Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, rose the most in two weeks in New York trading after Korea Development Bank said it's "considering" an investment in the company.
Lehman climbed $1.44 to $15.16 at 11:43 a.m. in New York Stock Exchange composite trading, after reaching $15.93. Shares of the New York-based firm dropped almost 80 percent this year before today, the worst-performer on the 11-company Amex Securities Broker/Dealer Index.
"KDB is considering all kinds of options, including Lehman Brothers," a KDB spokesman said today, declining to elaborate.
A Reuters report earlier today cited a spokesman saying that the government-controlled bank is "open to" possibilities, including a purchase of Lehman.
Lehman, the largest underwriter of mortgage bonds before the subprime market collapsed, lost the confidence of investors in the past year as it struggled to pare debt holdings. The bank has reported writedowns and credit losses of $8.2 billion in the past 12 months, according to data compiled by Bloomberg.
An outright takeover by the state-owned lender is unlikely, said Rupert Della-Porta, the London-based chief operating officer of research firm Atlantic Equities.
"It would be too big an acquisition for them," Della- Porta said in an interview. Lehman Chief Executive Officer Richard Fuld, 62, "has made it very clear that he doesn't want to sell the operation. They have many other options before they would consider something like this one."
Lehman spokesman Mark Lane declined to comment. Korea Development Chief Executive Officer Min Euoo Sung also declined to comment.
"I would be very surprised by any deal that would lead to complete control," said Stuart Eizenstat, a partner at Covington & Burling LLP in Washington and former U.S. Deputy Secretary of the Treasury. "That would elicit a lot of questions and political blowback. I'm sure that's not going to happen."
An acquisition of one the largest American investment banks by a company controlled by a foreign government would likely draw U.S. regulatory scrutiny, according to Eizenstat. Such a transaction would probably be reviewed by the Committee on Foreign Investment in the United States, chaired by the Treasury Department, he said. The panel assesses potential security risks posed by takeovers of U.S. companies by international buyers.
The Financial Times reported yesterday that Lehman failed to sell a 50 percent stake to Korea Development Bank and China's Citic Securities Co. The buyers walked away after deciding Lehman demanded too high a price, the FT said, citing people familiar with the Asian lenders.
CEO Min was head of Lehman's Seoul branch before joining KDB in June. The Korean government, which owns 100 percent of KDB, plans to start privatizing the company next year, according to KDB's Web site.
KDB's goal is "to emerge as Asia's leading investment bank within five years," according to a message from the CEO on the company's Web site.
At the end of 2007, KDB's consolidated balance sheet listed 146.9 trillion won ($138 billion) of assets and 21.7 trillion won of shareholder equity, according to the Web site. KDB's 2007 net income of 2.52 trillion won, or $2.37 billion, is just over half of Lehman's $4.2 billion of income during 2007.
"For long-term investors, opportunities like this do not come very often," said Mamoun Tazi, an analyst at MF Global Ltd. in London. "This deal, if it happens, could be rewarding for KDB from a financial as well as a public relations point of view."
Credit-default swaps protecting against a default on Lehman's bonds dropped 74 basis points today to 315, the biggest one-day decline since April 8, according to CMA Datavision prices.
A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.