Lehman tumbles to new low on more credit fears

NEW YORK — Lehman Brothers Holdings Inc. shares plunged as much as 19 percent Thursday morning as continued credit fears shook Wall Street, and government officials again reiterated that no bank is too big to fail.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson both testified before the House Financial Services Committee that the government's overhaul of regulators will help increase oversight.

However, they both said that doesn't mean financial institutions are too big to fail.

"We aim not only to make the financial system better able to withstand future shocks but also to mitigate moral hazard and the problem of too big to fail by reducing the range of circumstances in which systemic stability concerns might prompt government intervention," Bernanke said in a prepared speech.

Lehman Brothers, the nation's fourth-largest investment bank, is seen by many analysts to be the weakest of Wall Street's biggest firms. Concerns emerged about Lehman's liquidity and leverage last month after the investment bank reported an unexpected $3 billion loss for the second quarter.

The investment bank was also hurt by rumors that some of its biggest trading partners were scaling back their business. Several firms quickly denied the speculation, with bond fund Pacific Investment Management Co. and hedge fund SAC Capital Advisors LLC both issuing statements that they continue to do business with Lehman.

A spokeswoman for Lehman Brothers did not immediately return telephone calls seeking comment.

Similar rumors led to the near collapse of Bear Stearns Cos., which in March plunged in value on talk that it did not have enough liquidity. The Fed orchestrated a last-minute sale of the investment bank to JPMorgan Chase & Co. to save it from bankruptcy.

There has also been comfort that Lehman Chief Executive Richard Fuld would be able to avoid a fire sale or outright collapse considering he is a director of the Federal Reserve Bank of New York.

In addition, investors also remain anxious that Former St. Louis Federal Reserve President William Poole said government-sponsored lenders Freddie Mac and Fannie Mae are essentially "insolvent" and may need a bailout, according to media reports. Shares of both companies have fallen in recent days on reports that they'll need more capital to survive.

Shares of Lehman fell $1.81 or 9.2 percent, to $17.93 in midday trading. It declined by more than 19 percent earlier in the session, trading at a new 52-week low of $15.98. The stock has ranged from $19.24 to $74.09 over the past year.

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