Lehman on the block?

Lehman Brothers (LEH) may not be independent for long. The Wall Street Journal reports the investment bank may be forced by its balance sheet woes and the recent plunge of its stock to sell part of even all of itself to another financial firm. Lehman shares sold off Tuesday after the Journal reported Lehman was considering a $4 billion sale of stock. But the newspaper says the selloff in Lehman shares, which knocked 10% off the company’s market value Tuesday, might make a plain stock sale more difficult for shareholders to stomach. And the company may need the cash to forestall another ratings downgrade that could force it to post more collateral on derivatives positions.

Lehman shares were down as much as 15% in trading Tuesday afternoon before the firm publicly denied it had been forced to borrow from the Federal Reserve. The Journal reports Lehman engineered part of its Tuesday afternoon relief rally by buying back its own shares - an unusual move given the worries about the firm’s financial health and the company’s recent efforts to bring down its leverage ratios. Though the buyback could be taken as a sign of management’s confidence that Lehman can weather the storm, others see it as smacking of desperation. Wednesday’s action may go a ways toward determining whether Lehman is able to stay the course or whether it ends up doing a deal with the likes of Citadel or Blackstone (BX).