Korean Regulators Put Kibosh on KDB/Lehman Takeover Rumors

South Korea's top financial regulator indicated that it was not pleased at the prospect of a Lehman takeover by Korea Development Bank.  The regulator warned that KDB should take a "cautious" approach to buying an overseas bank and that such a deal should be led by private lenders.  Piling on $630 billion in Lehman's assets onto KDB's $120 billion balance sheet can only be viewed as cautious by those who feel Fannie Mae doesn't have enough leverage.  Investors who actually drove up the price of Lehman on Friday purely on the basis of this ridiculous idea may have been the same ones who bought into Richard Bove's widely circulated analyst note which surmised that Lehman was ripe for a hostile takeover.  The note received a ridiculous amount of press, presumably because it was a very slow news day.  Nevertheless, it made me consider hiring Mr. Bove's publicist because I can't understand how something so inconsequential could get so much attention from the financial press.

The basic gist of the note is that Lehman's management believes its assets are more valuable than the market price.  The company has made numerous attempts to sell a variety of assets but refuses to accept the bids it is receiving from potential investors.  Based on the fact that the market capitalization of the entire company is equal to his valuation of the Neuberger Berman subsidiary, Mr. Bove concludes that the company is grossly undervalued and is ripe for a hostile takeover.  I tend to draw an alternative conclusion: that management at Lehman is completely delusional and is not willing to accept that its valuations are overstated.  Furthermore, I look at the investing climate and wonder who is in a position to perform a hostile takeover of an investment bank with over $600 billion in assets?  I would immediately rule out the remaining investment banks due to too much overlap in businesses.  The large money center banks have so many of their own problem assets that they would not want to digest such a huge acquisition.  Wells Fargo, one of the few healthy financial institutions large enough to actually do the deal, is featured in a front page Financial Times story claiming it has no interest in acquiring a struggling rival.  Private equity is out because of regulatory issues, not to mention financing issues.  So who's left?  Overseas banks?  Maybe, but unlikely.  It seems we can count the Korean's out.