Lehman Brothers Inc. was an American global financial services firm founded in 1847. Before filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States, with about 25,000 employees worldwide.

1. LEHMAN BROTHERS
GROUP 16:
2116159-SHARANYA S RAO,2116160-SHERAL
FRANCIS FERNANDES
2116161-SHILPA P H,2116162-SHIVAM S
2116163-SHRADDHA,2116164-SHRATHI SHEDIGURI
2116165-SHRAVAN KUMAR SHETTY,2116166-
SHRAVAN SHETTY
2116167-SHRAVYA UDAYA SHETTY,2116168-
SHREEYANA BK

3. INTRODUCTION
• Henry Lehman, a German, was the brains behind the founding of Lehman Brothers. This
occurred in Montgomery, Alabama, where he resided, around the year 1844.
• He made his two brothers, Mayer and Emmanuel, co-partners in the business (Mieszala,
2019). They started out as a modest business that sold dry products.
• Prior to the passing of the original director, Henry Lehman, it later changed into a cotton
trade. The two brothers kept up the services by growing the business to offer both trading
and commodity-related services.
• There have been many financially difficult times for different institutions around the
globe. Lehman Corporation, however, was able to make it through the bulk of these crises.
They survived both World Wars, the 1930s Great Depression, and the massively
controversial initial public offering that took place in the US in 1994. (Mieszala, 2019).
Lehman Brothers was the biggest victim of the financial catastrophe that struck the then-
powerful nation of the United States in 2008, when the housing market in the country
collapsed.

4. The Bankruptcy of Lehman Brothers
• Lehman Brothers filed for bankruptcy protection on September 15, 2008, in an
unusual move that shook the financial sector to its very foundation.
• It wasn't just the biggest bankruptcy case in American history; the company's
CEOs had repeatedly assured investors that its finances were solid, its liquidity
levels were high, and its debt was under control.
• Consumer confidence was destroyed by the collapse of this Wall Street institution
at a vulnerable moment, and several dubious decisions were exposed as a result.
• The study will be divided into two sections: Lehman Brothers' failure will be
briefly reviewed, and then the senior management team will be called out for
making a number of questionable decisions that ultimately led to the bank's
demise.

5. Causes and Impact
• Lehman Brothers' profits skyrocketed shortly after investing mainly in the real estate
mortgage leveraging services prior to the great economic depression of the year 2008. The
company's decline was primarily brought on by its departure from its initial goals and
investment in a risky venture that was in high demand in the early 2000s.
• The company acquired five top companies, which it trusted by lending so much money
carelessly, and then participated in the mortgage leveraging business. BNC Mortgage
Services and Aurora Loan Services, which primarily provided sub-prime loans, were two
of the mortgage companies that Lehman Brothers' Corporation purchased (Mieszala,
2019).
• Although obtaining capital gains was the goal, the examination of all the pertinent
variables was not done well. Putting your trust in new assets that had not demonstrated
consistency in the capital market was risky. Nobody anticipated any soon-coming
unfavorable event as the outcomes started off with such tremendous success. Lehman
Brothers were able to increase its company revenue by 56% between 2004 and 2006.
(Mieszala, 2019). It again achieved sales of 19.3 billion USD in 2007. (Mieszala, 2019).
Between 2004 and 2007, its profitability remained consistent (Mieszala, 2019). Therefore,
no one anticipated the tragic event that would occur to them in 2008.

6. • When the US housing market unexpectedly crashed, the profit generation took a sharp
change. Most people who used mortgage services to push themselves did not honour their
pay.
• Additionally, the financial market declined quickly, causing unprecedented losses.
Lehman Brothers ultimately filed for bankruptcy on September 15, 2008, with $619
billion in assets and $619 billion in debt (Mieszala, 2019). Many people were shocked by
this because they did not expect the fourth-largest investment company at the time to fail
due to some improper investing practises.
• The bankruptcy affected the region's real estate market's capacity to maintain price
stability. Instant price drops on the stock market resulted in subpar purchases in these
sectors. Most people also experienced job prospects loss. Due to the failure of Lehman
Brothers, more than six million individuals lost their jobs (Mieszala, 2019). The United
States' unemployment numbers increased by 10%. (Mieszala, 2019).
• Even the biggest banks in Pakistan ran out of money. They were forced to approach the
International Monetary Fund for assistance. President George W. Bush provided the
American financial industry with a 700 billion USD bailout (Mieszala, 2019). The effects
of the problem were lessened as a result of it.

7. THREE WRONGS
• 1. Fuld, like many other Wall Street players at the time, was firmly established in an extremely
aggressive and leveraged business model when the housing market started to tank in 2007.
Fuld did not change his approach, in contrast to his rivals, some of whom had the foresight to
recognise the impending crash and consider potential effects of mortgage defaults. Instead, he
continued to engage in mortgage-backed securities, steadily raising the risk level of Lehman
Brothers' asset portfolio given the state of the market. In other words, he was stubborn, but
when it was time to acknowledge his mistake, he refused to take ownership of it. Two
consequences must be taken into account, even though the instant effects of admitting an
unsure outlook would have been bad. After getting over their initial shock, big capital investors
would have appreciated the transparency and taken action to put the bank back on track.
Second, more knowledge and funding would have been available to lessen losses and possibly
prevent complete collapse had the general public, including the federal government, been made
aware of the situation and the doable things being done to fix it. This was not the case,
however, and Fuld missed the chance to take advantage of various options that would have
reduced Lehman Brothers' costs by choosing to present an overly optimistic picture of the
company's financial position.

8. • 2.The second ethical blunder, which was possibly the most deliberate and essentially
unethical, was Callan's consent to the transfer of funds from Lehman Brothers accounts to
Hudson Castle, the fictitious subsidiary established to improve the parent company's
balance sheet. Through the use of Repo 105, this blatant misrepresentation of financial
health was carried out in an effort to egregiously deceive the bank's numerous
stakeholders. It is also unmistakably indicative of a much larger issue. The reality that this
method was employed in two successive quarters is even more telling. Repo 105 was not
implemented with the intention of reducing earnings for tax benefits or other similar
outcomes, according to a number of documents investigating the fall of Lehman Brothers,
including congressional testimony and investigative reports. Instead, it was meant to give
the appearance of a stable and secure company by removing assets from the balance sheet.
This strategy would have been a stopgap measure until reorganizational steps were taken
and correct statement releases could be resumed, had Lehman Brothers' executive team
been able to handle the problem. Instead, the bank's leverage was so dangerously high for
six months that it had no option but to deceive its shareholders if it wanted to keep any
semblance of investor confidence in its operations.
• Lehman Brothers would have been better served by completely and accurately disclosing
the specifics of its finances, just as Fuld would have been better served by not lying about
the company's state of affairs. It would have been much more likely to get the much-
needed help if there had been confidence and more time to plan.

9. • 3. Last but not least, Ernst & Young, the lone outsider with knowledge of what was going
on at Lehman Brothers, neglected to disclose the extensive measures taken by executive
leadership to hide financial issues. Ernst & Young may be charged with willful disregard
and a lack of corporate responsibility because it is a certified public accounting company
and is expected to adhere to and uphold an industry-wide code of ethics. Why would such
a reputable company jeopardise its standing and ignore conduct that is obviously
unethical? Undoubtedly, the company had a sizable (and probably lucrative) customer in
Lehman Brothers. But prior scandals involving dubious accounting practises, like Enron,
have shown directly that inaction is just as bad as active participation in the scheme. A lot
more than just a salary was on the line, and Ernst & Young's inaction damaged its
reputation in terms of morality and professional standards. Ernst & Young is tasked with
certifying that businesses provide accurate and trustworthy information to shareholders in
its capacity as an accounting company. Executives were aware of the extent of behind-the-
scenes bookkeeping and Ernst & Young completely failed in this respect. Concern for
ethical conduct was either negligible or nonexistent in this circumstance. The team of
accountants who decided not to act thus let down not only their business but the entire
industry and all the right-minded professionals within it. The company's shareholders
were purposefully misled in order to maintain a paycheck.

10. STRATEGIES TO OVERCOME THE
CHALLENGE
• The collapse of Lehman Brothers in 2008 was a complex event that was influenced by a range of factors, including
economic conditions, regulatory failures, and ethical issues. Overcoming the challenges posed by the collapse of
Lehman Brothers required a range of strategies, including:
1. Strengthening regulation: The collapse of Lehman Brothers highlighted the need for stronger and more effective
regulation of the financial sector. This included measures such as increasing capital requirements for financial firms,
improving risk management practices, and enhancing transparency and accountability.
2. Improving risk management practices: Lehman Brothers had a highly competitive and risk-taking culture that
prioritized short-term profits over long-term stability. To overcome this challenge, financial firms needed to prioritize
risk management practices that emphasized long-term stability and sustainability.
3. Enhancing transparency and accountability: The lack of transparency and accountability in the financial sector was
a key factor in the collapse of Lehman Brothers. To overcome this challenge, financial firms needed to improve their
disclosure practices and provide more comprehensive information to investors and regulators.
4. Addressing conflicts of interest: The conflicts of interest that were prevalent in the financial sector contributed to the
collapse of Lehman Brothers. To overcome this challenge, financial firms needed to develop policies and procedures
that effectively addressed potential conflicts of interest.
5. Investing in technology: The collapse of Lehman Brothers highlighted the importance of investing in technology

11. CURRENT SITUATION IN THE COMPANY
• Lehman Brothers collapsed in September 2008, and the company hasn't been in operation
since. The holding company for the corporation, Lehman Brothers Holdings Inc., filed for
bankruptcy in the US in September 2008, and the bankruptcy process has continued ever
since.
• As part of its bankruptcy settlement, Lehman Brothers Holdings Inc. is currently
distributing billions of dollars to its investors and debtors. Lehman Brothers Holdings Inc.
declared in December 2020 that it had reached an agreement with its creditors that would
permit it to pay out over $125 billion in total to its creditors after distributing an extra $1.5
billion to them.
• Even though Lehman Brothers itself is no longer around, the effects of its demise and the
larger financial crisis of 2008 are still being felt in the financial industry and the overall
economy. Significant regulatory changes resulted from the disaster, including the 2010
Dodd-Frank Wall Street Reform and Consumer Protection Act. The crisis also had
significant effects on the world economy, such as employment losses, slower economic
growth, and rising public debt.

12. THANK YOU