The Collapse of Lehman Brothers

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Case Details:

Case Code : FINC051
Case Length : 17 Pages
Period : 2006-2008
Pub. Date : 2009
Teaching Note : Available
Organization : Lehman Brothers
Industry : Banking & Financial Services
Countries : US

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts

The Fall of Lehman

Lehman Brothers was founded in 1844 when 23-year-old Henry Lehman (Henry) emigrated from Germany to the US and opened a dry goods store, H. Lehman, in Montgomery, Alabama. In 1847, Emanuel Lehman (Emanuel), Henry's brother, joined him and the store was renamed as H. Lehman & Brothers. After Mayer Lehman (Mayer), another brother, joined the firm in 1850 the name of the firm was changed to Lehman Brothers. Henry died in 1855 due to yellow fever...

Fuld - Victim or Culprit?

Fuld, who was Wall Street's longest serving CEO till Lehman collapsed, was known to be very loyal to the company and brought the firm out of difficult situations several times during his tenure.

Finance | Case Study in Management, Operations, Strategies, Finance, Case Studies

Analysts felt that Fuld was riding high on his success and was aggressively conducting business to attain the top slot in the investment banking business...

What Went Wrong?

Industry experts blamed the subprime crisis and the resultant collapse of Lehman Brothers on the global macroeconomic imbalance that the US had created. The US economy had a savings rate close to zero in 2007. Experts opined that with the huge fiscal deficit and balance of payment deficit the US had, the US dollar (dollar) would have depreciated unless it was a global currency...

The Fed's Decision?

The Fed's decision to let Lehman file for bankruptcy rather than providing a bailout solution attracted mixed reactions from several analysts. Many analysts criticized US Treasury Secretary Henry M. Paulson's (Paulson) decision for not bailing out Lehman whereas another Wall Street investment bank Bear Stearns had been bailed out in March 2008...

Exhibits

Exhibit I: Financial Highlights of Lehman Brothers
Exhibit II: Business Segments of Lehman Brothers

Exhibit III: A Note on Credit Default Swaps
Exhibit IV: A Note on Value at Risk

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