Lehman to raise billions to quash stability fears

By Dan Wilchins

NEW YORK (Reuters) - Lehman Brothers Holdings Inc LEH.N, an investment bank beset by rumours of not having enough funding, said it plans to raise $3 billion (1.5 billion pounds) of capital to quash questions about its stability.

Lehman's shares fell 2.8 percent to $36.60 in after-market trading after the planned convertible preferred share offer was announced, since it could result in more shares being issued.

Chief Financial Officer Erin Callan told Reuters the deal was meant to end questions about the bank's balance sheet, and the capital was not needed to offset the impacts of write-downs or losses.

"We have not changed our view on our real need for capital, but we have changed our view from a perception perspective," Callan told Reuters.

Questions about whether Bear Stearns Cos Inc BSC.N had enough capital were enough to force what was once the fifth-largest U.S. investment bank to sell itself for a pittance. Lehman Brothers is the fourth-largest U.S. investment bank, and fears about its stability have helped push down its share price more than 40 percent since February.

The rationale for the deal struck some investors as odd.

"This just makes me scratch my head. Why do this if you don't have to?" said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati, which does not own Lehman shares.

The global financial sector is increasingly starved of capital after sustaining more than $200 billion of losses from subprime mortgages and other assets.