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AKASH JAISWAL(2397)
AAKASH BAFNA DARPAN PALODA MANAN SHAH
Introduction
Lehman Brother was founded in 1844, by Henry Lehman emigrated from Germany to the US.
Continued
The Korean Development Bank which had earlier evinced an interest in purchasing a 25% equity stake in Lehman announced that it had withdrawn this offer. Lehmans shares plunged by 45% after KDBs announcement.
Lehman could not manage to restore confidence in the markets and had to file for bankruptcy.
Day before the Lehman filed for bankruptcy, J P Morgan Chase had Frozen Lehmans assets. Analysts claimed that Bankruptcy could have been avoided if J P Morgan had not frozen Lehmans assets.
The Losses
In August
2007, the firm closed its subprime lender, BNC Mortgage, eliminating 1,200 positions in 23 locations, and took an after-tax charge of $25 million and a $27 million reduction in goodwill. the second quarter of 2008, Lehman reported losses of $2.8 billion and was forced to sell off $6 billion in assets. the first half of 2008 alone, Lehman stock lost 73% of its value as the credit market continued to tighten. 2008, Lehman reported that it intended to release 6% of its work force, 1,500
In
In
In August
people.
On
On
September 17, 2008, the New York Stock Exchange delisted Lehman Brothers.
Subprime crisis
Decline in interest rates (Fed Fund rates had gone to as low as 1% and prime rate went down to 4.25%) Lending to subprime borrowers Real estate bubble Mortgage backed securities (MBS) Credit Default Swaps (CDS) Borrowers defaults on their mortgage payment.
3070
-1000
-2000 -3000 -4000
31-05-2008
Gross Profit
31-08-2008
-1082
Operating Income
-5000
-6000
17704 11237
-10638
Continued
Several money funds and institutional cash funds, The Bank of New York Mellon and the
Lehman Brothers International held close to 40 billion dollars of clients assets when it filed
The Federal Agricultural Mortgage Corporation or Farmer Mac said it would have to write
In Japan, banks and insurers announced a combined 249 billion yen ($2.4 billion) in potential
Conclusion
Lehman's bankruptcy led to more than $46 billion of its market value being wiped out
Lehman Brothers failed for many reasons, corporate governance failures were the most important, especially risk management.
Its collapse also served as the catalyst for the purchase of Merrill Lynch by Bank
of America
Lehman Takeovers
North America
Asia Division