Aug. 12 (Bloomberg) -- Lehman Brothers Holdings Inc. may reap $7 billion by selling Neuberger Berman LLC, its asset- management unit, as mortgage-related assets further erode capital, said analyst Brad Hintz at Sanford C. Bernstein Co.

Estimates for the unit's value by four analysts ranged from $6.5 billion to $13 billion. Lehman, the fourth-largest U.S. securities firm, paid $3.2 billion for Neuberger Berman in 2003 and more than doubled assets under management in five years. As Lehman dumps mortgage-backed securities at a discount, the firm could sell a piece of the unit to cover losses.

``Neuberger Berman is a good asset,'' said Tom Jalics, a Cleveland-based analyst at National City Bank, which manages $34 billion, including Lehman shares. ``If they sold the whole thing, then they'd run out of bullets. How do you know you won't need more cash four to five months from now?''

Lehman Chief Executive Officer Richard Fuld is struggling to regain investors' confidence after Lehman shares tumbled 82 percent this year and the firm recorded a $2.8 billion loss in the second quarter. In June, Fuld removed his top associate of 30 years, President Joseph Gregory, 56, and replaced him with Herbert ``Bart'' McDade, 49, who had run fixed income and equities.

Kerrie Cohen, a Lehman spokeswoman, declined to comment on the company's plans for asset sales.

Estimates

Neuberger Berman, based on comparisons with other asset management firms, is valued at $6.5 billion by Standard & Poor's equity research and $13 billion by Ladenburg Thalmann & Co. The business is worth $8 billion according to Fox-Pitt Kelton Cochran Caronia Waller. Hintz, a former chief financial officer at Lehman who rates Lehman shares ``market perform,'' estimates the unit's value at $7 billion.

``There is upside to this valuation,'' Hintz said in a report last week, citing investments the firm has made in other asset management firms in the last two years. Lehman has bought stakes in D.E. Shaw, GLG Partners LP and other hedge fund managers. Lehman shares tumbled 71 percent so far this year through yesterday.

Lehman executives have repeatedly ruled out a possible sale, saying Neuberger Berman is one of the firm's four main business pillars. Investment management accounted for a quarter of Lehman's revenue in the first half of this year.

`Reluctant Seller'

Yet as he tries to clean out its balance sheet and regain investor confidence, Fuld, 62, may have to let go of at least part of his prized asset, said Bruce Foerster, a former Lehman executive who now runs South Beach Capital Markets in Miami.

``He'd be a very reluctant seller because it's the piece of their business that smoothes out the cyclicality of other parts,'' Foerster said. ``But if the write-off they face is much, much larger than we're all imagining, it could force them into selling it.''

Merrill Lynch & Co., also saddled by mortgage losses, sold its stake in Bloomberg LP, the parent of Bloomberg News, last month to raise capital. The firm decided against selling its 49.8 percent stake in asset management firm BlackRock Inc. and instead raised $7.3 billion by issuing new shares last week to cover its loss during the sale of $30.6 billion of collateralized debt obligations at a 78 percent discount.

Lehman owned $65.6 billion of bonds tied to residential and commercial mortgages as well as real estate at the end of May, according to its latest regulatory filings.

`Confidence Issue'

Ladenburg Thalmann's Bove expects Lehman to sell as much as $50 billion of mortgage assets, including the whole commercial mortgage portfolio.

``It's no longer a balance sheet issue, but a confidence issue,'' Bove said. ``They need to convince clients to continue doing business with them. Only a very large sale would satisfy the clients and get the short-sellers off their back too. But they'll need additional capital after that.''

Lehman could record a loss of $4.9 billion on the sale of its $30 billion commercial mortgage portfolio, Hintz estimated in a report this week. Bove expects a 10 percent haircut on the assets in a forced sale.

``Lehman's mortgage positions aren't as bad as the CDOs Merrill had, so they can get a better price,'' Albrecht said.

Selling 20 or 30 percent of Neuberger Berman to a private equity firm or a sovereign wealth fund could help them cover most of those losses, said S&P equity analyst Matt Albrecht. Lehman could also sell a stake in itself to an outside investor, instead of just in Neuberger Berman.

``They must be considering all these different options,'' said Albrecht.

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

Last Updated: August 12, 2008 09:19 EDT