Lehman shares sink 45 percent on capital worries

By Jonathan Stempel

NEW YORK (Reuters) - Lehman Brothers Holdings Inc LEH.N shares sank 45 percent on Tuesday on growing concern the fourth-largest Wall Street investment bank won't raise sufficient capital to survive the global credit crisis.

"This has been going on for a while now, and people are worried about liquidity, survival," said Rose Grant, a portfolio manager at Eastern Investment Advisors in Boston, which invests $1.8 billion and has never owned Lehman shares.

In a sign of the deepening concern over Lehman's stability, several major Wall Street rivals issued statements that they were still trading with Lehman.

The stock closed down $6.36 at $7.79 on the New York Stock Exchange, and touched its lowest level since October 1998. The slide wiped out $4.4 billion in market value, and was a factor in broad declines in major U.S. stock indexes. Prices of safe-haven U.S. Treasuries rose.

Investors are worried that Lehman Chief Executive Richard Fuld may fail to raise enough capital to keep the company operating as losses mount from soured mortgages.

The bank has been reviewing options for the Neuberger & Berman asset management unit, one of its healthier businesses. Analysts have said Neuberger could fetch $7 billion to $8 billion in a sale, and expect a spin-off or disposal of much of its commercial real estate portfolio.

"It's Bear Stearns redux," said Greg Salvaggio, a currency trader at Tempus Consulting, referring to the collapse of the Wall Street investment bank in March.

Unlike Bear, which made senior executives available for interviews in the days leading up to its collapse, Lehman has declined several times to comment on its problems, and on Tuesday did so again.

Tuesday's decline came after Dow Jones Newswires reported that talks on a possible investment from Korea Development Bank broke down, citing the chairman of South Korea's top securities regulator, Jun Kwang-woo.

A spokesman for the Korean regulator denied the report, telling Reuters that Jun never made the statement.

The Dow article also quoted an unnamed government official as saying KDB had decided not to invest in Lehman.

The U.S. Federal Reserve and Securities and Exchange Commission declined comment. A U.S. Treasury Department spokeswoman said officials stay in touch with Wall Street on a regular basis. NYSE Regulation spokesman Scott Peterson said the exchange was monitoring trading in Lehman shares closely.

'HEIGHTENED UNCERTAINTY'

Standard & Poor's said it may cut Lehman's "single-A" long-term credit rating, its fifth-lowest investment grade. It cited "heightened uncertainty" about the bank's ability to raise capital as its shares fall. It said a downgrade could be more than one notch.

Through the close, Lehman shares had fallen 89 percent from a 52-week high of $67.73, set last Nov 14. Tuesday's slide raised the specter of government intervention to support Lehman, several investors and analysts said.