Korea Development Bank (KDB) is in talks to buy a stake in Lehman Brothers Holdings Inc, the fourth-biggest US securities firm, as Asian investors shore up Wall Street firms beaten down by the global credit squeeze.
Lehman climbed as much as 5 per cent in Frankfurt trading after Korea Development 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.
An investment from Korea Development would help Lehman Chief Executive Officer Richard Fuld bolster the company’s finances after $8.2 billion of writedowns on mortgage-related assets and a 75 per cent share-price plunge this year.
Government-backed firms in Korea, China and Singapore have bought into stricken Wall Street banks during the past year, betting their investments will yield windfalls when financial markets stabilise.
“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 is seeking to team up with local banks to buy a stake in Lehman, Min told Yonhap news agency in comments that were confirmed by a spokesman, who declined to be identified citing company policy. Negotiations have been “difficult because of differences over price”, he said. Matthew Russell, a Hong Kong-based spokesman for Lehman, declined to comment.
Job Cuts, Asset Sales: Lehman is trying to shed mortgage assets, raise capital and is poised to eliminate as many as 1,000 jobs, or about 4 per cent of its workforce, in the fourth round of cuts at the firm this year, people familiar with the matter said last week. The headcount reductions may be announced when Lehman reports third-quarter results this month, according to the people.
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.
Fuld, 62, may set up a company funded by outside investors to purchase some of Lehman's mortgage assets, people familiar with the plan said last month.
Other Targets: Lehman 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 may team with a domestic lender, probably Woori Finance Holdings Co or Hana Financial Group Inc, to buy a stake, 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 or any other party to join a transaction.
“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, who oversees the equivalent of $800 million as head of equities at Hyundai Wise Asset Management Co in Seoul.
No Application Yet: Korea Development hired bankers from Perella Weinberg Partners to advise on the talks, which might be concluded this week, according to the Telegraph report. Lehman executives, including Fuld, discussed structures through which the Korean bank may buy as much as 25 per cent of Lehman, the Telegraph said.
A government official, speaking on condition of anonymity because he isn't allowed to publicly discuss the matter, said yesterday the financial regulator has yet to receive an application from the bank for permission to invest in Lehman.
Min, the same age as the 54-year-old Korea Development, is accelerating the Seoul-based bank's transformation into an international investment bank and corporate lender. The global credit market turmoil provides “a good opportunity for investments”, Min said in July.
State-run Korea Development, set up to fund reconstruction and industrial development after the 1950-53 Korean War, is scheduled to become privatised by 2012.
At the end of 2007, KDB had 146.9 trillion won ($138 billion) of assets and 21.7 trillion won of shareholder equity, according to the company's Web site. KDB's 2007 net income of 2.52 trillion won, or $2.37 billion, is just over half of Lehman's $4.2 billion of full-year profit.
Asian Money: The global banking crisis triggered by the US sub-prime mortgage collapse has led sovereign funds in Asia to buy US assets. Temasek Holdings Pte, Singapore's $130 billion sovereign wealth fund, plans to boost its investment in Merrill Lynch & Co to between 13 per cent and 14 per cent from 9.4 per cent. Government of Singapore Investments Corp or GIC, the bigger of the city state's two sovereign funds, invested about $18 billion in UBS AG and Citigroup Inc in the past year.
China Investment Corp, the nation's $200 billion wealth fund started last year, has invested $8 billion in Blackstone Group LP and Morgan Stanley. South Korea's Korea Investment Corp put $2 billion into Merrill Lynch this year.
Not all deals have been successful. China's government in January rejected a plan to allow 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.
Regulator Warning: 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.
The perceived risk of owning Korea Development's debt was little changed today, as measured by the bank's credit default swaps, which traded at 181 basis points compared with 183 yesterday, according to data compiled by Bloomberg.
Lehman's senior debt fell earlier in New York to the lowest in almost three weeks after the Telegraph report. Five-year credit-default swaps on Lehman, which don't trade during Asian business hours, declined 5.5 basis points to 330, indicating lower default risks, according to CMA Datavision prices.
