A man walks past the Korea Development Bank headquarters in Seoul on Aug. 24, 2008. Photographer: Nasha Lee/Bloomberg News
Sept. 2 (Bloomberg) — Korea Development Bank is in talks to buy a stake in Lehman Brothers Holdings Inc., the fourth-biggest U.S. securities firm.
Chief Executive Officer Min Euoo Sung confirmed the discussions in an interview in Seoul today. “I cannot comment further,” said Min, who headed Lehman’s Seoul branch before joining the Korean bank in June. Matthew Russell, a Hong Kong- based spokesman for Lehman, declined to comment.
An investment from Korea Development would help Lehman Chief Executive Officer Richard Fuld shore up the company’s finances after $8.2 billion of writedowns. Governments-backed firms in Korea, China and Singapore have bought into Wall Street banks rocked by the global credit contagion, betting their investments will yield windfalls when financial markets stabilize.
“It’s an opportune time for KDB to buy into a global company, and it’s in line with KDB’s long-term goal of becoming a global investment bank,” said Mo Jae Sung, who helps manage the equivalent of $1 billion at Hanwha Investment Trust Management Co. in Seoul. “Such an acquisition won’t pose much of a capital strain on KDB.”
Korea Development may team with a domestic lender, probably Woori Finance Holdings or Co. Hana Financial Group Inc., to buy a stake in Lehman, Dong-a Ilbo reported today, citing financial officials that it didn’t identify.
Lee Jung Dae, a spokesman for Seoul-based Hana, said the company has no plans to join a bid for a stake in Lehman. Woori spokesman Lee Won Chuel said his firm hasn’t received any offer from Korea Development Bank or any other party to partner in buying a stake.
“I don’t think KDB will secure enough local partners when there are other M&A targets in the home banking sector,” said Shim Jae Duk, oversees the equivalent of $800 million as head of equities at Hyundai Wise Asset Management Co. in Seoul.
Lehman is trying to shed mortgage assets, raise capital and is poised to eliminate as many as 1,000 jobs, or about 4 percent of its workforce, in the fourth round of cuts at the firm this year, people familiar with the matter said last week.
Goldman Sachs analyst William Tanona is forecasting $10 billion of writedowns for Lehman, Morgan Stanley, JPMorgan Chase & Co. and Citigroup in the third quarter. The year-old global credit crunch has so far produced more than $500 billion of losses at the world’s biggest banks and securities firms.
The headcount reductions may be announced when Lehman reports third-quarter financial results next month, according to the people, who declined to be identified because the plan isn’t completed. Lehman’s stock has slumped 75 percent this year.
Lehman Brothers has renewed talks with Korea Development about a capital injection of as much as $6 billion, the Sunday Telegraph reported Aug. 31, without saying where it got the information.
Korea Development bank has hired bankers from Perella Weinberg Partners to advise on the talks, which might be concluded this week, the Telegraph reported. Lehman executives, including Fuld, have discussed structures through which the Korean bank might buy as much as 25 percent of Lehman, the Telegraph said.
A government official, speaking on condition of anonymity because he isn’t allowed to publicly discuss the matter, has said the financial regulator has yet to receive an application from Korea Development for permission to invest in Lehman.
Jun Kwang Woo, chairman of South Korea’s Financial Services Commission, on Aug. 25 warned of risks of buying overseas banks, saying it wasn’t appropriate for state-run banks like Korea Development to lead such efforts.
China’s government in January rejected a plan to state-owned China Development Bank to invest in Citigroup because of concerns about more financial-industry losses, a person with knowledge of the decision said at the time. Citigroup is the worldwide leader in credit market losses with $55.1 billion, according to data compiled by Bloomberg.
Korea Development is set to be privatized, with the government planning to sell a 49 percent stake in a holding company to be set up for KDB and its three affiliates by 2010. The remaining 51 percent would be sold by 2012.
Last Updated: September 1, 2008 23:32 EDT
By Bomi Lim