This is one of the worst financial declarations in the firm's history.
Lehman also announced a series of measures which will soon be imposed in a bid to restore its battered balance sheet - which has been hit by billions of dollars worth of credit losses and asset writedowns stemming from the credit crunch.
It is planning to spin off real estate assets, sell most of its investment management unit and cut its shareholders' dividend.
The poor financial results, and the recent declarations from Deutsche Bank and the Korea Development Bank that they would not be interested in buying stakes in the firm, will lead to increased speculation on Lehman's future.
It has been suggested that the investment bank could follow Bear Stearns in being bailed out by the Federal Reserve.
Lehman chairman Richard Fuld commented: "This is an extraordinary time for our industry, and one of the toughest periods in the firm's history."
Stock in the bank fell a further seven per cent in New York yesterday, adding to its record 45 per cent drop on Tuesday.