The state-backed Korean Development Bank (KDB) is understood to be scrambling to assemble a consortium of up to three domestic private-sector financial groups to pull-off an "all-Korean" buyout of Lehman Brothers.

The last minute dash to put together a credible group is thought to have been prompted by South Korea’s Financial Services Commission, whose chairman, when asked last week about the discussions between Lehman and KDB, said "generally speaking, the private sector should be the leader in such a deal".

Sources close to KDB told The Times that the group is struggling to assemble a workable consortium, as Korea’s troubled economy and huge levels of household debt make its banks look vulnerable.

The weakening economy has combined with dwindling foreign exchange reserves to make the Korean government reluctant to bankroll KDB for the full amount that would be required to gain control of Lehman. Instead, the government is pushing for KDB to assert itself as the "managerial leader" of the grab for the prime Wall Street brand.

One lawyer close to the potential bid said that there was a "strong school of thought" within Korea’s Financial Services Commission that was pushing for the creation of a national investment banking champion. The Commission confirmed yesterday that KDB was considering a possible investment in Lehman, as well as other banks, but declined to give further details. Lehman declined to comment.

Many suspect that KDB and Lehman are able to maintain a constant dialogue on the subject of cash injections or stake-building because of close ties. Min Euoo-Sung, KDB’s governor was, until earlier this year, the chief executive of Lehman’s operations in Seoul.

But there appears to remain substantial resistance within the government to any bid being mulled by KDB: Lehman is still regarded by some in Korea as an acquisition with unknown risks and the government is unwilling to let anything jeopardise its planned privatisation of KDB.

A potential bid to buy Lehman is one of several possible outcomes for the Wall Street brokerage, which is dedicated to boosting its balance sheet after suffering billions of dollars of losses on mortgage-related investments.

The group, which is forecast in mid-September to announce a further loss, of about $3.5 billion for the third quarter, is already in discussions with KDB about the Korean bank injecting several billion dollars into Lehman in return for a sizeable, but minority, stake.

The group may also sell its asset management division, which includes Neuberger Berman, the fund management business. Kohlberg, Kravis, Roberts and Bain Capital, the private equity firms, are seen as the favourites to acquire the unit, should a sale go ahead. Furthermore, Lehman is sounding out potential buyers for $40 billion of troubled commercial mortgages and property on its balance sheet, as well as an alternative proposal to spin off those assets into a separate entity.

In a bid to cut costs, the group is poised to cut a further 1,200 jobs, or about 5 per cent of its remaining workforce.

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