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The Korea Development Bank is trying to form a consortium with Korean financial institutions to buy Lehman Brothers, the fourth largest U.S. investment bank which is in trouble due to the subprime mortgage crisis. KDB is said to have sent Lehman Brothers a letter detailing its intent to buy a 25 percent stake in the investment bank for W5-6 trillion (US$1=W1,149) in a consortium with Korean banks. KDB and Lehman Brothers held talks early last month over the stake purchase, but they broke down over the price and classification of insolvent assets. In offering new conditions, KDB is competing with British giant HSBC and China's CITIC Securities.
Opinion is divided among Korean government officials and market players over the KDB attempt. Jun Kwang-woo, chairman of the Financial Services Commission, said it was ¡°not desirable¡± for state-run KDB to jump into a bid to acquire a large bank that poses big risks. U.S. financial markets are seeing once-mighty financial institutions topple as the subprime mortgage meltdown spreads to prime mortgage loans. Merill Lynch and Bear Stearns, which ranked among the world¡¯s top 10 investment banks, were given death sentences this spring and bought out, while Lehman Brothers is groaning under more than W9 trillion in insolvent loans. KDB may end up buying a lot of insolvent assets.
But proponents say acquiring Lehman Brothers would mean an express ride to Wall Street, the center of the financial world, for Korean banks. Lehman stocks, which were more than US$70 a share in November last year, have tumbled to the $10 level. So there is some merit to claims that this is the perfect time to spend W5-6 trillion to buy a $250 billion global financial institution with around 40 branches worldwide and all the advanced skills that go with it.
The most important thing is the attitude of KDB. The outdated mindset of dodging responsibility for losses and expecting the government to bail them out will no longer do. KDB must base its decision on sober assessments that are more stringently implemented than those of any commercial lenders and make sure it has the capacity to stick with its decision to the end.
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