Lehman falls on talk of possible sale to Barclays

The U.K. bank was said to be interested in buying Lehman at a price lower than it is currently worth, traders said. Lehman's share fell $2.44, or 11 percent, to $19.81 Friday after hitting an annual low of $19.61 earlier in the session.

A spokesman for Lehman declined to comment about the latest rumor about the bank. A spokesman for Barclays could not immediately be reached for comment.

Lehman Brothers has been under pressure since it announced earlier this month a nearly $3 billion loss that forced it to raise $6 billion in new capital. Chief Executive Richard Fuld at the time said Lehman did not need to complete a deal to stay in business.

The near-collapse of fellow investment bank Bear Stearns in March forced the Federal Reserve to arrange its sale to JPMorgan Chase & Co. at a deep discount. There has been concerns that other banks might be in jeopardy amid heavy losses from mortgage-backed securities and other risky investments since the credit crisis began last summer.

Short selling was considered to be another reason for volatility in Lehman's stock, said Nick Perry, equities options analyst at Schaffer's Investment Research.

He points out that there are 420,000 options contracts betting that Lehman's stock will move lower during the next three months. That compares with about 180,000 currently out on Goldman Sachs Group Inc., the biggest U.S. investment bank that has largely been shielded from write-offs connected with the credit crisis.

"There's a lot of put activity going on," he said. "It indicates there's a lot of nervousness out there."