2. INTRODUCTION
It was a global financial firm. Before
declaring bankruptancy in 2008, Lehman
was the fourth-largest investment bank in
the United States doing business in
investment banking , equity and trading
.Lehman was operational for 158 years
from its founding in 1850 until 2008.On
September 15,2008 the firm become
bankrupt
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5. Who Are Leman Brothers
In 1844, 23-year-old Henry Lehman the son of a
Jewish cattle merchant, emigrated to the
United States from Rimpar, Bavaria.He settled
in Montgomery, Alabama where he opened
a dry-goods store, "H. Lehman". In 1847,
following the arrival of his brother Emanuel
Lehman, the firm became "H. Lehman and
Bro." With the arrival of their youngest
brother, Mayer Lehman, in 1850, the firm
changed its name again and "Lehman Brothers"
was founded.
6. HOW THEY STARTED THEIR COMPANY
• Lehman Brothers began in the mid-nineteenth
century, 1844 to be exact. It was started in
Montgomery, Alabama by Henry Lehman, an
immigrant from Germany. From being a dry-goods and
general store, Henry’s brothers – Mayer and Emanuel
– joined him, giving birth to Lehman Brothers in 1850.
During the 1850s, Lehman began to become a major
commodities trading company, specializing in the key
cotton market. The company’s shift from commodity
trading to investment banking began in 1906 when it
partnered with Goldman Sachs on an IPO.
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8. HOW THEY BECOME BANKRUPT
• Lehman Brothers had become heavily involved in the
mortgage market, owning the sub prime mortgage
seller BNC Mortgage. By 2008, the bank held thirty
times as much in real estate products as it had capital,
and it had been borrowing too much money to fund
its mortgage investments. When the market turned,
Lehman was stuffed. As Lehman had held onto, or
could not sell, so many risky low-rated mortgages, the
sub prime mortgage crash affected the bank badly
and, in the first half of 2008, it lost of 73% of its
value. Investor confidence in the bank quickly
declined, leading to the crises of early September.
9. CAUSES OF BANKRUPTANCY
• RISK: The bank had taken on too much risk without a
corresponding ability to raise cash quickly. In 2008, it
had $639 billion in assets, technically more than
enough to cover its $613 billion in debt. However, the
assets were difficult to sell. As a result, Lehman
Brothers couldn’t sell them to raise sufficient funds
• OVERCONFIDENCE:
In March 2006, Lehman bought
heavily into commercial real estate and risky loans and
instead of selling them right away, it kept them on its
books. Management thought it would make more
money owning these assets but its timing couldn’t
have been worse, as real estate prices were falling.
10. • Regulator Inaction: The Securities and
Exchange Commission and other regulators
didn’t take action. As early as 2007, the SEC
knew Lehman Brothers was taking on too
much risk, but the agency never required
Lehman to do anything about it.
11. IMPACT OF LEHMAN BANKRUPT
• Lehman’s bankruptcy sent financial markets reeling.
The Dow Jones Industrial Average fell 504.48 points,
its worst decline in seven years.8
Losses continued
until March 5, 2009, when the Dow closed at
6,594.44. That was a 53% drop from its peak of
14,164.53 on October 10, 2007.
• Lehman’s bankruptcy threatened the
financial institutions that owned its bonds. On Sept.
16, 2008, the Reserve Primary money market
fund "broke the buck." That meant its shares,
normally worth at least $1, were investors knew that
only worth $0.97.10
Investors lost confidence in the
money market fund when it announced losses of $785
million in Lehman’s commercial paper.
12. • On Sept. 17, 2008, the collapse spread.
Investors withdrew a record $196 billion
from their money market accounts. If the
run had continued, businesses wouldn’t have
been able to get money to fund their day-to-
day operations. In just a few weeks, the
economy would have collapsed.
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15. IMPACT OF LEHMAN BROTHER
BANKRUPTANCY IN GLOBAL
MARKET
• After Lehman Brothers declared bankruptcy in September 2008,
approximately twenty-six thousand of the firm’s employees
worldwide lost their jobs, and investors suffered immense
losses, fueling the country’s greatest economic downturn since
the crash of 1929. On September 16, 2008, one day after
Lehman’s collapse, the Federal Reserve Bank of New York lent
$85 billion to the global insurance company American
International Group (AIG), whose assets failed to cover its
mounting credit Decrease in both consumer spending and
exports to the United States severely affected the flow of
goods, manufacturing, and job growth in Europe and Asia.
Stock markets plunged, resulting in the worst economic
downturn in global markets
16. THE BANKS WHICH GOT FAILED
BECAUSE OF LEHMAN BROTHERS
CRISIS
• The Financial crisis of 2007–2008 led to
many bank failures in the United States.
The Federal Deposit Insurance
Corporation (FDIC) closed 465 failed banks
from 2008 to 2012. In contrast, in the five
years prior to 2008, only 10 banks failed.
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18. SCHOOL OF BUSINESS
AND MANAGEMENT
MONETARY POLICY ASSIGNMENT
Naveen Singh &
Bcom Honors
1st year (EAFM)
