Lehman Brothers fell 45% in New York trading Tuesday after talks about a capital infusion from Korea Development Bank ended.
The Wall Street firm is continuing to negotiate with other potential investors, a person briefed on the matter said.
The Korean bank is one of several companies that has held discussions in recent weeks with Lehman, according to the person, who would not name the other potential bidders.
The New York securities firm is also continuing talks with private-equity firms interested in buying its asset management business, the person said.
Lehman is trying to raise capital and shed devalued real estate assets after $8.2 billion of writedowns and credit losses in the past year. Regulators told Korea Development that it would be "inappropriate" to pursue a Lehman acquisition.
Kenichi Watanabe, the president of Nomura Holdings Inc., Japan's biggest investment bank, told the Yomiuri newspaper last week that his company may join the list of bidders seeking a stake in Lehman.
Richard Bove, an analyst at Ladenburg Thalmann & Co., wrote in a report issued Tuesday that the lack of a deal "is depressing shareholders and infuriating insiders," and that Lehman "refuses to take what it believes are fire-sale prices for its key assets."
Neither Mark Lane, a Lehman spokesman in New York, nor Cho Hyun Eek, a Korea Development spokesman, would discuss the matter.
Standard & Poor's Corp. said it may lower its A1 long-term debt rating on Lehman, because the "precipitous decline" in its stock price creates uncertainty about its ability to raise additional capital.
However, Lehman's liquidity is "sound," S&P said, and it has the ability to borrow from the Federal Reserve Board.
Neither the Federal Reserve nor the Securities and Exchange Commission would discuss Lehman on Tuesday, but Jennifer Zuccarelli, a Treasury Department spokeswoman, said, "We are monitoring markets and in regular contact with market participants."
Lehman's second-quarter loss of $2.8 billion was its first as a publicly traded company.
Analysts surveyed by Bloomberg expect the company to report a $2.2 billion third-quarter loss next week.
They are predicting more writedowns because the firm still has about $65 billion of mortgage-related assets that are losing value with the collapse of the real estate market.
Most of the portfolio — about $40 billion — is tied to commercial real estate holdings, which Lehman may spin off into a new company, people familiar with the matter say.