Lehman unlikely to sell Neuberger: Morgan Stanley

(Reuters) - Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research) is unlikely to sell its investment management unit Neuberger Berman, but the fourth-largest U.S. investment bank may make a "meaningful" asset disposition with a strategic partner or continue asset sales, said an analyst at Morgan Stanley.

"While we do not expect asset sales or write-downs to be as large as the second quarter, we do see Lehman continuing to reduce commercial real estate exposure with an eye toward bringing total illiquid assets down another $20 billion by year-end," analyst Patrick Pinschmidt said.

The analyst, however, said that a management-led buyout or sale of Neuberger was neither likely nor practical, as either move would create problems with rating agencies, particularly if done in the context of current illiquid asset overhang.

"This is yet another reason why we believe the firm's first move is likely to address illiquid asset overhang by de-risking the balance sheet," Pinschmidt wrote in a note to clients.

On Wednesday, an analyst at UBS said Lehman was likely to make a sizable asset sale, including a sale of Neuberger, in a move to address problems, particularly those related to its asset exposure and potential client erosion.

Lehman, the smallest of the major Wall Street investment banks, has raised about $12 billion of capital this year to strengthen its balance sheet, sold off assets, and shaken up top management.

The analyst said Lehman's current illiquid asset inventory of $83 billion includes residential mortgages of $24.9 billion, commercial mortgages of $29.4 billion, real-estate held for sale of $10.4 billion, non-investment grade acquisition finance facilities of $11.5 billion, and non-mortgage asset-backed securities of $6.5 billion.

However, Lehman is able to borrow at the U.S. Federal Reserve's so-called discount window. This had not been the case in March when smaller Wall Street banking rival Bear Stearns Cos collapsed, eventually agreeing to a takeover by JPMorgan Chase & Co (JPM.N: Quote, Profile, Research).

"Aggressive Fed moves and adequate capital cushion should help the firm weather near-term headwinds stemming from balance sheet overhang," Pinschmidt said.