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SEOUL : South Korea's financial watchdog Monday urged state-run Korea Development Bank to be cautious about buying a stake in troubled US investment bank Lehman Brothers.
"KDB should approach the possible deal carefully because the process of the KDB privatisation has not yet started and domestic financial markets have suffered troubles," Financial Services Commission chairman Jun Kwang-Woo told reporters.
It was his second such warning in a fortnight to KDB, which is in talks about a possible stake in Lehman.
KDB, set up in 1954 to finance the nation's industrial and economic development, is South Korea's fifth largest bank with assets of about 120 billion dollars.
The government hopes to privatise it by 2012 and turn it into a global player by allowing it to acquire other financial companies.
Fears of foreign capital flight roiled local markets last week, although the won and the stock markets staged strong rebounds Monday.
Jun said the government recognises KDB's independence and cannot order it to terminate talks with Lehman.
KDB chief executive Min Euoo-Sung has said his bank is trying to form a consortium of private investors to jointly invest in Lehman. But several major financial institutions have said they are not interested.
A news report last week said KDB has offered to buy a 25 per cent stake in Lehman for five to six trillion won (4.3-5.2 billion dollars). It also wanted the right to raise its stake to up to 49 per cent, Chosun Ilbo newspaper added.
Min has said it is hard to predict how negotiations will end due to differences over pricing and over the US firm's potential liabilities.
Lehman Brothers suffered billions of dollars in writedowns and credit losses in the crisis triggered by the meltdown in the US subprime mortgage sector.
- AFP/ms
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