KDB confirms talks with Lehman, Korea bank shares fall

State-owned Korea Development Bank (KDB) confirmed on Tuesday it was in talks with Lehman Brothers over a possible joint investment in the U.S. bank with other Korean banks, sending local banking shares lower.
Lehman, which has more than $60 billion of mortgage and mortgage security exposure, is under pressure to raise capital ahead of its results announcement this month as Wall Street firms continue to reel from the credit crunch.
"Our CEO said talks are ongoing and cannot disclose the content of them," KDB spokesman Sung Joo-young said.
Buying a top bank could catapult South Korea's financial services firms into the top ranks of global investment houses, which have been battered by heavy mortgage writedowns, and which have seen their share prices tumble.
But investors are jittery about a potential Lehman tie-up, which may involve top South Korean banks such as Shinhan Financial Group, Woori Finance Holdings and Hana Financial Group , on concerns about the extent of problems at the U.S. bank.
Shares at Shinhan, the country's No.2 financial services firm, fell 5 percent by 1:14 a.m. EDT and third-ranked Woori shares tumbled 5.6 percent to their lowest in almost three years. No. 4 Hana shares down 4.2 percent.
Yonhap news also quoted KDB CEO Min Euoo-sung, who headed Lehman's local operations until earlier this year, as saying his bank was in discussions to form a consortium with private banks to jointly buy Lehman, but pricing remained an issue.
Lehman declined to comment.
A senior executive of another top South Korean bank told Reuters KDB had a strong interest in Lehman, but that detailed terms of a possible agreement had yet to be determined.
The banker, who asked not to be named, said his bank would wait and see if KDB was successful in its talks with Lehman before deciding whether to join any consortium.
"We need to wait until a deal is done. It would be in the form of buying new shares or existing shares. But this kind of deal still has a high possibility of falling through, because Lehman could be in talks with other banks in other parts of the world," he said.
A spokesman for Woori Bank, a unit of Woori Finance, said the state-controlled bank would also wait before making a decision to team up with KDB in any deal.