Allhmad-u-Lillah, for without His blessing we could never conduct this research, though it is impossible to thank Him enough for this. All respect to his Holy Prophet Hazrat Muhammad (SAW) who brought the light of knowledge when the humanity was wandering in the dessert of ignorance. We would like to thank our parents for their encouragement and suggestion they gave us. They provide us every thing we needed to do this task. We would like to acknowledge the guidance and support of our respected teacher “Sir MOHAYYUDIN” whose affection made easy for us. We are also thankful to all those who cooperated with us in the completion of project, especially to the class fellows, teachers and to all those who directly or indirectly helped us.
INTRODUCTION Lehman Brothers Holdings Inc, was a global financial-services firm active prior to its bankruptcy and sale in 2008. The firm did 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 U.S. Treasury securities market. Its primary subsidiaries included Lehman Brothers Inc., Neuberger Berman Inc., Aurora Loan Services, Inc., SIB Mortgage Corporation, Lehman Brothers Bank, FSB, Eagle Energy Partners, and the Crossroads Group. The firm's worldwide headquarters were in New York City, with regional headquarters in London and Tokyo, as well as offices located throughout the world. On September 15, 2008, the firm filed for Chapter 11 bankruptcy protection; the filing marks the largest bankruptcy in U.S. history. The news led to sharp falls in share prices around the world, and officials took measures to reassure markets. Stock markets and the US dollar have tumbled in reaction
Type Fate Founded Founder(s) Emanuel Lehman Mayer Lehman Headquarters Area served Key people Industry Products Investment Banking Investment management Market cap Revenue Operating income Net income Total assets
Public Chapter 11 Bankruptcy Montgomery, Alabama, United States (1850) Henry Lehman New York City, New York, United States Worldwide Richard S. Fuld, Jr.(Chairman) & (CEO) Investment services Financial Services US$130 Million (As of September 15, 2008) ▲ US$59.003 Billion (2007) ▲ US$6.013 Billion (2007) ▼ US$6.7 Billion (2008) ▲ US$691.063 Billion (2007)
History of Lehman’s brother 1840 Lehman founded by Henry Lehman, a German immigrant, in Alabama 1929 Teeters on brink of collapse after Wall Street crash 1973 Loses $6.7 million betting on interest rates and is almost forced to close its doors Top of Form Bottom of Form Top of Form Bottom of Form 1993 Lehman Brothers is spun out of American Express. Richard Fuld, right, takes helm 1994 Faces capital shortage, which threatens its survival Late 90s-00s Mr Fuld significantly increases exposure to leveraged loans and mortgages 1998 Lehman fights for survival after Russian bond crisis 2007-08 Credit crisis begins to squeeze, leading to write-offs to date of $16 billion Sept 2008 Fears over its outlook trigger a 40 per cent slide in the share price in a day Sept 10 Lehman Brothers admits to a record $3.9 billion third-quarter loss Lehman Brothers Holdings Inc was a global financial-services firm active prior to its bankruptcy and sale in 2008. The firm did business in investment banking, equity and fixedincome sales, research and trading, investment management, private equity, and private banking. It was a primary dealer in the U.S. Treasury securities market. Its primary subsidiaries included Lehman Brothers Inc., Neuberger Berman Inc., Aurora Loan Services, Inc., SIB Mortgage Corporation, Lehman Brothers Bank, FSB, Eagle Energy Partners, and the Crossroads Group. The firm's worldwide headquarters were in New York City, with regional headquarters in London and Tokyo, as well as offices located throughout the world.
Began of Lehman Brothers Crisis Lehman's slow collapse began as the mortgage market crisis unfolded in the summer of 2007, when its stock began a steady fall from a peak of $82 a share. The fears were based on the fact that the firm was a major player in the market for sub prime and prime mortgages, and that as the smallest of the major Wall Street firms, it faced a larger risk that large losses could be fatal. But by the summer of 2008 the rollercoaster ride started to have more downs than ups. A series of write offs was accompanied by new offerings to seek capital to bolster its finances Lehman also fought a running battle with short sellers. The company accused them of spreading rumors to drive down the stock's price; Lehman's critics responded by questioning whether the firm had come clean about the true size of its losses. As time passed and losses mounted, an increasing number of investors sided with the critics. On June 9, 2008, Lehman announced a second-quarter loss of $2.8 billion, far higher than analysts had expected. The company said it would seek to raise $6 billion in fresh capital from investors. But those efforts faltered, and the situation grew more dire after the government on Sept. 8 announced a takeover of Fannie Mae and Freddie Mac. Lehman's stock plunged as the markets wondered whether the move to save those mortgage giants made it less likely that Lehman might be bailed out. On Sept. 10, the investment bank said that it would spin off the majority of its remaining commercial real estate holdings into a new public company. And it confirmed plans to sell a majority of its investment management division in a move that it expects to generate $3 billion. It also announced its latest round of bad news -- an expected loss of $3.9 billion, or $5.92 a share, in the third quarter after $5.6 billion in write-downs. Overview of Chapter 11 bankruptcies The general purposes of the federal bankruptcy law are to give individuals and businesses that file for bankruptcy a fresh start that involves some relief from creditors exerting pressure for payment and to establish and implement a bankruptcy plan that distributes all or most of the bankrupt debtor's pre-bankruptcy assets and income that he, she, or it acquires during a period of bankruptcy in a way that a federal bankruptcy court determines is the most fair to the creditors to which the debtor owes money. The bankrupt debtor and the creditors that that debtor owes money all have a big say in the plan and have a right to oppose it. However, that effort may not succeed. The most basic element of a Chapter 11 bankruptcy is it is available only for a business entity, and the same individuals who were in charge when the need to file for bankruptcy arose typically continue operating the business during the period of bankruptcy. An exception applies if the bankruptcy court determines that indications that allowing these individuals to continue operating the business will unduly harm the creditors or allow the business to operate after emerging from bankruptcy requires appointing a bankruptcy trustee to operate the business during the bankruptcy. Lehman Brothers-style Chapter 11 bankruptcies On September 13, 2008, Timothy F. Geithner, the president of the Federal Reserve Bank of New York called a meeting on the future of Lehman, which included the possibility of an emergency liquidation of its assets. Lehman reported that it had been in talks with Bank of America and Barclays for the company's possible sale. However, both Barclays and Bank of America ultimately declined to purchase the entire company. The International Swaps and Derivatives Association (ISDA) offered an exceptional trading session on Sunday, September 14, 2008, to allow market participants to offset positions in various derivatives on the condition of a Lehman bankruptcy later that day. Although the
bankruptcy filing missed the deadline, many dealers honored the trades they made in the special session In New York, shortly before 1 a.m. the next morning, Lehman Brothers Holdings announced it would file for Chapter 11 bankruptcy protection citing bank debt of $613 billion, $155 billion in bond debt, and assets worth $639 billion. It further announced that its subsidiaries will continue to operate as normal. A group of Wall Street firms agreed to provide capital and financial assistance for the bank's orderly liquidation and the Federal Reserve, in turn, agreed to a swap of lower-quality assets in exchange for loans and other assistance from the government. Lehman's bankruptcy is the largest failure of an investment bank since Drexel Burnham Lambert collapsed amid fraud allegations 18 years prior. Later that day, the Australian Securities Exchange (ASX) suspended Lehman's Australian subsidiary as a market participant after clearing-houses terminated their contracts with the firm. Lehman shares tumbled over 90% on September 15, 2008. The Dow Jones closed down just over 500 points on September 15, 2008, which was at the time the largest drop in a single day since the days following the attacks on September 11, 2001. In the United Kingdom, the investment bank went into administration with PricewaterhouseCoopers appointed as administrators. In Japan, the Japanese branch, Lehman Brothers Japan Inc., and its holding company filed for civil reorganization on September 16, 2008, in Tokyo District Court. On Tuesday, September 16, 2008, Barclays plc announced that they will acquire a "stripped clean" portion of Lehman for $1.75 billion, including most of Lehman's North America operations. On September 20, this transaction was approved by U.S. Bankruptcy Judge James Peck. On September 17, 2008, the New York Stock Exchange delisted Lehman Brothers. Effect of Lehman Brothers bankruptcies on world economy: Lehman Brothers, the fourth-largest US investment bank, has filed for bankruptcy protection, dealing a blow to the fragile global financial system. The news led to sharp falls in share prices around the world, and officials took measures to reassure markets. Lehman had incurred losses of billions of dollars in the US mortgage market. Merrill Lynch, also stung by the credit crunch, has agreed to be taken over by Bank of America, the latest twist in a dramatic turn of events on Wall Street. The Dow Jones Industrial Average ended more than 504 points lower on Monday, marking its biggest fall since the September 11 attacks. The Nasdaq composite index shed 3.60% to 2,179.91 and the Standard & Poor's 500 index lost 4.71% to 1,192.70. Tumbling bank stocks Lehman's demise is being felt around the world: Stock markets and the US dollar have tumbled in reaction to Lehman's collapse, with banking shares hardest hit. HBOS shed 17.6%. Central banks have moved to reassure markets. The US Federal Reserve has broadened its emergency lending scheme and the UK and European central banks have injected a total of about $50bn (£28bn; 35bn euros) into the financial system. There are fears AIG, once the world's largest insurer, could also face collapse. It is taking steps to raise money after reportedly seeking a $40bn emergency loan from the Fed. Stock markets in Europe and Asia have dropped sharply and the dollar tumbled against the yen, the euro and the Swiss franc as Lehman's failure raised fears about the strength of the global financial system. The FTSE 100 index of leading UK shares ended down 212.6 points or 3.9% to 5,204.2. To help stabilize the money markets, the Bank of England and the European Central Bank pumped in £5bn and 30bn euros respectively
Barclays and Bank of America had been in talks to rescue the bank, but negotiations faltered when it became clear that the US Treasury was opposed to using government money to help seal deal Financial crisis of 2007–2008 In early July, depositors at the Los Angeles offices of Indy Mac Bank frantically lined up in the street to withdraw their money. On July 11, Indy Mac - the largest mortgage lender in the US - was seized by federal regulators. The mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures. That day the financial markets plunged as investors tried to gauge whether the government would attempt to save mortgage lenders Fannie Mae and Freddie Mac. The two were placed into conservator ship on September 7, 2008. During the weekend of September 13–14, Lehman Brothers declared bankruptcy after failing to find a buyer, Bank of America agreed to purchase Merrill Lynch, the insurance company AIG sought a bridge loan from the Federal Reserve, and a consortium of 10 banks created an emergency fund of at least $70 billion to deal with the effects of Lehman's closure, similar to the consortium put forth by J.P. Morgan during the stock market panic of 1907 and the crash of 1929. Stocks on "Wall Street" tumbled on September 15. On September 16, news emerged that the Federal Reserve may give AIG an $85 billion (£48 billion) rescue package; on September 17, 2008, this was confirmed. The terms of the rescue package were that the Federal Reserve would receive an 80% public stake in the firm. The biggest bank failure in history occurred on September 25 when JP Morgan Chase agreed to purchase the banking assets of Washington Mutual. The year 2008 as of September 17 has seen 81 public corporations file for bankruptcy in the United States, already higher than the 78 in 2007. Lehman Brothers being the largest bankruptcy in U.S. history also makes 2008 a record year in terms of assets with Lehman's $691 billion in assets all past annual totals. The year also saw the ninth biggest bankruptcy with the failure of Indy Mac Bank. REASONS OF LEHMAN BANKRUPTCY SUBPRIME MORTGAGES CRISIS In August 2007, Lehman closed its subprime lender, BNC Mortgage, eliminating 1,200 positions in 23 locations, and took a $25-million after-tax charge and a $27-million reduction in goodwill. The firm said that poor market conditions in the mortgage space "necessitated a substantial reduction in its resources and capacity in the subprime space". In 2008, Lehman faced an unprecedented loss due to the continuing subprime mortgage crisis. Lehman's loss was apparently a result of having held on to large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages; whether Lehman did this because it was simply unable to sell the lower-rated bonds, or made a conscious decision to hold them, is unclear. In any event, huge losses accrued in lowerrated mortgage-backed securities throughout 2008. In the second fiscal quarter, Lehman reported losses of $2.8 billion and was forced to sell off $6 billion in assets. In the first half of 2008 alone, Lehman stock lost 73% of its value as the credit market continued to tighten. In August 2008, Lehman reported that it intended to release 6% of its work force, 1,500 people, just ahead of its third-quarter-reporting deadline in September. GAINS ERODED DUE TO A NEWS
On August 22, 2008, shares in Lehman closed up 5% (16% for the week) on reports that the state-controlled Korea Development Bank was considering buying Lehman. Most of those gains were quickly eroded as news emerged that Korea Development Bank was "facing difficulties pleasing regulators and attracting partners for the deal." It culminated on September 9, 2008, when Lehman's shares plunged 45% to $7.79, after it was reported that the state-run South Korean firm had put talks on hold. INVESTOR CONFIDENCE ERODED Investor confidence continued to erode as Lehman's stock lost roughly half its value and pushed the S&P 500 down 3.4% on September 9, 2008. The Dow Jones lost nearly 300 points the same day on investors' concerns about the security of the bank. The U.S. government did not announce any plans to assist with any possible financial crisis that emerged at Lehman. FEDERAL REGULATORS RESISTENCE On September 13, 2008, Timothy F. Geithner, the president of the Federal Reserve Bank of New York called a meeting on the future of Lehman, which included the possibility of an emergency liquidation of its assets. Lehman reported that it had been in talks with Bank of America and Barclays for the company's possible sale. The New York Times reported on September 14, 2008, that Barclays had ended its bid to purchase all or part of Lehman and a deal to rescue the bank from liquidation collapsed. Leaders of major Wall Street banks continued to meet late that day to prevent the bank's rapid failure. Bank of America's rumored involvement also appeared to end as federal regulators resisted its request for government involvement in Lehman's sale. BANKRUPTCY FILLING Lehman Brothers filed for Chapter 11 bankruptcy protection on September 15, 2008. J.P. Morgan provided Lehman Brothers with a total of $138 billion dollars in "Federal Reservebacked advances." The cash-advances by JPMorgan Chase were repaid by the Federal Reserve Bank of New York for $87 billion on September 15th and $51 billion on September 16th.] CONTROVERSY OF EXECTIVE PAY DURING CRISIS Richard Fuld, head of Lehman Brothers faced angry questioning from the committee's members. Henry Waxman, a Democrat, asked: "Your Company is now bankrupt, our economy is in crisis, but you get to keep $480 million (£276 million). I have a very basic question for you, is this fair?"