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Korean Bank to Acquire Lehman Brothers

Published 09/02/08 Craig Harrington - Print Article
E-mail - editor@economyincisis.org

Lehman Brothers Holdings Inc., one of Wall Street’s most stricken investment firms, is in talks with Korea Development Bank which may result in the partial takeover of the American financial icon, according to Bloomberg.

Lehman Brothers is in dire need of financial resources after weathering $8.2 billion in mortgage-related asset writedowns and witnessing a 75 percent drop in its share-price in the past year. News of the possible deal has granted some pause to the plunge in Lehman Brothers’ share-price, but the slight increase still left much to be desired for share-holders who watched values plummet from over $67 per share to just over $12 per share in the past year.

In exchange for their $6 billion investment, KDB will receive a considerable stake in Lehman Brothers; perhaps up to 25 percent according to the Sunday Telegraph.

KDB is not altruistically extending its hand to a fellow firm, it intends to reap a profit from this investment in the future after the housing and credit markets bottom out and stabilize. This move by KDB should be considered for what it is, another foreign takeover of an American company.

Eventually the recession will end and the self-inflicted wound driven by the housing and credit crisis will heal. Those companies which survive will hopefully blossom, as was the case during the Great Depression and other such economic tumults. KDB expects the American economy to eventually right itself and for Lehman to become profitable again. When it does up to 25 percent of those profits will be funneled overseas to Korean investors. In the spirit of “sell high, buy low” financial planning, KDB has set itself up to make billions in the long-term, while poor management and bad investing has cost Lehman and its American shareholders.

Source Bloomberg:

Korea Development Bank is in talks to buy a stake in Lehman Brothers Holdings Inc., the fourth-biggest U.S. securities firm, as Asian investors shore up Wall Street firms beaten down by the global credit squeeze.

…

The global banking crisis triggered by the U.S. subprime mortgage collapse has led sovereign funds in Asia to buy U.S. assets. Temasek Holdings Pte, Singapore's $130 billion sovereign wealth fund, plans to boost its investment in Merrill Lynch & Co. to between 13 percent and 14 percent from 9.4 percent. Government of Singapore Investments Corp. or GIC, the bigger of the city state's two sovereign funds, invested about $18 billion in UBS AG and Citigroup Inc. in the past year.

China Investment Corp., the nation's $200 billion wealth fund started last year, has invested $8 billion in Blackstone Group LP and Morgan Stanley. South Korea's Korea Investment Corp. put $2 billion into Merrill Lynch this year.

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