1. DREXEL BURNHAM
LAMBERT

2. OUTLINE
O INTRODUCTION
O BACKGROUND
O STRUCTURE OF DBL
O CORPORATE COLLAPSE
O PROBLEM
O REASONS
O CONCLUSION

3. INTRODUCTION
 Drexel Burnham Lambert was a major Wall Street
investment banking firm,
 Which first rose to prominence
 It was forced into bankruptcy in February 1990 by its
involvement in illegal activities in the junk bond market
 Driven by Drexel employee Michael Milken.
 At its height, it was the fifth-largest investment bank in
the United States.

4. BACKGROUND
 Investment banking firm
 I W "Tubby" Burnham Founded in 1935
 Its head quarters - New York, United States
 $44 million in capital
 The enlarged firm was privately held Lambert held 26 percent
stake received six seats on the board of directors.
 Most of the remaining 74 percent was held by employees.

5. THE STRUCTURE OF DBL GROUP
Societe Arabe d’Investment et
de Financement,Ltd.
Group Bruselle
Lambert SA
Pargesa Holdings SA
Switzerland
Definancement,Ltd
Drexel Employees and
other private interests
Lambert Brussels
Associates, Bermuda
Drexel Burnham Lambert Group,
Inc.(DBLG)
Consolidated Assets: $28 billion
Equity: $835,725,000, 12/28/89
Other
unregulated
subsidiaries
DBL
International
bank N.V.
DBL Trading
Corporation
Drexel
Burnham
Lambert
Inc (DBL)
DBL
Govt
securities
(GSI)

6. THE COLLAPSE OF DBL
 DBL financial structure became unsustainable
 Junk bonds and bridge loans illiquid
 Unable to roll over commercial paper
 Like commercial bank without a safety net
 Prohibited from upstreaming excess capital in
regulated subsidiaries
 DBL filed for protection under chapter 11
bankruptcy procedures.

7. OFFICIALS ROLL OUT THE
SAFETY NET
 Authorities protected the regulated subsidiaries
 Ready to counteract spill over effects
 Bank of England and Fed intervened to sustain clearing
and settlement and facilitate unwinding of postions at
DBL trading

8. A largely successful application of financial regulation
Customers of regulated subs protected
No serious contagion , even though entire group collapsed

9. PROBLEMS
 In September 1988 for insider trading, stock manipulation, defrauding
its clients and stock parking (buying stocks for the benefit of another)
 Due to several deals that didn't work out, as well as an unexpected
crash of the junk bond market, 1989 was a difficult year for Drexel even
after it settled the criminal and SEC cases.
 Reports of an $86 million loss going into the fourth quarter resulted in
the firm's commercial paper rating being cut in late November

10. REASONS
 The firm's aggressive culture led into unethical
 Milken himself viewed the securities laws, rules and regulations
 Unethical behaviour at drexel operation founded by Joseph
 Dennis Levine, a Drexel managing director and investment banker, was
charged with insider trading
 Milken
refused
to
cooperate
with
Drexel's
investigation, only speaking through his attorney
own
internal

11.  Impossible for Drexel to reborrow its outstanding commercial
paper
 Its posted a $40 million loss for 1989 - the first operating loss
in its 54-year history

12. CONCLUSION
 Drexel managed to survive into 1990 by transferring some of the
excess capital from its regulated broker/dealer subsidiary into the
Drexel holding company
 By February 12, it was obvious Drexel was headed for collapse. Its
commercial paper rating was further reduced that day.
 Accordingly, he, the SEC, the NYSE and the Federal Bank strongly
advised Joseph to file for bankruptcy. Later the next day, Drexel
officially filed for Chapter 11 bankruptcy protection