LEHMAN BROTHERS’ BANKRUPTCY International Finance by Wilhelmus Irwan ( ) International Trade and Finance GSIS Yonsei University

The History The Bankruptcy The Impact

LEHMAN BROTHERS Founded : Montgomery, Alabama, USA (1850) Founder(s) : Hendry Lehman Emanuel Lehman Mayer Lehman Headquarters : New York, USA CEO : Richard S. Fuld Jr.

The History 1844 Henry Lehman opened a dry-goods store named “H. Lehman” in Montgomery, Alabama 1847 with his brother Emanuel Lehman “H. Lehman” changed into “H. Lehman and Bro.” 1850 with the arrival of their youngest brother, Mayer Lehman, the firm changed again its name to “Lehman Brothers”

The History (cont’d) 1858 opened its first branch office in New York City's Manhattan 1870 moved the headquarters New York City, and helped found the New York Cotton Exchange 1887 became a member of New York Stock Exchange I899 underwrote its first public offering, the preferred and common stock of the International Steam Pump Company

The History (cont’d) 1977, merged with Kuhn, Loeb & Co to form Lehman Brothers, Kuhn, Loeb Inc was sold to Shearson and became Shearson Lehman/American Express 1988 with E.F. Hutton & Co. merged as Shearson Lehman Hutton Inc it spun off Lehman Brothers Kuhn Loeb in an initial public offering, as Lehman Brothers Holdings, Inc

The History (cont’d) 2001 acquired the private-client services, or "PCS", business of Cowen & Co acquired the Crossroads Group, the fixed-income division of Lincoln Capital Management and Neuberger Berman 2008 declared bankruptcy

The History (cont’d)  2007 generated approximately $3.1 billion in net revenue and almost $800 million in pre-tax income  Prior to going bankrupt, the firm had in excess of $275 billion in assets under management  The firm had increased net revenues over 600% from $2.73 billion to $19.2 billion and had increased employee over 230% from 8,500 to almost 28,600. Achievements under CEO Richard S. Fuld Jr.

The Bankruptcy 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. In the second quarter of 2008, 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. On September 10 th 2008Lehman announced a loss of $3.9 billion On September 17, 2008, the New York Stock Exchange delisted Lehman Brothers.

The Bankruptcy (cont’d) Subprime mortgage

The Bankruptcy (cont’d) 4 % 7% 10%

The Bankruptcy (cont’d)

The Bankruptcy Filing 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 On September 14, 2008, The New York Times reported, that Barclays had ended its bid to purchase all or part of Lehman and a deal to rescue the bank from liquidation collapsed.

The Bankruptcy (cont’d) Finally on September 15,2008 Lehman Brothers filed for bankruptcy protection after failing to find a buyer.

The Impact  In the USA The Dow Jones closed down just over 500 points on September 15, 2008 Several money funds and institutional cash funds, The Bank of New York Mellon and the Primary Reserve Fund, both falling below $1 per share About 100 hedge funds are being forced to de-lever and sit on large cash balances inhibiting chances at further growth.

Constellation Energy was reported to have exposure to Lehman, its stock went down 56% in the first day of trading having started at $67.87 The Federal Agricultural Mortgage Corporation or Farmer Mac said it would have to write off $48 million in Lehman debt it owned as a result of the bankruptcy The Impact (cont’d)

 In Japan Banks and insurers announced a combined 249 billion yen ($2.4 billion) in potential losses tied to the collapse of Lehman  In Hongkong More than 43,700 individuals in the city have invested in HK$15.7 billion of "guaranteed mini-bonds“ from Lehman. The Impact (cont’d)

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