Lehman lifeline plan in doubt as Korean banks cool

SEOUL (Reuters) - A lifeline from South Korea for troubled investment bank Lehman Brothers LEH.N appeared in doubt on Wednesday as the bank leading the plan said nothing had been decided, and other lenders denied interest in taking part.

State-controlled Korea Development Bank (KDB) is in talks with Lehman over a possible joint investment with other Korean banks, but said it was still unsure whether there would be a deal.

"Korea Development Bank has considered M&A deals in foreign investment banks including Lehman Brothers, and asset management companies, as part of its privatization and competitiveness efforts but nothing has been decided yet," it said in a statement.

A report in the Chosun Ilbo newspaper said KDB had proposed taking a 25 percent stake in Lehman in a deal worth up to 6 trillion won ($5.3 billion) and involving other Korean banks. It quoted an unnamed financial industry source.

Yet two banks cited in the report distanced themselves from the idea.

"We have not seriously considered the idea and have no plans to do so in the future," said a spokesman at Shinhan Financial Group (055550.KS), South Korea's second largest.

Third-ranked Woori Finance Holdings (053000.KS) said: "We have not received any offer about the Lehman deal nor have we considered it internally."

The smaller Hana Financial Group (086790.KS) reiterated a previous denial.

Europe's biggest bank, HSBC Holdings (HSBA.L) (0005.HK), is also interested in Lehman, according to the newspaper report.

But HSBC is unlikely to make a move for Lehman, people familiar with the matter said. Speculation it could be interested has circulated for several weeks, but the bank has reduced its investment banking appetite and executives say investment will be in emerging markets. HSBC declined comment.

KDB needs other banks to come aboard after Korea's Financial Services Commission this week expressed concern at the idea of a state-led bank leading any investment in Lehman.

Lehman prefers KDB, whose CEO used to head the U.S. bank's South Korean operations, over other contenders as KDB plans to keep its management after a deal, the paper said.

It might get backing from South Korea's military savings fund, whose chairman told Reuters it would consider joining KDB in any bid for Lehman.

Lehman is under pressure to raise capital as Wall Street firms reel from the fallout of the subprime mortgage crisis and is looking for buyers for some $40 billion in commercial mortgages and property on its balance sheet.

It received more bad news on Tuesday when hedge fund manager Ospraie Management LLC, in which Lehman owns a 20 percent stake, said it would close its flagship fund after it plunged 27 percent in August on losses in energy, mining and natural resources equity holdings, in one of the biggest ever closures of a commodities-focused hedge fund.

By 9:48 a.m. EDT Lehman shares were up 1 percent at $16.30.