Sept. 9 (Bloomberg) -- Lehman Brothers Holdings Inc. fell a record 45 percent in New York trading after talks about a capital infusion from Korea Development Bank ended. The Wall Street firm is continuing to negotiate with other potential investors, a person briefed on the matter said.

The Korean bank is one of several companies that Lehman, the fourth-largest U.S. securities firm, has been in discussions with in recent weeks, said the person, who declined to name the other potential bidders. The New York-based bank is also continuing talks with private-equity firms interested in buying its asset-management business, the person said.

Lehman is trying to raise capital and shed devalued real- estate assets after $8.2 billion in writedowns and credit losses in the past year. Korean regulators told the development bank it would be ``inappropriate'' to pursue a Lehman acquisition. Nomura Holdings Inc., Japan's biggest investment bank, may join bidders seeking a stake in Lehman, Nomura President Kenichi Watanabe told the Yomiuri newspaper last week.

The lack of a deal ``is depressing shareholders and infuriating insiders,'' said Richard Bove, an analyst at Ladenburg Thalmann & Co., in a report today. The bank ``refuses to take what it believes are fire-sale prices for its key assets,'' he said.

Mark Lane, a Lehman spokesman in New York, and Korean Development Bank spokesman Cho Hyun Eek declined to comment. Lehman, the worst performer on the 11-company Amex Securities Broker/Dealer Index this year, fell $6.36 to $7.79 at 4:10 p.m. in New York Stock Exchange composite trading.

`Willing Counterparty'

Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co., the three biggest U.S. securities firms, said after the close of regular trading in New York that they weren't backing away from their smaller rival.

``Goldman Sachs is a willing counterparty to Lehman Brothers across all our businesses,'' said Michael DuVally, a spokesman for Goldman. Spokespeople for Morgan Stanley and Merrill said their firms continue to trade with Lehman.

Citigroup Inc., the biggest U.S. bank by assets, UBS AG and Credit Suisse Group AG, the two largest Swiss banks, and BlackRock Inc., the biggest publicly traded U.S. fund manager, said they too continue to do business as usual with the firm.

Standard & Poor's said it may lower its A1 long-term rating on Lehman because the ``precipitous decline'' in the share price creates uncertainty about the firm's ability to raise additional capital. S&P said Lehman's liquidity is ``sound,'' noting the firm has the ability to borrow from the Federal Reserve.

Loss Predicted

Fed spokeswoman Michele Smith declined to comment on Lehman. Treasury spokeswoman Jennifer Zuccarelli said, ``We are monitoring markets and in regular contact with market participants.''

Christopher Cox, the chairman of the U.S. Securities and Exchange Commission, is also staying abreast, according to agency spokesman John Nester.

``Chairman Cox and top SEC officials are monitoring market developments and are in ongoing contact with market participants,'' Nester said

Lehman's second-quarter loss of $2.8 billion was its first as a publicly traded company. Analysts surveyed by Bloomberg expect the firm to report a $2.2 billion third-quarter loss next week.

Analysts are predicting more writedowns because the firm still has about $65 billion in mortgage-related assets that are losing value with the collapse of the real-estate market. Most of the portfolio, about $40 billion, is tied to commercial real estate holdings, which Lehman may spin off into a new company, according to people familiar with the matter.

Shares Tumble

Dow Jones News Service reported earlier today that the chairman of Korea's financial regulator said talks with Lehman had ended. The Financial Services Commission denied its chairman, Jun Kwang Woo, made the remarks. Korea Development Chief Executive Officer Min Euoo Sung declined to comment on the progress of talks when questioned at a banking seminar in Seoul.

``The talk about the Koreans backing away has upset the stock,'' said Antony Gifford, who oversees about $4 billion in North American equities at Henderson Global Investors in London. ``The market hoped to hear something about an investment today or tomorrow, but my impression is that Lehman management wants to get to the earnings release before they say anything.''

Credit-default swaps used to insure against a default on Lehman debt rose 150 basis points to 475 basis points and traded as high as 520, according to broker Phoenix Partners Group in New York. They peaked at 580 basis points in March. An increase in the price of the contracts indicates deterioration in the perception of credit quality.

Third Quarter

Merrill Lynch analyst Guy Moszkowski said in a report yesterday that Lehman may report a loss of $6.50 a share, wider than his earlier third-quarter loss estimate of $3.94. Oppenheimer & Co. analyst Meredith Whitney predicted Lehman will take a $4 billion writedown on residential and commercial mortgages and leveraged loans.

Lehman CEO Richard Fuld and President Bart McDade are preparing to announce third-quarter financial results next week along with the outcome of their negotiations to sell assets and obtain cash infusions from outside investors.

The announcement will include ``key strategic initiatives,'' Lehman said in a statement yesterday, without elaborating. The firm will reveal how much of its mortgage portfolio was reduced during the quarter and how it's replacing the capital depleted by losses on those assets, according to people familiar with the matter.

KKR, Carlyle

``Rumors continue to swirl around the equity market about what Lehman will have to sell,'' Sanford C. Bernstein & Co. analyst Brad Hintz wrote in an e-mail to clients today. ``What size will its commercial mortgage-backed securities writedown be next week? And at what price will it be able to raise equity capital?''

The firm has been in talks with Kohlberg Kravis Roberts & Co., Carlyle Group and other private-equity firms interested in buying its asset-management unit. Lehman is mulling all options and hasn't concluded any of the discussions yet, the person familiar with the matter said. Fuld will decide in the next 10 days how best to raise capital, the person said.

Fuld, 62, shuffled the top ranks of his firm for the third time in four months over the weekend. Jeremy M. Isaacs, head of Lehman's international operations, and Andrew Morton, the fixed- income chief, are leaving. Fuld replaced his associate of 30 years, Joseph Gregory, in June, naming McDade president.

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

Last Updated: September 9, 2008 17:51 EDT