South Korean banks, led by state-owned Korea Development Bank, were in talks to buy a stake and management rights in Lehman Brothers but failed to reach a deal on concerns about the US bank’s financial health, a newspaper said on Friday.
The Chosun Ilbo daily cited government and industry sources as saying that Lehman had first contacted Korea Investment Corp (KIC), a sovereign wealth fund, among South Korean investors as part of a fund-raising drive. But after the KIC decided not to invest in Lehman, the Wall Street bank contacted Korea Development Bank (KDB), whose Chairman and CEO Min Euoo-sung had led local operations of Lehman for three years until early this year.
Min had been aggressive in the negotiations but backed out of the talks at the final stage, causing other South Korean banks to follow suit. “We had thought buying a global bank, worth 7-8 trillion won (£3.6-4 billion, $6.7-7.5 billion) will provide a springboard to globalizing South Korea’s financial industry,” an unnamed industry source involved in the talks told the newspaper.
Shares in Lehman have plunged more than 80% since early 2007, leaving the bank worth some $9 billion at this week’s valuations. “Problems with its book were more serious than we had thought,” a senior government official was quoted as saying. “We judged it would be too risky for the government to inject additional capital into it if it incurred additional losses.”
Lehman, the fourth-largest US investment bank, has taken a $7 billion (£3.7 billion) hit from credit-related write-downs and losses since the start of the global crisis. On Thursday, China’s biggest brokerage CITIC Securities said it had held no formal talks about buying a stake in Lehman, denying another report that Lehman had held talks on a sale of up to half its shares with CITIC Securities.
KDB OPEN TO ALL OPTIONS
KDB said it was open to mergers or acquisitions of both domestic and foreign companies to address its weak spots as the government was aiming to privatize it by 2012. “We are studying a number of options and are open to all possibilities, which could include (buying) Lehman,” its spokesman told Reuters on Friday.
Financial Services Commission Chairman Jun Kwang-woo said in late last month that the government was considering buying a top global bank. The remarks were interpreted by the regulatory agency as meaning KDB intended to acquire a foreign rival. The Chosun Ilbo said that KDB and other South Korean banks had set a management plan for Lehman on the assumption that they would jointly purchase the bank. A senior official of a top South Korea bank declined to comment on Friday, citing a confidentiality agreement.
Analysts say lowered valuations at western banks would enable South Korean banks to buy them to support their global expansion, but that such attempts could be challenged by foreign regulators. “Financially, KDB will not have a problem buying a majority stake in Lehman, as the US 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. I am not so sure if the US government will easily allow a foreign bank to purchase a significant stake in one of its key financial institutions.” (Reuters)