Sept. 11 (Bloomberg) -- Lehman Brothers Holdings Inc. entered into talks with potential buyers of the securities firm after Moody's Investors Service said the company must find a ``stronger financial partner'' and the shares plummeted.

The U.S. Treasury and the Federal Reserve have been working with Lehman on a sale, and a deal may be announced before Asian markets open Sept. 15., a person with knowledge of the matter said. The government isn't likely to contribute money, the person said. Bankers from other firms were reviewing Lehman's books today, according to people with knowledge of the situation, who declined to identify potential acquirers.

Without a ``strategic arrangement'' in the ``near term,'' Lehman's credit-ratings may be downgraded, Moody's said yesterday after the New York-based investment bank announced the biggest loss in its 158-year history. A downgrade could increase Lehman's borrowing costs and deter others from trading with the bank. Lehman, led by Chief Executive Officer Richard Fuld, fell 42 percent in New York trading today, ceding its spot as the fourth-biggest U.S. securities firm by market value to Raymond James Financial Inc. in St. Petersburg, Florida.

``While the number of potential acquirers at this point is very few, Moody's action certainly raises the specter of takeout, potentially at a very low price,'' said Merrill Lynch & Co. analyst Guy Moszkowski in a report today. He lowered his recommendation on the stock to ``no opinion,'' saying a potential ``take-under'' makes it hard to gauge a price target.

`Nominal Sum'

Bank of America Corp. is among the possible buyers, the Wall Street Journal reported, citing unidentified people. Spokesmen for Lehman and Bank of America declined to comment.

Michele Smith, a spokeswoman for the Fed, declined to comment on Lehman earlier today. Treasury is ``monitoring markets,'' and is ``in regular contact'' with market participants, spokesman Jennifer Zuccarelli said.

Lehman fell $3.03 to $4.22 at 4:15 p.m. in New York Stock exchange composite trading. The drop reduced Lehman's market value to about $2.9 billion. Raymond James, a regional brokerage, is valued at about $3.8 billion.

``The likely solution is that someone will bail it out and at this rate it may be for a nominal sum,'' said Simon Maughan, a London-based analyst at MF Global Securities Ltd. ``The market is not going to give Lehman time to get on with its plan.''

Goldman Sachs Group Inc., the biggest U.S. securities firm, has no plan to buy Lehman without financial backing from the Federal Reserve or Treasury, which hasn't been offered thus far, a person briefed on the matter said today. Goldman spokesman Michael DuVally said the investment bank ``continues to do business'' with Lehman.

`Attractive Proposition'

Nomura Holdings Inc., Japan's biggest investment bank, may bid for a stake in Lehman, the Yomiuri newspaper cited Nomura President Kenichi Watanabe as saying last week. Michiyori Fujiwara, a Tokyo-based Nomura spokesman, declined to comment yesterday. Nomura has a market value of $28 billion.

Asked yesterday whether he'd consider selling the firm, Fuld didn't rule it out.

``I have always said that if anybody came with an attractive proposition that made it compelling for shareholder value, that would be brought to the board, discussed with the board and evaluated, and that has not changed,'' Fuld said on a conference call with analysts.

Several of the largest European banks may be tempted to buy Lehman to bolster their presence in the U.S., analyst Richard Bove said earlier this week. Ladenburg Thalmann & Co.'s Bove speculated that HSBC Holdings Plc, Europe's biggest bank by market value, could be a suitor. London-based HSBC said yesterday it was ``highly unlikely'' to buy an investment bank.

Ackermann Demurs

Josef Ackermann, the CEO of Deutsche Bank AG, Germany's largest bank, said yesterday in Frankfurt that he wasn't interested in ``parts or all of Lehman.''

Lehman said yesterday it's in the process of selling a majority stake in its asset-management unit, spinning off real- estate holdings and cutting the dividend in an effort to shore up capital and regain investor confidence. The announcement failed to assuage investors' concerns and the shares sank 7 percent, after a 45 percent drop the day before.

Pressure on Fuld, the longest-serving CEO on Wall Street, mounted this week after talks about a capital infusion from Korea Development Bank ended. Fuld, 62, is striving to convince investors that the firm will stem losses on securities tied to real estate even as housing prices decline. He and his management team also must keep clients and employees from leaving.

BlackRock Proceeds

BlackRock Inc., the biggest publicly traded U.S. fund manager, was continuing to negotiate the acquisition of $4 billion in U.K. residential mortgages from Lehman under the plan Fuld announced, a person familiar with the talks said today.

Private equity firms continued to weigh making bids for Lehman's asset management business, people familiar with the talks said. Private-equity firms KKR & Co. LP, Bain Capital LLC, Hellman & Friedman LLC and Clayton, Dubilier & Rice Inc. may make bids valuing the unit at about $5 billion, the people said. Officials at the firms declined to comment.

The restructuring plan ``fell short of what was necessary to lessen the bear case on the stock,'' Goldman analyst William Tanona wrote in a note today, cutting his rating to ``neutral'' from ``buy.''

``A downgrade would likely force Lehman to post additional collateral, increase short-term and long-term funding costs, and limit its ability to transact with partners which demand certain credit ratings,'' Tanona wrote.

`Counterparty Risk'

Moody's said yesterday that a downgrade below Lehman's single-A rating was possible. Standard & Poor's said it was also reviewing the firm for a potential downgrade.

``There's a level of counterparty risk below which another broker-dealer is going to say, `this isn't adequate backing,''' said Michael Shaoul, chief executive officer of Oscar Gruss & Son, a New York brokerage. ``Lehman relies on being able to use its balance sheet as a currency almost. If S&P downgrades by several notches, that's the sort of thing that threatens to get things out of control.''

Bear Stearns Cos., once the fifth-biggest U.S. securities firm, collapsed in March because clients, lenders and other Wall Street firms stopped trading with the firm.

The day the Treasury and Fed brokered JPMorgan Chase & Co.'s takeover of Bear Stearns, the central bank opened a lending facility for brokerages to dispel concern that they might face a bank-run. Lehman has access to the facility.

Bonds Plunge

In addition to Goldman, Morgan Stanley, Merrill, Citigroup Inc., JPMorgan Chase & Co., Bank of America, Credit Suisse Group AG, UBS AG and BlackRock are among the biggest brokerages, banks and fund managers who've said this week that they continue to do business with Lehman as usual.

Lehman bonds plunged for a second day, leading investment- grade debt lower. Lehman's 6.75 percent notes due in 2017 dropped 16.1 cents to 72.75 cents on the dollar for a yield of 11.6 percent, or 8 percentage points more than Treasuries of similar maturity, according to Trace, the Financial Industry Regulatory Authority's bond-pricing service.

Lehman would have to post $4.4 billion additional collateral for its derivative contracts in the event its rating is downgraded two notches, according to the firm's quarterly report filed with regulators in July.

Peter Cohen, founder of Ramius Capital Group LLC, said the hedge fund is sticking with Lehman as one of its prime brokers for processing trades. Lehman is ``very different'' from Bear Stearns Cos., Cohen, the CEO of Shearson Lehman Brothers Inc. from 1983 to 1990, told CNBC in an interview today.

`Confidence Issue'

Fitch Ratings, which also placed Lehman on credit watch this week, said speculation about Lehman's woes aren't related to liquidity but to concern that it can't raise more capital.

``At this point it's an equity confidence issue,'' said Fitch analyst Eileen Fahey in an interview. ``They've raised capital over the past few quarters. Their ability to raise more equity, because the equity price keeps falling, is hampered.''

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

Last Updated: September 11, 2008 18:39 EDT