Lehman Brothers is preparing to raise an estimated $4 billion of cash as Wall Street’s smallest independent brokerage seeks to shore up its balance sheet following a multi-billion dollar hit from the credit crunch this year.

Although the group has not yet signed off on this latest capital raising, it is expected to announce a rights issue with the release of its second-quarter results – for the three months to June – in about two weeks.

Lehman, which suffered a $2 billion writedown from the credit crunch in the first quarter, is expected to take a similar hit this quarter, leaving the group with an expected overall loss of at least $300 million for the period – the first deficit since it floated in 1994.

Lehman’s expected capital raising would see the group issuing new common shares, and would be in addition to the $6 billion it has already raised.

The rights issue is in part designed to boost shareholder confidence that Lehman could weather unexpected writedowns in the future on its portfolio of high-risk mortgage-related securities, which remains the largest among the Wall Street brokerages.

Concerns about Lehman’s exposure to these kind of securities have sent the group’s shares down by nearly 50 per cent this year. Nearly 10 percentage points of that drop came on Monday as two key analysts issued negative comments about the group and Standard & Poor’s reduced its credit rating from A-plus to A.

Lehman Brothers is in the process of cutting about 1,300 positions worldwide, or about 5 per cent of its workforce, as it seeks to reduce costs. These latest redundancies are in addition to a previous round of job cuts, of about the same size, in March. Lehman Brothers' London headquarters are in Canary Wharf.

In its most recent cash raising, the bank amassed $4 billion in April through the sale of four million covertible preferred shares. This is one million more than it had previously targetted after strong demand from institutions.

Lehman Brothers said at the time that it did not need the money but wished to reassure doubtful shareholders that it had enough cash to survive any emergency.

The group is thought to be using the same argument for its latest proposed fundraising.

Jon Najarian, a trader in futures and options in Chicago, said: "Is Lehman’s CFO, Erin Callan, on her way to becoming the next Alan Schwartz? You will recall that Mr Schwartz famously declared Bear Stearns as financially sound hours before the investment bank/broker nearly went into liquidation in March."

"Ms Callan has only been chief financial officer since September …and she’s been quite vocal defending Lehman’s financials and deriding [detractors for] ‘cherry picking Lehman’s financials’," Mr Najarian added.

Lehman Brothers declined to comment on whether it was preparing a rights issue.

The group’s shares fell by $1.48, or 4.4 per cent, to $32.34 in mid-day trading.

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