The Rise and Fall of Lehman Brothers Explained

Lehman Brothers was founded in 1850 by three brothers, Henry, Emanuel, and Mayer Lehman, on a handshake deal.

They started as a dry goods business, but soon expanded into the cotton trade.

Their early success was built on their ability to buy and sell cotton at a profit, often using their own money to finance these deals.

The company grew rapidly, and by the 1920s, Lehman Brothers was a major player in the investment banking world.

Lehman Brothers was highly leveraged, with a leverage ratio exceeding 30% in 2007, double the maximum requirements of US regulation set at 15%.

This was largely due to the bank's aggressive growth strategy and excessive borrowing, which allowed it to expand its portfolio of assets, including huge subprime mortgage loans.

The Glass-Steagall Act's repeal in 1999 and lax financial standards contributed to this situation, enabling Lehman to grow its profits while maintaining limited capital.

In 2007, Lehman held a record value of $111 billion of commercial or residential real estate-related assets and securities, which was double the $52 billion it held at the end of 2006.

Its leverage ratios continued to rise, going from over 26% in 2008 to over 32% in 2007, and to 33% in the second quarter of 2008.

Lehman's attempt to recover confidence by deleveraging and reducing its balance sheet was unsuccessful, as it struggled to sell off assets at acceptable prices.

The bank's inability to meet its short-term obligations and roll over its debts led to liquidity pressures, forcing it to rely on short-term wholesale funding and repos to manage its cash liquidity.

Shriti Vadera, a former business minister, played a key role in the post-Lehman banking bailout. She helped push through the bailout and has since become one of the most powerful women in the City.

Vadera is currently the chair of Santander UK and a director of FTSE 100 companies BHP Billiton and AstraZeneca. She is also mentioned as a possible successor to Mark Carney as governor of the Bank of England.

Here's a list of some of the notable individuals who worked at Lehman Brothers:

Robert Lehman's death in 1969 marked the end of the Lehman family's active involvement in the firm. This created a power vacuum that led to the appointment of Pete Peterson as chairman and CEO in 1973.

Peterson's leadership was instrumental in transforming the firm's fortunes, as he led it from significant operating losses to five consecutive years of record profits. He achieved this by acquiring Abraham & Co. in 1975 and merging with Kuhn, Loeb & Co. in 1977.

The partnership between Lehman Brothers and Kuhn, Loeb & Co. created a formidable investment bank, ranking fourth in the country behind Salomon Brothers, Goldman Sachs, and First Boston. Peterson's tenure was marked by a period of remarkable growth and success.

However, tensions between the firm's investment bankers and traders eventually led to a power struggle that ousted Peterson in 1983. Lewis Glucksman, the firm's President and COO, took over as sole CEO, but his management style and a downturn in the markets created further tension.

The power struggle led to the departure of several key bankers, and Glucksman was eventually pressured into selling the firm.

Erin Callan was a former lawyer who had a meteoric Wall Street career, joining Lehman Brothers in 1995 and becoming its finance chief in late 2007.

She was widely criticized for being underqualified to run the finances of a major investment bank, lacking even basic accounting qualifications.

Callan's super-positive style initially helped reassure investors, but she was fired by CEO Richard Fuld two months before the bankruptcy.

She was slammed in a bankruptcy court report for ignoring "ample red flags" and using misleading gimmicks to bolster Lehman's balance sheet by $50bn.

Callan took a brief stint at Credit Suisse before going on leave and not returning.

In her 2016 memoir, Full Circle, Callan revealed she had taken an overdose of sleeping pills in December 2008.

At 52, Erin Callan now lives in New York and Florida with her retired firefighter husband and daughter.

Shriti Vadera is a highly influential figure in the City, having chaired Santander's UK business and served as a director of FTSE 100 companies BHP Billiton and AstraZeneca.

She has also held advisory roles and been mentioned as a possible successor to Mark Carney as governor of the Bank of England.

At 56, Vadera has had a distinguished career, working closely with Gordon Brown and helping to push through the post-Lehman banking bailout.

Her experience in the government and the City has made her one of the most powerful women in the industry, with a strong reputation and a significant network of connections.

Barclays PLC acquired a portion of Lehman Brothers for $1.75 billion on September 16, 2008.

The acquisition included most of Lehman's North America operations, and was later revised to a $1.35 billion deal on September 20, 2008.

A 7-hour hearing was held, and U.S. bankruptcy judge James Peck approved the revised deal, stating it was the "only available transaction".

The deal involved Barclays absorbing $47.4 billion in securities and assuming $45.5 billion in trading liabilities.

The purchase price for the real estate components of the deal was $1.29 billion, including $960 million for Lehman's New York headquarters.

Lehman's original estimate valued its headquarters at $1.02 billion, but an appraisal valued it at $900 million.

Barclays did not acquire Lehman's Eagle Energy unit, but did acquire certain international entities and a Private Investment Management business.

Lehman retained $20 billion of securities assets in Lehman Brothers Inc that were not being transferred to Barclays.

Barclays acquired a potential liability of $2.5 billion to be paid as severance if it chose not to retain some Lehman employees beyond the guaranteed 90 days.

Nomura Holdings, Japan's top brokerage firm, agreed to buy the Asian division of Lehman Brothers for $225 million.

This acquisition was a significant deal for Nomura, as it helped the company expand its presence in the Asian market.

Nomura negotiated a low price of $225 million for the Asian division, which was a fraction of the global revenue generated by Lehman Brothers' non-US subsidiaries.

These non-US subsidiaries were responsible for over 50% of global revenue produced, according to Lehman Brothers' last Annual Report.

Nomura didn't take on any trading assets or liabilities in the European units, opting for a nominal fee of $2 instead.

We've got a list of notable former officers who were part of the organization. Richard S. Fuld Jr. is one of them, but that's not all.

Richard S. Fuld Jr. is a notable figure, and his experience is worth noting. Scott J. Freidheim is another former officer who made a name for himself.

Scott J. Freidheim's background is impressive, and his achievements are worth mentioning. Rodger Krouse, born in 1961, is also a former officer who's made a mark.

Rodger Krouse's birth year is 1961, which is a notable fact. Jack Langer, born in 1948 or 1949, is a former officer with a diverse background.

Jack Langer's birth year is either 1948 or 1949, and he's also a basketball player and investment banker. Bart McDade is another former officer who's made a name for himself.

Bart McDade's experience is worth noting, and he's a notable figure in his own right. Hugh McGee is a former officer who's made a mark.

Hugh McGee's background is impressive, and his achievements are worth mentioning. George Herbert Walker IV is a former officer with a notable family connection.

George Herbert Walker IV's family connection is worth noting, as it adds context to his experience. Frederick M. Warburg is another former officer who's made a name for himself.

Frederick M. Warburg's background is impressive, and his achievements are worth mentioning. Joseph Rosenberg is a former officer who's made a mark.

Here's a list of the former officers mentioned:

Lehman Brothers was a massive investment bank that started as a dry-goods store in 1850. It branched off into commodities trading and brokerage services before becoming a major investment bank.

The firm survived many challenges, but its demise was caused by the collapse of the subprime mortgage market. This was a major blow to Lehman, which had heavily invested in mortgage-backed securities.

Lehman Brothers first got into mortgage-backed securities in the early 2000s, and it's worth noting that this was a time when many people were not aware of the risks involved. The firm acquired five mortgage lenders, including BNC Mortgage, a subprime lender.

The firm's share price dropped significantly as it posted multiple consecutive losses. This was a clear sign that something was wrong, but it was too late for Lehman Brothers.

Here are some key statistics about Lehman Brothers' bankruptcy:

Lehman Brothers' bankruptcy was a major event in financial history, and it had far-reaching consequences. It's still remembered today as one of the biggest failures in the "too big to fail" moment.

Lehman Brothers filed for Chapter 11 bankruptcy protection on September 15, 2008, citing bank debt of $613 billion and assets worth $639 billion.

The bankruptcy filing was a result of the company's inability to secure a sale or emergency liquidation of its assets, despite negotiations with Bank of America and Barclays.

Lehman Brothers' subsidiaries continued to operate as normal after the bankruptcy filing, with a group of Wall Street firms agreeing to provide capital and financial assistance for the bank's orderly liquidation.

The Federal Reserve agreed to a swap of lower-quality assets in exchange for loans and other assistance from the government, helping to facilitate the liquidation process.

Lehman employees were seen removing files and company belongings from the world headquarters at 745 Seventh Avenue in the days following the bankruptcy filing.

On September 13, 2008, Timothy F. Geithner, then the president of the Federal Reserve Bank of New York, called a meeting on the future of Lehman, which included the possibility of an emergency liquidation of its assets.

Lehman reported that it had been in talks with Bank of America and Barclays for the company's possible sale, but both declined to purchase the entire company.

The International Swaps and Derivatives Association (ISDA) offered an exceptional trading session on September 14 to allow market participants to offset positions in various derivatives on the condition of a Lehman bankruptcy later that day.

Many dealers honored the trades they made in the special session, despite the bankruptcy filing missing the deadline.

Lehman Brothers Holdings announced it would file for Chapter 11 bankruptcy protection on September 15, 2008, citing bank debt of $613 billion, $155 billion in bond debt, and assets worth $639 billion.

Its subsidiaries would continue to operate as normal, and a group of Wall Street firms agreed to provide capital and financial assistance for the bank's orderly liquidation.

The Federal Reserve agreed to a swap of lower-quality assets in exchange for loans and other assistance from the government.

Lehman employees removed files, items with the company logo, and other belongings from the world headquarters at 745 Seventh Avenue on September 15, 2008.

Brian Marsal, co-chief executive of the restructuring firm Alvarez and Marsal, was appointed as chief restructuring officer and subsequently chief executive officer of the company.

The Australian Securities Exchange (ASX) suspended Lehman's Australian subsidiary as a market participant after clearing-houses terminated contracts with the firm.

Lehman shares tumbled over 90% on September 15, 2008, and the Dow Jones closed down just over 500 points that same day.

In the United Kingdom, the investment bank went to administration with PricewaterhouseCoopers appointed as administrators.

Lehman Brothers Japan Inc. and its holding company filed for civil reorganization on September 16, 2008, in Tokyo District Court.

The New York Stock Exchange delisted Lehman Brothers on September 17, 2008.

Lehman Brothers Holdings Inc. sold its Neuberger Berman investment management business to private-equity firms Bain Capital Partners and Hellman & Friedman for $2.15 billion on September 29, 2008.

The sale was subject to approval by the U.S. Bankruptcy Court, but a competing bid from the firm's management ultimately prevailed in a bankruptcy auction on December 3, 2008.

Creditors of Lehman Brothers Holdings Inc. retained a 49% common equity interest in Neuberger Berman, now known as Neuberger Berman Group LLC.

In Europe, the Quantitative Asset Management Business was acquired back by its employees on November 13, 2008, and was renamed back to TOBAM.