Lehman in talks with BlackRock on assets

NEW YORK - Lehman Brothers Holdings Inc., seeking to restore investor confidence after a $2.8 billion second-quarter loss, is negotiating to sell commercial real estate assets to a group including BlackRock Inc., said three people briefed on the discussions.

Lehman is seeking to sell about $14 billion of $40 billion in commercial property and related securities by year's end, said two potential buyers approached by the New York-based firm.

The sale would bolster capital as analysts, including Ladenburg Thalmann & Co.'s Richard Bove, raise questions about Lehman's ability to withstand further losses on mortgage securities. The firm's shares tumbled 75 percent this year as the mortgage market collapse and ensuing credit crunch sparked more than $500 billion in write-downs and losses at financial firms.

"They are taking steps to eliminate parts of the balance sheet that have caused concern," Bove said. He expects the bank to sell assets for 10 percent less than their valuation.

New York-based BlackRock, the largest publicly traded US fund manager, bought $15 billion in mortgage bonds from UBS AG in May and more than doubled its stake in Lehman during the second quarter, becoming the 10th-biggest shareholder.

Lehman and BlackRock spokesman Mark Lane declined to comment.

"BlackRock is a logical buyer," said Jeffery Harte, a Chicago-based analyst at Sandler O'Neill & Partners LP. "They have experience in managing portfolios of assets like these. They also have experience leading groups of investors."

Bove expects Lehman to sell its entire $29.4 billion commercial mortgage portfolio. The firm also owns $10.4 billion of property. It may record a loss of $4.9 billion on the sale of the commercial mortgages, Sanford C. Bernstein & Co. analyst Brad Hintz estimated in a report last week.

Last year, as the market collapsed, Lehman underwrote more mortgage-backed securities than any other firm, accumulating an $85 billion portfolio, 44 percent more than Morgan Stanley's and almost four times the $22.5 billion of shareholder equity Lehman had as a buffer against losses.

Chief executive Richard Fuld has already trimmed the mortgage holdings by 23 percent, raised $14 billion of capital, sold $147 billion of other assets, increased cash holdings, and reduced the firm's reliance on short-term funding to create a buffer against a possible bank run.

BlackRock, led by CEO Laurence Fink, avoided subprime-related losses and has several new funds under way to take advantage of the credit crunch.