Lehman Fundraising Talks "Stall"; Firm Looking to Split Into Two

We were willing to be proven wrong in our skepticism of Korea Development Bank’s pursuit acquiring a stake in Lehman. We had no doubts about the interest; the KDB CEO was the former Seoul branch manager for Lehman and full bore behind a deal. But the reception of the Korean government, which had to approve the deal, was lukewarm at best. It’s rare for an individual to overcome official indifference and inertia. We had noted that the Korean bureaucrats could simply study the deal to death, that would put an end to it with every having to official turn the KDB or Lehman down.

And the rumors about other possible suitors have been simply bizarre. An implausible number of parties have been alleged to be in the wings.

Whether by happenstance or design, Korea is unable to meet Lehman’s timetable, so the firm is on to Plan B, discussed earlier in the week, to spin off problematic mortgages into a separate entity From Times Onlline:

Lehman Brothers is preparing to split into two separately listed companies, as rescue talks between the beleaguered $11 billion (£6.2 billion) investment bank and the Korea Development Bank appear to be running out of time…

Fuld’s plans would see the bank’s $32 billion portfolio of toxic commercial mortgages siphoned off into a new company, supported with $24 billion of debt and $8 billion of new equity….

Talks are still continuing with the Korean Development Bank (KDB) with a view to securing $6 billion of equity in exchange for a sizeable stake in the firm. But they appear to be struggling to agree acceptable terms…

Under the plans, the KDB would acquire equity in the “good bank”. The cash raised, however, would be used to prop up the “bad bank”.

The KDB has been attempting to persuade Lehman to agree to a deal priced at a discount to Lehman’s battered share price….

If the Korean deal falls through, Lehman will press ahead with a sale of its Neuberger Berman investment-management business, estimated to be worth up to $10 billion – roughly equivalent to the entire company’s current market capitalisation.

Private-equity giants KKR, Apollo and Bain Capital are all in the running for the business. A sale, however, would be a last-ditch move by Fuld, who is keen to hold on to the business.

If Fuld is forced to resort to a sale of Neuberger Berman, Lehman’s operations would be placed under review. Some Wall Street sources believe it would then push through a dramatic cost-cutting programme. It would not want to damage its global positions in bonds, equities and investment banking, but there would be a big reduction in its workforce.

Some analysts speculate that as many as 10,000 jobs, out of a global total of 25,000, could hang in the balance.

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  1. Anonymous


    This one really rings my BS meter. So what happens when the “good bank” that Lehman splits off has securities that devalue do to “unforseen” events that are inevitable in a deflationary period?


  2. bg

    why would creditors agree (and are they forced to agree) to have their collateral degraded by being bundled with the ‘bad’ bank – rather than the whole?

    Seems like risk is being transfered from shareholders to bondholders.

  3. Anonymous

    You can buy my crap for 10 cents on the dollar…..it still doesn’t sell, go figure.

    I’m sure one of the Fed windows will take it at full value in exchange for some negative interest bearing paper.

  4. Anonymous

    Alternatives for Lehmann Bros:

    1) Burst into flames.

    2) Explode into a million tiny banker meatballs.

    3) Meltdown completely after hair erupts into flames.

    4) Enter uniformed government service. (make that uninformed)

  5. S

    is there not a national security issue with KDB an organ of the state having access to the window? The first job loss should be fuld. He is a liar and should be investigated for the series of leaks.

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