Korea’s Financial Services Commission refused to confirm that talks with Lehman had ended, but the report was enough to send Lehman shares into a tailspin.

The stock’s slide was enough to cause Standard & Poor’s to revaluate Lehman’s counterparty credit risk.

“The CreditWatch listing stems from heightened uncertainty about Lehman’s ability to raise additional capital, based on the precipitous decline in its share price in recent days,” S&P analyst Scott Sprinzen wrote, Bloomberg News reported. S&P said there is a chance of “lowering the ratings by more than one notch.”

If S&P were to lower Lehman’s credit ratings significantly, the investment bank’s ability to do business, and its very existence, would be in jeopardy. It’s hard not to draw comparisons with the Bear Stearns collapse, which ultimately ended with JPMorgan Chase & Co.’s (NYSE:JPM) purchase of what was at that time the fifth largest Wall St. investment bank for just $10 per share.

A hypothetical offer of $10 per share for Lehman would represent a 28% premium over yesterday’s closing price.

Richard Bove, an analyst with Ladenburg Thalmann, has been critical of Chief Executive Richard Fuld’s management of the beleagured investment bank for quite some time. Two weeks ago Bove suggested Lehman could find itself the victim of a hostile takeover if Fuld was not able to negotiate an emergency liquidity boost.

“Buyers seem to believe that Lehman is overvaluing its assets and refuse to hit the bid,” Bove wrote in a research note, BusinessWeek reported. “The net result is no action.”

As the list of potential saviors continues to dwindle, so does investor confidence in Lehman Brothers.

After taking $8.2 billion in subprime credit-related losses and writedowns in the past 12 months, Lehman stock is down over 88% year-to-date and is 88.5% off its 52-week peak.

Hungry for substantive news of how Fuld plans to shore up Lehman’s $60 billion mortgage-related portfolio, all investors have been offered so far is some management changes. But the clock is ticking and Fuld will have to face the music soon and come clean with his plans for the future of Lehman Brothers.

Source: Lehman Ripe for Takeover as Market Cap Plunges Below $6 Billion

Lehman has been badly beaten down due to its high exposure to the subprime crisis and management’s refusal to make tough choices when it comes to cutting loose assets. Unlike its financial brethren such as Citigroup Inc. (C) or Merrill Lynch & Co. (MER), Lehman has yet to make any large asset sales in hopes of boosting its bleeding balance sheet.

“Investors are unwilling to accept any positive view of the company; management is unwilling to sell out at a deeply distressed value,” Richard Bove, an analyst at Ladenburg Thalmann (AMEX:LTS) wrote, The New York Times reported. “The stage is set for a hostile bid to take over the whole company.”

Lehman shares are down over 75% year-to-date, dragging the firm’s market-capitalization below the $10 billion mark. The stock closed at $14.41 Friday, up $0.69, after settling back down from a high of $15.93 earlier in the day on rumors of a possible investment from Korea’s KDB.

State-controlled KDB could be shopping for American investment bank bargains to expand its global footprint.

“Korean banks could consider acquisitions of overseas rivals as part of investments for the future,” Han Jeong Tae, an analyst at Hana DaeToo Securities Co. in Seoul told Bloomberg News. “Still, their dilemma is how much risk they could take when no one is confident over the soundness of those rivals.”

The news follows several media reports that Lehman Chief Executive Officer Dick Fuld has been searching for an emergency cash boost from an overseas bank. Investors will watch to see if KDB makes a simple investment or an outright purchase.

A spokesman at the Korea Development Bank in Seoul said Friday that the state-run firm “is considering all kinds of options [with respect to] Lehman Brothers,” including an outright purchase, Fortune reported.

Source: Korea’s KDB Could Prove to Be Lehman Bros. Savior