lehman brothers

1. LEHMAN BROTHERS The Rise and Fall of

2. 1844-1850 1844 - 23-year-old Henry Lehman comes from Bavaria to Birmingham, Alabama. He opened a dry goods store, “H. Lehman” 1847 – Emanuel Lehman arrives and the company is renamed to “H. Lehman and Bro” 1850 – Mayer Lehman arrives. The company is renamed once more, to the “Lehman Brothers”

3. 1850’s Lehman Brothers began accepting cotton as payment and reselling. This became the most important part of their business. 1855 – Henry Lehman dies of the yellow fever. The other brothers continue with the business. 1858 – The Lehman Brothers create a branch at 119 Liberty Street in Manhattan in order to represent their business in the most central economic place in the country.

4. 1960’s and the Civil War Due to stress on the company from the Civil War, the Lehman Brothers teamed up with John Durr, a cotton merchant. They formed Lehman, Durr & Co. The company helped in the Reconstruction of Alabama after the Civil war, giving financial aid.

5. 1870’s In 1870, the Lehman Brothers company played a major role in the creation of the New York Cotton Exchange, as well as the Coffee and Petroleum Exchanges. The company was also appointed as Alabama’s financier. The company took care of bonds, debts, and interest payments. This marked their entry into the railroad bond and finacial advisory businesses.

6. Railroad Bonds As railroads became increasingly popular, bonds of the railroad companies became available for the individual. The Lehman Brothers began to trade bonds the same way they had begun to do with cotton in the 1850’s. The trading of these bonds and securities led the Lehman Brothers to join the New York Stock Exchange and give up commodities trading for the sake of merchant-banking and financial advisory.

7. Early 1900’s Starting in 1906, the Lehman Brothers, now under Emanuel’s son Philip, began to partner with Goldman, Sachs & Co. in order to boost the economy and help new or faulty businesses. Philip Lehman retired and his son Robert took over in 1925.

8. The Great Depression The Lehman Brothers company was able to survive the Great Depression by moving to venture capital. VC is the investment by non-government 3rd party in a risky enterprise that cannot get bank loans. In 1924, the family chain was broken and John M. Hancock joined the firm. By the end of the Depression, the Lehman Brothers had relocated to 1 William Street

9. 1930’s-1970’s The Lehman Brothers, over the years, began to help finance things such as television and oil, as well as many new technologies, even early computers. Robert Lehman died in 1969, and the company has been led by non-Lehman’s ever since. The company began to fail, and Bell and Howell CEO Pete Peterson was appointed to help save the company.

10. Power struggle/American Express Pete Peterson, in an effort to alleviate internal hostilites, promoted Lewis Glucksman to be his co-CEO. He was pressured out and Glucksman was left in charge. With this poor management in place, the firm was forced to merge with American Express and Shearson, one of its subsidiaries.

11. Divestment American Express, in 1993, wished to divest and Lehman Brothers became its own company again. New CEO Richard Fuld went against all expectations and the company excelled for the coming years.

12. 9-11 When the World Trade Centers collapsed, their one-floor office there was destroyed and debris rendered the Lehman Brothers main office unusable. They relocated to New Jersey temporarily, and ended up keeping that office as well as many more in Manhattan and the rest of New York.

14. Here are the stock prices of Lehman brothers at the start of each week going back to over a year ago. Date, Open, High, Low, Close, Avg Vol, Adj Close* Take note of the incredible change over time of the stock for this past year.

16. The storied firm's decline occurred in slow motion this year. Heavily exposed to troubled real-estate investments, the firm tried to raise fresh capital, only to be thwarted. The most recent disappointment came last Monday when a possible deal with a Korean bank faded, sending Lehman's shares down 45% the next day. They had already fallen 80% since the start of 2008. Potential Buyers Bank of America and Barclays wanted government assistance to help with the bailout, so they could then buy Lehman, its stock was continuously believed to be overpriced and not representative of the company’s actual value thus turning away potential buyers. On September 17, 2008, the New York Stock Exchange delisted Lehman Brothers.

17. How Did Lehman Collapse? Bought risky assets in form of warehouse and apartment real estate Real Estate no longer worth what it was worth NY Times places blame on President Robert Fuld for not recognizing the loss of value Lehman worked with a company called Prologis to buy warehouse mortgages, and also acquired Archestone-Smith, a national apartment portfolio... Just like someone who doesn’t want to admit that their house isn’t worth what you bought it for, Fuld didn’t properly value its worth when looking to sell the company. Lehman worked with a company called Prologis to buy warehouse mortgages, and also acquired Archestone-Smith, a national apartment portfolio... Just like someone who doesn’t want to admit that their house isn’t worth what you bought it for, Fuld didn’t properly value its worth when looking to sell the company.

18. Real Estate Crunch Firms began reducing their exposure to Real Estate Mortgages In the 3rd Quarter, Lehman reduced exposure from $39.8 B to $32.6 B, but was slower to do so than other firms Lehman was described as the “Real Estate A.T.M.” Another broker quoted as saying, “If you needed money, you could get it.” This shows Lehman’s aggressive lending style, and its lack of restraint. Lehman was described as the “Real Estate A.T.M.” Another broker quoted as saying, “If you needed money, you could get it.” This shows Lehman’s aggressive lending style, and its lack of restraint.

19. Richard Fuld Joined Lehman in 1969 Became CEO in 1993 Chairman of the Board of Directors since 1994 Attachment to the company clouded his judgement

20. Potential Buyers Korean Company, Barclay’s, Bank of America Bank of America opted for Merrill Lynch, which was priced more reasonably Barclay’s backed out of agreements, but then bought a portion of the portfolio AFTER the Chapter 11. Barclay’s, a British firm, made a genius investment. After Lehman filed for bankruptcy, they bought Lehman’s GOOD assets, not the ones that tanked the firm for a discount. Barclay’s, a British firm, made a genius investment. After Lehman filed for bankruptcy, they bought Lehman’s GOOD assets, not the ones that tanked the firm for a discount.

21. Why Not Save Lehman? Saved Bear, but not Lehman Didn’t save Lehman BECAUSE the gov’t saved Bear Paulsen wanted to re-establish “Moral Hazard” The Fed generally TRIES to avoid bailouts of this kind. The “bailout” of Lehman SOHULD have been a private bailout (Barclay’s or BoA)... but when the government said it wasn’t going to back the assets as it did for Bear-Stearns, BoA backed out. This resulted in the saving of Merrill Lynch, which was priced at a higher discount than Lehman. This left Lehman shattered... The Fed generally TRIES to avoid bailouts of this kind. The “bailout” of Lehman SOHULD have been a private bailout (Barclay’s or BoA)... but when the government said it wasn’t going to back the assets as it did for Bear-Stearns, BoA backed out. This resulted in the saving of Merrill Lynch, which was priced at a higher discount than Lehman. This left Lehman shattered...

22. Moral Hazard Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk Essentially, to reinstitute Moral Hazard, the government has to let companies reap the consequences of their actions, for the purpose of not making the same mistakes twice

23. Stocks Lead to market prices slipping. Banking and investments stock prices plummet Followed by the Dow, NASDAQ, and S&P 500 having steep losses.

24. Effects on Short Selling Fed. put a freeze on selling stocks short Great Briton banned shot selling stocks

25. Further Connections AIG collapse Government bail out