Sunday, September 07, 2008

RBC Pulled Back from Lehman Bid

Financial Times, Henny Sender, 7 September 2008

Royal Bank of Canada considered buying Lehman Brothers in July but decided against it because it had doubts about Lehman’s ability to shore up its balance sheet in the wake of the credit crisis.

Lehman is now under pressure to raise capital ahead of its earnings announcement this month, which analysts say could include $4bn in writedowns. The investment bank’s options include selling a stake in itself or all or part of its asset management arm.

“They should be much further along at this point than they are,” the shareholder said.

Lehman has tried to cut a deal with KDB twice before. Talks took place in June and in August – the latter in New York as China’s Citic Securities also discussed buying a Lehman stake.

RBC decided against buying Lehman because it was worried about the assets on the balance sheet and “about what we would have to promise the Lehman people”, said an RBC executive.

The Canadian bank had been asked by Federal Reserve officials to look at Bear Stearns in March. But with the US investment bank on the brink of collapse, RBC decided the deal was too risky. Lehman, RBC and the Fed declined to comment.

A KDB delegation led by Min Euoo-sung, KDB chief executive and former Lehman country head in Korea, came to New York in the first week of August for talks with Dick Fuld, Lehman’s chief executive officer, and Bart McDade, its president. At the same time, Lehman met executives from Citic Securities.

At one point, the Koreans believed they were close to a deal. But they walked away, frustrated with Mr Fuld, said people familiar with the potential buyers. One said Mr Fuld “acted as if he held all the cards...He over-negotiated.” The Chinese did not get as far, the people said.

After Lehman failed to cut a deal with KDB in June, it raised $6bn in capital from sources including the New Jersey state pension fund, Hank Greenberg, former AIG chairman, and hedge funds including Fortress Investment and GLG, which is part owned by Lehman.