State-owned Korea Development Bank today confirmed it was in talks with struggling Lehman Brothers over a possible joint investment in the U.S. bank with other Korean banks.

Lehman, led by chief executive Richard Fuld, is under pressure to raise capital ahead of its results announcement this month as Wall Street firms reel from the credit crunch.

A KDB spokesman said today: “Our CEO said talks are ongoing and cannot disclose the content of them.”

Buying a top bank could catapult South Korea's financial services firms into the top ranks of global investment houses, which have been battered by heavy mortgage write downs. Lehman's shares have fallen more than 70 percent since the beginning of the year.

But investors there are wary about a potential Lehman link, which may involve top Korean banks like Shinhan Financial, Woori Finance and Hana Financial Group, on concerns about the extent of problems at the U.S. bank.

Shares in the three Korean banks all fell more than 5% today.

The head of South Korea's financial regulator last week appeared to warn KDB off a Lehman deal, saying that private banks should take the lead.

But a Financial Services Commission official appeared to soften that stand yesterday, saying the regulator will stay neutral until it knows the terms.