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KDB walks out on Lehman, sparking plunge

11 Sep 2008

Korea Development Bank pulled out of negotiations to buy a stake in embattled Lehman Brothers on Tuesday, sparking a week of intense activity amid concern over Lehman’s future.

KDB had been considering an investment in Lehman, potentially as part of a consortium of other Korean investors, but reports that it had walked away sent Lehman shares down by 45% on Tuesday as concerns mounted about the bank’s capital position.

"There are disagreements over transaction conditions with Lehman at this point, and considering financial market situations at home and abroad, we decided to discontinue the negotiations," said KDB.

The potential tie-up had generated a lot of talk, if no realaction, with almost all of the noise coming from Korea. After the idea of KDB buying a stake in Lehman Brothers was first reported, the head of Korea’s financial policy dismissed the notion of a state-owned Korean bank buying a troubled US broker on its own.

"KDB might have considered forming and leading a consortium," said Kwang Woo Jun, the head of Korea’s Financial Services Commission, "But it appears burdensome for a state-run institution to play a leading role and take risks which may be more than financial."

The following week, however, KDB’s chief executive Min Euoo-Sung reiterated the bank was still considering buying a stake. But as the bank stepped away from any potential deal this week, the temperature in the Lehman boardroom was pushed up a notch.

The bank brought forward its second quarter results announcement by a week, announcing a $3.9bn loss for the quarter on Wednesday and saying that it planned to spin off real estate assets and sell a majority stake in its asset management unit.

That was not enough to restore investor confidence, however, and Lehman’s shares ended the day at $7.25, having lost more than half their value this week.

Matthew Thomas

11 Sep 2008