Lehman Brothers’ long-suffering investors received a boost yesterday as the securities firm raised $4 billion (£2 billion) of cash, sending its shares up 8.5 per cent.

The group, which had planned to raise $3 billion by selling three million convertible preferred shares, increased the offering to four million after strong demand from institutions signalled a vote of confidence.

Lehman had been dogged by rumours, which it has denied, that it would be next after a run on Bear Stearns forced a fire sale of that firm to JPMorgan Chase last month for a fraction of its recent market value. The rumours sent its shares down as much as 48 per cent on March 17 as the Bear Stearns sale was agreed, although they recovered to end that day 19 per cent lower at $31.75.

Yesterday Lehman’s shares rose $6.69 to close at $44.33, a rise on the day of nearly 18 per cent. They were trading at more than $80 last June.

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Since Bear’s meltdown, Lehman has reported better-than-expected results for the first quarter and said that it had nearly $100 billion of cash and other liquid assets. The group also says that it can access up to $200 billion in cheap loans after the Federal Reserve recently opened its “discount window”, which traditionally has been available to commercial banks only, to brokerage firms such as Lehman.

On Monday night, when Lehman announced its intention to conduct a rights issue, Erin Callan, its chief financial officer, said: “We still maintain that we don’t need the capital, but we’ve realised that perception is the dominant issue in today’s markets.”

Although Lehman does not require the extra cash right away, analysts said that the rights issue looked like a cautionary measure.

Adam Compton, an analyst for RCM Investors, said: “If there is any question that a bank may need funds in the future, it is better to raise it sooner rather than later, since funding is only going to get more expensive.”

Meredith Whitney, an analyst at Oppenheimer, said that the Lehman rights issue was “expensive on a near-term historical basis”, but added that it would “only get progressively more expensive to raise capital”.

The convertible preferred shares pay a 7.25 per cent dividend and can be converted into common shares at $49.87, or a 32.49 per cent premium, to their closing price on Monday. The offering was not underwritten.

Further declines in asset values would require many banks to raise additional cash to boost their capital bases. Furthermore, securities firms are trying to reduce borrowings to reduce risk and because the Fed is likely to be keeping a close eye on their balance sheets as a condition of extending its discount window to them.

Five years ago the average securities firm had borrowings of about 20 times equity. This had risen to about 30 times by the time the credit crunch took hold last summer but was on its way down again and eventually would return to about 20 times equity, Mr Compton said.

— The world’s biggest private equity firms closed new fundraising programmes yesterday despite chaos in the debt markets. Kohlberg Kravis Roberts completed a $17.6 billion (£8.9 billion) buyout fund for US investments, while Blackstone, the listed private equity group that owns Hilton Hotels, said that it had raised $10.9 billion for a new real estate fund.

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