Lehman outlook dims on failed sale report

LONDON (Reuters) –

The outlook for Lehman Brothers Holdings

Inc (LEH.N) darkened further on Thursday as a newspaper

reported that an intended asset sale had collapsed and a

Citigroup analyst forecast big losses for the group.

The fourth-largest U.S. investment bank has taken a $7

billion hit from credit-related writedowns and losses since the

start of the global crisis and is forecast to write down more.

Lehman is concerned its capital cushion is not enough to

absorb losses, and people close to the matter said this week it

is considering selling at least a part of its asset management

business.

The Financial Times said Lehman’s talks with China’s

biggest brokerage, CITIC Securities (600030.SS) and state-owned

Korea Development Bank (KDB) (KDB.UL) on a sale of up to half

its shares had failed, fuelling speculation about the U.S.

bank’s efforts to raise more capital.

CITIC told Reuters it had held no formal talks about buying

a stake in Lehman, while Lehman and KDB spokespeople declined

to comment.

A KDB official, who declined to be identified, said the

South Korean bank was scaling back its overseas assets and

staff to reduce exposure to volatile foreign markets.

The note by Citi analyst Prashant Bhatia added weight to a

forecast by JPMorgan Securities on Tuesday that Lehman will

take a further $4 billion in writedowns tied to losses from

mortgage-related investments.

Bhatia cut his third-quarter outlook for Lehman, Goldman

Sachs (GS.N) and Morgan Stanley (MS.N) and said the U.S.

investment banks might incur further writedowns, mainly on

their mortgage assets, with Lehman forecast to suffer the

biggest hit at $2.9 billion.

The analyst widened his third-quarter loss estimate for

Lehman to $3.25 a share from 41 cents a share.

However, Bhatia said he saw a “lower probability” Lehman

would sell its Neuberger Berman asset management business or

raise capital in the near term.

“Even under the potentially more stringent rating-agency

guidelines related to the amount of preferred securities in the

capital mix, we anticipate that Lehman can absorb over $3

billion of after-tax losses without adding more common equity,”

he said.

At 8:22 a.m. EDT in Frankfurt, Lehman shares were trading

down 0.1 percent at 8.95 euros. The stock closed Wednesday in

New York at $13.73, valuing the bank around $9 billion.

The shares have plunged more than 80 percent since early

2007.

The Wall Street Journal said the U.S. Federal Reserve acted

on rumors last month and called Credit Suisse Group (CSGN.VX)

to see whether it had pulled a credit line from the bank.

Credit Suisse told Federal Reserve officials that it had no

intention of pulling the line of credit, the paper cited people

familiar with the matter as saying.

Fed officials contacted Credit Suisse last month, but it is

unclear whether the move occurred before or after the U.S.

Securities and Exchange Commission subpoenaed dozens of hedge

funds and financial firms about four Lehman-related rumors, the

paper said.

Lehman Brothers and Credit Suisse spokespeople in London

declined to comment.

(Reporting by Olesya Dmitracova; editing by Karen Foster)