Troubled investment bank Lehman Brothers is in talks to sell its CDOs and mortgage related assets to money management powerhouse Blackrock, CNBC has learned.
The deal comes as Lehman grapples with the growing likelihood that it will announce another big writedown of bad debt on its books; analysts have estimated that Lehman's writedown for the third quarter could be around $3 billion.
In June CNBC first reported that Lehman Brothers executives met with officials at BlackRock , including its CEO Larry Fink about the possible sale of the CDOs, or collateralized debt obligations, and other soured securities.
Since then Lehman's financial condition has deteriorated with the firm announcing massive writedowns, losses and the need to raise capital.
People close to Lehman say the firm has also weighed selling a piece or all of its money-management subsidiary Neuberger & Berman.
These sources say that private equity firms are still interested is snapping up Neuberger buts its unclear if Lehman will ultimate sell because Neuberger is considered a "core asset" and the firm may be downgraded if it unloads even a piece of a business that produces steady revenues.
In terms of a potential deal with Blackrock, its unclear exactly how that would look.
The New York Post reported that Lehman is interested in unloading its CDOs to an unnamed party in the same fashion as Merrill, which financed 75% of its recent sale of CDOs to hedge fund Loan Star, meaning it lent Loan Star most of the money to buy the securities.
Merrill agreed to sell $30.6 billion of CDOs to an affiliate of Lone Star for just $6.7 billion, or about 22 cents on the dollar.
Merrill, meanwhile, is weighing whether to make an official filing with the SEC about the asset sales
The filing, which could come as early as Monday, would provide new details about the sale of the CDOs, which has drawn considerable criticism over its structure, including the sale of troubled mortgage paper for just pennies on the dollar.
So far Merrill has only issued a press release on the deal, but after the filing is made, senior merrill officials are expected to start making public statements about why the deal is good for the firm.
Merrill officials, including CEO John Thain, haven't comment on the deal, since its announcement on Monday night.
A Merrill spokeswoman had no comment at the moment, Merrill is not providing much information on exactly what type of CDOs it's selling. For the reason, analysts can't figure out if Merrill is getting a good deal.