Collapse

Causes

editMalfeasance

A March 2010 address by the court-appointed examiner adumbrated that Lehman admiral consistently acclimated corrective accounting gimmicks at the end of anniversary analysis to accomplish its affairs arise beneath all-a-quiver than they absolutely were. This convenance was a blazon of repurchase acceding that briefly removed antithesis from the company's antithesis sheet. However, clashing archetypal repurchase agreements, these deals were declared by Lehman as the absolute bargain of antithesis and created "a materially ambiguous account of the firm’s cyberbanking activity in backward 2007 and 2008."44

editSubprime mortgage crisis

In August 2007, the abutting bankrupt its subprime lender, BNC Mortgage, eliminating 1,200 positions in 23 locations, and took an after-tax allegation of $25 actor and a $27 actor abridgement in goodwill. Lehman said that poor bazaar altitude in the mortgage amplitude "necessitated a abundant abridgement in its assets and accommodation in the subprime space".45

In 2008, Lehman faced an aberrant accident to the continuing subprime mortgage crisis. Lehman's accident was a aftereffect of accepting captivated on to ample positions in subprime and added lower-rated mortgage tranches if accepting the basal mortgages; whether Lehman did this because it was artlessly clumsy to advertise the lower-rated bonds, or fabricated a acquainted accommodation to ascendancy them, is unclear. In any event, huge losses accrued in lower-rated mortgage-backed antithesis throughout 2008. In the additional budgetary quarter, Lehman appear losses of $2.8 billion and was affected to advertise off $6 billion in assets.46 In the aboriginal bisected of 2008 alone, Lehman banal absent 73% of its amount as the acclaim bazaar connected to tighten.46 In August 2008, Lehman appear that it advised to absolution 6% of its plan force, 1,500 people, just advanced of its third-quarter-reporting borderline in September.46

In September 2007, Joe Gregory appointed Eric Callan as CFO. On March 16, 2008, afterwards battling Bear Stearns was taken over by JP Morgan Chase in a blaze sale, bazaar analysts appropriate that Lehman would be the next above investment coffer to fall. Callan fielded Lehman's aboriginal analysis appointment call, area the abutting acquaint a accumulation of $489 million, compared to Citigroup's $5.1 billion and Merrill Lynch's $1.97 billion losses which was Lehman’s 55th afterwards assisting quarter. The firm's banal amount leapt 46 percent afterwards that announcement.35474849

On June 9, 2008, Lehman Brothers appear US$2.8 billion second-quarter loss, its aboriginal aback getting spun off from American Express, as bazaar animation rendered abounding of its hedges abortive during that time. Lehman aswell appear that it had aloft a added $6 billion in capital. As a result, there was above administering shakeup, if Hugh "Skip" McGee III (head of investment banking) captivated a affair with chief agents to band Fuld and his lieutenants of their authority. Consequently, Joe Gregory agreed to abandon as Admiral and COO, and afterwards he told Eric Callan that she had to abandon as CFO. Callan was appointed CFO of Lehman in 2008 but served alone for six months, afore abandonment afterwards her coach Joe Gregory was demoted.474849 Bart McDade was alleged to accomplish Gregory as Admiral and COO, as several chief admiral had threatened to leave if he was not promoted. McDade took allegation and brought aback Michael Gelband and Alex Kirk, who had ahead been pushed out of the abutting by Gregory for not demography risks, while Fuld remained CEO he anon became abandoned from McDade's team.3550

On August 22, 2008, shares in Lehman bankrupt up 5% (16% for the week) on letters that the state-controlled Korea Development Coffer was because affairs the bank.51 A lot of of those assets were bound breakable as account came in that Korea Development Coffer was "facing difficulties adorable regulators and alluring ally for the deal."52 It culminated on September 9, if Lehman's shares plunged 45% to $7.79, afterwards it was appear that the state-run South Korean abutting had put talks on hold.53

On September 17, 2008 Swiss Re estimated its all-embracing net acknowledgment to Lehman Brothers as about CHF 50 million.54

Investor aplomb connected to abrade as Lehman's banal absent almost bisected its amount and pushed the S&P 500 down 3.4% on September 9. The Dow Jones absent 300 credibility the aforementioned day on investors' apropos about the aegis of the bank.55 The U.S. government did not advertise any affairs to abetment with any accessible cyberbanking crisis that emerged at Lehman.56

The next day, Lehman appear a accident of $3.9 billion and its absorbed to advertise off a majority pale in its investment-management business, which includes Neuberger Berman.5758 The banal slid seven percent that day.5859 Lehman, afterwards beforehand abnegation questions on the bargain of the company, was reportedly analytic for a client as its banal amount alone addition 40 percent on September 11, 2008.59

Just afore the collapse of Lehman Brothers, admiral at Neuberger Berman beatific e-mail memos suggesting, a part of added things, that the Lehman Brothers' top humans abandon multi-million dollar bonuses to "send a able bulletin to both advisers and investors that administering is not abstention accountability for contempo performance."60

Lehman Brothers Investment Administering Director George Herbert Walker IV absolved the proposal, traveling so far as to in fact apologize to added associates of the Lehman Brothers controlling board for the abstraction of benefit abridgement accepting been suggested. He wrote, "Sorry team. I am not abiding what's in the baptize at Neuberger Berman. I'm ashamed and I apologize."60

editShort-selling allegations

During hearings on the defalcation filing by Lehman Brothers and bailout of AIG afore the House Board on Oversight and Government Reform,61 above Lehman Brothers CEO Richard Fuld said a host of factors including a crisis of aplomb and naked short-selling attacks followed by apocryphal rumors contributed to both the collapse of Bear Stearns and Lehman Brothers. House board Chairman Henry Waxman said the board accustomed bags of pages of centralized abstracts from Lehman and these abstracts portray a aggregation in which there was “no accountability for failure".626364

An commodity by announcer Matt Taibbi in Rolling Stone arguable that naked abbreviate affairs contributed to the annihilation of both Lehman and Bear Stearns.65 A abstraction by accounts advisers at the University of Oklahoma Amount College of Business advised trading in cyberbanking stocks, including Lehman Brothers and Bear Stearns, and begin "no affirmation that banal amount declines were acquired by naked abbreviate selling".66

editBankruptcy

On Saturday, September 13, 2008, Timothy F. Geithner, the admiral of the Federal Reserve Coffer of New York, alleged a affair on the approaching of Lehman, which included the achievability of an emergency defalcation of its assets.67 Lehman appear that it had been in talks with Coffer of America and Barclays for the company's accessible sale. However, both Barclays and Coffer of America ultimately beneath to acquirement the absolute company.6768

The next day, Sunday, September 14, the International Swaps and Derivatives Association (ISDA) offered an aberrant trading affair to acquiesce bazaar participants to account positions in assorted derivatives on the activity of a Lehman defalcation afterwards that day.69 Although the defalcation filing absent the deadline, abounding dealers accustomed the trades they fabricated in the appropriate session.70

Lehman Brothers address in New York City on September 15, 2008

Shortly afore 1 am Monday morning (New York time), Lehman Brothers Holdings appear it would book for Chapter 11 defalcation protection71 commendation coffer debt of $613 billion, $155 billion in band debt, and assets account $639 billion.72 It added appear that its subsidiaries would abide to accomplish as normal.71 A accumulation of Wall Street firms agreed to accommodate basic and cyberbanking abetment for the bank's alike defalcation and the Federal Reserve, in turn, agreed to a bandy of lower-quality assets in barter for loans and added abetment from the government.73 The morning witnessed scenes of Lehman advisers removing files, items with the aggregation logo, and added accouterments from the apple address at 745 Seventh Avenue. The comedy connected throughout the day and into the afterward day.

Later that day, the Australian Antithesis Barter (ASX) abeyant Lehman's Australian accessory as a bazaar actor afterwards clearing-houses concluded affairs with the firm.74 Lehman shares confused over 90% on September 15, 2008.7576 The Dow Jones bankrupt down just over 500 credibility on September 15, 2008, which was at the time the better bead in a individual day aback the canicule afterward the attacks on September 11, 2001.77

In the United Kingdom, the investment coffer went into administering with PricewaterhouseCoopers appointed as administrators.78 In Japan, the Japanese branch, Lehman Brothers Japan Inc., and its captivation aggregation filed for civilian about-face on September 16, 2008, in Tokyo District Court.79 On September 17, 2008, the New York Banal Barter delisted Lehman Brothers.80

On March 16, 2011 some three years afterwards filing for defalcation and afterward a filing in a Manhattan U.S. defalcation court, Lehman Brothers Holdings Inc appear it would seek creditor approval of its about-face plan by October 14 followed by a acceptance audition to chase on November 17.81

editLiquidation

editBarclays acquisition

On Tuesday, September 16, 2008, Barclays plc appear that they would access a "stripped clean" allocation of Lehman for $1.75 billion, including a lot of of Lehman's North America operations.582 On September 20, this transaction was accustomed by U.S. Defalcation Judge James Peck.8384

On September 20, 2008, a revised adaptation of the deal, a $1.35 billion (£700 million) plan for Barclays to access the amount business of Lehman (mainly its $960-million headquarters, a 38-story appointment building85 in Midtown Manhattan, with albatross for 9,000 above employees), was approved. Manhattan cloister defalcation Judge James Peck, afterwards a 7-hour hearing, ruled: "I accept to accept this transaction because it is the alone accessible transaction. Lehman Brothers became a victim, in aftereffect the alone accurate figure to abatement in a tsunami that has befallen the acclaim markets. This is the a lot of momentous defalcation audition I've anytime sat through. It can never be accounted antecedent for approaching cases. It's harder for me to brainstorm a agnate emergency."86

Luc Despins, again a accomplice at Milbank, Tweed, Hadley & McCloy, the creditors board counsel, said: "The acumen we're not aghast is absolutely based on the abridgement of a applicable alternative. We did not abutment the transaction because there had not been abundant time to appropriately analysis it."citation needed In the adapted agreement, Barclays would blot $47.4 billion in antithesis and accept $45.5 billion in trading liabilities. Lehman's advocate Harvey R. Miller of Weil, Gotshal & Manges, said "the acquirement amount for the absolute acreage apparatus of the accord would be $1.29 billion, including $960 actor for Lehman's New York address and $330 actor for two New Jersey abstracts centers. Lehman's aboriginal appraisement admired its address at $1.02 billion but an appraisement from CB Richard Ellis this anniversary admired it at $900 million."citation needed Further, Barclays will not access Lehman's Eagle Energy unit, but will accept entities accepted as Lehman Brothers Canada Inc, Lehman Brothers Sudamerica, Lehman Brothers Uruguay and its Clandestine Investment Administering business for top net-worth individuals. Finally, Lehman will absorb $20 billion of antithesis assets in Lehman Brothers Inc that are not getting transferred to Barclays.87 Barclays acquired a abeyant accountability of $2.5 billion to be paid as severance, if it chooses not to absorb some Lehman advisers above the affirmed 90 days.8889

editNomura acquisition

Nomura Holdings, Japan's top allowance firm, agreed to buy the Asian analysis of Lehman Brothers for $225 actor and locations of the European analysis for a nominal fee of $2.9091 It would not yield on any trading assets or liabilities in the European units. Nomura adjourned such a low amount because it acquired alone Lehman's advisers in the regions, and not its stocks, bonds or added assets. The endure Lehman Brothers Annual Address articular that these non-US subsidiaries of Lehman Brothers were amenable for over 50% of all-around acquirement produced.92

editSale of Neuberger Berman

On September 29, 2008, Lehman agreed to advertise Neuberger Berman, the aggregate of its investment administering business, to a brace of private-equity firms, Bain Basic Ally and Hellman & Friedman, for $2.15 billion.93 The transaction was accepted to abutting in aboriginal 2009, accountable to approval by the U.S. Defalcation Court,94 but a aggressive bid was entered by the firm's management, who ultimately prevailed in a defalcation bargain on December 3, 2008. Creditors of Lehman Brothers Holdings Inc. absorb a 49% accepted disinterestedness absorption in the firm, now accepted as Neuberger Berman Accumulation LLC.95 It is the fourth better clandestine employee-controlled asset administering abutting globally, abaft Fidelity Investments, The Basic Accumulation Companies and Wellington Administering Company.

editFinancial fallout

Lehman's defalcation was the better abortion of an investment coffer aback Drexel Burnham Lambert burst amidst artifice allegations 18 years prior.73 Immediately afterward the defalcation filing, an already afflicted cyberbanking bazaar began a aeon of acute volatility, during which the Dow accomplished its better one day point loss, better intra-day ambit (more than 1,000 points) and better circadian point gain. What followed was what abounding accept alleged the “perfect storm” of bread-and-butter ache factors and eventually a $700bn bailout amalgamation (Troubled Asset Relief Program) able by Henry Paulson, Secretary of the Treasury, and accustomed by Congress. The Dow eventually bankrupt at a new six-year low of 7,552.29 on November 20, followed by a added bead to 6626 by March of the next year.

The abatement of Lehman aswell had a able aftereffect on baby clandestine investors such as band holders and holders of alleged Minibonds. In Germany structured products, generally based on an index, were awash mostly to clandestine investors, elderly, retired persons, acceptance and families. A lot of of those now abandoned derivatives were awash by the German arm of Citigroup, the German Citibank now endemic by Crédit Mutuel.

editOngoing litigation

On March 11, 2010, Anton R. Valukas, a court-appointed examiner, appear the after-effects of its year-long analysis into the affairs of Lehman Brothers.96 This address appear that Lehman Brothers acclimated an accounting activity termed repo 105 to briefly barter $50 billion of assets into banknote just afore publishing its cyberbanking statements.97 The activity could be apparent to accuse both Ernst & Young, the bank's accountancy abutting and Richard S. Fuld, Jr, the above CEO.98 This could potentially advance to Ernst & Young getting begin accusable of cyberbanking abuse and Fuld adverse time in prison.99

According to the Wall Street Journal, in March 2011, the SEC appear that they weren't assured that they could prove that Lehman Brothers abandoned US laws in its accounting practices.100

In October 2011 the administrators of Lehman Brothers Captivation Inc. absent their address to annul a cloister adjustment banishment them to pay 148 actor pounds into their underfunded pensions plan.