The potential buyers found the price asked by Lehman to be too high. State-owned Korea Development Bank and China’s Citic Securities are believed to have been involved in the talks. The price under consideration is believed to have been 50% above Lehman’s market capitalisation.
The failed deal puts additional pressure on Lehman’s management as further writedowns are expected when the bank reports its third-quarter earnings this month. Merrill Lynch estimates a 15% markdown on the $29.4bn commercial mortgages portfolio – said to be for sale– would further hurt capital ratios.
Such pressure is highlighted by reports of a possible sale of all or part of Lehman’s holdings, including its troubled $40bn commercial real estate portfolio and its asset management arm, which includes Neuberger Berman. Analysts consider the asset management arm as a crown jewel that could be worth up to $10bn.
With Asian investors walking away from the deal, the US bank has few alternatives. Organic recovery does not seem to be one of them as Wall Street’s core advisory and trading businesses are slowing. Furthermore, Lehman still suffers the biggest exposure of its peer group to troubled property and derivatives assets.
The bank has raised almost $14bn this year, while its market capitalisation has decreased to about $9bn.
LONE STAR TO ACQUIRE IKB
Lone Star, the US private equity group, is to take over German lender IKB, one of the earliest victims of the credit crisis.
After months of talks to find a new owner, the board of Germany’s state-owned development bank KfW has agreed to sell its stake of almost 91% in IKB.
KfW commented that the deal consideration was a low triple-digit million in euros and that the original expectation of €800m was not met. IKB has €4.6bn-worth of financial risk on its books. Lone Star will take up €3.3bn of this while KfW will retain the remaining investments.
KfW has said that the German federal government would provide it with about €600m in guarantees for its share of the risk. KfW will end up committing about €8bn to IKB’s rescue attempt by the time its exposure ends.
Lone Star, which is focusing on investment opportunities deriving from the credit meltdown, hopes to restore the IKB’s profitability within three years.
