Lehman Brothers, the Wall Street investment bank, is ripe for a hostile takeover, a New York banking analyst has told clients.

Richard Bove, from the respected investment bank Ladenburg Thalmann, has told clients that he believes Lehman’s management is unwilling to sell out at a deeply distressed value. “The stage is set for a hostile bid to take over the whole company,” he said.

His comments come within a day of reports that a Korean and a Chinese bank had begun talks with Lehman Brothers over a 50 per cent stake. The talks, which are believed to have been informal, were abandoned over price.

While Lehman’s equity, fixed income and investment banking businesses are struggling with the slowdown in M&A activity and the weakening trading environment, the bank runs a very successful fund management business called Neuberger Berman. It also has stakes in a handful of private equity firms. It is believed that any potential bidder would find the Neuberger business an attractive target, alongside the fact that shares in the bank have fallen by almost 80 per cent in 12 months.

Wall Street is anxious about whether Lehman Brothers will be forced to write down about $3 billion worth of assets from its books as it seeks to reduce its exposure to sub-prime mortgage debt and other property-related investments. Many banks have also told their clients to expect surging losses when Lehman unveils third-quarter results next month.

Sanford Bernstein, the Wall Street broker, said this week that it expected Lehman to publish losses per share of $1.40 for the third quarter of 2008, compared with its former forecast of earnings per share of 74 cents. It expected the bank to report a loss of $867 million for the period, rising to a total estimated loss for the year as a whole of $2.57 billion.

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