Consequences of KDB Taking Over Lehman Could Have Been Disastrous
 By Kim Jae-kyoung
Staff Reporter
Most Koreans, including President Lee Myung-bak and his administration, might breath a sigh of relief after hearing the news that U.S. investment bank giant Lehman Brothers filed for bankruptcy early Monday.
They may believe that the world' 13th largest economy barely managed to stave off another financial crisis by steering itself away from the once fourth largest American investment bank.
However, for Min Euoo-sung, CEO of Korea Development Bank (KDB), it was regrettable that KDB did not take over Lehman. He may still think that both Lehman and KDB have missed the boat.
With his ambitious vision to transform KDB into a world-class investment bank, Min had engaged in behind-the-curtain negotiations to take over a controlling stake in Lehman until the talks were suspended in the face of opposition from Cheong Wa Dae.
At a meeting with reporters, Tuesday, Min, formerly Lehman's country managing director in Korea, said that the negotiations ended in failure as Lehman did not lower its selling price.
``In hindsight, I believe that Lehman could have headed off bankruptcy if it had accepted our offer and the government had approved it,'' he said. ``If that had been the case, both KDB and Lehman might have enjoyed a win-win result.''
However, Min's view is not popular among U.S. market experts or global investors. They said that it was fortunate for Korea not to take over the ill-fated U.S. investment bank.
``We in Korea were certainly lucky to dodge a bullet this time. I do believe that the consequences of KDB taking a stake in Lehman could have been disastrous for all involved,'' Market Force Company CEO James Rooney told the Korea Times.
``When a bank loses the confidence of its counter parties there is almost no limit to how small it can shrink in consequence,'' he added.
He explained that because these institutions normally operate on a very high gearing, even small amounts of shrinkage in credit availability can have a devastating effect on their ability to conduct business at levels previously taken for granted.
A local bank executive, asking not to be named, also said that it was a very risky move to take over the troubled investment bank without knowing how much hidden loss there was.
``If KDB had taken over Lehman, it could have forced KDB to squander a huge amount of taxpayers' money in fixing its balance sheet, driving Korea into big trouble,'' he said.
U.S. market experts stressed that Korean banks should understand the complexity of the U.S. financial system before moving to take over any troubled U.S. players to avoid ending up buying a shell.
Mauro F. Guillen, director of the Lauder Institute at the Wharton School of Business, said that the key question lies in what capabilities other than capital would KDB bring to Lehman.
``I am not sure KDB understands the intricacies of the U.S. financial system and of a complex (and failed) firm such as Lehman. It's a big bet, and a big opportunity, but it is also risky,'' he said.
Rooney, who is also vice chairman of the Seoul Financial Forum, said that the focus should be on recruiting the hugely valuable talent that has suddenly become available, not on the takeover of the empty shell left over at the end of the devastation process.
Stijn Van Nieuwerburgh, a finance professor at the Stern School of Business of New York University, echoed the view, saying, ``Lehman is a great franchise whose biggest asset is its human capital.''
``I think it would be a wise investment, if only they could take it over without the distressed assets, such as the mortgage-backed securities (MBS) and credit default swap (CDS) portfolios,'' he said in an email from New York.
CEO Min is still eager to find a big merger and acquisition opportunity abroad in a move to become a force on the global market. But to make his dream come true, he should think about whether he can answer ``yes'' to the following questions before moving forward.
Is KDB ready to employ armies of the world's best financial talent? Is KDB ready to work at a global level? And finally does KDB have a culture that will accept, attract, motivate and stimulate this talent? That is because KDB's bureaucratic culture is often cited as a major stumbling block, preventing the state-run lender from playing at a global level.
kjk@koreatimes.co.kr
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