Lehman Plans Unit Sale After $3.9B Loss

Lehman Brothers moved to preserve capital as it attempts to weather a 45% selloff on Tuesday.
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Updated from 8:16 a.m. EDT.

Lehman Brothers

(LEH)

on Wednesday said it plans to sell a majority stake in its investment-management division and take other capital-preserving measures as it expects to report a $3.9 billion third-quarter loss next week.

Lehman also said it plans to spin off its commercial real-estate assets into a new publicly-traded company and cut its annual dividend to 5 cents a share from 68 cents.

Lehman Brothers, set to officially report results Sept. 18, issued the warning after its shares fell 45% Tuesday amid speculation a prospective deal with

Korea Development Bank

to raise capital hit a snag and

concerns mounted

the firm would default on its debt.

Lehman's decision to sell an estimated 55% in several of its prized asset management businesses, including its prized Neuberger Berman unit, is likely to be viewed by many investors as a desperate act to shore up its capital position while sacrificing an important source of future revenues

The sale would include Lehman's proprietary asset management businesses, but not its stakes in external hedge funds, nor its middle market distribution business. The firm said it is "in advanced discussions with a number of potential partners" regarding the asset management stake sale and "expects to announce the details of the transaction in due course."

The commercial real estate spinoff involves $25 billion to $30 billion worth of assets, which will be listed in the first quarter of next year under the name Real Estate Investments Global. The spinoff allows Lehman to separate some of its riskiest assets from what are presumed to be its healthier businesses, such as advising on mergers and acquisitions and helping companies raise capital.

In addition to the planned spinoff, Lehman announced it has been selling down other risky real estate assets and loans it made to private equity firms to finance acquisitions. Lehman says it is engaged to sell about $4 billion worth of U.K. residential mortgage assets to

BlackRock

(BLK) - Get Report

, a deal it expects to close "within the next few weeks."

Lehman's shares were up 6.6% to $8.30 in recent trading on Wednesday.