Lehman shares plummet amid write-down fears

By Dan Wilchins

NEW YORK (Reuters) - Shares of Lehman Brothers LEH.N plunged 13.6 percent on Wednesday, bringing their total loss in the past four days to more than 25 percent, on concerns about the potential for further write-downs and investors' declining confidence in the investment bank's management.

The stock's latest drop followed a newspaper report that Lehman could seek more capital after raising $6 billion on Monday, and a downgrade by a prominent analyst. Shares of the fourth-largest investment bank fell to $23.75, their lowest close since October 2002.

The Financial Times said on Wednesday that Lehman had sought capital from Korean financial institutions, and may still enter a deal with them later this year. Lehman said on Monday it expected to post a roughly $2.8 billion quarterly loss next week.

"They diluted the shareholders that much, and now they may need more capital? There's a real crisis of confidence in management here," said Bill Smith, chief executive officer of Smith Asset Management, which sold its Lehman shares at the open Wednesday morning.

A spokesman for Lehman declined to comment.

Credit markets do not seem as concerned about Lehman, but some investors have been preparing for steep drops in the bank's shares. David Einhorn, whose Greenlight Capital hedge fund is shorting Lehman shares, has repeatedly accused the investment bank of understating the extent of its losses.

Merrill Lynch analyst Guy Moszkowski cut Lehman's ratings to "neutral" from "buy" on Wednesday afternoon, and said it believes Lehman is trying to value assets appropriately, but there still may be more write-downs coming for mortgage and real-estate assets.

"Real-estate assets and mortgage-payment delinquencies remain under intense pressure," Moszkowski wrote in his note, in which he cut Lehman's share price target to $28 from $36.

Lehman has an estimated $60 billion of real-estate-related assets on its balance sheet, the analyst said. The downgrade came just a week after Merrill had upgraded Lehman.

OTHERS LESS CONCERNED

In the credit derivatives market, the cost of protecting Lehman's debt against default is about two-thirds its level in mid-March, when Bear Stearns suffered a run on the bank.

The relatively low price of insuring Lehman's debt implies that demand from banks and clients to hedge their credit exposure to Lehman is hardly outsized.

Over the last week, more than a dozen clients, dealers and banks told Reuters they were trading normally with Lehman, but two funds said they had reduced their exposure.

Investment banks are much less likely to crash now that they can borrow funds from the U.S. Federal Reserve, an option unavailable to Bear Stearns, analysts said.

Larry Fink, chief executive of BlackRock Inc (BLK.N), the biggest publicly traded U.S. money management firm, told CNBC on Wednesday, "Lehman is not a Bear Stearns situation." BlackRock bought Lehman shares earlier this week.