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(RTTNews) - State-run Korea Development Bank is considering the acquisition of Lehman Brothers Holdings Inc. (LEH), according to a Reuters report on Friday. Following the news, Lehman’s shares are currently up more than 13% in the regular trading session.

Korea Development Bank, or KDB, reportedly said it is open to mergers or acquisitions of both domestic and foreign companies to cover up its weak areas as the Korean government intends to privatize it by 2012.

The Reuters report quoted a South Korean government official as saying that talks by KDB with Lehman had not developed to the point of discussing details. The official added that probably KDB internally decided to stop the talks, as the company had not provided further information to the government.

Earlier reports said that Lehman, the fourth-largest U.S. securities firm, had sought to sell up to a 50% stake to China’s CITIC Securities, or Korea Development Bank, but the Asian companies were not enthusiastic as the price was too high.

Media reports in South Korea quoted government and industry sources as saying that Lehman first contacted a sovereign wealth fund, Korea Investment Corp., or KIC, for investments. The KIC had earlier invested $2 billion in Merrill Lynch & Co. Inc. (MER). However, as KIC decided not to invest in Lehman, the bank then approached KDB.

In July, the CEO of KDB, Min Euoo-sung said that the company was seeking potential merger and acquisition targets in Asian and other global markets despite the company’s own four-year privatization plans. During a four-year transitional period, the company plans to use part of the money from its sale of a 49% share to support the functions of the Korea Development Fund, including the state-led projects in provincial areas.

Euoo-sung, who is the former head of Lehman Brothers’ Seoul office, said that current bearish capital markets, which he believes may last until one or two years from now, could work favorably for many global bargain hunters like KDB who are keen to acquire a financial company. He pointed out that KDB is not heavily-geared when compared to global investment banks and that the bank’s low leverage ratio would give it more leeway to diversify its asset portfolios.

The South Korean government aims to transform KDB into a holding company in the current year and list it on the stock market next year. The government plans to sell a 49% stake in KDB over the next two years and the remaining shares in the two years subsequent to that.

Korea Development Bank was founded in 1954 in accordance with The Korea Development Bank Act for the purpose of financing and managing major industrial projects in Korea. As of June 30, 2007, KDB had 40 local branches, 6 overseas branches, and 2 overseas offices.

Lehman was in the news earlier this week after it was reportedly considering the sale of all or part of its investment management business, including the Neuberger Berman unit. The company’s investment management business is estimated by analysts to be worth about $8 billion to $10 billion.

JP Morgan Chase & Co. said in a research note released Monday that Lehman may write down about $4 billion in credit-related investments and other assets when it reports its earnings results for the third quarter, and added that Lehman is unlikely to sell Neuberger Berman. The company is said to have approached a group that includes private equity firms for the sale as it tries to overcome mounting losses on soured mortgage-related assets.

Rumors about the impending bankruptcy of the investment bank have been circulating on Wall Street in the wake of the U.S. subprime mortgage meltdown. Lehman has raised about $12 billion in equity capital in the current year to bolster its balance sheet and taken about $17 billion in gross writedowns. In addition, the company has sold off assets and shaken up to management. In order to boost its balance sheet, Lehman is also reportedly in talks with interested parties to sell its $40 billion portfolio of commercial real estate assets.

In Friday’s regular trading session, LEH is trading at $15.51, up $1.79 or 13.05% on a volume of 8.26 million shares. In the 52-week period, the stock has been trading in a range of $12.02-$67.73.