April 10 (Bloomberg) -- Lehman Brothers Holdings Inc. bailed out five of its short-term debt funds, joining a growing list of securities firms and asset managers that have propped up investment vehicles crippled by frozen credit markets.

Lehman took $1.8 billion of assets from the funds onto its books, the New York-based firm said in a Securities and Exchange Commission filing yesterday. The company recorded a $300 million loss from the bailout in the first-quarter, according to a person familiar with the writedown.

Credit Suisse Group took a $780 million charge in February when it bought assets from its money-market funds. Legg Mason Inc. agreed last month to provide as much as $400 million to help a similar fund. General Electric Co.'s GE Asset Management liquidated a short-term bond fund in November after it lost about $225 million.

``These bailouts show there are still challenges ahead of us,'' said Sanford C. Bernstein's Brad Hintz, the third-ranked securities analyst according to Institutional Investor magazine. ``There will be more troubled assets held by other entities that brokers will have to take onto their balance sheets.''

Lehman, the fourth-largest U.S. securities firm, took $1.8 billion of writedowns on mortgage-related assets in the first quarter. The company has avoided the much bigger losses reported by rivals such as Merrill Lynch & Co., which posted $25.1 billion of writedowns in the second half of last year.

`Tougher Revenues'

The world's biggest banks have recorded $245 billion in asset writedowns and credit losses since the beginning of 2007. Lehman raised $4 billion from a stock sale this month, seeking to quell speculation the firm is short of capital.

Lehman has gained about 7 percent since the capital infusion on April 1. It fell 29 cents to $40.25 at 4:10 p.m. in New York Stock Exchange composite trading. The stock has dropped 38 percent this year, compared with a 24 percent tumble in the Standard and Poor's 500 Investment Banking & Brokerage Index.

``While liquidity seems okay, we continue to expect more writedowns to equity and tougher revenues this year'' at Lehman, Deutsche Bank AG analysts led by Mike Mayo wrote in a research note yesterday. Lehman may write down $2 billion in the second quarter, said the analysts, who rate the firm ``buy.''

Some of the funds' investments were either downgraded by ratings companies or declined in ``fair value,'' Lehman said in the filing. The firm agreed to waive or limit fees charged to certain funds, though it retains the right to recoup them ``at a later point in time.'' The bailed out funds were overseen by Lehman's asset management unit.

Enhanced-Cash Fund

The funds included so-called money-market funds and an enhanced-cash fund, the person familiar said, declining to be identified because the firm hasn't made details public. The enhanced funds aim to provide a higher return than traditional money-market funds, considered the safest investment after Treasuries and bank accounts, according to the person. The Wall Street Journal reported the bailout earlier today, citing an unidentified Lehman executive.

Peter Crane, president of Crane Data LLC which tracks money market funds, said the three funds that closed down were probably enhanced ones while the money-market funds were kept operating.

``This sector is a dead man walking,'' Crane said in an interview, referring to enhanced-cash funds.

Money managers including Denver-based Janus Capital Group Inc., Chicago-based Northern Trust Corp. and Legg Mason have bailed out money funds that purchased debt sold by structured investment vehicles, which use short-term borrowing to buy higher-yielding assets.

Propping Up

Managers of money market funds have spent more than $4 billion to prop up money funds that were supposed to have investments that were the safest outside of bank deposits and government debt.

Falling U.S. house prices and rising delinquencies may lead to $565 billion in residential mortgage-market losses worldwide, the International Monetary Fund said in its annual Global Financial Stability report on April 8. Total losses, including those tied to commercial real estate, may reach $945 billion, the IMF said.

JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. for a fraction of its market value last month, when the New York-based securities firm faced bankruptcy following a run by clients and creditors. Bear Stearns's woes began last year after two of its hedge funds collapsed amid the crisis in credit markets.

Declining Revenue

Revenue at Lehman will decline to about the level of 2005, when it totaled $14.6 billion, Deutsche Bank's Mayo wrote. The 2007 net revenue was $19.3 billion. Lehman plans to reduce risk by selling 20 percent of its $75 billion in mortgage assets and cut leverage by the same amount, according to Deutsche Bank.

``Is Lehman going to have a couple of bad quarters? The answer is yes,'' said Magnus Mathewson, a London-based analyst at Hichens, Harrison & Co. ``But are they a bankruptcy case? I don't think so.''

To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net.

Last Updated: April 10, 2008 17:08 EDT