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NEW YORK, Sept 15 (Reuters) - Lehman Brothers Holdings Inc filed for bankruptcy protection, after trying to finance too many risky assets with too little capital, making it the largest and highest-profile casualty of the global credit crisis.

The Chapter 11 filing on Monday did not include its broker-dealer operations and other units, such as asset management firm Neuberger Berman. Those businesses will continue to operate, although Lehman is expected to liquidate them. It said it is in advanced talks on selling its investment management division.

Lehman is one of the biggest investment banks to collapse since 1990, when Drexel Burnham Lambert filed for bankruptcy protection amid a collapse in the junk bond market.

Time is of the essence as Lehman sells assets. Customers are often reluctant to trade with dealers whose parent companies are in bankruptcy, so the longer Lehman waits to sell its broker-dealer unit, for example, the less it will be worth.

"Much of (Lehman's) asset value at the end of the day is tied up in its credibility, and that takes a significant hit early in a bankruptcy case," said Jack Williams, Resident Scholar at the American Bankruptcy Institute and a professor at Georgia State College of Law.

The Chapter 11 filing represents the end of a 158-year-old company that survived world wars, the Asian financial crisis and the collapse of Long-Term Capital Management but could not survive the global credit crunch.

Financial institutions globally have recorded more than $500 billion of writedowns and credit losses as the U.S. subprime mortgage crisis has spread to other markets.

Bankruptcy also represents a bad end to Chief Executive Dick Fuld's four-decade career at Lehman. Fuld, who piloted the investment bank through prior crises with aplomb, was widely seen as too slow to recognize Lehman's need to raise capital and shed bad assets.

Lehman had $600 billion of assets financed with just $30 billion of equity as of the end of August. Having so little capital meant that a 5 percent decline in assets would wipe out the value of the company, which investors saw as a real risk thanks to the company's billions of dollars of mortgage securities.

"Lehman decided to play chicken with the market, and they lost," said James Ellman, portfolio manager at hedge fund Seacliff Capital, late on Sunday.

Lehman listed its biggest unsecured creditors as Citigroup Inc, Bank of New York Mellon Corp, Aozora Bank,and Mizuho Financial Group Inc. Citi and Bank of New York Mellon are trustees for Lehman bonds.

The investment bank, once the fourth-largest in the United States, had hoped to raise capital by selling off a stake in its investment unit, and use that capital as well as other funds to spin off some of its toxic assets to shareholders.

But that plan did not satisfy investors, who pushed Lehman's share price to just a few dollars, or rating agencies, who pressed the company to find a stronger partner.

The filing comes after a weekend of heated negotiations among regulators and Wall Street firms regarding Lehman's fate. The U.S. government refused to backstop Lehman's worst assets in the way it backstopped Bear Stearns Cos Inc's sale to JPMorgan Chase. Government officials told banks to support Lehman or else be prepared for more investment banks to lose investor confidence and fail.

But prospective bidders refused to buy Lehman without government support, people briefed on the matter said. In the end, Lehman was allowed to fail, and Bank of America Corp agreed to buy what was seen as the next weakest U.S. investment bank, Merrill Lynch & Co Inc.

PIZZA AND BEER

For many of Lehman's 26,000 employees the outlook is likely to be gloomy, with job losses expected to be substantial even if significant parts of the business can be sold.

At Lehman's headquarters in midtown Manhattan on Sunday afternoon, men dressed in suits came and went, while some employees entered the building with what appeared to be empty duffel bags and then left with them full.

Others emerged with accordion files, binders stuffed with papers and full valises.

By Sunday night hundreds of Lehman employees were still in the office to clear their desks and pack personal belongings, according to an employee.

Many even opted to say their farewells with one last office soiree. "We are having pizza and beer," the employee said.

Markets are likely to be wary of what is ahead. Bankruptcy is a long, complex process where almost everything is done out in the open, as opposed to the veil of secrecy Wall Street uses to conduct deals.

"This isn't a manufacturer or retailer ... so we don't have a very rich track record about how the issues will be addressed, and the classic signposts just aren't there," Williams said.

"Once the company goes into bankruptcy this is going to be an opportunity to look under the hood, and we might not like what we see."

(Additional reporting by Emily Chasan and Robert MacMillan; Editing by Quentin Bryar) Keywords: LEHMAN/BANKRUPTCY

tf.TFN-Europe_newsdesk@thomsonreuters.com

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