June 5 (Bloomberg) -- Lehman Brothers Holdings Inc. probably will raise $4 billion of capital from outside investors and report a second-quarter loss, according to Deutsche Bank AG analyst Mike Mayo, who recommends clients buy the stock.

``We are buyers of the stock on the assumption that Chief Executive Officer Dick Fuld will steady the Lehman ship and, with greater stability, the stock will appreciate,'' Mayo wrote in a report to clients today.

The fourth-largest U.S. securities firm has declined 31 percent in New York Stock Exchange trading during the past month, the worst performer in the Amex Securities Broker/Dealer Index, on speculation Lehman will post a second-quarter loss and be forced to raise cash to make up for mortgage writedowns. Lehman rose 2.6 percent yesterday to $31.40 in New York after Merrill Lynch & Co. analyst Guy Moszkowski recommended investors purchase the stock.

Mayo, like Moszkowski, said Lehman isn't likely to face the sort of bank run that led to the collapse in March of smaller rival Bear Stearns Cos.

``Net-net, we feel that Lehman is not Bear,'' Mayo said. ``Liquidity is not a major issue, in our view, while equity risk remains but does not seem outsized.''

While revenue should continue to grow, Mayo estimates Lehman will report a second-quarter loss of 59 cents a share after $2.9 billion of writedowns, mostly for commercial real estate and mortgage-related securities.

`Insurance Policy'

A capital raising of $4 billion would reduce the company's stated book value by about 4 percent to $38.01 a share, said Mayo, who expects the company to sell 129 million shares at $31 each.

``We now see a stock issuance as an `insurance policy' to help ensure that Lehman can go about business as usual,'' he said.

Fuld, 62, is seeking a strategic partner to give Lehman a foothold in other markets, a person familiar with the discussions said yesterday. The investment may come from sovereign wealth funds, according to the person, who declined to be identified because the talks are private.

Lehman also may be open to cash injections from institutional investors in the U.S., the Wall Street Journal reported today, citing a person familiar with the situation.

The company isn't under pressure from the U.S. Federal Reserve and Securities and Exchange Commission to boost capital, a government official said yesterday. Regulators are leaving it up to Lehman for now to decide whether it needs to raise money, said the official, who declined to be identified because discussions between regulators and the firm are private.

Book Value

Lehman has raised $8 billion since February to offset losses stemming from the mortgage-market crisis that forced Bear Stearns to sell itself to New York-based JPMorgan Chase & Co. in March.

Mayo reduced his share price target on Lehman to $49 from $52. The forecast is based on the company's stock trading at 1.2 times the estimated book value for 2009. Risks remain for Lehman, as the company relies on the fixed-income markets for almost half of revenue, Mayo said.

``We estimate that fixed-income revenue will revert back to 2004 for at least the next couple years, which has the potential to create an earnings drag,'' said Mayo, who predicts Lehman will earn $2.45 a share this year, down from $7.25 in fiscal 2007.

To contact the reporter for this story: Poppy Trowbridge in London at ptrowbridge@bloomberg.net

Last Updated: June 5, 2008 03:33 EDT