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Lehman Brothers Timeline
Transcript of Lehman Brothers Timeline
Lehman Brother's Timeline
Lehman's Humble Roots
Small general store in Alabama founded by Henry Lehman in 1844.
Unshaken by the Great Depression
Brothers capitalized on cotton trade during 1850s to grow and shifted to New York city.
Became listed on the NYSE in 1887
"we've done it before, we will do it again"
Richard "Dick" S. Fuld Jr.
Lehman Brothers survived the crisis by adapting and investing in venture capital
Pete Peterson became CEO in 1973 and led Lehman Brothers to become 4th largest investment bank.
Joined Lehman brothers in 1969
Worked his way up to become CE0 1994
Stayed with the firm until bankruptcy in 2008
Helped the firm pass through the asian financial crisis in 1997
14 consecutive years of profits up until 2007
Aftermath of the Dot-com crisis brought perfect conditions for growth
Investment banks, including Lehman Brothers invested heavily into the housing market using leverage.
The financial system brought the investors and home owners together by buying and selling mortgages as a long term investment
Cracks begin to appear
Evidence of the housing bubble bursting started appearing early 2007
Lehman Brothers stock peaked at $86.18 in Feb 2007
The firm had considered the defaults well contained and will not have a major impact on its earnings (CFO)
August 2007 Lehman's stock fell - Subprime businesses shutdown
Yet, $85 Billion worth of underwritten securities held!
Survival Instincts kick in
After the near collapse of Bear Stearns, Lehman's shares fell by 44% due to major loss of confidence.
Issue of preferred stock to raise $4 Billion
$6 Billion raised from investors
Increased liquidity pool by $45 Billion
Decreased gross assets by $147 Billion
Reduce exposure by 20%
Reduce leverage to 1:25
The stock fell 77% within the first week of September 2008
Only $1 Billion left as cash by September 11, and required a takeover as a last resort.
Bank of America and Barclays were last hope
Lehman Brothers declared bankruptcy on 13th September at which point the stocks were valued at 3 cents.
The liquidation process is still in process today!
Additional causes of the failure
Agency's 04 rule lets bank pile up new debt
Lehman's Accounting fraud with Ernst and young, where over $50 Billion of debt was covered up. (REPO 105)
"We've said these are the big guys, but that means if anything goes wrong it's going to be an awfully big mess" - SEC Commissioner
Securities Industry and Financial Markets Association's survey
What event had the most significant impact?
Lehman had a massive global footprint
New tightened prudential regulations
Thorough bank "stress tests" to spot week areas
Large bonuses are now paid in shares
"The biggest change is that risk management is taken much more seriously than it was in the past," - Alistair Milne of the Cass Business School
Basel 3 arrangements - Banks will need to hold on to more capital
Lehman Brothers was the biggest bankruptcy in US History
Combination of high leverage, and exposure to housing market
Yet, Mr Fuld had pocketed over
in salary and bonuses !
Impact of collapse was a major catalyst in the recession
Millions of people lost their jobs and 75 other bankruptcy
Housing boom during 2003-2004