Lehman Brothers : Managing a Global Investment Bank

Abstract

Lehman Brothers (Lehman), a global investment bank, serves the financial needs of corporations, governments and municipalities, institutional clients, and high-net-worth individuals worldwide. Lehman has a major presence in equity and fixed income sales, trading and research, investment banking, private equity, and private client services. Despite its strong performance in the past few years, Lehman anticipates stiff competition from rivals like Goldman Sachs and Morgan Stanley.

Our strategy emphasizes the building of a diversified set of high-margin businesses that together, deliver consistently strong results throughout the market cycle.

- Richard S. Fuld, Chairman & CEO, Lehman Brothers

INTRODUCTION

Lehman Brothers (Lehman), a global investment bank, served the financial needs of corporations, governments and municipalities, institutional clients, and high-net-worth individuals worldwide. Founded in 1850, Lehman had a major presence in equity and fixed income sales, trading and research, investment banking, private equity, and private client services. The firm was headquartered in New York, London, and Tokyo and operated through a network of offices around the world.

History

The history of Lehman paralleled the growth of the United States and its transformation into a country of prosperity and international prominence. Henry Lehman, an immigrant from Germany, opened his small shop in the city of Montgomery, Alabama in 1844. Six years later, his brothers Emanuel and Mayer joined him, and they named the business Lehman Brothers. Cotton was the cash crop of the time, and the Lehmans accepted it from the local farmers as currency to settle accounts. In 1858, they opened an office in New York, which was the commodity-trading center of the country.

The Civil War disrupted the Lehmans' business. When hostilities ended, the brothers moved north and concentrated their operations in New York, where they helped establish the Cotton Exchange. The post-war period witnessed the rapid growth of railroads. Lehman's future partner, Kuhn, Loeb, underwrote much of the financing for railroad construction. Railroad bonds represented a significant advance in the development of capital markets. Their affordable price attracted a large number of individual investors. Sensing an opportunity, Lehman expanded its commodities business to include the sale and trading of securities. The firm also moved into the area of financial advisory services, which provided the foundation for underwriting expertise. During the economic boom of the second half of the 19th century, Lehman broadened its expertise beyond commodities brokerage to merchant banking. Building a securities trading business, it became a member of the New York Stock Exchange (NYSE) in 1887.

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        Case Code   BSTA075
   Case Length    18 Pages
              Period    2003
Organization     Lehman Brothers
        Pub Date     2003
Teaching Note    Not Available
     Countries    Global
      Industry    Investment Banking

Issues

Keywords

Lehman; Investment banking; Fixed income; Derivatives and trading; Public issue; Equities; Capital markets; Liability management; Mergers and acquisitions; Restructuring; Private client services; Credit risk management; Risk management; Enterprise risk management (ERM)

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