Lehman Brothers Holdings Inc (NYSE:LEH) shares continue to hemorrhage in value as losses mount from exposure to "very large, illiquid assets". The fourth largest securities firm is expected to announce an equity sale to raise up to $4 Billion to replenish its supply of capital. And there is increasing speculation that the company could go the way of Bear Stearns.

``We're in a market environment where sometimes perception becomes reality,'' Diane Hinton, an analyst at Standard & Poor's, said in a call with investors and journalists. ``We think there is increasing pressure on Lehman to address these concerns'' about liquidity and capital, Hinton said.

Standard & Poor's said Monday cut Lehman's credit ratings by a notch, and said it expects a "relatively meaningful deterioration" in Lehman's second quarter results, adding Lehman's ratings could be lowered again if it had big losses because of poor business conditions or sizable write downs.

Ratings downgrades make it harder for banks to sell credit-default swaps tied to bonds or loans. Lehman had to put up another $200 million in collateral for its derivatives positions because of Monday's downgrade, and would have to post $5.2 billion more in collateral should it get lowered another notch, according to its first quarter financial statement.

Shares of Lehman lost 8% on Monday, and are down another 5% in morning trading Tuesday.

"It doesn't have the Bear Stearns feel to it, but people are getting nervous, options activity is picking up," says Joseph Saluzzi, co-head of equity trading at Themis Trading. "They're certainly the one in the hot seat right now, unlike Goldman (Sachs) or Morgan (Stanley)."

Is it conceivable that the venerable institution, that's been in business since 1850, may fall in Bear Stearns-like meltdown?

Its exactly that potential that has investors heading to the exits in droves.

"The market keeps pounding the stock," says Mike O'Rourke, chief market strategist at BTIG.

On March 17th, the Monday after news that Bear Stearns would be bailed-out by the Fed and JPMorgan, shares of Lehman sank as low as $20.25 on rumors they could be next. Reassurance from the company that liquidity was strong, in addition to the opening of the window by the Fed to investment banks, helped the stock recover to close that dreadful day at $31.75. The shares continued to climb after that, as Q1 earnings from Lehman showed that things weren't as bad as some had feared. That was until recently however. After recovering to about $50 per share, the stock is now back down to $32.

The major negative catalysts driving Lehman shares lower recently have have included: short-seller David Einhorn headlines about the company's accounting for losses, major layoffs, analysts taking down estimates, realization that revenues/profits will be hard to come by for some time as a lot of business has dried up, no more fed rate cuts, today's reports of another capital raise.

Einhorn says the assets include an Indian-based energy company marked up between $400 million and $600 million in the first quarter, according to an article in The Wall Street Journal. He's also called into question the degree to which Lehman has marked down its collateralized debt obligation holdings, since only $200 million was lopped off from $6.5 billion of securities in the first quarter, even though around a quarter of these assets hold what is considered "junk" status.

Lehman shooed Einhorn's criticism away as nothing more than rhetoric designed to scream fire in a crowded theater. "Mr. Einhorn cherry-picks certain specific items from our quarterly filing and takes them out of context . which suits him because of his short position in our stock," stated a Lehman spokeswoman.

Speculation that Lehman might be the next Bear Stearns first bubbled up in mid-March, but easeed after the firm raised $4 billion in capital via a preferred-share offering. The company absorbed $1.8 billion in mortgage-related write-downs during the first quarter, leading earnings to fall 57 percent.