Lehman May Raise $5 Billion of Capital

Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, may raise as much as $5 billion in capital by early next week, a person with knowledge of the matter said.

Lehman executives are talking to at least one U.S. pension fund and an overseas investor to discuss terms of a transaction, according to the person, who declined to be identified because the negotiations are confidential.

``We are buyers of the stock on the assumption that Chief Executive Officer Dick Fuld will steady the Lehman ship and, with greater stability, the stock will appreciate,'' said Deutsche Bank AG analyst Mike Mayo, who expects Lehman to raise $4 billion of capital and post a second-quarter loss after $2.9 billion of credit-market writedowns.

Lehman fell 26 percent in NYSE trading during the past month, the worst performance in the Amex Securities Broker/Dealer Index, on speculation Fuld will seek outside funding as losses increase.

Sanford C. Bernstein & Co. analyst Brad Hintz reiterated his ``market perform'' rating today on Lehman. While the company won't face ``a life-threatening funding run,'' investors should ``remain on the sidelines until the firm demonstrates a reduction in leverage and lowers its exposures to troubled asset classes,'' he wrote in a report.

Mayo, Moszkowski and Hintz all said Lehman won't collapse like smaller rival Bear Stearns Cos.

``Net-net, we feel that Lehman is not Bear,'' Mayo wrote in a report to clients today. ``Liquidity is not a major issue, in our view, while equity risk remains but does not seem outsized.''