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Lehman Brothers

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Lehman Brothers
Company typePublic NYSE: LEH
IndustryInvestment services
Founded Montgomery, Alabama (1850)
FounderHenry Lehman
Emanuel Lehman
Mayer Lehman
Headquarters New York City
Area served
Worldwide
Key people
Richard S. Fuld, Jr.
(Chairman) & (CEO)
ProductsFinancial Services
Investment Banking
Investment management
RevenueIncrease US$ 59.003 Billion (2007)
Increase US$ 6.013 Billion (2007)
Decrease US$ 6.7 Billion (2008)
Total assetsIncrease US$ 691.063 Billion (2007)
Total equityIncrease US$ 22.490 Billion (2007)
Number of employees
26,200 (2008)
WebsiteLehman.com

Lehman Brothers Holdings Inc. (NYSE: LEH) (pronounced /ˈliːmən/), founded in 1850, is a global financial-services firm. It is active in investment banking, equity and fixed-income sales, research and trading, investment management, private equity, and private banking. It is a primary dealer in the U.S. Treasury securities market. Its primary subsidiaries include Lehman Brothers Inc., Neuberger Berman Inc., Aurora Loan Services, Inc., SIB Mortgage Corporation, Lehman Brothers Bank, FSB, and the Crossroads Group. The firm's worldwide headquarters are in New York City, with regional headquarters in London and Tokyo, as well as offices located throughout the world. On September 15, 2008, it filed for Chapter 11 bankruptcy protection[1] listing debts of $613 billion.[2] Until the bankruptcy procedures are completed, the company is still in existence.

History

Under the Lehman family, 1850–1969

In 1844, 23-year-old Henry Lehman,[3] the son of a cattle merchant, emigrated to the United States from Rimpar, Bavaria.[4] He settled in Montgomery, Alabama,[3] where he opened a dry-goods store, "H. Lehman".[5] In 1847, following the arrival of Emanuel Lehman, the firm became "H. Lehman and Bro." [6] With the arrival of their youngest brother, Mayer Lehman, in 1850, the firm changed its name again and "Lehman Brothers" was founded.[5][7]

In the 1850s Southern United States, cotton was one of the most important crops. Capitalizing on cotton's high market value, the three brothers began to routinely accept raw cotton from customers as payment for merchandise, eventually beginning a second business trading in cotton. Within a few years this business grew to become the most significant part of their operation. Following Henry's death from yellow fever in 1855,[5][8] the remaining brothers continued to focus on their commodities-trading/brokerage operations.

Emanuel and Mayer Lehman

By 1858, the center of cotton trading had shifted from the South to New York City, where factors and commission houses were based. Lehman opened its first branch office in New York City's Manhattan borough at 119 Liberty Street,[8] and 32-year-old Emanuel relocated there to run the office.[5] In 1862, facing difficulties as a result of the Civil War, the firm teamed up with a cotton merchant named John Durr to form Lehman, Durr & Co.[9][10] Following the war the company helped finance Alabama's reconstruction. The firm's headquarters were eventually moved to New York City, where it helped found the New York Cotton Exchange in 1870;[8][11] Emanuel sat on the Board of Governors until 1884. The firm also dealt in the emerging market for railroad bonds and entered the financial-advisory business.

Lehman became a member of the Coffee Exchange as early as 1883 and finally the New York Stock Exchange in 1887.[8][11] In 1899, it underwrote its first public offering, the preferred and common stock of the International Steam Pump Company.

Despite the offering of International Steam, the firm's real shift from being a commodities house to a house of issue did not begin until 1906. In that year, under Philip Lehman, the firm partnered with Goldman, Sachs & Co.,[12][13] to bring the General Cigar Co. to market,[14] followed closely by Sears, Roebuck and Company [14]. During the following two decades, almost one hundred new issues were underwritten by Lehman, many times in conjunction with Goldman, Sachs. Among these were F.W. Woolworth Company,[15][14] May Department Stores Company, Gimbel Brothers, Inc.,[16] R.H. Macy & Company,[16] The Studebaker Corporation,[15] the B.F. Goodrich Co. and Endicott Johnson Corporation.

File:Herbert Lehman Official Senate Photo.jpg
Herbert H. Lehman
Official U.S. Senate Photo

Following Philip Lehman's retirement in 1925, his son Robert "Bobbie" Lehman took over as head of the firm. During Bobbie's tenure, the company weathered the capital crisis of the Great Depression by focusing on venture capital while the equities market recovered. By 1928, the firm moved to its now famous One William Street location.

Traditionally, a family-only partnership, in 1924 John M. Hancock became the first non-family member to join the firm,[12][17] followed by Monroe C. Gutman and Paul Mazur in 1927.

In the 1930s, Lehman underwrote the initial public offering of the first television manufacturer, DuMont, and helped fund the Radio Corporation of America (RCA).[18] It also helped finance the rapidly growing oil industry, including the companies Halliburton and Kerr-McGee.


Pete Peterson

In the 1950s, Lehman underwrote the IPO of Digital Equipment Corporation. Later, it arranged the acquisition of Digital by Compaq. Robert Lehman died in 1969,[19] and since that time, no member of the Lehman family has led the company. Robert's death left a void in the company, which coupled with a difficult economic environment, brought hard times to the firm. In 1973, Pete Peterson, Chairman and Chief Executive Officer of the Bell & Howell Corporation, was brought in to save the firm.[19]

Merger with American Express (1969–94)

Under Peterson's leadership as Chairman and CEO, the firm acquired Abraham & Co. in 1975, and two years later merged with the venerable, but struggling, Kuhn, Loeb & Co. [19], to form Lehman Brothers, Kuhn, Loeb Inc., the country's fourth-largest investment bank, behind Salomon Brothers, Goldman Sachs and First Boston. [20] Peterson led the firm from significant operating losses to five consecutive years of record profits with a return on equity among the highest in the investment-banking industry.

File:Shearson Lehman Logo.jpg
Shearson Lehman/American Express Logo

However, hostilities between the firm's investment bankers and traders (who were driving most of the firm's profits) prompted Peterson to promote Lewis Glucksman, the firm's President, COO and former trader, to be his co-CEO in May 1983. Glucksman introduced a number of changes that had the effect of increasing tensions, which when coupled with Glucksman’s management style and a downturn in the markets, resulted in a power struggle that ousted Peterson and left Glucksman as the sole CEO.[21] ,

Upset bankers, who had soured over the power struggle, left the company. Steve Schwarzman, chairman of the firm's M&A committee, recalled in a February 2003 interview with Private Equity International that "Lehman Brothers had an extremely competitive internal environment, which ultimately became dysfunctional." The company suffered under the disintegration, and Glucksman was pressured into selling the firm to Shearson, an American Express-backed electronic transaction company, in 1984, for $360 million. On May 11, the combined firms became Shearson Lehman/American Express.[21] In 1988, Shearson Lehman/American Express and E.F. Hutton & Co. merged as Shearson Lehman Hutton Inc. [22]

Divestment and independence (1994–present)

In 1993, under newly appointed CEO, Harvey Golub, American Express began to divest itself of its banking and brokerage operations. It sold its retail brokerage and asset management operations to Primerica[23] and in 1994 it spun off Lehman Brothers Kuhn Loeb in an initial public offering, as Lehman Brothers Holdings, Inc. [24]

Despite rumors that it would be acquired again, Lehman performed quite well under CEO Richard S. Fuld, Jr.. In 2001, the firm acquired the private-client services, or "PCS", business of Cowen & Co. [25] and later, in 2003, aggressively re-entered the asset-management business, which it had exited in 1989.[26] Beginning with $2 billion in assets under management, the firm acquired the Crossroads Group, the fixed-income division of Lincoln Capital Management[26] and Neuberger Berman [27]. These businesses, together with the PCS business and Lehman's private-equity business, comprise the Investment Management Division, which generated approximately $3.1 billion in net revenue and almost $800 million in pre-tax income in 2007. The firm currently has in excess of $275 billion in assets under management. Altogether, since going public in 1994, the firm has increased net revenues over 600% from $2.73 billion to $19.2 billion and increased employee headcount over 230% from 8,500 to almost 28,600.

Response to September 11 terrorist attacks

The Times Square headquarters.

On September 11, 2001, Lehman occupied three floors of One World Trade Center where one employee was killed. Its global headquarters in Three World Financial Center were severely damaged and rendered unusable by falling debris, displacing over 6,500 employees. The bank recovered quickly and rebuilt its presence. Trading operations moved across the Hudson River to its Jersey City, New Jersey, facilities, where an impromptu trading floor was built and brought online less than forty-eight hours after the attacks. When stock markets reopened on September 17, 2001, Lehman's sales and trading capabilities were restored.

In the ensuing months, the firm fanned out its operations across the New York City metropolitan area in over forty temporary locations. Notably, the investment-banking division converted the first-floor lounges, restaurants, and all 665 guestrooms of the Sheraton Manhattan Hotel into office space. The bank also experimented with flextime (to share office space) and telecommuting via virtual private networking. In October 2001, Lehman purchased a 32- story, 1,050,000-square-foot office building for a reported sum of $700 million. The building, located at 745 Seventh Avenue, had recently been built, and not yet occupied, by rival, Morgan Stanley. With Morgan Stanley's world headquarters located only two blocks away at 1585 Broadway, in the wake of the attacks the firm was re-evaluating its office plans which would have put over 10,000 employees in the Times Square area. Lehman began moving into the new facility in January and finished in March 2002, a move that significantly boosted morale throughout the firm.

The firm was criticized for not moving back to its former headquarters in lower Manhattan. Following the attacks, only Deutsche Bank, Goldman Sachs, and Merrill Lynch of the major firms remained in the downtown area. Lehman, however, points to the facts that it was committed to stay in New York City, that the new headquarters represented an ideal circumstance where the firm was desperate to buy and Morgan Stanley was desperate to sell, that when the new building was purchased, the structural integrity of Three World Financial Center had not yet been given a clean bill of health, and that in any case, the company could not have waited until May 2002 for repairs to Three World Financial Center to conclude.

After the attacks, Lehman's management placed increased emphasis on business continuity planning. Unlike its rivals, the company was unusually concentrated for a bulge-bracket investment bank. For example, Morgan Stanley maintains a 750,000-square-foot trading-and-banking facility in Westchester County, New York. The trading floor of UBS is located in Stamford, Connecticut. Merrill Lynch's asset-management division is located in Plainsboro Township, New Jersey. Aside from its headquarters in Three World Financial Center, Lehman maintained operations-and-backoffice facilities in Jersey City, space that the firm considered leaving prior to 9/11. The space was not only retained, but expanded, including the construction of backup-trading facility. In addition, telecommuting technology first rolled out in the days following the attacks to allow employees to work from home has been expanded and enhanced for general use throughout the firm. [28]

2003 SEC litigation

In 2003, the company was one of ten firms which simultaneously entered into a settlement with the U.S. Securities and Exchange Commission (SEC), the Office of the New York State Attorney General and various other securities regulators, regarding undue influence over each firms' research analysts by their investment-banking divisions. Specifically, regulators alleged that the firms had improperly associated analyst compensation with the firms' investment-banking revenues and, promised favorable, market-moving, research coverage, in exchange for underwriting opportunities. The settlement, known as the “global settlement”, provided for total financial penalties of $1.4 billion, including $80 million against Lehman, and structural reforms, including, a complete separation of investment banking departments from research departments, no analyst compensation, directly or indirectly, from investment-banking revenues, and the provision of free, independent, third-party, research to the firms' clients.

Subprime mortgage crisis

In August 2007, the firm closed its subprime lender, BNC Mortgage, eliminating 1,200 positions in 23 locations, and took an after-tax charge of $25 million and a $27-million reduction in goodwill. Lehman said that poor market conditions in the mortgage space "necessitated a substantial reduction in its resources and capacity in the subprime space". [29]

In 2008, Lehman faced an unprecedented loss to the continuing subprime mortgage crisis. Lehman's loss was apparently a result of having held on to large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages; whether Lehman did this because it was simply unable to sell the lower-rated bonds, or made a conscious decision to hold them, is unclear. In any event, huge losses accrued in lower-rated mortgage-backed securities throughout 2008. In the second fiscal quarter, Lehman reported losses of $2.8 billion and was forced to sell off $6 billion in assets.[30] In the first half of 2008 alone, Lehman stock lost 73% of its value as the credit market continued to tighten.[30] In August 2008, Lehman reported that it intended to release 6% of its work force, 1,500 people, just ahead of its third- quarter-reporting deadline in September.[30]

On August 22, 2008, shares in Lehman closed up 5% (16% for the week) on reports that the state-controlled Korea Development Bank was considering buying the bank. [31] Most of those gains were quickly eroded as news came in that Korea Development Bank was "facing difficulties pleasing regulators and attracting partners for the deal."[32] It culminated on September 9, when its shares plunged 44.95% to $7.79, after it was reported that the state-run South Korean firm had put talks on hold.[33]

Investor confidence continued to erode as Lehman's stock lost roughly half its value and pushed the S&P 500 down 3.4% on September 9. The Dow Jones lost 300 points the same day on investors' concerns about the security of the bank.[34] The U.S. government did not announce any plans to assist with any possible financial crisis that emerged at Lehman.[35]

On September 10, 2008, Lehman announced a loss of $3.9 billion and their intent to sell off a majority stake in their investment-management business, which includes Neuberger Berman.[36][37] The stock slid 7 percent that day.[37][38] Lehman, after earlier rejecting questions on the sale of the company, was reportedly searching for a buyer as its stock price dropped another 40 percent on September 11, 2008.[38]

Bankruptcy

Wikinews has related news:

On September 13, 2008, Timothy F. Geithner, 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.[39] Lehman reported that it had been in talks with Bank of America and Barclays for the company's possible sale.[39] The New York Times reported on September 14, 2008, that Barclays had ended its bid to purchase all or part of Lehman and a deal to rescue the bank from liquidation collapsed.[40] Leaders of major Wall Street banks continued to meet late that day to prevent the bank's rapid failure.[40] Bank of America's rumored involvement also appeared to end as federal regulators resisted its request for government involvement in Lehman's sale.[40] Also on September 14, 2008, The New York Times reported that Lehman will file for bankruptcy protection for its parent company, Lehman Brothers Holdings, while keeping its subsidiaries solvent during the bankruptcy proceedings.[41] A group of Wall Street firms agreed to provide capital and financial assistance for the bank's orderly liquidation and the Federal Reserve, in turn, agreed to a swap of lower-quality assets in exchange for loans and other assistance from the government.[41] Lehman's bankruptcy would be the largest failure of an investment bank since Drexel Burnham Lambert collapsed amid fraud allegations 18 years earlier.[41] The International Swaps and Derivatives Association (ISDA) offered an exceptional trading session on Sunday, September 14, 2008, to allow market participants to offset positions in various derivatives on the condition of a Lehman bankruptcy later that day.[42][43]

In New York, on September 15, 2008, shortly before 1 a.m., Lehman Brothers Holdings announced it would file for Chapter 11 bankruptcy protection, although its subsidiaries will continue to operate as normal.[44] The Australian Securities Exchange (ASX) suspended Lehman's Australian subsidiary as a market participant however, after clearing-houses terminated their contracts with the firm.[45] Former Lehman Brothers workers were shown leaving the Lehman Brothers building in Times Square, New York, with boxes of their belongings.[46]

Lehman Brothers (LEH) shares tumbled 80% in U.S. pre-open trade. Macquarie Private Wealth associate director Marcus Droga stated: "You've probably seen more in one day of financial history than we've seen since the great crash of 1929. I'm not suggesting the US market will crash tonight, but in terms of landmark events, it's an historic day."[47][48]

In the UK, the investment bank has gone into administration with PricewaterhouseCoopers appointed as administrators.[49]

Board of Directors

References

  1. ^ "Lehman Brothers Holdings Inc. Announces It Intends to File Chapter 11 Bankruptcy Petition" (PDF). Lehman Brothers Holdings Inc. 2008-09-15. Retrieved 2008-09-15.
  2. ^ "Lehman Lists Debts Of $613 Billion In Chapter 11 Filing Monday". Money.cnn.com. Retrieved 2008-09-15.
  3. ^ a b Geisst, Charles R. The Last Partnerships. McGraw-Hill, 1997, page 49
  4. ^ Bernhard, William, L., Birge, June Rossbach Bingham, Loeb, John L., Jr.. Lots of Lehmans - The Family of Mayer Lehman of Lehman Brothers, Remembered by His Descendants. Center For Jewish History, 2007, page 1
  5. ^ a b c d Wechsberg, Joseph. The Merchant Bankers. Pocket Books, 1966, page 233
  6. ^ Bernhard, William, L., Birge, June Rossbach Bingham, Loeb, John L., Jr.. Lots of Lehmans - The Family of Mayer Lehman of Lehman Brothers, Remembered by His Descendants. Center For Jewish History, 2007, page 5
  7. ^ Birmingham, Stephen. Our Crowd- The Great Jewish Family's of New York. Harper and Row, 1967, page 47
  8. ^ a b c d Geisst, Charles R. The Last Partnerships. McGraw-Hill, 1997, page 50
  9. ^ Birmingham, Stephen. Our Crowd- The Great Jewish Family's of New York. Harper and Row, 1967, page 77
  10. ^ Bernhard, William, L., Birge, June Rossbach Bingham, Loeb, John L., Jr.. Lots of Lehmans - The Family of Mayer Lehman of Lehman Brothers, Remembered by His Descendants. Center For Jewish History, 2007, page 8
  11. ^ a b Wechsberg, Joseph. The Merchant Bankers. Pocket Books, 1966, page 235
  12. ^ a b Geisst, Charles R. The Last Partnerships. McGraw-Hill, 1997, page 51
  13. ^ Geisst, Charles R. The Last Partnerships. McGraw-Hill, 1997, page 285
  14. ^ a b c Wechsberg, Joseph. The Merchant Bankers. Pocket Books, 1966, page 238
  15. ^ a b Geisst, Charles R. The Last Partnerships. McGraw-Hill, 1997, page 53
  16. ^ a b Wechsberg, Joseph. The Merchant Bankers. Pocket Books, 1966, page 241
  17. ^ "John M. Hancock Papers". University of North Dakota. Retrieved 2008-09-14.
  18. ^ Ingham, John N. (1983). Biographical Dictionary of American Business Leaders. Greenwood Publishing Group. Retrieved 2008-09-14.
  19. ^ a b c Geisst, Charles R. The Last Partnerships. McGraw-Hill, 1997, page 77
  20. ^ Sloane, Leonard (1977-11-29). "Lehman and Kuhn Loeb to Merge; Lehman Brothers and Kuhn Loeb Sign Agreement to Merge Dec. 16". NY Times. Retrieved 2008-03-29.
  21. ^ a b Geisst, Charles R. The Last Partnerships. McGraw-Hill, 1997, page 78
  22. ^ "Company News - Hutton-Shearson Deal Announced". New York Times. 1987-12-04. Retrieved 2008-09-14.
  23. ^ "Primerica Will Buy Shearson for $1 Billion". New York Times. 1993-03-13. Retrieved 2008-09-14.
  24. ^ Geisst, Charles R. The Last Partnerships. McGraw-Hill, 1997, page 79
  25. ^ "Lehman Brothers to take over SG Cowen's brokerage division". Financial Express. 2000-07-18. Retrieved 2008-09-14.
  26. ^ a b "BACK AGAIN: Lehman returns to institutional management with Lincoln deal; Purchase of fixed-income business ends 13-year absence.(News: Lehman Brothers, Lincoln Capital Management Co.)". Retrieved 2008-09-14.
  27. ^ Thomas, Landon Jr. (2003-07-23). "Market Place; Lehman to Buy Neuberger Berman For $2.6 Billion". NYTimes.com. Retrieved 2008-08-30.
  28. ^ "Citrix Systems » Lehman Brothers". Citrix.com. Retrieved 2008-09-14.
  29. ^ Kulikowski, Laura (2007-08-22). "Lehman Brothers Amputates Mortgage Arm". TheStreet.com. Retrieved 2008-03-18.
  30. ^ a b c Jenny Anderson (2008-08-29). "Struggling Lehman Plans to Lay Off 1,500". The New York Times. Retrieved 2008-08-29. {{cite news}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  31. ^ New York Times, World Business, article by Jenny Anderson and Landon Thomas, 22 August 2008
  32. ^ "Financials slip as Korea snags weigh on Lehman and Merrill - MarketWatch". Marketwatch.com. Retrieved 2008-09-14.
  33. ^ 5 days ago (5 days ago). "AFP: Lehman Brothers in freefall as hopes fade for new capital". Afp.google.com. Retrieved 2008-09-14. {{cite web}}: Check date values in: |date= (help)CS1 maint: numeric names: authors list (link)
  34. ^ "Dow plunges nearly 300 points on concern about Lehman". Times-Picayune. 2008-09-09. Retrieved 2008-09-09.
  35. ^ Jenny Anderson (2008-09-09). "Wall Street's Fears on Lehman Bros. Batter Markets". The New York Times. {{cite news}}: Text "accessdate-2008-09-09" ignored (help)
  36. ^ Ben White (2008-09-10). "Lehman Sees $3.9 Billion Loss and Plans to Shed Assets". The New York Times. Retrieved 2008-09-10.
  37. ^ a b Joe Bel Bruno (2008-09-10). "Lehman shares slip on plans to auction off unit, consider sale of company". The Associated Press. Retrieved 2008-09-10.
  38. ^ a b Jenny Anderson (2008-09-11). "As Pressure Builds, Lehman Said to Be Looking for a Buyer". The New York Times. Retrieved 2008-09-11. {{cite news}}: Unknown parameter |couthors= ignored (help)
  39. ^ a b Jenny Anderson (2008-09-13). "U.S. Gives Banks Urgent Warning to Solve Crisis". The New York Times. Retrieved 2008-09-13. {{cite news}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  40. ^ a b c Ben White (2008-09-14). "Lehman Heads Toward Brink as Barclays Ends Talks". The New York Times. Retrieved 2008-09-14. {{cite news}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  41. ^ a b c Andrew Ross Sorkin (2008-09-15). "In Frantic Day, Wall Street Banks Teeter". New York Times. Retrieved 2008-09-15.
  42. ^ Lehman Risk Reduction Trading Session and Protocol Agreement ISDA
  43. ^ US special session to cut Lehman risk extended-ISDA Forbes.com
  44. ^ http://www.lehman.com/press/pdf_2008/091508_lbhi_chapter11_announce.pdf
  45. ^ "ASX suspends Lehman Brothers". The Australian. 2008-09-15. Retrieved 2008-09-15.
  46. ^ Wall Street scrambles as Lehman, Merrill falter
  47. ^ marketwatch.com, FINANCIAL STOCKS Lehman falls 80% as firm readies bankruptcy filing
  48. ^ afp.google.com, Lehman bankruptcy shakes world financial system
  49. ^ "Lehman Bros files for bankruptcy". News.bbc.co.uk. Page last updated at 13:00 GMT, Monday, 15 September 2008 14:00 UK. Retrieved 2008-09-15. {{cite web}}: Check date values in: |date= (help)
  50. ^ a b c d e f g h i j "Board of Directors". Lehman Brothers. Retrieved 2008-09-14.

Further reading

  • Auletta, Ken. Greed and Glory on Wall Street: The Fall of the House of Lehman. Random House, 1985
  • Bernhard, William, L., Birge, June Rossbach Bingham, Loeb, John L., Jr.. Lots of Lehmans - The Family of Mayer Lehman of Lehman Brothers, Remembered by His Descendants. Center For Jewish History, 2007
  • Birmingham, Stephen. Our Crowd - The Great Jewish Families of New York. Harper and Row, 1967.
  • Geisst, Charles R. The Last Partnerships. McGraw-Hill, 1997
  • Lehman Brothers. A Centennial - Lehman Brothers 1850 - 1950. Spiral Press, 1950
  • Schack, Justin. (May 2005). "Restoring the House of Lehman". Institutional Investor, p. 24-32.
  • Wechsberg, Joseph. The Merchant Bankers. Pocket Books, 1966
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