SEOUL (Reuters) – State-controlled Korea Development Bank (KDB) proposed buying 25 percent of Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz) for up to $5.3 billion, a newspaper reported, but other Korean banks rumored to be joining a KDB bid consortium denied they were involved.
Daily Chosun Ilbo also reported on Wednesday that top European bank HSBC Holdings (HSBA.L: Quote, Profile, Research, Stock Buzz) (0005.HK: Quote, Profile, Research, Stock Buzz), several U.S. hedge funds and an unidentified Chinese bank were among other potential buyers of Lehman, the fourth-ranked U.S. investment bank.
KDB had confirmed on Tuesday it was in talks with Lehman over a possible joint investment with other Korean banks, but declined to give details of its negotiations. On Wednesday, it said it was still unsure whether there would be a deal.
“Korea Development Bank has considered M&A deals in foreign investment banks including Lehman Brothers, and asset management companies, as part of its privatization and competitiveness efforts, but nothing has been decided yet,” it said in a statement.
The Chosun report quoted an unnamed financial industry source as saying KDB had sent the proposal to Lehman — which has over $60 billion of mortgage and mortgage security exposure — and that leading local banking groups Woori Finance Holdings (053000.KS: Quote, Profile, Research, Stock Buzz) and Shinhan Financial Group (055550.KS: Quote, Profile, Research, Stock Buzz) were seriously considering joining.
HSBC officials in Hong Kong and Seoul declined to comment.
Shinhan and Woori, whose shares were hit hard on Tuesday on concerns about the extent of Lehman's problems and their potential exposure, were quick to deny the newspaper's report.
“We have not seriously considered the idea and have no plans to do so in the future,” said a spokesman at Shinhan, South Korea's second-biggest financial services firm.
Third-ranked Woori Finance also said in a statement: “We have not received any offer about the Lehman deal nor have we considered it internally.” The smaller Hana Financial Group (086790.KS: Quote, Profile, Research, Stock Buzz) reiterated a previous denial.
Lehman prefers KDB, whose CEO used to head the U.S. bank's South Korean operations, over other contenders as KDB plans to keep its current management after an acquisition, but the deal may fall through as KDB's bid price is considered very low, the paper said.
According to the report, KDB was offering 5-6 trillion won ($4.4-$5.3 billion) for 25 percent of Lehman and also wants a guarantee it can later increase its stake to 40-50 percent.
South Korean authorities have publicly said they are against KDB playing more than the role of a catalyst in any purchase of Lehman, preferring private banks to take the lead.
Separately, the chairman of South Korea's military savings fund told Reuters it would consider joining KDB in any bid for Lehman, as now appeared a good time for U.S. investments.
Lehman is under pressure to raise capital as Wall Street firms reel from the fallout of the subprime mortgage crisis.
The fourth-largest U.S. investment bank is looking for buyers for some $40 billion of commercial mortgages and property on its balance sheet.
Woori shares closed 0.8 percent higher, while Shinhan was off 2.6 percent. Hana Financial dropped 2.6 percent. The broader Korean share index ended up 1.4 percent.
(Reporting by Rhee So-eui, Kim Yeon-hee and Park Ju-min, Additional reporting by Tony Munroe; Editing by Jonathan Hopfner & Ian Geoghegan)