Lehman Bros raises $6bn after filing first loss since going public

Lehman Brothers has unveiled its first quarterly loss as a public company and raised $6bn (£3bn) to quell rumours about the US investment bank's financial position.

The bank predicted a bigger-than-expected $2.8bn net loss in what its finance director called "the most difficult quarter in our history". The news helped to send British bank shares lower, reflecting investor fears that more bad news could be on the way from the credit crunch.

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Lehman has been dogged by speculation that it could follow Bear Stearns by running out of cash because of a collapse in confidence. Erin Callan, the bank's finance director, said she wanted to put an end to the "chatter" about its financial strength.

The bank increased its liquidity pool to $45bn from $34bn over the second quarter and reduced its assets by $130bn in a massive "deleveraging" exercise designed to reduce risk and boost market confidence. The ratio of assets to equity fell to less than 25 from 32 as the bank shed asset-backed securities and leveraged loans that had been hit hard by the credit crunch.

The loss was driven by $3.7bn of writedowns as hedges against the positions lost money. Ms Callan said the hedging losses were "an aberration" as derivative prices became detached from the value of underlying assets. Lehman, which went public in 1994, made $489m profit in the first quarter.

The bank's oversubscribed share sale comprised $4bn of common stock and $2bn of convertible securities. Lehman was said to be in talks with sovereign wealth funds until very recently but elected for a fast sale in the market.

US companies can sell new shares in the market without worrying about the pre-emption rights that have forced UK banks to elect for drawn-out rights issues.

The bank is keeping its options open for selling a stake to a sovereign fund but Ms Callan said it would be a strategic move for both sides and not because Lehman needed the cash.

Ms Callan added that Lehman did not need to use the proceeds of the sale to cover any more forced sales of assets. "Our deleverage is aggressive, as you can see, and is complete," she said.

May and the first week of June had produced a strong underlying trading performance and Lehman will now expand its balance sheet to take advantage of fatter margins in prime brokerage, acquisition finance and other activities, she said.

Lehman shares shed 8.7 per cent in New York yesterday. In Europe, UBS shares fell by up to 9 per cent before closing down 3.3 per cent. In the UK, HBOS and Barclays fell 7.2 and 5.7 per cent respectively.

RBS gets record cash call away

*Royal Bank of Scotland and its underwriters breathed a sigh of relief yesterday as the bank successfully placed the last shares in its record £12bn rights issue amid difficult market conditions.

The bank said in the morning that 95.1 per cent of the new shares had been taken up by investors, leaving Goldman Sachs, Merrill Lynch and UBS to sell the "rump". Those shares were sold for 230p, below the expected 242-245p level, after Lehman Brothers' quarterly loss and gloomy news on UK inflation and house prices hit confidence.

"They spent all morning getting it done," an RBS investor said. "It was hard work and in these circumstances it is reflected in the share price."

The investor said the share price would normally have been expected to rise after the shares had been placed, but they fell 4.9 per cent to 233.75p. RBS will issue a trading statement tomorrow.