The Financial Times reports that Lehman Brothers (NYSE: LEH) held "secret talks" to sell a stake of up to 50% in itself to investors in China and/or South Korea during the first week of August, but failed to reach any deal. The company held talks with Korea Development Bank and China's Citic Securities at its Times Square headquarters.

Of course all this happened while the company told everyone that everything was fine and blasted short sellers for raising questions about its balance sheet. And get this: back in June the company was buying back stock at a far higher valuation than it will now be able to raise capital at: that's just bad management.

The company's effort to sell a 50% stake just a few weeks ago does not bode well for the company's upcoming earnings report and neither does the fact that it was unable to reach any deal with the foreign investors.

"If people think they (Lehman) are heading toward bankruptcy, nobody will want to do business with them or make them new loans. That's Fuld's biggest problem," NYU economist Richard Sylla told The Associated Press.

But Lehman's credibility is so shot from the uncertainty and lack of forthrightness that it will likely have a hard time convincing anyone to trust it.