Lehman Brothers Holdings Inc. (LEH) may look to raise as much as $4 billion in fresh capital as losses anew at the Wall Street firm appear likely to push it into the red for the first time since going public in 1994, a published report said on Tuesday morning. Citing sources close to the company, the Wall Street Journal’s Susanne Craig reported that Lehman’s quarterly loss may be larger than the $300 million analysts have currently been expecting; Lehman is Wall Street’s smallest independent investment bank, now that Bear Stearns & Cos. has been acquired by JPMorgan Chase & Co. (JPM). “If Lehman proceeds with plans to raise capital, it is expected to do so by issuing common stock, the first such issue since it went public in 1994,” Craig reports. “In its earlier capital raising over the past year, it issued preferred shares, a stock-bond hybrid that doesn’t dilute the ownership of common shareholders.” Speculation that Lehman might be the next Bear Stearns first bubbled up in mid-March, but abated after the firm raised $4 billion in capital via the aforementioned preferred-share offering. The company absorbed $1.8 billion in mortgage-related write-downs during the first quarter, leading earnings to fall 57 percent. Of course, it hasn’t helped matters to see the rating agencies and analysts pile on in recent days: as the WSJ notes, Standard & Poor’s Rating Services downgraded Lehman and other key i-banks last week, noting that it expected Lehman to post a “material deterioration” in earnings. Other key analysts, including Oppenheimer & Co.’s well-known Meredith Whitney, followed suit shortly thereafter. Hedges? What hedges? It’s what is behind the downgrades, however, that may be most telling. The WSJ reported that Lehman’s second quarter will likely be defined by its ineffective hedges against further losses:

The firm bet that indexes tracking markets such as real-estate securities and leveraged loans would fall. If that happened, it would book profits that would make up some of its losses from holding these securities and loans. However, in an unexpected twist, some of the indexes rose, even as the assets they were supposed to hedge against continued to lose value or stayed relatively flat.

It’s a move that Portfolio.com’s Felix Salmon notes sounds ominously familiar to what took place at Bear Stearns. “The finance wizards at Lehman seem to be incapable of hedging their positions,” Salmon wrote. “The fact is that during a credit crunch, when you’re stuck with illiquid assets, you can’t hedge them. You can sell them, at a loss.” The concern here is that Lehman had inexplicably tried to discretely hedge its real estate and mortgage-related positions, a strategy that Salmon notes “has systematically slaughtered anybody who’s tried to do that for the past year.” Disclosure: The author held no positions in LEH or other firms mentioned herein when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.