* To sell fund management, spin off commercial real estate
* No firm deals announced
* Preliminary Q3 loss $3.93 billion, or $5.92 per share
* Shares drop 12 percent, investors unconvinced by plan (Recasts first paragraph; adds analyst comment; adds details and background throughout)
By Dan Wilchins and Jonathan Stempel
NEW YORK, Sept 10 (Reuters) - Lehman Brothers, desperate for capital and fighting for its survival, unveiled a plan to shed weak assets and sell a stake in its funds business, but investors were skeptical and its shares hit new lows.
The Wall Street company, founded in 1850 by three German immigrants who traded cotton, posted a record quarterly loss of $3.9 billion on Wednesday and said it will slash its dividend by more than 90 percent.
"These are last-ditch measures," said Bill Fitzpatrick, analyst at Optique Capital Management, which does not own Lehman shares. "They've tried to raise capital from sovereign wealth funds and others, and that didn't work. Now they're selling businesses, which destroys future earnings power."
Chief Executive Dick Fuld said it would consider offers to buy the entire company. The veteran banker had stressed his determination to keep Lehman independent.
Shares in Lehman were trading down 94 cents, or 12 percent, at $6.85 late Wednesday, a day after falling 45 percent.
Lehman, the latest victim of the global credit crunch, "is experiencing a crisis of confidence," ratings agency Moody's Investors Service declared in a statement.
The company has struggled for months with billions of dollars in write-downs, rumors of defecting clients and talk of a takeover at a fire sale price. Short sellers have argued that Lehman is badly undercapitalized and have pummeled the stock.
The U.S. government's decision to rescue mortgage finance companies Fannie Mae FNM.N and Freddie Mac FRE.N last weekend, and its earlier brokering of a sale of Bear Stearns have led to a growing debate over whether Washington will do something similar at Lehman.
At issue for Lehman were more than $60 billion in mortgage-related assets on its balance sheet as of the second quarter -- more than double the company's net worth as measured by shareholders' equity.
Lehman said it plans to sell $4 billion in British mortgages to BlackRock Inc (BLK.N), and has sold other assets too. The bank also plans to spin off $25 billion to $30 billion in commercial real estate assets in the first quarter into a separate company known as Real Estate Investments Global.
Lehman will pump $5 billion to $7.5 billion into REI Global, and lend funds to it as well.
Lehman will sell a roughly 55 percent stake in some of its investment management businesses, including Lehman's crown jewel, Neuberger Berman, and its private equity arm. Lehman hopes to announce that sale in October.
With that transaction, Lehman will have most of the money it will need to pump into REI Global.
Lehman said it was in "advanced discussions with a number of potential partners" on a sale. Final bids are due Friday.
According to analysts, the asset management business could be worth $8 billion in a sale -- more than Lehman's entire market value of less than $5 billion.
Lehman had explored options including selling a stake to state-run Korea Development Bank. According to reports, the talks fizzled, then reignited, then fizzled again this week.
The planned deals announced Wednesday may also be a prelude to Lehman selling itself. Fuld had said the bank "can go it alone and be very strong," but added that he would take reasonable offers to the board of directors.
On Wednesday, his stance appeared to change, saying only that he would show the board reasonable offers.
"That's a big step for Dick Fuld," said Walter Todd, portfolio manager at Greenwood Capital Associates and a former banker at Lehman. "He's been adamant about staying independent since Lehman was spun out from American Express" in 1994.
Moody's said if Lehman finds a "stronger financial partner," its credit rating could be upgraded, but a failure to do a deal would likely result in a downgrade. Ratings cuts would make it tough for Lehman to stay in some businesses.
Lehman's management put a brave face on their predicament, saying on a conference call they do not believe they need to raise further capital after the planned asset sales.
"We're on the right track to put these last two quarters behind us," Fuld said.
Still, its market value has dropped more than $40 billion since February 2007.
Shares of other financial sector companies also fell as investors worried about credit losses and capital needs. Washington Mutual Inc (WM.N) stock dropped more than 30 percent to its lowest levels since 1991.
Lehman posted a loss of $5.92 per share for the third quarter ended Aug. 31, while net revenue was negative $2.9 billion, reflecting the write-downs.
Analysts' average target was a loss of $3.43 per share on revenue of $88 million, according to Reuters Estimates.
The cost of protecting Lehman's debt for five years climbed 1 percentage point to 5.75 percentage points on Wednesday, or $575,000 a year to protect $10 million of debt, according to Phoenix Partners Group.
Lehman will cut the dividend to 5 cents per share from 68 cents, saving $450 million a year.
It said it has eliminated 1,500 jobs since May 31. Employees are worried about more cuts.
In an interview outside Lehman's headquarters in New York, a capital markets employee who asked not to be named said morale inside Lehman is low, with many colleagues looking for new jobs. "I'll wait today or tomorrow and make a decision based on the stock price," he said.
Hany Besha, who operates a coffee truck outside the Lehman headquarters, said: "One of my customers told me, 'I don't know if I will see you tomorrow or not.'"
Lehman was created in Montgomery, Alabama by three brothers who emigrated from Germany. The Lehmans accepted cotton from local farmers as currency, trading it for cash or merchandise.
For more on Lehman, double click [ID:nN09324233] (Additional reporting by Karen Brettell, Joseph A. Giannone, Herbert Lash, Walden Siew and Aarthi Sivaraman in New York; Sweta Singh in Bangalore; Steve Slater and Natsuko Waki in London; Blaise Robinson in Paris; and Marie-France Han and Kim Yeon-hee in Seoul; Editing by Lincoln Feast, Erica Billingham, John Wallace and Jeffrey Benkoe)