Lehman expects $3.9 bln Q3 loss, to sell 55 pct of IMD

Lehman Brothers has announced its intent to sell a majority stake (estimated to be approximately 55 percent) in a subset of its Investment Management Division, the statement said.

"The sale of a majority stake in the IMD Business will enhance the Firm's already strong capital base," the bank said

"The sale of a majority stake in the IMD Business will enhance the Firm's already strong capital base," the bank said adding that the IMD Business would continue to operate under the Lehman Brothers and Neuberger Berman brands and clients would continue to be able to access all of the capabilities of the Firm.

Bank also said that it was in advanced discussions with a number of potential partners for the IMD Business and expects to announce the details of the transaction in due course.

It would spin off its commercial real estate assets into a new, separate public company, adding that it is examining all strategic alternatives, the bank added in the statement.

S&P 500 and Dow Jones industrial stock index futures dropped on Wednesday as uncertainty about the outlook for Lehman Brothers flared anew after the U.S. investment bank posted quarterly results.

Across Europe, Britain's FTSE fell 1.6 percent on Wednesday, while both Germany's DAX France's CAC were down 1 percent.

Shares of Lehman turned negative before the bell as the bank was unable to announce firm deals to raise desperately needed capital as losses stemming from the mortgage crisis mount.

S&P 500 futures fell 5.20 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures dropped 47 points and Nasdaq 100 futures rose 7.50 points.

Lehman Brothers Holdings shares sank as much as 46 percent on Tuesday on growing concern the fourth-largest Wall Street investment bank would not be able to raise the capital it desperately needs to survive the global credit crisis.

Facing what may be billions of dollars in additional write downs, the bank has examined options from selling a stake to a Korean bank to spinning off its investment management unit, but they have yet to bear fruit.

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

The firm's woes raised the possibility of a Washington-sponsored rescue just a few days after a U.S. takeover of mortgage companies Fannie Mae and Freddie Mac and months after the Bear Stearns meltdown, which resulted in a fire sale brokered by the government. U.S. officials declined to comment.

The stock closed down $6.36 at $7.79 on the New York Stock Exchange, after touching $7.64, its lowest level since October 1998. The slide wiped out $4.4 billion in market value, and was a major factor in broad declines in major U.S. stock indexes. Prices of safe-haven U.S. Treasuries rose.

Lehman shares recovered some of the losses, pulling back to $8.35 in after-hours trading after it said it was bringing forward the announcement of the initiatives and results.

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 and other toxic assets.

'BEAR STEARNS REDUX'

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.

Another hoped-for option, the sale of a stake to Korea Development Bank, looked less likely after reports that talks on a sale had ended without a deal.

"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.

Lehman said executives would talk after the release of the results on Wednesday.

The U.S. Federal Reserve and Securities and Exchange Commission declined to 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.

In what looked like a concerted effort to boost investor confidence in Lehman, a slew of Wall Street firms, including Goldman and Citigroup, put out statements saying they were still trading with the firm late on Tuesday afternoon.