Tough day for Lehman - a 42% fall

Shares of Wall Street firm plunge on stock downgrades and talk surfaces that the firm is shopping for buyers.

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By David Ellis, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Shares of Lehman Brothers suffered another painful drop on Thursday as doubts swirled about the company's future and several analysts downgraded their ratings on the stock.

Lehman (LEH, Fortune 500) shares, which have fallen 89% so far this year, finished 42% lower on the New York Stock Exchange.

The continued slide in Lehman's stock price appears to have led to an increased level of urgency for the bank to do something to stop the bleeding. To that end, several reports surfaced late Thursday that indicated the investment bank may try and find a buyer for the whole firm.

The Wall Street Journal, citing sources familiar with the matter, reported Thursday that Lehman is actively shopping itself and said that suitors included Bank of America (BAC, Fortune 500) and British bank Barclays (BCS). Spokespeople for Bank of America and Barclays both said they had no comment on the report.

And there has also been talk that the government may have to step in to help Lehman as it did with Bear Stearns back in March.

The Washington Post reported late Thursday afternoon that the Treasury Department and Federal Reserve are engineering a sale of the investment bank through a consortium of private firms. The Fed was not immediately available for comment.

The Treasury Department told CNN that it "is monitoring markets and remains in contact with market participants."

Veteran banking analyst Richard Bove of Ladenburg Thalmann suggested in a note Thursday that a hostile takeover for the firm looks increasingly likely. Bove maintained his "buy" rating on the firm, saying that Lehman had value "well beyond its current stock price."

Thursday's selloff, which came just a day after the company reported a nearly $3.9 billion loss and a drastic restructuring plan, gathered momentum before the opening bell following a string of analyst downgrades.

Goldman Sachs' analyst William Tanona was among that group, lowering his rating to "neutral" from "buy", citing Wednesday's bigger-than-expected $3.9 billion loss and concerns about the company's restructuring plan.

"At this juncture, there is too much uncertainty around Lehman's future strategic initiatives to recommend the shares," Tanona wrote.

Citigroup analyst Prashant Bhatia also downgraded the stock to a "hold" from a "buy", citing a deterioration in capital as a result of the quarter's losses and possibility of a downgrade by the rating agencies.

Oppenheimer & Co. analyst Meredith Whitney, who was one of the first prominent analysts to warn investors about credit-related problems at big banks and brokers, also expressed some skepticism about Lehman's plan to raise much-needed capital.

In a note from Tuesday, Whitney wrote that Lehman "still faces challenges to earnings" for the next several quarters. She maintained her "perform" rating on the firm, however.

Lehman released its results more than a week in advance Wednesday in an attempt to help quell fears about the firm's underlying health and future.

Chief executive officer Richard Fuld also announced drastic plans aimed at shoring up the company's balance sheet, including spinning off the vast majority of its commercial real estate assets into a separate public company and plans to sell a majority stake in its investment management division, which includes money manager Neuberger Berman.

Lehman said it was in advanced discussions with a number of potential partners over a such a deal and that it expected to announce details "in due course."

Also, in an effort to save $450 million, Lehman said it planned to reduce its annual dividend to 5 cents per share from 68 cents.

CNN's Karina Frayter contributed to this report. To top of page

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