Lehman sets asset sales plan, posts $4 billion loss

By Dan Wilchins and Jonathan Stempel

NEW YORK (Reuters) - Lehman Brothers, desperate for capital and fighting for its survival, unveiled a plan to shed weak assets and sell a stake in its funds business, but investors were skeptical and its shares hit new lows.

The Wall Street company, founded in 1850 by three German immigrants who traded cotton, posted a record quarterly loss of $3.9 billion on Wednesday and said it will slash its dividend by more than 90 percent.

"These are last-ditch measures," said Bill Fitzpatrick, analyst at Optique Capital Management, which does not own Lehman shares. "They've tried to raise capital from sovereign wealth funds and others, and that didn't work. Now they're selling businesses, which destroys future earnings power."

Chief Executive Dick Fuld said it would consider offers to buy the entire company. The veteran banker had stressed his determination to keep Lehman independent.

Shares in Lehman were trading down 94 cents, or 12 percent, at $6.85 late Wednesday, a day after falling 45 percent.

Lehman, the latest victim of the global credit crunch, "is experiencing a crisis of confidence," ratings agency Moody's Investors Service declared in a statement.

The company has struggled for months with billions of dollars in write-downs, rumors of defecting clients and talk of a takeover at a fire sale price. Short sellers have argued that Lehman is badly undercapitalized and have pummeled the stock.

The U.S. government's decision to rescue mortgage finance companies Fannie Mae and Freddie Mac last weekend, and its earlier brokering of a sale of Bear Stearns have led to a growing debate over whether Washington will do something similar at Lehman.

At issue for Lehman were more than $60 billion in mortgage-related assets on its balance sheet as of the second quarter -- more than double the company's net worth as measured by shareholders' equity.

Lehman said it plans to sell $4 billion in British mortgages to BlackRock Inc, and has sold other assets too. The bank also plans to spin off $25 billion to $30 billion in commercial real estate assets in the first quarter into a separate company known as Real Estate Investments Global.

'ADVANCED' TALKS

Lehman will pump $5 billion to $7.5 billion into REI Global, and lend funds to it as well.

Lehman will sell a roughly 55 percent stake in some of its investment management businesses, including Lehman's crown jewel, Neuberger Berman, and its private equity arm. Lehman hopes to announce that sale in October.

With that transaction, Lehman will have most of the money it will need to pump into REI Global.

Lehman said it was in "advanced discussions with a number of potential partners" on a sale. Final bids are due Friday.