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Lehman to pursue merchant banking sale

Talks to sell a stake in the bank’s investment management division, including a $30bn private equity portfolio, will continue, despite its march toward insolvency.

US investment bank Lehman Brothers still intends to sell a stake in its investment management division, which includes its robust $30 billion (€21 billion) private equity portfolio, despite having decided to file for bankruptcy protection.

Lehman has said it will file for Chapter 11, ending a flurry of reports about its potential sale to other banks, private equity buyers or sovereign funds. UK bank Barclays and US bank Bank of America reportedly walked away from talks to buy Lehman after the Federal Reserve refused to provide guarantees of the bank’s liabilities as it did for the Bear Stearns sale to JPMorgan.

Last week, the bank – which is the highest profile victim of the credit crunch – received a cool reception on Wall Street when it outlined a package of measures designed to save itself.

Reporting third quarter losses of $3.9 billion, the bank said as well as the sale of a 55 percent stake in the investment management arm, it would spin off its $30 billion (€21.4 billion) commercial real estate operation into a separate public company called Real Estate Investments Global.

Lehman also said it expected to close a $4 billion deal with asset management giant BlackRock Financial Management in the next few weeks for part of its UK residential mortgage portfolio.