Lehman Weighs Sale of Investment Management Unit

In a move to drum up much needed capital and offset a likely multi-billion writedown, officials at Lehman Brothers Holdings have held conversations about the possible sale of the firm's entire investment management division, which includes its Neuberger & Berman asset management unit as well as stakes in hedge funds and private equity funds, according to people with knowledge of the matter.

Lehman Brothers
Bert van Dijk
Lehman Brothers

The talks come as Lehman weighs various alternatives concerning its future, including selling all or part of the firm to a private equity firm. Speculation is growing that the firm make a move of some sort soon.

One person with direct knowledge of the investment management pitch said Lehman began alerting potential interested parties a couple of week ago, but the firm now has made other inquiries to possible bidders. Another person with knowledge of the matter says that if Lehman goes through with any sale, it's likely to sell only part of the investment management division.

It is also unclear if Lehman is serious about selling its investment management division, or if this is just a trial balloon by the company to weigh its various options in dealing with more possible losses because of bad real estate bets.

A Lehman spokeswoman had no comment.

The possible sale of the unit, known inside Lehman as "IMD," adds a new twist to Lehman's efforts to survive possible new potential losses and writedowns due to bad debt on its books.

Gasparino explains possible asset sale in video at left.

People close to the company say the firm initially weighed unloading all or part of its Neuberger subsidiary to raise capital and counterbalance an expected writedown for the third quarter, which analysts say could be as high as $2.5 billion.

Under the current plan, Lehman is looking for a valuation on the entire IMD, which includes Neuberger & Berman, as well as stakes in hedge fund DE Shaw and GLG Partners and private equity funds. While people with knowledge of Lehman's efforts say it's unclear if the firm will actually go through with the sale, but it may have no choice.

In recent weeks, Lehman has been attempting to unload billions of dollars in bad debt on its books; one person close to the effort says that Lehman is looking to unload multiple assets to multiple parties, including money-management powerhouse BlackRock..

If Lehman does sell the assets, which include commercial and subprime mortgage related holdings, it will likely do so at a steep discount, forcing the firm to take further writedowns and likely forcing Lehman to find new ways to drum up capital, such as selling assets.

These people say Lehman may also try to sell more stock but that may be difficult because it will dilute current shareholders and further depress its share price.

Still, a problem with selling even a part of its asset management division is that operations such as Neuberger provide a stable source of revenue to Lehman. Thus a sale may lead to a downgrade by the rating agencies.