Wall Street banks suffered more downgrades today ahead of what looks set to be a far worse than expected third-quarter reporting season.

Analysts slashed their forecasts for Lehman Brothers predicting it could announce losses of more than $3 billion (£1.6 billion) amid reports it has failed to raise new funds in Asia.

Citigroup cut its share price target for Lehman from $50 to $35. It forecast credit crunch write-downs for the latest quarter of $2.9 billion. It raised its loss forecast from 41 cents a share to $3.25

Brokerage Bernstein sees credit crunch write-downs of around $3 billion. Its forecast swung from profits of 74 cents per share to losses of $1.40.

Citigroup cut earnings forecasts for Goldman Sachs and Morgan Stanley. It sees third-quarter write-downs of $1.8 billion and $1.7 billion respectively.

Lehman is due to report third-quarter figures on 16 September. But for its second quarter it had to make earnings predictions a week early, amid rumours of write-downs.

It is reported today to have held secret talks at the start of this month with Chinese and South Korean investors in a bid to raise some $5 billion. Government-owned Korea Development Bank and China's Citic Securities are said to have balked at Lehman's asking price of 50% above book value.

But Citic's secretary Tan Ning said: “We had no such talks ... In fact, this year we will focus on our domestic business as it seems there are no signs when the US credit problems may end.”

A KDB spokesman said it was scaling back overseas assets and staff to reduce exposure to volatile foreign markets.

Lehman's chief Dick Fuld is due to report earnings next month with analysts predicting he could write down up to another $4 billion in investment, bringing the total to $12 billion.

The firm has a slew of assets on the block and is said to be looking for buyers for part or all of its commercial property portfolio and its asset management arm centred on the highly profitable firm Neuberger Berman.

A sale of the profitable Neuberger Berman, which it bought for $2.6 billion back in 2003, could fetch up to $13 billion. Some major private equity firms are said to be interested.

But Lehman faces problems in selling even its still-valuable assets as the financial crisis has made financing deals more difficult.

Banking analysts are also concerned that Fuld may be forced to sell off the profitable pieces of the business at some knockdown prices, damaging its longer-term prospects.