NEW YORK (AP) – Lehman Brothers put itself on the block Wednesday as part of a last-ditch effort to rescue the investment bank from bad bets on real estate-related holdings that have already laid low other storied Wall Street firms.

The 158-year-old company’s chief executive Dick Fuld, known as “the gorilla” for his bloody-minded approach to investment banking, outlined a plan to sell off Lehman’s well-respected investment management unit and spin off its commercial real estate assets after it reported an almost $4 billion third-quarter loss.

Fuld, the longest serving CEO on Wall Street, also said the firm would examine all other options – including a sale of the company he joined right out of college. Finding a buyer might pre-empt any hostile takeovers now that Lehman’s stock has plunged from $67.73 a year ago to $7.25 Wednesday, giving it a shrunken market capitalization of $7.6 billion..

“If anybody came with an attractive proposition that was compelling for shareholder value, it would be brought to the board, discussed with the board, and evaluated,” Fuld said on a conference call. “We remain committed to examining all strategic alternatives to maximize shareholder value.”

For investors, the strategy Fuld presented seemed long on hope, short on details and raised questions about timing and execution, analysts said. Investors had hoped to see a solid plan in place to offset nearly $6.5 billion of losses during the past two quarters.

“This is agonizing for shareholders,” said Mark Williams, a professor of finance at Boston University School of Management. “Fuld was supposed to have a war room started in March, when Bear Stearns nearly collapsed, to solve these problems, and at this point he has failed miserably.”

The nation’s fourth-largest investment bank plans to sell a 55 percent stake in its investment management division, which includes its prized Neuberger Berman asset management unit. Lehman said it is in advanced talks with several bidders, but refused to give a timeline about when a deal would take place.

Investors were discouraged that no buyer had been named. Lehman began pitching a deal to private-equity firms two months ago. Analysts believe the sale could fetch about $3 billion.

Further, the firm is also taking a big bet that a spin off of its commercial real estate assets will get a strong market reception in early 2009. The new entity will be called Real Estate Investments Global, and will be run by an independent management.

Williams believes that Fuld now has a limited amount of time, perhaps until Monday, to unveil a bona fide deal or run the risk of shares tumbling even further. And, he said, that could lead to a worst case scenario where rumors about the company cause anxious trading partners to pull business – a scenario that felled Bear Stearns six months ago.

Wall Street remains skittish about financial stocks since a run on Bear Stearns caused the U.S. government to orchestrate its sale to JPMorgan Chase & Co. in March. Lehman, the biggest U.S. underwriter of mortgage-backed securities, was automatically scrutinized.

Global banks have lost more than $300 billion from write-downs since the housing slump evolved into a full-blown credit crunch. Many on Wall Street believe another major bank failure is probable.

Compounding anxiety is that Lehman, unlike smaller rival Bear Stearns, might not be able to count on a lifeline from the government. Any Fed intervention on behalf of Lehman would heighten concerns about the central bank’s role in encouraging so-called “moral hazard,” where financial firms would be inclined to take extra risks because they believe the government will bail them out of their messes.

Unlike Bear Stearns, though, Lehman Brothers has access to funds from the Federal Reserve through the central bank’s discount window. The government has permitted investment banks to borrow money to cover short-term needs, an ability that only commercial banks had in the past. The borrowing could buy Lehman some time while it works out its restructuring.

Fuld also is one of the most respected and popular bankers on Wall Street. He led his firm back from major capital shortages during the financial crisis in 1998. Analysts said he inspires confidence that he can reinvent the bank despite one of the worst economic climates since the Depression.

“Every other major Wall Street bank was trying to duplicate the Lehman model that Fuld created,” said Brad Hintz, an analyst with Sanford C. Bernstein and a former Lehman chief financial officer. “He is extremely well liked and respected inside and outside the firm.”

Arrayed against the plan: The current financial crisis shows no sign of ending soon, credit conditions remain tight and big acquisitions are rare. Big institutional investors – like state-owned sovereign wealth funds and private-equity firms – aren’t as willing to make major investments.

The uncertainty showed up Wednesday in the cost for insuring Lehman’s debt against default. The insurance, known as credit default swaps, rose to 6.10 percentage points from 4.75 percentage points after Lehman rolled out its strategy. Those insurance costs are now greater than those of Bear Stearns shortly before was rescued by a Federal Reserve-backed plan in March.

Lehman shares, which shed 54 cents to $7.25 Wednesday, tumbled another 6.9 percent in after hours trading.

The contagion spread to other financial companies. Washington Mutual Inc. plunged 74 cents, or 22.4 percent, to $2.56 after setting a multiyear low of $2.30 earlier. WaMu, among the banks hit hardest by the housing mess, has seen the value of its shares plunge 76 percent this year, as it battles rising mortgage delinquencies and defaults.

Shares of Citigroup Inc., JPMorgan, Bank of America Corp., and Wachovia Corp. also fell.

Lehman Brothers’ current crisis came to a head on Tuesday when its shares plunged almost 50 percent after reports that the head of South Korea’s financial regulator said talks about a possible investment had ended. Fuld had been in negotiations with state-owned Korea Development Bank for several weeks about a capital infusion.

Analysts have speculated that Fuld was overvaluing the firm.

On the conference call, Fuld blamed rumors and speculation for hurting the stock price. He also confidently predicted employees will hang in there: “We’ve been through adversity before,” he said.

As Lehman’s crisis has deepened this year, though, Fuld – whose own job is said to be on the line – has swept away senior management. The firm removed chief financial officer Erin Callan and chief operating officer Joseph Gregory from their posts in June, and several division heads were changed earlier this week.

There are some who think Fuld will live up to his nickname and muscle through the firm’s rescue, although Lehman could be a much smaller firm than it is now.

Hintz said he is confident the company has enough capital or that Fuld “would be selling his office furniture on eBay if he had to.” He said his former boss has no intention of giving up the helm, and that the plan will keep Lehman in business.

“They are getting rid of the risk positions and keeping the company together because Dick Fuld knows his franchise is good,” Hintz said. “They just wound back the clock by about ten years to a time when they were mainly a fixed income shop, and they were profitable back then. The management is strong, and their mission is to rebuild.”

A smaller Lehman could be vulnerable to a takeover, most likely from an overseas bank that hasn’t been traumatized by the market dislocation, Hintz said.

Among the names considered to be potential suitors are Deutsche Bank, which has approached Lehman a number of times in the past decade. Others include France’s BNP Paribas and Britain’s Barclays.

AP-ES-09-10-08 1829EDT

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