Lehman’s tough-talking chief executive had intended to go into battle for the bank’s future yesterday with something more powerful in his armoury.

By agreeing a crucial injection of cash into the group or a major asset sale by next week, Dick Fuld wanted to offset the gloom of a record quarterly loss with assurances that Lehman’s money worries were over. That would have made the results presentation due next week much less painful.

Instead, his best intentions were overtaken by events, a circumstance becoming all too familiar to shareholders in recent months.

After it emerged this week that talks to secure South Korean cash had broken down, Mr Fuld was forced to rush forward the quarterly results and to try to bolster confidence without a concrete deal to show investors. It was always going to be an uphill struggle.

Lehman’s shares dived by a record 45 per cent on Tuesday as the collapse of talks with the state-owned Korean Development Bank stoked fears among the broker’s already jittery investors and dragged down the broader Dow Jones and Standard & Poor’s stock indices. After yesterday’s announcement they traded at just under $8, valuing the group at $5.4 billion (£3.1 billion). Early this year they had traded as high as $67.73.

The collapse of the talks — which occurred about a week earlier but became public only on Tuesday via a South Korean regulator — prompted Standard & Poor’s to give warning that it may lower Lehman’s credit rating by more than a notch.

Lehman has fought rumours of its demise for most of the year, as it announced more than $8 billion of writedowns on mortgage-related investments. Its repeated claims that everything was under control were greeted with scepticism by many investors, which had sent the group’s shares down by about 80 per cent even before they dived on Tuesday.

Analysts said that despite what the market seemed to be telling him, Mr Fuld underestimated the dangers posed by the group’s mortgage-heavy balance sheet and the difficulty that he would have in raising further capital. Among the biggest dangers is Lehman’s huge portfolio of commercial property assets, which has mushroomed to about $30 billion in the past five years, under the guidance of Mr Fuld, and accounted for $1.7 billion of the third-quarter writedowns Lehman announced yesterday.

Talks to raise money through the sale of Lehman’s asset management business, which includes Neuberger Berman, its prized fund manager, as well as discussions to sell a stake in the entire group rumbled on for months without the life-saving deal that many believe the group needs being reached.

Richard Bove, an analyst at Ladenburg Thalmann, vented his frustration on behalf of many Lehman investors. “Clearly, the company does not believe that it has a serious balance-sheet problem and it simply refuses to take what it believes are fire-sale prices for its key assets,” Mr Bove wrote in a note.

“Buyers seem to believe that Lehman is overvaluing its assets and refuse to hit the bid.”

Others said that Mr Fuld was only too aware of the dangers posed by the present housing market. They argued that he has been working furiously to keep staff from leaving by maintaining their morale and to reassure clients to stick with him.

With Lehman’s market capitalisation only one tenth of its value 18 months ago, Mr Fuld — regarded as a tough operator — may struggle to secure the deal it so badly needs.

Turbulent history

1840 Lehman founded by Henry Lehman, a German immigrant, in Alabama

1929 Teeters on brink of collapse after Wall Street crash

1973 Loses $6.7 million betting on interest rates and is almost forced to close its doors

1993 Lehman Brothers is spun out of American Express. Richard Fuld, right, takes helm

1994 Faces capital shortage, which threatens its survival

Late 90s-00s Mr Fuld significantly increases exposure to leveraged loans and mortgages

1998 Lehman fights for survival after Russian bond crisis

2007-08 Credit crisis begins to squeeze, leading to write-offs to date of $16 billion

Sept 2008 Fears over its outlook trigger a 40 per cent slide in the share price in a day

Sept 10 Lehman Brothers admits to a record $3.9 billion third-quarter loss

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