Lehmans puts another 1,500 jobs on the block, including in London

Lehman Brothers is planning to axe up to 1,500 more jobs, as part of its desperate struggle to reduce costs, raise money and rebuild its battered balance sheet.

The job losses, which are still being planned by executives at the company's New York head office, are expected to be spread among its 26,000-strong global workforce, including at its European headquarters in London, where it employs more than 4,500 people.

Rumours of the cuts began circulating internally at Lehman late on Thursday, adding to the gloom at the company, which is engaged in a fire sale of assets in order to replace billions of dollars lost on mortgage investments since the credit crisis began.

Lehman staff have already endured four rounds of lay-offs in the past year, with 6,000 people losing their jobs, making one of the sharpest downsizings of all the Wall Street firms. A spokesman would not comment yesterday.

Until now, most lay-offs have been concentrated in the structured finance and trading divisions where the toxic mortgage investments at the heart of the credit crisis were created and traded. Jobs in the US securities industry actually grew in number in the second quarter of this year, but they fell last month and analysts are expecting that reversal to accelerate in the autumn, when executives begin to plan for the year ahead.

Business conditions have failed to improve, and all the Wall Street banks are under pressure to shrink their businesses in order to reduce risk. The problems have spread from the credit markets into the wider economy, crimping other areas of banking activity, including advising on mergers and stock market flotations.

Lauren Smith at Keefe, Bruyette & Woods became the latest analyst yesterday to warn of tougher times for big broking houses. "We are revising lower our estimates expected residential mortgage and other asset write-downs, weaker investment banking revenues and lower trading revenues. Our Lehman Brothers estimate revisions are the most stark and, given the uncertain recovery, we have also lowered 2009 estimates."

All Wall Street firms have been tightening their belts. Earlier this week, Citigroup sent out a missive to its employees banning colour photocopying, demanding that all meetings be held in the company's offices, and telling managers to seek approval before entertaining clients.

Investors focus has been most closely trained on Lehman Brothers because it is viewed as having the weakest balance sheet on Wall Street, since the demise of its smaller rival Bear Stearns in March. Dick Fuld, Lehman chief executive, is examining a range of options for recapitalising the company and restoring confidence, including selling off all or part of its profitable asset management arm. Other assets on the block include a $40bn commercial property portfolio, and Lehman's remaining residential mortgage investments could be placed into a ring-fenced company. A restructuring plan could be announced in mid-September.