Lehman sets asset sales plan, posts $4 billion loss

According to analysts, the asset management business could be worth $8 billion in a sale -- more than Lehman's entire market value of less than $5 billion.

Lehman had explored options including selling a stake to state-run Korea Development Bank. According to reports, the talks fizzled, then reignited, then fizzled again this week.

The planned deals announced Wednesday may also be a prelude to Lehman selling itself. Fuld had said the bank "can go it alone and be very strong," but added that he would take reasonable offers to the board of directors.

On Wednesday, his stance appeared to change, saying only that he would show the board reasonable offers.

"That's a big step for Dick Fuld," said Walter Todd, portfolio manager at Greenwood Capital Associates and a former banker at Lehman. "He's been adamant about staying independent since Lehman was spun out from American Express" in 1994.

Moody's said if Lehman finds a "stronger financial partner," its credit rating could be upgraded, but a failure to do a deal would likely result in a downgrade. Ratings cuts would make it tough for Lehman to stay in some businesses.

'RIGHT TRACK'

Lehman's management put a brave face on their predicament, saying on a conference call they do not believe they need to raise further capital after the planned asset sales.

"We're on the right track to put these last two quarters behind us," Fuld said.

Still, its market value has dropped more than $40 billion since February 2007.

Shares of other financial sector companies also fell as investors worried about credit losses and capital needs. Washington Mutual Inc stock dropped more than 30 percent to its lowest levels since 1991.

Lehman posted a loss of $5.92 per share for the third quarter ended August 31, while net revenue was negative $2.9 billion, reflecting the write-downs.

Analysts' average target was a loss of $3.43 per share on revenue of $88 million, according to Reuters Estimates.

The cost of protecting Lehman's debt for five years climbed 1 percentage point to 5.75 percentage points on Wednesday, or $575,000 a year to protect $10 million of debt, according to Phoenix Partners Group.

WORRIED WORKERS

Lehman will cut the dividend to 5 cents per share from 68 cents, saving $450 million a year.