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DREXEL BURNHAM
LAMBERT
OUTLINE
O INTRODUCTION
O BACKGROUND
O STRUCTURE OF DBL
O CORPORATE COLLAPSE

O PROBLEM
O REASONS
O CONCLUSION
INTRODUCTION
 Drexel Burnham Lambert was a major Wall Street

investment banking firm,
 Which first rose to prominence
...
BACKGROUND
 Investment banking firm
 I W "Tubby" Burnham Founded in 1935
 Its head quarters - New York, United States
...
THE STRUCTURE OF DBL GROUP
Societe Arabe d’Investment et
de Financement,Ltd.

Group Bruselle
Lambert SA

Pargesa Holdings ...
THE COLLAPSE OF DBL
 DBL financial structure became unsustainable
 Junk bonds and bridge loans illiquid
 Unable to roll...
OFFICIALS ROLL OUT THE
SAFETY NET
 Authorities protected the regulated subsidiaries
 Ready to counteract spill over effe...
A largely successful application of financial regulation
Customers of regulated subs protected
No serious contagion , e...
PROBLEMS
 In September 1988 for insider trading, stock manipulation, defrauding

its clients and stock parking (buying st...
REASONS
 The firm's aggressive culture led into unethical

 Milken himself viewed the securities laws, rules and regulat...
 Impossible for Drexel to reborrow its outstanding commercial

paper
 Its posted a $40 million loss for 1989 - the first...
CONCLUSION
 Drexel managed to survive into 1990 by transferring some of the

excess capital from its regulated broker/dea...
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Drexel burnham lambert

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Drexel burnham lambert

  1. 1. DREXEL BURNHAM LAMBERT
  2. 2. OUTLINE O INTRODUCTION O BACKGROUND O STRUCTURE OF DBL O CORPORATE COLLAPSE O PROBLEM O REASONS O CONCLUSION
  3. 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. 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. 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. 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. 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. 8. A largely successful application of financial regulation Customers of regulated subs protected No serious contagion , even though entire group collapsed
  9. 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. 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. 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. 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

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