S.Korea banks held talks on Lehman stake buy: report

SEOUL (Reuters) - South Korean banks, led by the state-owned Korea Development Bank, had been in talks to buy a stake and management rights in Lehman Brothers, but failed to reach a deal on concerns about the U.S. bank's financial health, a newspaper said on Friday.

The Chosun Ilbo daily cited government and industry sources as saying that Lehman had first contacted Korea Investment Corp (KIC), a sovereign wealth fund, among South Korean investors as part of a fund-raising drive.

But after the KIC decided not to invest in Lehman, the Wall Street bank contacted Korea Development Bank (KDB), whose Chairman and Chief Executive Officer Min Euoo-sung had led local operations of Lehman for three years until early this year.

Min had been aggressive in the negotiations but backed out of the talks at the final stage, causing other South Korean banks to follow suit.

"We had thought buying a global bank, worth 7-8 trillion won ($6.7-$7.6 billion) will provide a springboard to globalising South Korea's financial industry," an unnamed industry source involved in the talks told the newspaper.

Shares in Lehman have plunged more than 80 percent since early 2007, leaving the bank worth some $9 billion at this week's valuations.

"Problems with its book were more serious than we had thought," a senior government official was quoted as saying. "We judged it would be too risky for the government to inject additional capital into it if it incurred additional losses."

Lehman Brothers, which has more than $60 billion of mortgage and mortgage security exposure, is under pressure to raise capital ahead of the company's earnings in September. Analysts have said the Wall Street bank could write down as much as $4 billion.

On Thursday, China's biggest brokerage CITIC Securities said it had held no formal talks about buying a stake in Lehman, denying another report that Lehman had held talks on a sale of up to half its shares with CITIC Securities. KDB mentioned in the same report declined to comment.

($1=1051.1 Won)

(Reporting by Kim Yeon-hee; Editing by Keiron Henderson)

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