South Korean regulators sound nervous on Lehman bid

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Singapore has a big financial stake in Merrill Lynch & Co. Persian Gulf sovereign-wealth funds have pumped money into beleaguered Citigroup Inc.

But Wall Street’s hopes for a South Korea-led rescue of Lehman Bros. are fading further today, which is helping to foul the mood on financial stocks in general.

Lehman’s shares shot as high as $15.93 on Friday on a report that the state-run Korea Development Bank was interested in buying a big stake in the capital-needy U.S. investment bank. But by the end of trading the stock had surrendered most of its gains amid talk that no deal was imminent.

Today, Lehman is leading another sell-off in financial shares after South Korean financial regulators voiced caution about a potential rescue.

Jun Kwang Woo, chairman of South Korea’s Financial Services Commission, told Bloomberg News that state-controlled banks should be conservative in any investments they make because the government wanted to shed its own stakes in some of the state-run institutions.

‘They should assess whether it’s manageable in terms of financial risks and their corporate structure,’ Jun told Bloomberg. Read the full story here.

Lehman shares were down 55 cents, or 3.8%, to $13.86 at about 10:45 a.m. PDT. The financial-stock sector in the Standard & Poor’s 500 index was down 2%, while the S&P 500 overall was off 1.6%.

South Korea’s Maeil Business newspaper today said that Korea Development Bank still was interested in a Lehman stake, but at a much lower price than what had been discussed, according to Bloomberg.

Talks on a possible investment ended after Lehman insisted that the Korean bank buy shares at a price 50% higher than the firm’s book value, the Korean newspaper said, citing an unnamed source. Lehman’s book value, or net value of its assets, was about $35 a share at the end of May, but any further write-downs of troubled assets would of course drag that number lower.

London’s Financial Times reported last week that Lehman also had been in talks with China’s Citic Securities, but that those discussions ‘never reached the level of detail of those with the South Koreans.’

Lehman has declined to comment on any negotiations.