Lehman Brothers considering radical split

NEW YORK, Sept. 5 (UPI) -- Prominent New York bank Lehman Brothers Holdings Inc. is considering splitting the firm into one healthy and one less-healthy company, sources said.

The move would probably require the investment firm to supply the less-healthy bank with $6 billion to $8 billion in equity, The New York Times reported Friday.

But, the "good bank, bad bank" move would allow Lehman to cordon off its troubles in commercial mortgage and real estate loans, which analysts predict have led to third-quarter losses of $5 billion. A split would also put the healthier entity in a better position to raise capital, the Times reported.

The move is not unprecedented. In 1988, Mellon Bank created Grant Street National Bank to handle its riskier real estate loans. Mellon shareholders were each awarded one share in the new bank, which was kept afloat by the stronger bank and $513 million in junk bonds.

Grant Street closed in 1995 and "everybody got paid back and there was some money left over for shareholders," Michael Bleier, Mellon Bank's former general counsel said.

"Mellon got the assets off its balance sheet and that improved the quality of the portfolio over all and the quality of the good bank," Bleier told the Times.