I. Lehman Brothers Introduction:
Lehman Brothers Holdings is a global financial services company. It offers a wide range of products and services in investment banking, trading & research, equity and fixed income sales, private equity, private investment management, and asset management.
On 15th September 2008, when the investment bank Lehman Brother fell was the largestbankruptcy ever in the history. The bank had assets nearly $639 billion, the Lehman bankbusiness areas before the collapse was investments banking, equities, capital markets andinvestment management (Lehman Brothers, 2007, annual report; 2008). Due to competitionfrom other investment banks, Lehman Brothers decided to ...view middle of the document...
There are things that need to be considered when a major financial firm assumes to be too big to fail the government needs to nationalise the company in order to limit its effects onother firms and also to protect the system. This has been the debate over whether the USgovernment action to let the Lehman Brothers fail was justified or it was the best thing to doto avoid financial institutions creating a problem called “moral hazard”. Many financialinstitutions, investment banks in particular, issued large amounts of debt during 2004-2007,and invested the proceeds in mortgage-backed securities (MBS), essentially betting thathouse prices would continue to rise, and those households would continue to make their mortgage payments. Borrowing at a lower interest rate and investing the proceeds at ahigher interest rate is a form of financial leverage .During 2008, three of the largest U.S.investment banks either went bankrupt like Lehman Brothers or were sold at fire sale prices to other banks Bear Stearns and Merrill Lynch. These failures augmented the instability inthe global financial system. (Anonymous, 2008)
II. History Lehman Brothers:
In 1844, when Henry Lehman migrated from Germany to the U.S., he established a dry goods store in Montgomery, Alabama. The store was then named Lehman Brothers in 1850, upon the arrival of his brothers Emanuel and Mayer Lehman in America. They also accepted raw cotton from customers as payment for commodities and this eventually became their second business.
In 1870, they moved their headquarters in New York City and helped establish the New York Cotton Exchange. There, they also ventured into financial advising.
In 1887, they became a member of the New York Stock Exchange.
By early 1900s, the firm became the founding financier of retailers including R.H. Macy & Company, Sears, Roebuck & Company, and May Department Stores Company.
In 1975, the firm purchased Abraham & Co. and in 1977, merged with Kuhn, Loeb & Co. to establish Lehman Brothers, Kuhn Loeb Inc. Other acquisitions included Cowen & Co., The Crossroads Group, Lincoln Capital Management, and Neuberger Berman.
In 1984, Lehman Brothers was acquired by American Express and merged with its retail brokerage Shearson to form Shearson Lehman Brothers. American Express began to divest its financial services by business lines in 1992 and eventually, in 1993, the firm was spun off and once again became known solely as Lehman Brothers. In 2000, Lehman celebrated its 150th anniversary. The company's World Trade Center offices were destroyed by the 2001 terrorist attacks, and eventually it moved into its new global headquarters in midtown Manhattan in 2002. Lehman Brothers became entangled in the subprime mortgage lending crisis, which led to its demise in 2008. On September 15, Lehman Brothers Holdings Inc. filed a Chapter 11 bankruptcy petition in federal court. The company's assets were subsequently sold to several other firms,...