Wall Street is bracing itself for surging losses and another $3 billion (£1.6 billion) worth of writedowns at Lehman Brothers when the American investment bank publishes its third-quarter figures next month.

Analysts in New York believe that the bank will reveal much bigger losses than had been expected.

Concerns about the state of Lehman’s balance sheet came as reports emerged last night that Lehman had been in talks with Chinese and Korean state funds over the sale of a stake in the bank. It is thought that the talks were abandoned last week. Lehman failed to return calls about the report.

There has also been speculation that the bank is planning to sell a stake in its successful fund management business and is seeking to dispose of its real estate asset portfolio.

Sanford Bernstein, the Wall Street broker, said that it expected Lehman to publish losses per share of $1.40 for the third quarter of 2008, compared with its former forecast of earnings per share of 74 cents. It expected the bank to report a loss of $867 million for the period, rising to a total estimated loss for the year as a whole of $2.57 billion.

While the broker has also lowered its estimates for Goldman Sachs and Morgan Stanley, it highlighted Lehman’s predicament because of its exposure to mortgage-backed securities.

Sanford Bernstein said: “The firms we cover [Lehman in particular] continue to have significant exposures to the troubled asset classes. With the exception of leveraged loans, these exposures have proven difficult to remove or to hedge effectively as the market for these positions remains relatively illiquid. As long as these firms have these troubled assets, their earnings results will be affected by the fluctuations in the fixed income market.”

Lehman Brothers has not yet told shareholders when its third-quarter results will be anounced, but the middle of next month is a likely date.In volatile trading, the shares closed up 66 cents or 5.05 per cent at $13.73.

Last week, Deutsche Bank in New York also told clients that it was expecting a worse performance from Lehman Brothers and that it had pencilled-in a writedown of $3 billion for the third quarter. the German bank told its clients that at the end of the second quarter Lehman’s balance sheet was still exposed to $30 billion of commercial mortgage and real estate assets, leveraged loans of $18 billion and $3 billion of US sub-prime securities.

Another banking analyst, who declined to be named, said: “Everyone has exposure to problematic fixed income securities, but Lehman is the most exposed.”

Lehman declined to comment.

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