Transcripts

Lehman Brothers Could Have A Korean Benefactor

PAUL KANGAS: The government of Korea is considering a big investment in troubled Wall Street firm Lehman Brothers. The state-owned Korea Development Bank confirmed today it is negotiating a multi-billion dollar stake in Lehman. But as Darren Gersh reports, that plan could cause problems in Washington.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Under U.S. law, a major Wall Street firm like Lehman Brothers could be considered a critical piece of our economic infrastructure, which means the Treasury would have to launch an in-depth examination of the national security concerns arising from an investment by state-owned Korea Development Bank. The Institute of International Finance's Charles Dallara used to manage those reviews at the Treasury. He says U.S. officials would consider the size of any deal and its terms, while also keeping in mind how critical it is for Wall Street players to come up with the capital they need.

CHARLES DALLARA, MANAGING DIRECTOR, INSTITUTE OF INTERNATIONAL FINANCE: Well, this is not just a one-way set of issues here. We need to be conscious that in the absence of being able to raise sufficient capital at reasonable prices, Western financial institutions will be forced to shed assets at a pace and in a magnitude that may have adverse consequences for the U.S. economy.

GERSH: Critics like Alan Tonelson say you don't have to have national security concerns to think an investment by a state-owned South Korean bank is a bad idea. Tonelson considers Korea a closed economy.

ALAN TONELSON, U.S. BUSINESS & INDUSTRY COUNCIL: A larger South Korean government role in the affairs of a major Wall Street bank are bound to import more crony capitalism into the American financial system. The American financial system needs the opposite. It needs more openness and more transparency.

GERSH: It's not just the Koreans who are kicking Wall Street's tires. Kuwait and Singapore's government-owned investment funds have taken a big stake in Merrill Lynch (MER). China's Investment Corp. bought an $8 billion stake in private equity player Blackstone. And Abu Dhabi poured $7.6 billion into Citigroup (C). With Korea poised to join the list, Tonelson says it's time for Congress to ask some hard questions.

TONELSON: Yes, the United States "needs the money," but not at any price.

GERSH: South Korea is a key U.S. military ally and the South Korean government plans to take the Korea Development Bank private over the next couple of years, two factors that analysts say should help win U.S. government approval of any deal. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.