KDB, Weighing Lehman Investment, Sees `Opportunity'

By Bomi Lim and Shamim Adam
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Aug. 23 (Bloomberg) -- Korea Development Bank, which said it's considering a possible investment in Lehman Brothers Holdings Inc., views the global credit market turmoil that's ravaging banks as a chance to expand abroad.

``It's a good opportunity for investments that can make us a global financial institution,'' Chief Executive Officer Min Euoo Sung said in July, a month after the former Lehman banker was hired to prepare KDB for an initial public offering.

Min, the same age as the 54-year-old Seoul-based bank, is accelerating KDB's transformation into an international investment bank and corporate lender. Speculation has grown that state-owned KDB may use the collapse of the subprime mortgage market that has caused more than $500 billion of losses and writedowns to gain customers and acquire cheap financial assets.

``Korean banks could consider acquisitions of overseas rivals as part of investments for the future,'' Han Jeong Tae, an analyst at Hana DaeToo Securities Co. in Seoul, said in an interview yesterday. ``Their dilemma is how much risk they could take when no one is confident over the soundness of those rivals.''

Lehman, the fourth-largest U.S. securities firm, reported $8.2 billion in losses and asset writedowns since the beginning of 2007 following the collapse of the U.S. subprime mortgage market, according to data compiled by Bloomberg. Lehman has $639 billion of assets.

Possibilities

``KDB is considering all kinds of options, including Lehman Brothers,'' a KDB spokesman said yesterday, declining to elaborate. A Reuters report on Aug. 22 cited a spokesman saying that KDB is ``open to'' possibilities, including a purchase of New York-based Lehman.

Lehman spokesman Mark Lane declined to comment. KDB's Min also declined to comment.

Lehman climbed 69 cents, or 5 percent, to $14.41 in New York Stock Exchange composite trading. Shares of the New York- based firm dropped 78 percent this year, the worst-performer on the 11-company Amex Securities Broker/Dealer Index.

The global banking crisis is accelerating the transformation of Seoul-based KDB, which was founded to fund reconstruction and industrial development after the Korean War. South Korea's government is reducing its holdings in state-owned assets, and the six-month-old administration of President Lee Myung Bak aims to sell a 49 percent stake in the lender by 2010.

Balance Sheet

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 company's 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.

KDB may sell stakes to outside investors before the IPO, the Financial Services Commission said in a June e-mail statement. The government also plans to set up a holding company for the bank and its three affiliates in November or December, the statement said.

Net income from KDB's overseas operations dropped 42 percent to $24.6 million in the first half of 2008 from a year earlier, the Financial Supervisory Service said Aug. 22.

Min had worked at Morgan Stanley and Citigroup Inc. in Korea before joining Woori Finance Holdings Co. as chief financial officer and chairman in 2001. He rejoined Lehman in 2005.

He received a bachelor's degree in business administration from Sogang University in Seoul, and a master's in business administration from the State University of New York at Buffalo in 1986.

Five-Year Plan

``Our ultimate goal is to transform into a global investment bank under a corporate and investment bank structure on the back of our vast experiences accumulated as a corporate banking specialist,'' Min is quoted as saying on the bank's Web site. We are embarking ``on our quest to emerge as Asia's leading investment bank within five years.''

KDB acted as a quasi-sovereign borrower and was seen as a proxy for the government in borrowing matters. It was often used by the Korean government as its main policy bank to prop up companies that had nowhere else to turn, prompting its bad debts to surge during the country's 1997-1998 financial crisis. The lender closed some of its securities businesses and cut its workforce because of the debts and rising costs.

The bank's loans to companies in the 1960s and 1970s helped develop the country's manufacturing and chemical industries. Since the 1990s, it has focused on developing information technology-related industries, including semiconductors.

KDB has said it will initially focus on equity investments to bolster its investment banking operations.

The bank has 15 branches in 11 countries, including China, Japan and the U.S., according to the FSS. Its domestic subsidiaries include Daewoo Securities Co., South Korea's third- biggest brokerage by market value, finance leasing company KDB Capital Corp., and KDB Asset Management Corp.

To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net; Shamim Adam in Singapore at sadam2@bloomberg.net