naked capitalism

We were pretty skeptical of the idea that Korea Development Bank would buy a stake in Lehman, particularly since Dick Fuld seems a bit in denial as to what a stake in the storied firm might fetch these days (for instance, for the asset management operations, he wanted a buyback option. Let’s see, you are desperate for cash, everyone knows it, and you are pushing for rich terms?. You can’t bluff when everyone at the table knows you have a weak hand.)

The Wall Street Journal reports that KDB is now toning down its statements of interest:

KDB later played down the likelihood that it is ready to swoop in on Lehman. “We are just at an early stage of privatization, and we are weak at investment banking by international standards,” bank spokesman Sung Joo-yung said in an interview with The Wall Street Journal. “In the long term, we should strengthen that weakness.”

Translation: yes, we’d like to acquire investment banking expertise. That may mean buying some or all of an investment bank. But we are not in a rush.

The Journal also provides some tidbits on the politics:

KDB’s new chairman, Min Euoo-song, is a former chief of Lehman’s Seoul branch and has a reputation in Korean banking as an aggressive deal maker. But to make a takeover or sizable investment in Lehman work, Mr. Min would have to persuade South Korean regulators that Lehman fits with the government’s plan to privatize KDB.

In June, the government laid out specifics for splitting KDB into a holding company, which would become privatized by 2012, plus a separate development fund that would remain in government hands. Despite those plans, South Korean regulatory agencies are filled with people who lived through the financial crisis that drove the country to the edge of bankruptcy a decade ago. That is likely to make them especially cautious about any deal with Lehman.

Even if KDB’s chairman makes a full court press, wily bureaucrats could kill the deal by studying it to death. Time is of the essence here.

While that rumor (or more accurately, line of speculation) fades, another one is gaining steam, namely, that a palace coup is underway. From the Guardian (which broke this story):

Richard Fuld’s days as Lehman Brothers chief are numbered as a plan is being hatched within the troubled Wall Street investment bank to strip him of his executive duties…

Whether a Lehman suitor emerges or not, well-placed sources within the bank are certain that Fuld is set to hand over the reins before the end of the year. ‘He is involved less and less with day-to-day executive affairs, and his credibility is shot,’ one senior Lehman source said.

Fuld, one of the best-paid executives on Wall Street, is responsible for forcing the bank deeply into the sub-prime mortgage-related debt market….

Despite Fuld’s best efforts, the bank’s plight has been the talk of Wall Street all summer. Speculation about asset sales, investments by sovereign wealth funds and outright acquisition have gathered pace in recent days…

Insiders pointed out, however, that Bart McDade, Lehman’s relatively new chief operating officer, has assumed many of Fuld’s former duties.

Again, Lehman would not comment about McDade’s future at the bank. A source close to the chief operating officer would only say that there ‘had been no conversations’ about his becoming chief executive.