Lehman stock drops further as sale talk intensifies

— -- Lehman Bros. shares leh fell further Friday, slipping below $4 a share after Wall Street knocked the stock down 42% Thursday, a no-confidence vote on the company's survival plan.

Confidence has waned that Lehman will emerge from the financial crisis as an independent franchise, and the No. 4 U.S. investment bank is scouring Wall Street for a financial lifeline. Executives worked feverishly in the past two days to find someone willing to buy all or part of the company, bankers and industry executives close to the situation said.

Lehman shares dropped 57 cents, or 13.5%, to $3.65. The stock is down dramatically from its 52-week high of $67.73 one year ago.

Financial markets have been aware of Lehman's troubles for a long time and have had time to prepare. And the Federal Reserve is now allowing investment banks to borrow directly from the Fed just as commercial banks can do. It opened the borrowing spigot for investment banks after the near collapse of Bear Stearns in March.

Bank of America, Japan's Nomura Securities, France's BNP Paribas, Deutsche Bank and Britain's Barclay's have been mentioned as potential buyers. Goldman Sachs, also mentioned, is not interested, according to an industry official who ask not to be named.

Lehman is in close contact with both the Treasury Department and Federal Reserve about how to proceed.

Government officials, who asked for anonymity because of the sensitivity of the ongoing discussions, said a number of options were being explored and no decisions had been reached on how any deal would be structured.

Any resolution of the Lehman troubles is not expected to involve the use of government money, which would set it apart from the billions of dollars that the government put at risk to facilitate the sale of Bear Stearns in March and to rescue mortgage giants Fannie Mae and Freddie Mac this week.

Treasury Secretary Henry Paulson is against any use of government money in whatever deal comes together for Lehman, a person close to his thinking told the Associated Press on Friday.

Randy Whitestone, a spokesman for Lehman, declined to comment.

Without the government's financial backing, there's more pressure on Lehman Chief Executive Richard Fuld, who joined the company in 1961 as a college student and now serves as Wall Street's longest-serving CEO. He has tenaciously resisted putting the company up for sale, but finally relented after a free-fall in its stock price and growing doubts about its survival, according to bankers and industry executives. They asked not to be named because they are not authorized to comment publicly.

Lehman's chances for survival appeared to fade Wednesday after the firm reported a $3.9 billion quarterly loss and outlined steps to boost its capital reserves and reduce its risk profile.

Fuld, hoping to convince investors that Lehman could survive the crisis on its own, said it would sell a majority stake in its investment management division, spin off real estate assets and slash its dividend.

Analysts were unimpressed. Lehman shares were downgraded Thursday by major Wall Street firms, including Goldman Sachs, Deutsche Bank and Citigroup.

"Management did not successfully put to rest the issues that had been pressuring the stock," wrote Goldman Sachs analyst William Tanona. Lehman's inability to find a partner to inject capital into the firm did little to boost the market's confidence, he says.

The steep stock drops wiped out billions in the stock's value, and reduced Lehman's market value to around $2.5 billion. As a result, Lehman is no longer the nation's fourth-largest investment bank; it now ranks behind Raymond James, valued at $3.8 billion.

The endgame for Lehman is likely to involve a government-engineered bailout, says Bill Fitzpatrick, an analyst at Optique Capital Management. In March, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson helped broker JPMorgan Chase's purchase of investment bank Bear Stearns, which was deeply wounded by a 1930s-style run on the bank.