Financial Times reported on Thursday that Lehman sought to sell up to a 50 percent stake to either KDB or China's biggest brokerage, CITIC Securities Co Ltd (600030.SS). The two Asian companies walked away in the first week of August after deciding the asking price was too high, the newspaper reported.

Lehman's shares rose $1.55 to $15.27 Friday on the New York Stock Exchange.

KIC FIRST CONTACTED

The Chosun Ilbo daily cited government and industry sources as saying that Lehman first contacted Korea Investment Corp (KIC), a sovereign wealth fund, as part of a fund-raising drive.

But after KIC decided not to invest, Lehman contacted KDB, whose chief executive led local Lehman operations for three years until early this year.

In July, KDB Chairman and CEO Min Euoo-sung told a news conference that now would be a good time to buy coveted foreign targets on the cheap, as the global credit crunch had pushed down their valuations.

Even with Friday's gains, Lehman shares have lost more than 75 percent this year, and trade at less than one-half their book value, or accounting value, amid fears about the potential size of write-downs amid ongoing debt market turmoil.

Analysts say lowered valuations at Western banks would enable South Korean banks to buy them and expand their reach overseas. Such attempts, though, could be challenged by foreign regulators.

"Financially, KDB will not have a problem buying a majority stake in Lehman, as the U.S. bank's market cap has fallen sharply over the months," said Park Jung-hyun, an analyst at Hanwha Securities in Seoul.

"The problems, however, are legal and regulatory issues," he said. "I am not so sure if the U.S. government will easily allow a foreign bank to purchase a significant stake in one of its key financial institutions."

($1=1051.1 Won)

(Additional reporting by Park Jung-youn and Lee Chang-ho in Seoul; Joe Giannone in New York; Editing by Keiron Henderson, Jean Yoon and Jeffrey Benkoe)