ASSIGNMENT-1 COLLAPSED BANK

LEHMAN BROTHERS

Lehman Brothers Holdings Inc. was a global financial services firm. Before filing for
bankruptcy in 2018, Lehman was the fourth-largest investment bank in the United States
(behind Goldman sachs, Morgan Stanley, and Merrill Lynch), doing business in
investment banking, equity and fixed-income sales and trading (especially U.S. Treasury
securities), research, investment management, private equity, and private banking.
Lehman was operational for 158 years from its founding in 1850 until 2008.

 THE HISTORY OF LEHMAN BROTHERS :-

 1844- Henry Lehman opens his small shop in Montgomery, Alabama.

 1850-Henry is joined by brothers Emanuel and Mayer and they name the
business Lehman Brothers.
 1929- Lehman Corporation is created, a closed-end investment company.
 1993- American Express divests Shearson in 1993, and the independent
firm once again becomes known as Lehman Brothers.
 1994- Lehman becomes independent through a public stock offering and
Lehman Brothers Holding Inc. stock begins trading on the New York
exchanges.
 2002- Lehman establishes its wealth and asset management division and
acquires Lincoln Capital Management’s fixed income business.
 2007- Lehman posts record high net revenues, net income and earnings per
common share for a fourth consecutive year and higher volume of trade.
 PRIME CULPRIT:-
In 2003 and 2004, Lehman acquired five mortgage lenders,
including subprime lender BNC Mortgage and Aurora Loan Services, which
specialized in Alt-A loans (made to borrowers without full documentation)

 REASONS BEHIND THE COLLAPSE:-

 Asset-backed securities(ABS) and Collateral Debt Obligations

(CDOs)
 Lehman underwrote mortgage-backed securities more than any
other firm, accumulating an $85-Billion portfolio, or four time
its shareholders equity.
 Leverage levels up to 20-30 percent of their equity capital in
order to invest on securities product on debt capital.
 Excessive risk-taking.
 Passing the investment risk through unregulated ‘credit default
swaps’(CDS) where they didn’t have any adequate capital
behind them.(AIG case)
 Weakness of the FED to recognize the economic catastrophe
that LEHMAN BROTHERS BANKRUPTCY would cause.

 THE BEGINNING & THE END:-

As the credit crisis erupted in August 2007 with the

failure of two bear steams hedge funds, Lehman’s stock fell sharply. During that
month, the company eliminated 2,500 mortgage-related jobs and shut down its
BNC unit. In addition, it also closed office of Alt-A lender Aurora in three states.

However, these measures were perceived as being too

little, too late. Over the summer, Lehman’s management made unsuccessful
overtones to a number of potential partners.

With only $1 billion left in cash by the end of that week,

Lehman was quickly running out of time. Last-ditch efforts over the weekend of
September 13 between Lehman, Barclays PLC and Bank of America, aimed at
facilitating a takeover of Lehman, were unsuccessful. On Monday September 15,
Lehman declared bankruptcy, resulting in the stock plunging 93% from its
previous close on September 12.
 CONCLUSION:-
Lehman's collapse roiled global financial markets for weeks,
given the size of the company and its status as a major player in the U.S. and
internationally. Lehman’s bankruptcy led to more than $46 billion of its market
value being wiped out. Its collapse also served as the catalyst for the purchase of
Merrill Lynch by Bank of America in an emergency deal that was also announced
on September 15.