“Repo 105” of

Lehman Brothers

ECM- 507
Aizada Kadyr
 Introduction
Lehman Brothers was founded
by German immigrant Henry
Lehman as a small general
store in 1844, in Montgomery,
Alabama.

In 1850, Henry Lehman and his

brothers Emanuel and Mayer
founded Lehman Brothers.
• Lehman Brothers Holding Inc. was a
global financial services firm, which
participated in business in investment
banking, equity and fixed-income
sales, research and trading,
investment management, private
equity and private banking. It was a
primary dealer in the US Treasury
securities market. Its primary
subsidiaries included Lehman Brothers
Inc., Neuberger Berman Inc., Aurora
Loan Services, SIB Mortgage
Corporation, Lehman Brothers Bank,
FSB, Eagle Energy Partners and the
Crossroads Group. The firm’s
worldwide headquarters were in New
York, with regional headquarters in
London and Tokyo, as well as offices
located throughout the world.
Bankruptcy
On September 15, 2008, Lehman Brothers
filed for bankruptcy. With $639 billion in assets
and $619 billion in debt, Lehman's bankruptcy
filing was the largest in history, as its assets far
surpassed those of previous bankrupt giants
such as WorldCom and Enron. Lehman was
the fourth largest U.S. investment bank at the
time of its collapse, with 25,000 employees
worldwide. Lehman's demise also made it the
largest victim, of the U.S. subprime mortgage
financial crisis that swept through global
financial markets in 2008. Lehman's collapse
was a seminal event that 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 biggest monthly decline on
record at the time.
 “Repo 105”
Lehman entered into repurchase agreements with banks in the
Cayman Islands. Under the deal, Lehman would "sell" toxic assets to
the other bank — with the understanding that they would buy them back
in a short time.
The trick made Lehman Brothers look much healthier — on paper, at
least. These guys were desperate to fool investors and credit rating
agencies. They had screwed up on a truly colossal scale, and lined their
pockets all the while.
Banks use similar repo agreements all the time. But they mark them
on the books as loans, because that's what they are. Lehman marked
them as sales. That might not sound like a huge deal, but the effect was
that Lehman had $50b more in cash on its books, and $50b less in toxic
mortgage assets. 
 RECOMMENDATION
Higher Fractional Reserves for loaned funds
Unpredictability and unforeseen economical analysis lead
to default and provision of bad debts

Lower Leverage Requirement for lending

Improvement of Poor Liquidity Management (Credit loans

are rising but no cash inflow)
They must have sufficient cash reserves to pay off the
debts as well as depositor entities to gain their support
and confidence in future business
 Conclusion
• Lehman once employed 28,000 people across the world, including
5,000 in London. At their peak, its shares traded at $85, but they are now
roughly 10¢. Lehman's remains were shared out between Barclays,
which bought its US broking arm, and Japanese giant Nomura, which
bought its European and Asian assets. These firms, plus number-one
investment bank Goldman Sachs, have profited most from picking over
the bones of Lehman's businesses.
• In short, Lehman Brothers -- a company with a 158-year history,
including 14 years as an NYSE-listed giant -- failed simply because it
took on too much risk in a booming market. In the end, its move from the
safety of corporate finance and M&A (mergers and acquisitions) income
into the risky world of proprietary trading proved to be its downfall.