(Adds analyst comment, details)
By Kim Yeon-hee
SEOUL, Sept 10 (Reuters) - State-run Korea Development Bank [KDB.UL] has ended talks with Lehman Brothers LEH.N over a possible investment in the U.S. bank due to lack of progress, a government official briefed on the matter said on Wednesday.
"No more talks are under way on a deal between the two sides," the official told Reuters by telephone, asking not to be identified before any public announcement is made.
Lehman, a casualty of the U.S. subprime mortgage crisis, has brought forward the release of "key strategic initiatives" and quarterly results by a week to 1130 GMT on Wednesday after its shares sank as much as 46 percent on Tuesday on growing concern over its ability to raise capital.
As part of Lehman's plans to raise funds, the U.S. investment bank is in talks with BlackRock (BLK.N) to sell a package of British residential real-estate assets, The Wall Street Journal reported citing people familiar with the matter.
The Journal also said Lehman was planning to spin off some commercial real-estate assets into a new company, referred to internally at Lehman as SpinCo.
Lehman had already taken $7 billion in credit-related write-downs and losses since the start of the global credit crisis.
Asked specifically why the negotiations had broken down, the Korean official said: "Their talks had not developed to a serious level. There have been several investors who have been in discussions with Lehman other than us."
The official added Lehman had made some suggestions to KDB, but did not say whether the proposals were acceptable.
He gave no direct answer when asked whether the talks had broken down irretrievably.
KDB declined to comment on the official's remarks.
KDB, headed by the former chairman of Lehman's South Korean operations, had considered a joint investment with other domestic banks reportedly worth up to $5.3 billion.
However, doubt over the prospect of a South Korean lifeline had already emerged last week, when KDB said it was unsure there would be a deal and other Korean lenders denied interest.
The Maeil Business Newspaper quoted a high ranking government official in its Wednesday edition as saying that talks between KDB and Lehman were unlikely to succeed and that they have collapsed. The official cited the domestic financial environment, the circumstances around KDB and the price of the stake.
Tumbling stock markets in the wake of the subprime mortgage crisis have forced U.S. banks to seek fresh capital after heavy asset write-downs, and made them more affordable for Asian investors looking to boost their global profile.
But haggling over price, turmoil in South Korea's own financial markets and a government that sounds wary about letting KDB leap too far into the unknown pose hurdles to any deal on Lehman.
South Korea's top financial regulator on Monday urged KDB to weigh carefully its possible investment in Lehman.
But analysts say that even if the Lehman talks founder, it will have been useful experience for KDB as it hunts for a U.S. asset.
"KDB looks like it is moving in the right direction with such an attempt," Hana Daetoo Securities analyst Han Jeong-tae said. "But before it tries to do so, the first task to do will be raising its capability enough to absorb and manage such a bigger rival as Lehman."
A media report said last week that Japan's Nomura Holdings Inc (8604.T) was considering acquiring a stake in Lehman.
On Friday, Reuters reported that Blackstone Group LP (BX.N) and Kohlberg Kravis Roberts & Co [KKR.UL] are each looking to buy parts of Lehman's real estate and asset management units, citing sources familiar with the situation.
For more on Lehman, double click [ID:nN09324233] (Additional reporting by Marie-France Han; Editing by Keiron Henderson & Jean Yoon)