MUMBAI (Thomson Financial) - Moody's Investors Service lowered the rating outlook on Lehman Brothers Holdings Inc. to negative from stable, after the company reported a $2.8 billion second-quarter net loss, hit by asset valuation marks and a sharp decline in hedge effectiveness, which had previously buffered Lehman's bottomline from material losses.

The agency also affirmed the 'A1' rating on the senior long-term debt of the company.

Lehman will raise about $6 billion in fresh capital, which Moody's views as a positive step.

The rating agency said that despite tough market conditions, Lehman's core customer-flow franchises continue to produce solid revenues, with profits generated from outside of fixed income helping to counter current weakness in residential and commercial real estate and leveraged lending.

It noted that Lehman's liquidity management and stand-alone liquidity position remain robust, but said the recent collapse of Bear Stearns highlights the vulnerability of the secured funding model of broker-dealers on overall market liquidity.

When market liquidity dries up, collateral becomes harder to value, margin disputes arise and liquidity pressure increases on broker-dealers. The Federal Reserve has played a critical role in helping to stabilize funding markets in the wake of the Bear Stearns collapse.

"In the absence of a more permanent solution, Moody's believes the newly revealed vulnerability of the secured funding model may warrant negative rating action on Lehman and on other independent investment banks," the agency cautioned.

TFN.newsdesk@thomson.com jro

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