Lehman contemplates Korea change

It looks like one of the most famous names on Wall Street may be about to pass into Korean hands...

Last Updated: 31 Aug 2010

Korea Development Bank, the state-run South Korean powerhouse, has confirmed that it is trying to negotiate a takeover of Lehman Brothers, the US investment bank that has been hit harder than most by the credit crunch. After weeks of speculation, KDB has admitted that it’s trying to put together a Korean consortium to buy Lehman – but they still can’t agree on what they should pay.

KDB boss Min Euoo-Sung told a local news agency that ‘it is desirable to make a joint bid for Lehman Brothers... So [we are] in talks with other commercial banks on forming a consortium.’ But it sounds like they’re still some way off an agreement: ‘It is difficult to predict the outcome of negotiations with Lehman due to differences over price’. Still, Min used to run Lehman’s operations in Seoul, so we reckon that if anyone can talk them into it, he can.

The two sides seem to have different views about the true extent of the problems at Lehman, which has seen its stock plummet following big sub-prime losses and rumours about funding problems. KDB is still going through the due diligence process, but it clearly disagrees with Lehman about the value of some of the stuff still lurking on its books – which makes the investment a much more risky proposition. Another issue is that the Korean economy is not much better off than ours (slowing growth, high personal debts) – so arguably its biggest bank should be focusing on its own problems, not trying to pull off a big takeover...

Although other big Wall Street firms have bolstered their balance sheet with funding from Middle and Far Eastern investments, this would be the first full takeover – and could propel KDB into the big league of global financial services. By all accounts this is precisely why the South Korean Financial Services Commission (the local regulator) is so keen on the idea: it clearly feels that Lehman’s recent slump in value allows it to get a foot in the door for a relatively knock-down price.

On the other hand this would also be a momentous sale for the US. When Bear Stearns went down, the Federal Reserve brought US blue-blood JP Morgan in to do the rescue – will it be just as compliant if this latest troubled institution falls into Korean hands? Only time will tell...

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