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Lehman Brothers today revealed massive third-quarter losses and a radical plan to repair its battered balance sheet which Wall Street took sceptically.
Many analysts fear this signals that the world banking crisis is far from over.
Europe's stock markets reacted badly to the plan with the FTSE leading the way down, falling by more than 1%.
Lehman shares, which crashed 46% yesterday as it became clear that the investment bank was not going to get a multi-billion bailout from a Korean bank, fell another 6.5% to $7.30 in early trading. Six months ago, they were trading above $66.
One analyst said: "The market had been hoping for more news regarding capital raising. This doesn't seem to be the case, so concerns about the banking system remain in place."
Lehman said that it will sell a majority stake in its asset management business and also flog off $4billion of UK housing mortgages.
But rather than sell off the remainder of its $25billion to $30billion property portfolio, which has slumped in value, it said it will spin it off to its shareholders. That would strengthen the investment bank's balance sheet but leave its shareholders little better off.
In the past three months another 1500 Lehman staff lost their jobs with fears that many more could go. The bank employs 20,000 worldwide with the majority of its 4000 European employees based in London.
Dick Fuld, chairman and chief executive, said: "This is an extraordinary time for our industry and one of the toughest periods in the firm's history.
"The strategic initiatives we have announced today reflect our determination to fundamentally reposition Lehman Brothers by dramatically reducing balance-sheet risk, reinforcing our focus on our client-facing business and returning the firm to profitability."
The bank said it lost $3.9billion in its third quarter and had writedowns and losses from the credit crunch totalling $7.8billion.
It also said it will slash its dividend in a bid to preserve cash, cutting it from 68 cents a year to just five cents.
Lehman did not reveal to whom it will sell a majority stake in its asset management business.
