If Lehman Brothers is shooting us straight on not really needing that $3 billion-plus it’s planning on raising anyway from a share sale, then it means that the perception of monsters under the bed on Wall Street is now officially scarier than the reality. Banks raising money they don’t need to reassure clients they probably don’t want who happen to have overactive imaginations? Zounds, the world we live in.

Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, is seeking to raise at least $3 billion from a share sale after speculation it's short of capital drove the stock down 42 percent this year.

Lehman is offering 3 million convertible preferred shares in a sale that will be ``an endorsement of our balance sheet by investors,'' Chief Financial Officer Erin Callan said in an interview yesterday. Demand for the stock was three times greater than the amount on sale as of 6:30 p.m. in New York, according to a person familiar with the offering who declined to be identified before the sale ends today.

Chief Executive Officer Richard Fuld is trying to restore confidence after Lehman shares plunged as much as 48 percent on March 17 on speculation the New York-based firm would face the same cash shortage that broke Bear Stearns Cos. Merrill Lynch & Co., Citigroup Inc. and Morgan Stanley have also raised cash from investors after more than $200 billion of writedowns and losses tied to the collapse of mortgage markets at the world's biggest financial companies.

``It's a step in the right direction,'' said CreditSights Inc. analyst David Hendler. ``If you're a smaller player, you need more capital to do business in tough times. They now need to show that they can keep churning profits in this environment.''

The 3 million of convertible preferred shares have a coupon of 7 percent to 7.5 percent, according to the person familiar with the offering. Lehman shares dropped 5.1 percent today in Frankfurt trading at 10:11 a.m. local time.

Credit Default Swaps

The stock fell 2.8 percent to $36.66 in New York trading yesterday after the market's official close, while credit-default swaps declined, showing investors believe Lehman's ability to pay debts has improved. Lehman closed at $37.64 during the regular session yesterday. Credit-default swaps tied to Lehman's senior unsecured bonds narrowed 15 basis points after the announcement to 285 basis points, according to broker Phoenix Partners Group in New York. A decline signals improvement in investor confidence.

``We still maintain that we don't need capital, but we've realized that perception is the dominant issue in today's markets,'' Callan said.

The capital increase will provide ``financial flexibility,'' the firm said in the statement.

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