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Aug 6 (Reuters) - Lehman Brothers Holdings Inc LEH.N may sell $30 billion to $50 billion in securities to raise capital and slash its dividend by 90 percent, said Richard Bove, a prominent U.S. banking analyst.
Wall Street analysts have been contemplating a possible securities sale by Lehman, after Merrill Lynch & Co Inc MER.N sold more than $30 billion of its risky securities at a fire-sale price last week.
Lehman's security sale is likely to include commercial mortgages and some residual holdings in residential mortgage-backed securities, Ladenburg, Thalmann & Co's Bove wrote in a research note to clients.
"The quality of this paper is believed to be significantly higher than the 'sale' recently announced by Merrill Lynch. Therefore, the discount may be as little as 10 percent."
Lehman is also likely to announce the spin-off of 20 percent of its asset management business, Neuberger Berman, Bove said.
He valued Neuberger at $1.3 billion, assuming the firm earns $1 billion pre-tax and is worth 20 times post-tax earnings. If 20 percent is spun off, Lehman would retain shares worth $1.0 billion, Bove said.
Lehman may issue $2 billion preferred stock and $1 billion in long-term debt to meet its remaining capital needs, the analyst added.
To pay the expected new dividend requirement on the preferred stock, the company would need to virtually eliminate its current dividend on its common stock, which is costing it $400 million a year, Bove said.
Bove was one of the first banking analysts to recommend selling financial stocks as credit market problems began last year. Last July, he correctly predicted that the booming growth of the financial system could not be sustained by economic growth.
The analyst widened his fiscal 2008 loss-per-share estimate for Lehman to $6.33 from $3.66. He cut his profit estimate for the company to $1.93 per share from $2.51 per share for 2009.
Bove lowered his price target on the stock to $23 from $27, but maintained "neutral" rating.
Lehman stock fell to $19.05 in early trade, but later recovered and was up 15 cents at $20.39 in midday trade on the New York Stock Exchange. The shares have lost more than 70 percent of their value since the start of the year. (Reporting by Dilipp S. Nag in Bangalore; Editing by Himani Sarkar)