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Last updated: August 21, 2008 3:29 pm
Lehman Brothers, the beleaguered US investment bank, held secret talks to sell up to 50 per cent of its shares to South Korean or Chinese parties in the first week of August but failed to reach agreement with either.
The South Koreans and Chinese walked away after concluding that Lehman was asking too high a price, said New York-based people familiar with the potential buyers. Lehman declined to comment.
The talks reflect the growing pressure on Dick Fuld, Lehman’s chief executive, to raise capital ahead of the mid-September earnings report, which, analysts said, could include more writedowns of $4bn (£2bn), bringing the total so far to $12bn. Lehman shares have fallen nearly 85 per cent since early 2007 and its market value is now about $9.5bn.
In addition to selling a stake in itself, Lehman is considering selling all or part of its holdings, including its troubled $40bn commercial real estate portfolio and its asset management arm, which includes Neuberger Berman. Analysts said the asset management arm was the crown jewel that could be worth up to $10bn.
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.
“They [Lehman] wanted . . . a few irons in the fire,” said one person familiar with the matter.
The talks to sell a substantial stake in Lehman are likely to lead to questions about the future of Mr Fuld, 62, who has spent his career at the bank and is the longest-serving chief executive of a top Wall Street firm. News of the failed talks sent Lehman’s shares down $1.04 or more than 7.5 per cent in early trade on Thursday to $12.69.
Lehman had been one of the grandest names in high finance before a series of mis-steps forced its sale to Shearson American Express in 1984. For members of the old guard at Lehman, like Mr Fuld, the years inside Amex were a humiliation.
It took a decade for Lehman to break free and Mr Fuld has jealously guarded the independence of his firm ever since.
“What is Lehman’s strength also became Lehman’s weakness,” said one former executive at the bank. “The plus was that there was continuity. The negative side was that, as the game changed, the senior people became too removed.”
In June, Mr Fuld had to accept the resignation of Joe Gregory, his long-time deputy, who was replaced as president and chief operating officer by Bart McDade. Erin Callan, the high-profile chief financial officer, was replaced after only six months in the job by Ian Lowitt.
Mr McDade has been playing an increasingly prominent role at the investment bank, according to people who have dealt with Lehman.
However, in spite of Lehman’s share price fall, those who have negotiated with the firm in recent weeks describe Mr Fuld, who wields additional influence as a director of the Federal Reserve Bank of New York, as being as pugnacious as ever. “He thinks he is playing with a full deck,” said one person on the other side of the table.
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