The Weekend that changed the wall street

• Giant in the global financial services world

• Provide Range of services i.e. investment banking , equity &
fixed income sale, trading & research, asset management,
Private investment management and private equity.
• Generates client flow revenue from advice and structuring
transactions to institute , corporate, govt. and high net worth
client.
• Serve as market maker or intermediary in global market place
which include security and financial instrument products .
• Provide investment management and advisory services and
also act as underwriter to client.
 Downfall and its Cause
Leverage
- It brought $15 billion leverage buyout (Archstone)
- Liquidity
- Losses (real estates, Sub-prime mortgage prices, Commercial paper)
- Investor confidence – (As lehman stock was loosing its relative value and
the investor confidence losses continuously)
- Lack of transparency - (credit rating agencies, Mortgage based securities )
- No help from FED
- Lehaman financial policy (high level of leverage- asset to equity ratio,
strong rely on short term debt financing )
- High leverage ratio 30:1
- Accounting manipulation through other firms
 Downfall and its effect
• September, 15th ,2008 seismic shock to financial market
• Subprime mortgage crisis
• Massive credit crisis and fast plummeting real estate
prices
• CDS
• CDO
• Real estate portfolio
• Short selling
•
 Impact on the Financial Market
• Ripple effect in the commercial paper market -
investment in government securities
• Fall of share prices of other investment banks &
corporate house
• Fall in S&P by 300 point and in DOW by 300 points
• LIBOR rate has increased
• Largest failure of investment bank
The Weekend That Changed
Wall Street

P
r
e
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 Fact File
• In 2003 and 2004 Lehman acquired five mortgage lenders, including subprime lender
BNC Mortgage and Aurora Loan Services, which specialized in Alt-A loans.

• In 2007, Lehman underwrote more mortgage-backed securities than any other firm,
accumulating an $85-billion portfolio, or four times its shareholders' equity which was $
21 billion.

•Lehman's high degree of leverage - the ratio of total assets to shareholders equity was
31.

• On September 10, The firm reported a loss of $3.9 billion, including a write-down of
$5.6 billion, and also announced a sweeping strategic restructuring of its businesses.

•September 15, Lehman declared bankruptcy leading more than $46 billion of its market
value wiped out.

•It had a bank debt of $613 billion, $155 billion in bond debt, and assets worth $639
billion.

•Lehman's collapse greatly intensified the 2008 crisis and contributed to the erosion of
close to $10 trillion in market capitalization from global equity markets in October 2008.
 The Whole Cycle

House
Bubble
Conditions on Takeovers
 Income Side Fall

3070

663489
0 -1082 -2774
-3335 -3927
29-02-2008
- 31-05-2008
31-08-2008
Gross Profit
Operating Income
-
Net Income
-
-
- -4087
-

-5824
 Cash Flow Side Fall
2
17704
1
11237
1

-321 Operating Activites

0 -17899-578
3 mo... Investing Activities
- 6 mo... Financing Activities

-1
-10638
-1

-2
Lehman Takeovers

North America

Asia Division
Collapse and Commercial
Paper Market
Lehman Brothers and
Commercial Paper Market Freeze

- U.S. policy makers meet

-Real Estate plummeting in value
-Bailout ruled out
-Barclays and Bank of America takeover
abandon.
Lehman Brothers and
Commercial Paper Market Freeze

-Lehman files bankruptcy .

-Client start to pull the money market fund.
-Reserve Primary , holder of $785 million in
Lehman commercial paper.
-Yield rising overnight.
-Client withdraw 60% from within a day.
Lehman Brothers and
Commercial Paper Market Freeze

-U.S. Treasury announces a $50 billion

temporary guarantee for money market funds.
-Yields came down for first time .
- Federal Reserve help to raise fund for
satisfying withdrawal.
Lehman Brothers and
Commercial Paper Market Freeze

-House Representatives rejects the $700

billion Troubled Asser Relief Program
(TARP).
- Yield surge most in more than a decade.
Lehman Brothers and
Commercial Paper Market Freeze

-House Representatives approves the

$700 billion Troubled Asser Relief Program
(TARP).
Lehman Brothers and
Commercial Paper Market Freeze

-Companies not able to find buyer.

- Federal to create special fund to invest
itself.
Lehman Brothers and
Commercial Paper Market Freeze

-Buying begins directly from companies ,

example GE.
-Market grows for the first time.
Lehman Brothers and
Commercial Paper Market Freeze

-Recession results companies in need for

cash.
-Market shrinks for 16th straight week.
Collapse and Stock Market
 Dow Jones Industrial Average
16000

14000

12000

10000

8000

6000

4000

2000

0
 Lehman Brothers (Stock Price)
70

60

50

40

30

20

10

0
 HANG SENG INDEX
60000

50000

40000

30000

20000

10000

0
 NIFTY Index
7000

6000

5000

4000

3000

2000

1000

0
Top 10 Bankruptcy
 Company Date Assets worth
($billion)
Lehman Brothers Holdings 9/15/08 691
Washington Mutual 9/26/08 327.9
WorldCom 7/21/02 103.9
General Motors 6/1/09 91
Enron 12/02/01 65.5
Conseco 12/17/02 61
Chrysler 4/30/09 39
Thornburg Mortgage 5/1/09 36.5
Pacific Gas and Electric Co. 4/6/01 36
Texaco 4/12/87 34.9
THANK YOU !