Lehman Brothers was a huge financial company. It did lots of money-related stuff like investing, trading, and giving advice on money matters. It was a very big investment bank in the United States.
But, on September 15, 2008, it went bankrupt, which means it couldn’t pay its bills. This happened because of the subprime mortgage crisis, a big problem with home loans. Lehman Brothers had been around for a really long time, 164 years, to be exact.
| Lehman Brothers Highlights |
|---|
| Lehman Brothers provided banking, trading, and financial services. |
| It was ranked as the fourth-largest investment bank in the United States. |
| The subprime mortgage crisis led to its bankruptcy on September 15, 2008. |
| Lehman Brothers’ bankruptcy played a significant role in the 2008 financial crisis. |
| Following its bankruptcy, Barclays Bank and Nomura Holdings acquired some of its assets. |
What you'll learn:
➤ Lehman Brothers Collapse
Lehman Brothers was a big deal in the world of banking and finance. It was the fourth-largest investment firm in the U.S., holding around $600 billion in assets all over the world. But here’s where things went wrong: Lehman Brothers put a lot of money into home loans from 1996 to 2006, kind of like a real estate investment fund.
By 2007 and 2008, the value of homes started going down, and this hit Lehman Brothers hard. They tried everything to avoid losing money. They sold some stuff, cut costs, and even tried to raise money by selling shares. But it didn’t work. They had lots of bad home loans on their books that they couldn’t sell.
When these loans became hard to turn into cash, Lehman Brothers ran into a big problem. They couldn’t pay the people they owed money to. They couldn’t borrow money easily either, which made things worse. People didn’t want to buy their shares because it meant they’d own a smaller piece of the company, and that made Lehman Brothers’ share prices drop.
Around the same time, the housing market was in trouble too. Fewer people were buying homes because it was tough to get a loan. This was bad news for the whole world’s financial system because it relied on loans and Lehman Brothers was on the brink of failing.
Some important folks got together in September 2008 to figure out what to do. They wanted to avoid a big government bailout, like the one given to Bear Stearns earlier that year. They even tried to sell Lehman Brothers to other big banks, but it didn’t work out.
Lehman Brothers’ downfall became a symbol of the subprime mortgage crisis, and it was a sign that the Great Recession was getting worse.
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➤ Lehman Brothers History
Lehman Brothers had humble beginnings. It all started with Henry Lehman, who came to the United States from Germany. He started a dry-goods store in Montgomery, Alabama, in 1844. Later on, his brothers, Emmanuel and Mayer, joined him in the business, and it became known as Lehman Brothers. They didn’t just stick to dry goods; they got into trading cotton and other stuff too.
In 1858, the company made a move to New York. That’s when the city became a big hub for trading cotton and other things. Henry Lehman handled the grocery and general store side of things, while his brothers focused on building up what would eventually become a financial giant.
Over the next 150 years or so, Lehman Brothers went through lots of changes. They teamed up with other companies, made new partnerships, and evolved with the times. But Lehman Brothers isn’t famous for their long history. They’re known for what happened in 2008.
Lehman Brothers went bankrupt, and it was a big deal. The effects were felt all around the world. On the same day Lehman went under, the Dow Jones Industrial Average dropped by a whopping 500 points. This bankruptcy played a role in the Great Recession that followed.
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➤ Lehman Brothers Today
After Lehman Brothers declared bankruptcy, things changed pretty fast. They had to sell off their assets and properties in a big rush to pay back the people who had invested in the company.
In no time, a Japanese bank called Nomura swooped in and bought Lehman’s businesses in Asia-Pacific, which includes places like Japan, Hong Kong, and Australia. They also grabbed the investment banking and equities trading parts of Lehman’s business in the Middle East and Europe.
Barclays, a big bank, bought Lehman’s operations in North America. That means they took over the investment banking and trading stuff that Lehman was doing in the U.S. And they even got Lehman’s headquarters in New York.
Lehman Brothers didn’t just disappear from the financial world; it also showed up in movies and TV shows. They’ve been mentioned in movies like Margin Call, Too Big to Fail, and The Big Short. In the 2019 Showtime series called Black Monday, they even had fictional characters inspired by the real Lehman brothers.
One more thing to note is that Erin Montella, who used to be Lehman’s chief financial officer (CFO) and stepped down in 2008, wrote a book in 2016. It’s called “Full Circle: A Memoir of Leaning in Too Far and the Journey Back,” and it’s all about her experiences in the finance world.
And speaking of Lehman Brothers stories, there’s “The Lehman Trilogy,” a play by Stefano Massini. It’s a three-part play that follows the lives of three brothers who came to America and started their dry-goods business. The play takes you through their journey, from the beginning to the point when their company collapsed in 2008.
This play made its debut on Broadway in March 2020, but then the COVID-19 pandemic hit, and things had to pause. Luckily, it came back in the fall of 2021. People loved it, and it even won a bunch of Tony Awards, including Best Play and Best Actor in a Play.
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➤ Lehman Brothers FAQ
What Led to Lehman Brothers Declaring Bankruptcy?
Lehman Brothers found itself in hot water when it turned out that their subprime mortgage investments weren’t as valuable as everyone thought. As the stock price tanked, clients started jumping ship, and the bank couldn’t borrow money from creditors anymore. This perfect storm led to Lehman Brothers filing for bankruptcy on September 15, 2008.
Why Didn’t Lehman Brothers Get a Bailout?
The regulators said they couldn’t bail out Lehman Brothers because the bank didn’t have enough valuable stuff to put up as collateral for a loan from the Federal Reserve’s emergency lending powers. Plus, the whole financial system was in a shakier state compared to when they rescued Bear Stearns. They couldn’t find a private buyer either.
Some folks even think the regulators wanted to use Lehman as an example to show what happens when you’re financially reckless and take too many risks on Wall Street. But if that was the plan, it backfired big time because Lehman’s collapse sent shockwaves through the global economy.
Who Were the Lehman Brothers?
The Lehman Brothers story goes way back. It all started when Henry Lehman, a German immigrant, opened a dry goods store in Montgomery, Alabama. When his brothers Emmanuel and Mayer joined him, they became known as Lehman Bros.
During the U.S. Civil War, cotton became a big deal, and the Lehman brothers got in on the action by dealing with raw cotton at their store and diving into cotton trading in New York. Eventually, they left the South behind and moved their headquarters to New York, where they focused mainly on trading stuff like commodities. Over time, they expanded into a full-service financial firm.
References
- Yale School of Management – The Lehman Brothers Bankruptcy A: Overview
- Federal Reserve History – Subprime Mortgage Crisis
- Federal Reserve Bank of New York – Liberty Street Economics: Customer and Employee Losses in Lehman’s Bankruptcy
- EveryCRSReports – Bear Stearns: Crisis and “Rescue” for a Major Provider of Mortgage-Related Products
- Federal Reserve Bank of New York – The Failure Resolution of Lehman Brothers
- Wharton Business School – Not Too Big To Fail: Why Lehman Had to Go Bankrupt
- Nomura Holdings – Nomura to Acquire Lehman Brothers’ Asia Pacific Franchise
- Federal Reserve Bank of New York – The Failure Resolution of Lehman Brothers
- Erin Callan Montella – Full Circle: A Memoir of Leaning in Too Far and the Journey Back
- Brookings Institute – History Credits Lehman Brothers’ Collapse
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