Lehman Brothers shares fell nearly 8 percent after a top South Korean regulator voiced concern about state-run Korea Development Bank's interest in buying a global bank.
Shares of Lehman Brothers , which has been hard hit by the credit crisis, had soared on Friday after KDB said it was open to the acquisition of an overseas financial institution, naming Lehman as one option.
A top regulator on Monday said Korea Development Bank shouldn't buy Lehman but be just a "cheerleader'' and let local private banks take the lead in any such purchase.
KDB said on Friday it was open to the acquisition of an overseas financial institution, naming Lehman as one of its options. The comments sent Lehman's share price up 12 percent on the day.
Also on Friday, banking analyst Richard Bove said Lehman is running out of time to shore up its financial situation and could be subject to a hostile takeover as early as this.
Lehman CEO Richard Fuld "has lost control of the game," Bove said in a live interview by phone. "If he doesn't do something this weekend, as of next week, the game is on."
- Click Here to Watch the Bove Interview
Bove echoed earlier comments that Lehman is undervalued and that several bidders are likely to emerge soon. He valued Lehman at $20 a share, well above its current price.
The Korean regulator, Financial Services Commission Chairman Jun Kwang-woo, told reporters on Monday that it would be difficult for KDB to engineer a takeover of Lehman.
"I think that KDB might have considered forming and leading a consortium (to buy Lehman Brothers),'' Jun said. "But it appears burdensome for a state-run institution to play a leading role (in the purchase of a foreign company) and take risks which may be more than financial.''
Cross-border acquisitions by South Korean companies should be led by the private sector and state-run institutions such as KDB should play a ``cheerleader role,'' Jun said.
"My point is that state-run institutions may take a catalyst role in pursuing these kinds of deals.'' Jun also said that KDB needed to consider its priorities before pursuing global expansion, pointing out that stabilization of the domestic financial markets might be the most urgent issue.
When asked about the status of KDB's possible interest in Lehman, one of Wall Street's victims of the subprime mortgage meltdown, he said: "That would be an international marriage. Would you get married just after one or two blind dates?''
KDB has not publicly confirmed that it directly approached Lehman.
The government is planning to privatize KDB by 2012, a process it hopes will help turn it into a global investment bank.
On Friday, banking analyst Bove said that even if KDB doesn't make a bid, it could team up with a US firm to acquire Lehman.
"What the Korean Development Bank is clearly saying," Bove said, "is that 'We know we can't take over Lehman. The United States won't let us. But we've got the money, and if you Mister America want to make a bid, come and talk to us and we'll fund it.' "
As reported earlier by CNBC, Lehman has been trying to sell at least part of its investment management division, including the firm's crown jewel, Neuberger & Berman asset management unit, in an attempt to raise capital.
But potential buyers—which include nearly every major private equity firm—are starting to balk at Lehman's initial offer, according to Wall Street executives familiar with the matter. (Click for more)
Their problem is the price. Lehman is pricing the investment management division at around $10 billion, meaning a 70 percent stake would cost $7 billion. But the real cost will be much more than that, because asset management firms are only worth something if employees remain with them following such a transaction.
—Reuters contributed to this report.