Two struggling units of Lehman Brothers Holdings Inc , the bankrupt U.S. investment bank, need hundreds of millions of dollars in capital to stave off failure that could cost Lehman billions, court documents show.

Aurora Bank FSB, formerly known as Lehman Brothers Bank, has struggled to meet capital requirements as regulators have limited its ability to offer new certificates of deposit.

The other banking unit, Woodlands Commercial Bank, faces similar restrictions from the regulator due to capital requirements, complicating efforts to sell the units.

In a filing with a U.S. bankruptcy court on Wednesday, Lehman said it was faced with a choice of either allowing the units to fail or injecting capital into their balance sheets to recover significant value for its creditors.

Failure to resolve the capital issues would result in estimated losses of between $1.2 billion and $3.6 billion, Lehman said.

Lehman said based on June 30, 2010 regulatory reports, the values of its equity interest in Aurora and Woodlands were at $677.6 million and $741.6 million, respectively, for a combined value of $1.42 billion.

Lehman said it will transfer $477 million in cash to Aurora.

It noted that since February 2009, Lehman has taken a series of steps to support the banks' capital levels, including making a $200 million cash contribution to Woodlands and an additional $72 million capital commitment that has not been drawn upon.

Lehman hired hundreds of its former bankers and other financial experts to help it unwind the complex contracts that were left in disarray when it filed for bankruptcy protection on September 15, 2008, the largest U.S. bankruptcy filing in history.

The case is In re: Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.

(Reporting by Sakthi Prasad in Bangalore Editing by Michael Shields )

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