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Lehman shares plunge again on fear of fire sale

September 11, 2008 | 10:16 am

From Times staff writer Walter Hamilton:

The clock is ticking louder for Lehman Bros. Holdings Inc.

The investment bank’s stock plunged anew today after several analysts downgraded it, deepening investors’ fears that Lehman may not be able to survive as an independent company -- and could be forced to sell itself at a rock-bottom price.

"Perception matters and in this environment of extreme uncertainty and illiquidity, perception has overtaken fundamentals," Prashant Bhatia, a Citigroup Inc. analyst, said in a report to clients.

At about 10 a.m. PDT Lehman shares were down $2.77, or 38%, to $4.48.

Lehmanhq3 The stock fell as low as $3.88 early in the session, but got a lift after CNBC and Bloomberg News reported that the company was in talks with potential acquirers. Goldman Sachs Group, Bank of America Corp. and HSBC Holdings have been mentioned as possible suitors.

Lehman has searched unsuccessfully for a deep-pocketed partner to pump capital into the firm to repair its balance sheet, which has been scarred by heavy losses on mortgage-related securities.

Several analysts stressed that Lehman’s ability to borrow from the Federal Reserve to finance its operations provides it with crucial breathing room. The Fed hadn’t yet extended that option to investment banks when Bear Stearns Cos. was forced into the arms of JPMorgan Chase & Co. in a Fed-engineered deal in March.

"The sharp decline in [Lehman’s] stock to date is an ‘equity issue,’ not a credit or counterparty issue," analyst Brad Hintz at Bernstein Research wrote in a report.

Lehman on Wednesday proposed a major restructuring plan, saying it would sell a majority stake in its prized money-management unit, spin off commercial real-estate assets to shareholders and chop its dividend 93% to conserve cash.

But the plan "fell short of what was necessary to lessen the bear case on the stock," William Tanona, a Goldman Sachs analyst, said in a report.

Goldman, Citigroup and Merrill Lynch & Co. all downgraded Lehman this morning.

One growing concern is that credit-rating firms could slash Lehman’s debt ratings. That would increase the firm’s funding costs and create even more pressure to raise capital.

Moody’s Investors Service on Wednesday warned that it probably would downgrade Lehman's rating unless the company arranged "a strategic transaction with a stronger financial partner."

Photo: Outside Lehman Bros.' Manhattan headquarters. Jeremy Bales / Bloomberg News