KDB confirms Lehman talks; Korea bank shares fall

Online news service EDaily cited an unnamed financial industry source as saying the probability of KDB reaching a deal with Lehman stood at 30-40 percent due to pricing differences, adding the fate of any deal could be clear as early as next week.

"The size of a stake to be acquired would not be 25 percent, but rather be as much as would give KDB management rights," the source was quoted, referring to Britain's Sunday Telegraph report that KDB could buy up to 25 percent of Lehman.

TROUBLED WATERS

Analysts voiced concern about the risks to South Korean banks buying into the troubled U.S. investment bank.

"Nobody knows the depth of its (Lehman's) problems," a banking analyst at a domestic securities house said, asking not to be identified because of the sensitivity of the issue.

South Korea's government has long shown interest in one of its own banks becoming a global player to aid the shift to a more service-driven economy.

But the head of the country's financial regulator last week said that role should be taken by private banks with the state sector acting as no more than a catalyst.

Analysts have said the government is worried that it may end up having to use public money if things go wrong.

However, a senior Financial Services Commission official appeared to soften that stand when he told Reuters on Monday that the regulator would stay neutral over the KDB negotiations until it knows the terms.

He suggested the government might welcome a deal with Lehman if prices come down sharply but gave no indication of an acceptable level.

The fourth-largest U.S. investment bank is looking for buyers for some $40 billion of commercial mortgages and property on its balance sheet. It is also looking to ax some 1,200 jobs, or roughly 5 percent of the workforce, in its latest round of cost cutting, a person familiar with the matter said last month.

The Sunday Telegraph reported that Lehman had intensified talks with KDB to raise as much as $6 billion in a share sale that could be concluded this week, without specifying sources.

Lehman shares rose 46 cents to $16.55 in mid-morning NYSE trade.

(Additional reporting by Joe Giannone in New York; Editing by Jonathan Thatcher, Keiron Henderson, Louise Heavens, Dave Zimmerman)