Lehman Brothers Holdings Inc. shares plunged to their lowest level in more than a decade Tuesday amid investor concerns that the battered investment bank is running out of options to raise capital.
The nation's fourth-largest securities firm is scrambling to raise enough money to survive the global credit crisis. Lehman has been trying to find a major investor, and could possibly sell part of its investment management or real estate holdings for a quick infusion of cash.
However, word that high-level talks with state-owned Korea Development Bank broke down caused already anxious investors to dump shares of the embattled investment bank. Wall Street remains skittish about financial stocks since the near-collapse of Bear Stearns Cos. in March.
The stock plunged $6.36, or 45 percent, to $7.79 – the lowest level Lehman's stock has hit since the financial meltdown of 1998 triggered by the collapse of hedge fund Long-Term Capital Management.
It staged a slight recovery in after-hours trading after rivals' Goldman Sachs Group Inc., Merrill Lynch & Co., Morgan Stanley and JPMorgan Chase & Co. confirmed they are still trading with Lehman.
Uncertainty about Lehman's financial position has prompted speculation that the investment bank might announce quarterly results early, a move that could also stem the stock's slide. Prashant Bhatia, an analyst with Citigroup, said Lehman could release details about the third quarter in the coming days.
Lehman needs to boost liquidity after suffering $8.2 billion in write-downs and credit losses since the financial crisis began last year, analysts said. Lehman had hoped to find a major investor before announcing third-quarter results Sept. 18, when it is widely expected to take another loss.
Lehman could report a loss of between $2 billion and $4 billion, according to analysts. That would be on top of a $2.8 billion second-quarter loss, which was the first since Lehman spun off from American Express Co. in 1994.
In addition, Lehman Brothers is also working to quell criticism from major credit rating agencies.
On Tuesday, Standard & Poor's put Lehman's debt on CreditWatch Negative because of the steep stock decline, which means the agency may lower the company's ratings within months. Such a move would increase the amount of money Lehman pays to issue debt.