Korea Development Bank (KDB) admitted yesterday that it was assembling a bidding consortium to negotiate a possible investment in Lehman Brothers, the troubled Wall Street investment bank.

The announcement could enable the struggling bank to be taken over by an “all-Korea” consortium, which would give managerial control to KDB.

KDB said that talks had stalled over the price, which sources close to the deal say has caused the bid negotiations to reach deadlock several times in the past few weeks.

Lehman Brothers shares were up 4 cents, or 0.25 per cent, at $16.13 at the close on Wall Street.

Min Euoo Sung, the president of KDB, said that the talks and investigations into Lehman’s liabilities were continuing, but that it was hard to predict how talks would turn out, given the potential risk factors surrounding the sub-prime stricken American bank.

“I think it is desirable to make a joint bid for Lehman Brothers, so KDB is in talks with other commercial banks on forming a consortium,” Mr Min said. “It is difficult to predict the outcome of negotiations with Lehman Brothers due to differences over price.”

Reflecting growing concern in the South Korean Government that it would be bankrolling a potentially hazardous investment, Mr Min added that due diligence was still under way but there were differences over the size of Lehman’s potential liabilities.

Sources close to KDB said that the group led by the state-backed lender was struggling to assemble a workable consortium, as South Korea’s troubled economy and its huge levels of household debt make its banks look vulnerable. Several leading banks are understood to have turned down KDB’s offer of joining its investment consortium.

The last-minute rush to put together a credible group is thought to have been prompted by South Korea’s Financial Services Commission, which privately believes that the country should be pushing to create a global investment banking champion. It regards Lehman’s woes as a perfect opportunity to take control of a Wall Street brand at a knockdown price.

Jun Kwang Woo, the commission’s 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.”

His comments reflect growing concern in South Korea over the state of its currency, which slid to a four-year low yesterday, despite official assurances that the country has the ability and the willpower needed to defend the falling won.

Currency dealers in Seoul said that the lack of any visible intervention by the Korean authorities was prompting some investors to place more bets against the won, sending it yet further down against the US dollar.

The weakening economy has combined with dwindling foreign exchange reserves to make the Government reluctant to bankroll KDB for the full amount that would be required to gain control of Lehman.

Many suspect that KDB and Lehman are able to maintain a dialogue because of close ties. Mr Min was, until earlier this year, chief executive of Lehman’s operations in Seoul.

A potential bid to buy Lehman is one of several possible outcomes for the Wall Street brokerage, which is working to boost its balance sheet after suffering billions of dollars of losses on mortgage-related investments. Analysts project that Lehman could post losses of up to $4 billion when it reports its third-quarter results this month.

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