Lehman Brothers was forced to deny that it faced a liquidity crisis yesterday after it emerged that the Wall Street broker was preparing to raise an estimated $4 billion (£2 billion) to repair the multibillion-dollar hole that the credit crunch has ripped through its balance sheet.

The group’s shares fell by more than 14 per cent in afternoon trading, rallying slightly to close down $3.22, or 9.5 per cent, at a near-five-year low of $30.61 as Lehman insisted that it had not accessed emergency funds from the US Federal Reserve’s so-called discount window yesterday.

The bank’s shares were also hit by a resurgence in rumours that the group would follow Bear Stearns into a fire sale. JPMorgan acquired Bear Stearns this year for a fraction of its recent market capitalisation after a run on the securities firm by its lenders and customers. The run took place amid rumours that Bear Stearns faced a liquidity crisis.

Lehman’s share slump helped to drag down the Dow Jones industrial average to a close of 12,402.85, a fall of 100.97 points, or 0.8 per cent, as fears grew that the fallout from the credit crunch could be far from over.

“We did not access the primary dealer facility today,” a Lehman spokesman said in a statement. “The last time we accessed the facility was on April 16, for testing purposes. We ended the first quarter with liquidity of $34 billion and finished the second quarter with well over $40 billion.”

Although Lehman has not yet signed off the new capital-raising it is preparing, the group is expected to announce a rights issue with the release of its second-quarter results in about two weeks.

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

Sources close to the bank said that the rights issue, which would take the form of new common shares, was in part designed to boost shareholder confidence that it could weather unexpected writedowns on its portfolio of high-risk mortgage-related securities.

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

Lehman has already raised $6 billion. In April it raised $4 billion through convertible preferred shares, with a further $2 billion last month through convertible bonds.

The bank declined to comment on whether it was preparing for a rights issue.

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