Lehman Brothers
Lehman Brothers was a global financial services firm and one of the largest banks in the United States. The firm was officially founded in 1858, meaning, when they declared bankruptcy on September 15, 2008, they were 150 years old. Their bankruptcy remains the largest ever to this day. Most agree that it is one of the most significant bankruptcies in U.S. history.
Lehman Brothers explained
At the time, Lehman Brothers was considered one of the key players in the global banking industry. When Lehman Brothers filed for bankruptcy in 2008, it was one of the largest investment banks in the U.S. with $639 billion in assets and $619 billion in debt.
Later, the firm simply could not pay its creditors because Lehman Brothers went through a credit crunch. The firm was not able to make money by issuing debt, and issuing stock under these conditions resulted in share dilution and tension on the market. All of this caused Lehman Brothers share price to fall. At the same time, housing prices fell, however, because of the market conditions at the time, many prospective buyers refused to buy property. People were simply unable to secure credit. Because of this, the firm was threatened by the possibility of failure, as without any additional loans, the global financial system was under a threat of collapse.
Over most of 2008, Lehman Brothers tried to avoid losses by reducing costs, selling assets and issuing stock. Lehman Brothers had low-rated mortgage loans on their books that it chose not to sell.
On September 10th, Lehman pre-announced diminished third-quarter results that underscored the fragility of its financial position. The firm reported a loss of $3.9 billion, concluding a write-down of $5.6 billion, and also announced a sweeping strategic restructuring of its business.
On September 11th, with only one billion dollars left in cash, by the end of that week, Leman was quickly running out of time.
Over the weekend of September 13th, Lehman, Barclays PLC, and Bank of America Corp. (BAC) aimed at facilitating a takeover of Lehman, but were unsuccessful.
Lehman declaring bankruptcy was considered to be the height of the financial crisis and was labeled as “the biggest corporate failure in all of history”. Lehman Brothers' failure foreshadowed the deepening of the Great Recession.
Distrust toward the banking industry reached an all-time high. Commercial real estate deprecated, and firms and companies all over the world that were tied to Lehman stock announced significant losses on their parts. A rough estimate of 25 thousand Lehman employees from all over the world were left jobless and were forced to figure out their next steps after the firm’s collapse.
The beginning of Lehman Brothers
In 1850 Henry and his brothers Mayer and Emanuel founded Lehman Brothers. The name of the firm comes from Henry Lehman and his two brothers, Mayer Lehman and Emanuel Lehman. In the 1840s, Henry immigrated to the United States from Germany. He lived in Alabama and started working as a door-to-door salesman. He did that until he was able to save enough money to open a store. In 1844 he opened a typical dry goods store. Once he had it up and running for a few years, one at a time, his brothers made the trip from Germany to join the business. By 1850 the three of them were in the United States and decided to call their business Lehman Brothers. Eventually, the firm relocated its headquarters to New York. In New York, the firm focused on brokerage and commodities trading. Years after that it became a financial firm that provided a wide range of services.
History of Lehman Brothers
Lehman Brothers had humble origins, tracing its roots back to a small general store that was founded by German immigrant Henry Lehman in Montgomery, Alabama.
Over the 20th century, the firm went through a lot of changes and became a part of several partnerships. Despite the fact that Lehman Brothers bankruptcy was not the reason for the Great Recession, the firm’s collapse caused a huge sale of assets in global markets.
Lehman Brothers' real estate holdings and assets were sold off in a fire sale liquidation in order to repay investors.
In popular culture
After the collapse of Lehman brothers, they were the main subject of discussion on the different news channels worldwide. The firm’s bankruptcy was also portrayed in several movies about the financial world. Some of these movies are Too Big to Fail and Margin Call.
In 2016, Erin Montella, former CFO of Lehman Brothers, published an autobiography that described her experience in the world of finance.
The reason for filing for bankruptcy
One of the main reasons why Lehman Brothers filed for bankruptcy was the fact that its subprime mortgage portfolio was exposed for the world to see, and as it turned out, it was worth much less than everybody had thought. Eventually, clients started to abandon the firm because its stock price dropped rapidly, and clients realized that sooner or later the creditors would refuse to lend the bank money.
