China's CITIC says no talks with Lehman

By George Chen and Kim Yeon-hee

SHANGHAI/SEOUL (Reuters) - CITIC Securities (600030.SS), China's biggest brokerage, said it had held no formal talks about buying a stake in Lehman Brothers LEH.N and will focus on its domestic business this year due to concerns about snowballing U.S. credit problems.

The Financial Times reported on Thursday that the beleaguered U.S. investment bank had held talks on a sale of up to half its shares with China's CITIC Securities as well as with state-owned Korea Development Bank (KDB), but both investors walked away saying the price was too high.

"We had no such talks as far as I know," CITIC Securities board secretary Tan Ning told Reuters by telephone.

"In fact, this year we will focus on our domestic business as it seems there are no signs when the U.S. credit problems may eventually end," he added.

A Lehman Brothers spokeswoman and a KDB spokesman both declined to comment on the FT report.

Another KDB official, who declined to be identified, said the state-owned South Korean bank was scaling back its overseas assets and staff to reduce exposure to volatile foreign markets.

CITIC Securities, the brokerage arm of China's top financial conglomerate CITIC Group, backed out of a proposed investment in troubled Wall Street firm Bear Stearns, which was sold on the cheap to rival bank JPMorgan Chase (JPM.N).

Despite the collapse of the Bear Stearns deal, CITIC Securities had said it still intended to expand abroad, potentially by teaming up with foreign investment banks.

However, Tan told Reuters on Thursday that the firm was not in any formal talks with foreign banks, including Lehman, on taking a stake at this stage.

"We know there are always lots of rumors like this in the markets but we are not in formal talks with Lehman or other firms on stake investments," he said.

"If you say we have had talks on this or that, I'd like to ask you what kind of talks? We are so big that we have lots of friends in the markets. Does talking over coffee mean we are ready to buy something?" he said.

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Lehman Brothers, which has more than $60 billion of mortgage and mortgage security exposure, is under pressure to raise capital ahead of the company's earnings in September. Analysts have said the Wall Street bank could write down as much as $4 billion.

Earlier Citigroup slashed its price target on Lehman to $35 a share from $50, and forecast the bank will writedown $2.9 billion.

Shares in Lehman, which have plunged more than 80 percent since early 2007, closed at $13.73 on Wednesday, valuing the bank around $9 billion.