Lehman tried to sell a 50% stake to foreign governments
Lehman Brothers is obviously desperate to avoid Bear Stearns’ fate. The FT is reporting that Lehman held secret talks with foreign investors to sell up to 50% of the company. Previously, I thought one investor might be the Korea Investment Corporation, but it turns out the investors are the Korean Development Bank and Citic of China.
In the first week of August, Lehman held parallel talks with the government-owned Korea Development Bank and China’s Citic Securities at its headquarters in New York’s Times Square area.
The South Koreans discussed a two-step process under which KDB would buy a 25 per cent stake directly from Lehman and another 25 per cent of the shares though a market tender.
The price under discussion was 50 per cent above Lehman’s book value. The two sides were said to have been close to a deal but last-minute disagreements torpedoed the talks.
Simultaneously, Lehman met top executives of Citic Securities but these talks never reached the level of detail of those with the South Koreans.
I’m sorry , but there is absolutely no way that deal would fly with U.S. regulators. Citic, the Korean Development Bank? Are you kidding me? The Germans are looking to impose a 25% restriction on foreigners. The last time I checked these two outfits were state-owned. Why would Lehman think that they had a snowball’s chance in hell of getting a 50% deal with foreign governments? From a protectionist standpoint, the Feds have to worried enough that China, Japan and the Middle East own so much Fannie and Freddie paper. Their taking a controlling stake in a major U.S. investment bank is one step too far. I can see Chuck Schumer right now: “How dare those Asians.”
In the end, Lehman will need to get bailed out if things don’t turn around quickly enough. And with Fannie and Freddie imploding as we speak, Ben Bernanke and Hank Paulson have quite a mess on their hands.
Ben, its time to get out your helicopter. America needs some cash.
Update: The WSJ is reporting that the Fed pulled in Credit Suisse to ask them about rumors that Credt Suisse was pulling its credit lines to Lehman.
In an apparent attempt to prevent a repeat of the cascading rumors that helped sink Bear Stearns Cos., the Federal Reserve last month quietly called one major bank to see if it had pulled a credit line from Lehman Brothers Holdings Inc., people familiar with the matter said.
Responding to a July rumor that Credit Suisse Group planned to pull a line of credit to Lehman, Federal Reserve officials called to see if it was in fact true, according to these people. Credit Suisse told Fed officials there was no truth to the rumor and it had no intention of pulling the line of credit, the people said.
We now see the Fed is very worried about Lehman Brothers becoming the next Bear Stearns.