Lehman Brothers Holdings has slashed its risky debt holdings by as much as 25% and raised $8 billion in capital this year to shore up its balance sheet, according to an internal memo obtained by CNBC.
The Wall Street investment bank, whose stock has fallen sharply on speculation it faces the same financial problems that brought down Bear Stearns, has reduced it debt position by $100 billion, or 20% to 25%, in the current quarter, the memo said.
Lehman also has issued preferred stock and other securities to raise $8 billion, including $6 billion in the current quarter, the memo said.
As a result of these steps, the memo concludes, Lehman is "in the strongest capital position the firm has ever had."
Meanwhile, CNBC has learned that Lehman is exploring possible investments from private equity, although nothing has been agreed to yet.
As reported earlier, Lehman has taken steps to sell off some of the riskier assets on its books and to eliminate its proprietary trading in a further effort to cut debt its problematic balance sheet.
The moves to cut balance sheet risks is part of an effort by Lehman CEO Richard Fuld to bring down the amount of risk in Lehman's balance sheet by slashing borrowing, layoffs and possibly raising new capital.
The moves involving proprietary trading risks and unloading risky assets such as mortgage related bonds that Lehman holds is a further step in this process. Senior officials at Lehman say they have already sold as much as $100 million in troubled assets as part of Fuld's deleveraging plan.
People with knowledge of Lehman's activity say that firm's officials have met with potential buyers of the securities in recent weeks including BlackRock , which has purchased risky assets on the cheap from other firms like UBS in the hopes of selling the securities for profit at a later date.
Lehman shares rebounded sharply Wednesday on news that a big bond fund manager is buying the firm's debt and some positive comments from other Wall Street firms.
Investment manager Loomis Sayles, one of the biggest and most widely followed U.S. bond fund managers, has been buying Lehman Brothers debt over the past several days and is not shy about transacting with the investment bank, its vice chairman told Reuters.
"The credit is good at Lehman," said Dan Fuss, vice chairman of Boston-based Loomis Sayles, which oversees more than $100 billion in fixed-income securities.
Fuss added that he considers Lehman common shares , which fell 18 percent over three days, to be "dirt cheap."
Lehman also got a boost after Merrill Lynch upgraded its shares to a "buy" from "underperform" and Lazard's CEO Bruce Wasserstein praised Lehman, saying "(CEO) Dick Fuld is very able."
Fuss has been buying Lehman corporate debt for several days and bought some of the bank's convertible preferred securities on Tuesday, saying they represent a good long-term value, he told Reuters in an interview.
He declined to provide amounts of what he has purchased.
Fuss is also buying corporate bonds of other investment banks, he said.
"We have been buying other financial institutions' debt as well as Lehman's," said Fuss, who is also co-manager of the $18 billion Loomis Sayles Bond Fund.
"We have no hesitation whatsoever at all in dealing with Lehman," he said, adding: "They are a fine firm and financially strong."
--Reuters contributed to this report.