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    Lehman Brothers:: Too Big To Fail?

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    The Lehman Brothers was a global financial services firm founded in 1850 that filed for bankruptcy in 2008. As the fourth largest investment bank in the U.S., Lehman focused on serving corporations, governments, and high-net worth individuals. However, excessive risk taking, including high leverage of 44:1, large investments in commercial real estate and subprime mortgages, and questionable accounting practices ultimately led to Lehman's demise. Despite last-ditch efforts to arrange a sale of the company, Lehman was forced to declare bankruptcy on September 15, 2008 after talks with potential buyers like Barclays fell through, marking one of the largest bankruptcies in U.S. history.

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    Lehman Brothers:: Too Big To Fail?

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    abbiecdefg
    53 views13 pages
    The Lehman Brothers was a global financial services firm founded in 1850 that filed for bankruptcy in 2008. As the fourth largest investment bank in the U.S., Lehman focused on serving corporations, governments, and high-net worth individuals. However, excessive risk taking, including high leverage of 44:1, large investments in commercial real estate and subprime mortgages, and questionable accounting practices ultimately led to Lehman's demise. Despite last-ditch efforts to arrange a sale of the company, Lehman was forced to declare bankruptcy on September 15, 2008 after talks with potential buyers like Barclays fell through, marking one of the largest bankruptcies in U.S. history.

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    Lehman

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    The Lehman Brothers was a global financial services firm founded in 1850 that filed for bankruptcy in 2008. As the fourth largest investment bank in the U.S., Lehman focused on serving corporations, governments, and high-net worth individuals. However, excessive risk taking, including high leverage of 44:1, large investments in commercial real estate and subprime mortgages, and questionable accounting practices ultimately led to Lehman's demise. Despite last-ditch efforts to arrange a sale of the company, Lehman was forced to declare bankruptcy on September 15, 2008 after talks with potential buyers like Barclays fell through, marking one of the largest bankruptcies in U.S. history.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    53 views13 pages

    Lehman Brothers:: Too Big To Fail?

    Uploaded by

    abbiecdefg
    The Lehman Brothers was a global financial services firm founded in 1850 that filed for bankruptcy in 2008. As the fourth largest investment bank in the U.S., Lehman focused on serving corporations, governments, and high-net worth individuals. However, excessive risk taking, including high leverage of 44:1, large investments in commercial real estate and subprime mortgages, and questionable accounting practices ultimately led to Lehman's demise. Despite last-ditch efforts to arrange a sale of the company, Lehman was forced to declare bankruptcy on September 15, 2008 after talks with potential buyers like Barclays fell through, marking one of the largest bankruptcies in U.S. history.

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    of 13

    LEHMAN BROTHERS:

    TOO BIG TO FAIL?

    WHO ARE THE


    LEHMAN BROTHERS?

    COMPANY
    BACKGROUN
    D

    The Lehman Brothers


    founded in 1850.

    was

    From then on, the firm was a


    leader in global finances.
    They had headquarters in New
    York, London, and Tokyo as well
    as a network of offices all over
    the world.

    They were global


    services firm.

    financial

    COMPANY
    BACKGROUN
    D

    The Lehman Brothers, prior to


    2008 was the fourth largest
    investment bank in the United
    States.
    They focused on serving the
    financial needs of corporations,
    governments,
    municipalities,
    and high net-worth individuals.

    High net-worth individual: An individual


    whose assets exceed his/her liabilities in
    value by a large figure.

    OBJECTIVES

    Identify the
    Develop and
    factors that
    suggest
    caused the
    preventive
    collapse of
    measures
    the Lehman
    based on the
    Discuss howassumptions
    Brothers.
    taking too
    given.
    much risk
    affected the
    company

    CASE FACTS

    Richard
    Fuld
    CEO

    CASE FACTS
    Who were
    involved?
    Executives

    Auditors

    Unethical Management
    Practices
    CASE FACTS
    Factors
    Repo 105: An accounting
    trick in which a company
    classifies a short-term
    loan as a sale and
    subsequently uses the
    cash proceeds from said
    sale to reduce its
    liabilities.

    Managers of Lehman used unacceptable


    accounting practices along with blatant
    disregard
    for
    prudent
    corporate
    governance practices. Lehman employed
    window
    dressing
    and
    Repo
    105
    transactions to enhance the firms
    financial health.
    Payment of excessive bonuses prior to
    failure: within eight years, Fuld was said
    to have paid himself $300 million dollars
    in pay and bonuses
    and Lehmans
    executives were reported to have
    increased their bonuses significantly to
    $480 million.

    Liquidity Crisis

    CASE FACTS
    Factors

    They shifted towards making money from


    long-term investments. As such, they
    were unable to meet short term
    obligations despite the high asset base.

    Leveraging

    Lehmans high leverage ratio has


    increased from 20 in 2004 to 44:1. This
    means that for every $1 of cash and other
    available financial resources, Lehman
    would lend $44.

    Incompetent Executives
    10

    Lehman's
    Board
    of
    Directors
    was
    inexperienced at overseeing a diversified
    investment bank holding company. Only
    one outside member had any background

    Collateralized Debt
    Obligations
    CASE FACTS
    Factors

    11

    They invested heavily in commercial real


    estate which they thought was immune
    from the growing problems in the
    residential
    housing
    sector.
    They
    maintained an optimistic view of the
    portfolio's worth despite growing evidence
    that this sector was also in trouble.
    Subprime Mortgage Crisis: The expansion
    of
    household
    debt
    was
    financed
    withmortgage-backed
    securities(MBS)
    andcollateralized debt obligations(CDO).
    Due to the higher interest rates on the
    mortgages; however, the lower credit
    quality
    ultimately
    caused
    massive
    defaults.

    CASE FACTS
    Factors

    12

    Unsuccessful
    Attempts

    Takeover

    In early August Lehman thought it had a


    deal to sell a 25% stake in the company
    to the Korean Development Bank at $22 a
    share. The stock continued to slide to
    under $10 a share and the expected deal
    cratered.
    Another possible deal involved Barclay's
    Bank. However, Barclays would need a
    waiver from the Financial Services
    Authority (FSA) in the U.K., which the FSA
    was not likely to grant.

    CASE FACTS
    The
    Bankruptcy

    13

    On September 13, 2008, Timothy F.


    Geithner,
    the president of the
    Federal reserve bank of New York
    called a meeting on the future of
    Lehman
    On September 14, 2008, The New
    York Times reported that Barclays
    had ended its bid to purchase all or
    part of Lehman and a deal to rescue
    the bank from liquidation collapsed.
    Finally on September 15,2008
    Lehman
    Brothers
    filed
    for
    bankruptcy protection after failing
    to find a buyer.

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