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Lehman Brothers

Lehman Brothers

Tagline

Too big to fail

Net Worth

$680,000,000,000

Started in (City)

Montgomery

Started in (Country)

U.S.

Incorporation Date

01st December, 1850

Bankruptcy Date

15th December, 2008

Founders

  • Mayer Lehman
  • Henry Lehman
  • Emanuel Lehman

About

Lehman Brothers Holdings Inc was a global financial services firm. Before 2008, It was the fourth largest investment bank in the united states after Goldman Sachs, Morgan Stanley, and Merill Lynch. It had 25000 employees working for it worldwide. The company involved in investment banking, equity,fixed-income sales, trading, research, investment management, private equity, and private banking. Lehman was operational for 158 years. In 1844, Henry Lehman opened a dry-goods store with the name "H.Lehman".In 1847, the name of the store became "H.Lehman and Bro" when his brother Enamuel Lehman" joined the business, 1850 with the arrival of another brother "Mayer Lehman" the store name changed to "Lehman Brothers".

Beginning

When cotton became one of the most important crops in the U.S, capitalizing on cotton’s high market value, the Lehman brothers accepted raw cotton as payment for merchandise from customers. This lead to their second business of "Trading with Cotton". In a few years, the cotton business became a significant part of their operation. Henry Lahman died in 1855 with yellow fever. After that, the remaining two brothers continued to focus on their operations. As Factors(Agents) and commission houses were mainly present in New York, the center of cotton trading shifted from the South to New York City, hence Layman opened its first branch office at Liberty Street, New York. After facing many difficulties due to the Civil War, the firm teamed up with John Durr, a cotton merchant, and founded "Lehman, Durr & Co", The firm’s headquarters were eventually moved to New York City. The firm helped in founding the New York Cotton Exchange in 1870. The firm also entered the emerging market for railroad bonds and financial-advisory business. Lehman became a member of Coffee Exchange and New York Cotton ExchangeIn 1889, it underwrote its first public offering, the preferred and common stock of the International Steam Pump Company.

Road to Success

In 1906, under the leadership of Philip Lehman, the Lehman firm partnered with Goldman, Sachs & Co to bring the General Cigar Co to market. The firm also partnered with Sears, Roebuck, and Company. After that, the firm almost underwrote one hundred issues many times in conjunction with Goldman Sachs. After Philip Lehman’s retirement in 1925, his son Robert "Bobbie" Lehman took over and under his leadership, the company weathered the capital crisis of the Great Depression by focusing o Venture Capital while the equity market recovered. In the 1930s, Lehman underwrote the initial public offering of the first television manufacturer, DuMont Laboratories, and helped fund the Radio Corporation of America (RCA). It also helped finance the rapidly growing oil industry, including the companies Halliburton and Kerr-McGee. In the 1950s, Lehman underwrote the IPO of Digital Equipment Corporation. Later, it arranged the acquisition of Digital by Compaq. Lehman performed quite well under chairman and CEO Richard S.Fuld, Jr. Fuld has been with the company for 30 years and was the longest-tenured CEO in Wall Street. Fuld had steered Lehman through the 1997 Asian Financial Crisis, a period where the firm’s share price dropped to $22 in 1998, but he was said to have underestimated the downturn in the US housing market and its effect on Lehman’s mortgage bond underwriting business. In 2001, the firm acquired the private-client services, or "PCS", the business of Cowen & Co.and later, in 2003, aggressively re-entered the asset-management business, which it had exited in 1989. Beginning with $2 billion in assets under management, the firm acquired the Crossroads Group, the fixed-income division of Lincoln Capital Management and Neuberger Berman. These businesses, together with the PCS business and Lehman’s private-equity business, comprised the Investment Management Division, which generated approximately $3.1 billion in net revenue and almost $800 million in pretax income in 2007.

Challenges

After 44 years of Leadership, Robert Lehman died in 1969. After that Lehman faced strong headwinds amidst the difficult environment of the early 1970s.In 1973, Pete Peterson was brought in to save the firm. under Peterson’s leadership, the firm acquired Abraham&Co in 1975 and two years later merged with Loeb&Co to form Lehman Brothers, Kuhn, Loeb Inc, which is the country’s fourth-largest investment bank. Peterson led the firm from significant operating losses to five consecutive years of record profits with a return on equity among the highest in the investment-banking industry. American Express acquired Lehman in 1984 for $360 million. The combined firms became Shearson Lehman/American Express. In 1988, Shearson Lehman/American Express and E.F. Hutton & Co. merged as Shearson Lehman Hutton Inc. On September 11, 2001, Lehman occupied three floors of World Trade Center where one of its employees was killed in the terrorist attacks of that day. Its global headquarters in Three World Financial Center were severely damaged and rendered unusable by falling debris, displacing over 6,500 employees. The bank recovered quickly and rebuilt its presence. Trading operations moved across the Hudson River to its Jersey City, New Jersey, facilities, where an impromptu trading floor was built in a hotel and brought online less than forty-eight hours after the attacks. When stock markets reopened on September 17, 2001, Lehman’s sales and trading capabilities were restored. After the attacks, Lehman’s management placed an increased emphasis on business continuity planning. Unlike its rivals, the company was unusually concentrated for a bulge-bracket investment bank. For example, Morgan Stanley maintains a 750,000-square-foot trading-and-banking facility in Westchester County, New York.

Failures

Malfeasance: A March 2010 report by the court-appointed examiner indicated that Lehman executives regularly used cosmetic accounting gimmicks at the end of each quarter to make their finances appear less shaky than they were. Subprime Mortgage Crisis: In august 2007, the firm closed its subprime lender, BNC Mortgage. In 2008 Lehman faced an unprecedented loss to the continuing subprime mortgage crisis. on June 2008, the Lehman brothers announced a US$2.8 billion second-quarter loss. Short-Selling allegations: Former Lehman Brothers CEO Richard Fuld said a host of factors including a crisis of confidence and short-selling attacks followed by false rumors contributed to both the collapse of Bear Stearns and Lehman Brothers. Lehman Brothers Holdings announced it would file for Chapter 11 bankruptcy protection citing bank debt of $613 billion, $155 billion in bond debt, and assets worth $639 billion. It further announced that its subsidiaries would continue to operate as normal. Finally, On September 17, 2008, the New York Stock Exchange delisted Lehman Brothers.

Subsidies

  • Lehman Brothers Inc., Asset Management Arm
  • Lehman Brothers Securities Taiwan ltd
  • Lehman Brothers Special Financing Inc
  • PIES Trust II
  • Selective Funding Inc
  • Lehman Commercial Paper, Inc.
  • Van der Moolen Specialists, USA LLC
  • Lehman Brothers Derivative Products Inc
  • CDF85 Real Estate Services Inc.
  • PIES Trust I

CEOs

  • Philip Lehman
  • Robert Lehman
  • Peter Peterson
  • Lew Glucksman
  • Richard S. Fuld Jr.