Lehman Brothers

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Lehman Brothers Inc.
LehmanBrotherslogo.gif
Founded 1850 in Montgomery, Alabama
Headquarters Headquarters: New York, New York
Key People Richard S. Fuld, Jr., Chairman and CEO; Joseph M. Gregory, President and COO; Jeremy M. Isaacs, CEO, Europe, Middle East and Asia-Pacific; Thomas A. Russo, Vice Chairman/Chief Legal Officer; David Goldfarb, Global Head of Strategic Partnerships, Principal Investing and Risk
Employees 26,000 (in 2007)
Website http://www.lehman.com

Lehman Brothers was the fourth largest investment bank in the U.S. until it declared bankruptcy in 2008. Lehman was a global financial services firm with a corporate, government and municipality, institutional, and high-net-worth individual clientele. Its focus was in equity and fixed-income sales, trading and research, investment banking, private investment management, asset management and private equity. Lehman Brothers Inc. is a separate company from Lehman Brothers Holdings, with its own accounts, assets and customers.[1]

In September of 2008, Lehman Brothers Holdings, the parent company of Lehman Brothers Inc., was forced into bankruptcy after Barclays Plc and Bank of America Corp. abandoned takeover talks and the company lost 94 percent of its market value in a year.[2] Lehman's bankruptcy petition listed $639 billion in assets and $613 billion in debts, effectively making the firm's bankruptcy filing the largest in U.S. history. Lehman was also the first major market maker to go bankrupt.[3] The bankruptcy was preceded by layoffs of more than 7,000 workers starting in 2007.

Lehman's collapse was precipitated by the subprime mortgage meltdown, which led to enormous losses in Lehman's mortgage business and a loss of investor confidence. The firm was a major player in the subprime and prime mortgage markets, and as the smallest of the big Wall Street firms, its risk of collapse from large losses was greater.

Lehman was later found to have used accounting sleight of hand to cover up the bad mortgage holdings and other investments that led to its demise. Lehman also used a small company it created as an "alter ego" to shift investments off its books, according to The New York Times.[4]

The Sept. 15 Chapter 11 filing by Lehman Brothers Holdings, Inc., did not include any of its subsidiaries.

Virtually all the futures and options contracts held by Lehman on behalf of its customers were safely transferred out of the company within a week of the bankruptcy filing, and the futures markets continued to function normally. However, many customers still had margin money trapped in the accounts at Lehman affiliates outside the U.S., such as Lehman Brothers (International) Europe in London.[5]

Barclays subsequently acquired Lehman’s North American investment banking and capital markets businesses for about $1.75 billion.[6] [7]

Lehman Brothers Holdings Inc. reached an agreement on Sept. 29, 2008 to sell its Neuberger Berman unit to private equity firms Bain Capital LLC and Hellman & Friedman LLC for $2.15 billion. The deal included other Lehman money-management units, including private equity funds.[8]

On Oct. 8, 2008, LCH.Clearnet and OTCDerivnet successfully wound down the Lehman Brothers Special Financing Inc. over-the-counter (OTC) interest rate swap positions. The total notional value of the portfolio was $9 trillion, encompassing a total of 66,390 trades across 5 major currencies.[9]

Lehman Brothers Holdings Inc. in mid May of 2009 asked a bankruptcy judge for a probe of whether Barclays Plc made a windfall profit when it bought Lehman’s brokerage unit just days after the securities firm filed for bankruptcy in September.[10]

In November of 2012, it became known that Man Group would sell claims to the estate of the defunct Lehman Brothers in a $456 million deal that would boost its cash position. Man acquired the claims for $355 million in July 2011 from funds managed by its GLG Partners subsidiary. It has never disclosed the size of the original claims. GLG was one of hundreds of hedge fund and asset managers which had outstanding trades with Lehman that collapsed along with the bank in 2008.[11]

Resources

Subsidiaries

Primary subsidiaries include: Lehman Brothers Inc., Neuberger Berman Inc., Aurora Loan Services, Inc., SIB Mortgage Corp., Lehman Brothers Bank, FSB and the Crossroads Group.

Products and Services

  • Equities
  • Fixed Income
  • Global Economics
  • Investment Banking
  • Lehman Brothers Bank FSB
  • Investment Management


History

Formative years from 1844 [12] The history of Lehman Brothers parallels the growth of the United States and its energetic drive toward prosperity and international prominence. What would evolve into a global financial entity began as a general store in the American South. Henry Lehman, an immigrant from Germany, opened his small shop in the city of Montgomery, Alabama in 1844. Six years later, he was joined by brothers Emanuel Lehman and Mayer Lehman, 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. The brothers traded the cotton for cash or merchandise, becoming brokers for buyers and sellers of the crop. In 1858, they opened an office in New York, which was the commodity trading center of the country.

1860-1869 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, sparking the transformation of the nation from an agrarian to an industrial economy. At the time, Lehman Brothers' future merger partner, Kuhn, Loeb & Co., was underwriting much of the financing for railroad construction.

Railroad bonds represented a significant advance in the development of capital markets. Their affordable price attracted a great number of individual investors and Lehman Brothers, recognizing a trend, expanded its commodities business to include the sale and trading of securities. The firm also moved into the area of financial advisory, which provided the foundation for underwriting expertise.

1880-1889 During the vigorous economic expansion of the second half of the 19th century, Lehman Brothers broadened its expertise beyond commodities brokerage to merchant banking. Building a securities trading business, they became members of the New York Stock Exchange in 1887.

Setting the stage for future global growth, Jacob Schiff, a Kuhn, Loeb partner, led the firm to establish investment-banking relationships in Europe and Japan.

1900-1909 At the turn of the century, Lehman Brothers was a founding financier of emerging retailers, including Sears, Roebuck & Company, F.W. Woolworth Company, May Department Stores Company, Gimbel Brothers, Inc. and R.H. Macy & Company.

1920-1929 In the 1920s, Robert Lehman perceived dynamic changes occurring in the nation's economy, and focused the company on rapidly developing consumer industries such as retailing, airlines and communications. Lehman Brothers was a strong supporter of the entertainment sector and advised on the consolidation of major movie theater chains. Start-up ventures, including film studios RKO, Paramount and 20th Century Fox, benefited from financing arranged by the firm.

Triggered by the Stock Market Crash of 1929, the Great Depression placed tremendous pressure on the availability of capital. Lehman Brothers was one of the pioneers of innovative financing techniques such as private placements, arranging loans between blue-chip borrowers and private lenders. These loans offered strict safeguards and solid returns for lenders, while enabling borrowers to raise much-needed capital.

1930-1939 The 1930s witnessed the explosive growth of radio and experimentation with a developing technology called television. Lehman Brothers underwrote the initial public offering for DuMont, the first television manufacturer, and helped fund the Radio Corporation of America, known as RCA.

Beginning in the 1930s, the increasing demand for oil set off waves of wildcat drilling in search of the resource. Companies like Halliburton and Kerr-McGee relied on Lehman Brothers for capital to fund their activities.

1940-1949 The end of World War II ignited an unprecedented era of prosperity, fueling the growth of consumer industries such as home appliances and auto manufacturing. Lehman Brothers became an important financial advisor and underwriter for many growing companies and established a number of long-term relationships that are still active today.

1950-1959 Economic expansion accelerated in the 1950s with the dawn of the Electronics Age, and Lehman Brothers arranged start-up financing for companies such as Litton Industries. The firm also lent its expertise and advisory skills to Burlington Mills, Schenley Industries and American Export Lines.

This period was also the beginning of the computer era, and Lehman Brothers provided IPO underwriting for industry pioneer Digital Equipment. The firm later arranged the acquisition of Digital by Compaq.

The travel industry benefited from the sustained economic growth of the period, and Lehman Brothers sponsored the IPO of Hertz Rent-a-Car. The focus on transportation and travel continued into the 1960s, with Lehman Brothers advising Ford Motor Company, TWA, American Airlines and Continental Airlines.

At this time, consumer-driven companies such as General Foods, Campbell Soup and Philip Morris turned to Lehman Brothers to help finance the growth necessary to satisfy burgeoning demand for their products.

1960-1979 By the 1960s and 1970s, many of Lehman Brothers' clients were expanding overseas. To meet their financial needs, the firm opened an office in Paris in 1960, followed by a location in London in 1972 and Tokyo in 1973. This growing international presence was enhanced by the merger with Kuhn, Loeb & Co.

With continued advances in electronics and information technology in the 1970s, Lehman Brothers worked with leading players such as IBM and QUALCOMM in telecommunications and Loral in defense electronics.

1980-1989 In the 1980s, Lehman Brothers played an important role in the dawn of the Information Age, helping fund such companies as Intel and new technology businesses of the period, which later became the leading players in the high-tech revolution.

During the robust merger and acquisition activity of the 1980s, Lehman Brothers advised companies such as Chrysler, American Motors, General Foods, Philip Morris and Hoffman-LaRoche on expanding domestic and international operations.

In the mid-1980s, breakthrough research in the life sciences introduced the biotech era, revolutionizing the healthcare industry. Lehman Brothers assisted a number of new businesses in obtaining the capital needed to fund research and development. A leading advisor to the health care sector, the firm worked with major pharmaceutical companies during the international consolidation and globalization of the industry.

In 1984, Lehman Brothers was acquired by American Express and merged with its retail brokerage Shearson to form Shearson Lehman Brothers.[13]

1990-1999 American Express divested Shearson in 1993, and the independent firm once again became known solely as Lehman Brothers.

2000 Lehman Brothers celebrates its 150th year anniversary.

The firm joins the S&P 100 Index and its stock price hits $100 for the first time.

Lehman Brothers becomes the first firm to underwrite corporate debt on the Internet.

The firm launches LehmanLive, a web site that offers global clients access to a vast array of services and proprietary information 24 hours a day.

A Rough Ride In 2007/2008

Lehman Brothers had a rough ride in 2007 and at least the first half of 2008 mainly as a result of the credit crisis.[14] By June of 2008, the company's shares were down 65 percent year to date.

On June 9, 2008 Lehman announced plans to raise $6 billion in new capital to shore up its balance sheet after saying it expected to post an unexpectedly large second-quarter loss of nearly $3 billion.

On June 12, 2008, CFO Erin Callan and chief operating officer Joseph Gregory were removed from their positions. Both would remain at the investment bank in other jobs. Ian Lowitt, formerly chief administrative officer, would be the CFO. Bart McDade, global head of equities, would be chief operating officer and president, replacing Joseph Gregory.[15]Also on June 12, 2008, Lehman announced that it closed its previously announced $4 billion public offering of 143 million shares of common stock at $28.00 per share and closed its previously announced $2 billion public offering of 2 million shares of 8.75% Non-Cumulative Mandatory Convertible Preferred Stock, Series Q.[16]

Lehman announced a record quarterly loss of $3.9 billion on Sept. 10, 2008, and said it would spin off distressed assets and sell a stake in its asset management business.[17]

Registration

References

  1. "Lehman Meeting All Clearing Obligations: CME". Crain's Chicago Business.
  2. Lehman Files Biggest Bankruptcy Case as Suitors Balk. Bloomberg.
  3. "Lehman Collapse Spurs Call for Credit Clearinghouse". Bloomberg.
  4. Lehman Brothers Holdings Inc.. The New York Times.
  5. The Lesson of Lehman. Futures Industry Magazine.
  6. Barclay Guts Lehman. The Motley Fool.
  7. Judge approves Lehman, Barclays pact. Reuters.
  8. Lehman Reaches Deal to Sell Neuberger Berman Unit. WSJ.com.
  9. Press Release. LCH.Clearnet.
  10. Lehman Wants Probe of Alleged Barclays Windfall on Purchase. Bloomberg.
  11. Man Group sells Lehman exposure for $456 million. Reuters.
  12. "History”. www.lehman.com.
  13. Template:Cit web
  14. A Timeline of Lehman Brothers' Recent History. Forbes.
  15. Lehman Demotes CFO Callan, Names New COO. Reuters.
  16. Lehman Brothers Closes Offerings of $4.0 Billion of Common Stock and $2.0 Billion of Mandatory Convertible Preferred Stock. Trading Markets.
  17. Lehman futures client assets off 22 pct-CFTC. Reuters UK.