Lehman Brothers Holdings Inc. ( ) was an American global financial services firm founded in 1847. Before filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States (behind

Goldman Sachs Goldman Sachs () is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered at 200 West Street in Lower Manhattan, with regional headquarters in London, Warsaw, Bangalore, H ...

, Morgan Stanley, and

Merrill Lynch Merrill (officially Merrill Lynch, Pierce, Fenner & Smith Incorporated), previously branded Merrill Lynch, is an American investment management and wealth management division of Bank of America. Along with BofA Securities, the investment bank ...

), with about 25,000 employees worldwide. It was doing business in investment banking,

equity Equity may refer to: Finance, accounting and ownership * Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the dif ...

fixed-income Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a fixed rate once a year and repay the pri ...

and

derivatives The derivative of a function is the rate of change of the function's output relative to its input value. Derivative may also refer to: In mathematics and economics * Brzozowski derivative in the theory of formal languages * Formal derivative, an ...

sales and trading (especially U.S. Treasury securities), research,

investment management Investment management is the professional asset management of various securities, including shareholdings, bonds, and other assets, such as real estate, to meet specified investment goals for the benefit of investors. Investors may be institut ...

, private equity, and private banking. Lehman was operational for 158 years from its founding in 1850 until 2008. On September 15, 2008, Lehman Brothers filed for Chapter 11 bankruptcy protection following the exodus of most of its clients, drastic declines in its stock price, and the devaluation of assets by credit rating agencies. The collapse was largely due to Lehman's involvement in the

subprime mortgage crisis The United States subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the Financial crisis of 2007–2008, 2007–2008 global financial crisis. It was triggered by a large decline ...

and its exposure to less liquid assets. Lehman's bankruptcy filing was the largest in US history, and is thought to have played a major role in the unfolding of the financial crisis of 2007–2008. The market collapse also gave support to the " Too big to fail" doctrine. After Lehman Brothers filed for bankruptcy, global markets immediately plummeted. The following day, major British bank

Barclays Barclays () is a British multinational universal bank, headquartered in London, England. Barclays operates as two divisions, Barclays UK and Barclays International, supported by a service company, Barclays Execution Services. Barclays traces ...

announced its agreement to purchase, subject to regulatory approval, a significant and controlling interest in Lehman's North American investment-banking and trading divisions, along with its New York headquarters building. On September 20, 2008, a revised version of that agreement was approved by

U.S. Bankruptcy Court United States bankruptcy courts are courts created under Article I of the United States Constitution. The current system of bankruptcy courts was created by the United States Congress in 1978, effective April 1, 1984. United States bankruptcy c ...

Judge James M. Peck. The next week,

Nomura Holdings is a Japanese financial holding company and a principal member of the Nomura Group. It, along with its broker-dealer, banking and other financial services subsidiaries, provides investment, financing and related services to individual, institut ...

announced that it would acquire Lehman Brothers' franchise in the Asia-Pacific region, including Japan, Hong Kong and Australia, as well as Lehman Brothers' investment banking and equities businesses in Europe and the Middle East. The deal became effective on October 13, 2008.

History

Under the Lehman family (1850–1969)

In 1844, 23-year-old

Henry Lehman Henry Lehman (born Hayum Lehmann; September 29, 1822 – November 17, 1855) was a German-born American businessman and the founder of Lehman Brothers, which grew from a cotton and fabrics shop during his life to become a large finance firm under ...

,Geisst, Charles R. ''The Last Partnerships''. McGraw-Hill, 1997, page 49 the son of a Jewish cattle merchant, emigrated to the United States from

Rimpar Rimpar is a market town in the district of Würzburg in the German state of Bavaria. It is located about 10 km (6 mi) north of the City of Würzburg. The municipality includes the villages of Gramschatz and Maidbronn, incorporated in 19 ...

, Bavaria.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 The Center for Jewish History is a partnership of five Jewish history, scholarship, and art organizations in New York City: American Jewish Historical Society, American Sephardi Federation, Leo Baeck Institute New York, Yeshiva University Museum, ...

, 2007, page 1 He settled in Montgomery, Alabama, where he opened a

dry-goods Dry goods is a historic term describing the type of product line a store carries, which differs by region. The term comes from the textile trade, and the shops appear to have spread with the mercantile trade across the British Empire (and forme ...

store, "H. Lehman".Wechsberg, Joseph. ''The Merchant Bankers''. Pocket Books, 1966, page 233 In 1847, following the arrival of his brother Emanuel Lehman, the firm became "H. Lehman and Bro."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 With the arrival of their youngest brother, Mayer Lehman, in 1850, the firm changed its name again and "Lehman Brothers" was founded.Birmingham, Stephen. '' Our Crowd: The Great Jewish Families of New York''. Harper and Row, 1967, page 47 During the 1850s, cotton was one of the most important crops in the United States, and was Alabama's highest-grossing cash crop. Until the U.S. Civil War, nearly all U.S. cotton was produced by slave labor, and by the 1860 census, slaves constituted nearly 45% of Alabama's total population. Mayer Lehman was listed as the owner of seven slaves ("three males and four females ranging in age from 5 to 50") in the U.S. Census of 1860. Capitalizing on cotton's high market value, the three brothers began to routinely accept raw cotton from slave plantations 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,Geisst, Charles R. ''The Last Partnerships''. McGraw-Hill, 1997, page 50 the remaining brothers continued to focus on their commodities-trading/brokerage operations. By 1858, the center of cotton trading had shifted from the

South South is one of the cardinal directions or Points of the compass, compass points. The direction is the opposite of north and is perpendicular to both east and west. Etymology The word ''south'' comes from Old English ''sūþ'', from earlier Pro ...

to New York City, where factors and commission houses were based. Lehman opened its first branch office at 119 Liberty Street, and 32-year-old Emanuel relocated there to run the office. 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.Birmingham, Stephen. '' Our Crowd: The Great Jewish Families of New York''. Harper and Row, 1967, page 77Bernhard, 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 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 The New York Cotton Exchange (NYCE) is a commodities exchange founded in 1870 by a group of one hundred cotton brokers and merchants in New York City. In 1998, the New York Board of Trade (NYBOT) became the parent company of the New York Cotton ...

in 1870, commodifying the crop;Wechsberg, Joseph. ''The Merchant Bankers''. Pocket Books, 1966, page 235 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 The Coffee, Sugar and Cocoa Exchange (CSCE) was founded in 1882 as the Coffee Exchange in the City of New York. Sugar futures were added in 1914, and, on September 28, 1979, the New York Coffee and Sugar Exchange merged with the New York Cocoa Exc ...

as early as 1883 and finally the New York Stock Exchange in 1887. 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 Emanuel's son

Philip Lehman Philip Lehman (November 9, 1861 – March 21, 1947) was an American investment banker. Biography Philip Lehman was born in New York City to Emanuel Lehman (1827–1907) and Pauline Sondheim (1843–1871). Emanuel was a co-founder of the now- ...

, the firm partnered with Goldman, Sachs & Co.,Geisst, Charles R. ''The Last Partnerships''. McGraw-Hill, 1997, page 51Geisst, Charles R. ''The Last Partnerships''. McGraw-Hill, 1997, page 285 to bring the General Cigar Co. to market,Wechsberg, Joseph. ''The Merchant Bankers''. Pocket Books, 1966, page 238 followed closely by Sears, Roebuck and Company. Among these were

F.W. Woolworth Company The F. W. Woolworth Company (often referred to as Woolworth's or simply Woolworth) was a retail company and one of the pioneers of the five-and-dime store. It was among the most successful American and international five-and-dime businesses, se ...

,Geisst, Charles R. ''The Last Partnerships''. McGraw-Hill, 1997, page 53 May Department Stores Company, Gimbel Brothers, Inc.,Wechsberg, Joseph. ''The Merchant Bankers''. Pocket Books, 1966, page 241 R.H. Macy & Company, The Studebaker Corporation, the B.F. Goodrich Co., and Endicott Johnson Corporation. 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 The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...

by focusing on venture capital while the equities market recovered. In 1924, John M. Hancock became the first non-family member to join the firm, followed by Monroe C. Gutman and Paul Mazur, who became partners in 1927. By 1928, the firm had moved to its

One William Street 1 William Street is an office building in the Financial District of Lower Manhattan in New York City. The building has had a number of names, originally the J. & W. Seligman & Company Building, and later the Lehman Brothers Building. Currently ...

location. In the 1930s, Lehman underwrote the initial public offering of the first television manufacturer,

DuMont Laboratories Allen B. DuMont Laboratories, Inc. (printed on products as Allen B. Du Mont Laboratories, Inc., commonly referred to as DuMont Laboratories, shortened to DuMont Labs; referred to on company documents as DuMont) was an American television equipmen ...

, and helped fund the Radio Corporation of America (RCA). It also helped finance the rapidly growing oil industry, including the companies Halliburton and Kerr-McGee. In the 1950s, Lehman underwrote the IPO of Digital Equipment Corporation. Later, it arranged the acquisition of Digital by Compaq.

An evolving partnership (1969–1984)

Robert Lehman died in 1969 after 44 years in a leadership position for the firm, leaving no member of the Lehman family actively involved with the partnership. At the same time, Lehman was facing strong headwinds amidst the difficult economic environment of the early 1970s. By 1972, the firm was facing hard times and in 1973, Pete Peterson, chairman and chief executive officer of the Bell & Howell Corporation, was brought in to save the firm.Geisst, Charles R. ''The Last Partnerships''. McGraw-Hill, 1997, page 77 Under Peterson's leadership as chairman and CEO, the firm acquired Abraham & Co. in 1975, and two years later merged with Kuhn, Loeb & Co., to form

Lehman Brothers, Kuhn, Loeb Inc. Lehman Brothers Holdings Inc. ( ) was an American global financial services firm founded in 1847. Before filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States (behind Goldman Sachs, Morgan Stanley, a ...

, the country's fourth-largest investment bank, behind Salomon Brothers,

and First Boston. 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. By the early 1980s, hostilities between the firm's investment bankers and traders prompted Peterson to promote

Lewis Glucksman Lewis L. Glucksman (December 22, 1925 – July 5, 2006) was a former Lehman Brothers trader and former chief executive officer and chairman of Lehman Brothers, Kuhn, Loeb Inc. Early life and education Glucksman was born into a second generatio ...

, 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.Geisst, Charles R. ''The Last Partnerships''. McGraw-Hill, 1997, page 78 Upset bankers, who had soured over the power struggle, left the company.

Stephen A. Schwarzman Stephen Allen Schwarzman (born February 14, 1947) is an American billionaire businessman. He is the chairman and CEO of The Blackstone Group, a global private equity firm he established in 1985 with Peter G. Peterson, former chairman and CEO of ...

, 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.

Merger with American Express (1984–1994)

Shearson/American Express Shearson was the name of a series of investment banking and retail brokerage firms from 1902 until 1994, named for Edward ShearsonAmerican Express American Express Company (Amex) is an American multinational corporation specialized in payment card services headquartered at 200 Vesey Street in the Battery Park City neighborhood of Lower Manhattan in New York City. The company was found ...

-owned securities company focused on brokerage rather than investment banking, acquired Lehman in 1984, for $360 million. On May 11, the combined firms became Shearson Lehman/American Express. From 1983 to 1990,

Peter A. Cohen Peter A. Cohen is the chairman and CEO of Andover National Corporation, a public holding company. He was formerly the chairman and CEO of Cowen Inc., also known as Cowen & Company. Prior to his current role, Cohen founded Ramius Capital Management ...

was CEO and chairman of Shearson Lehman Brothers, where he led the $1 billion purchase of

E.F. Hutton EF Hutton was an American stock brokerage firm founded in 1904 by Edward Francis Hutton and his brother, Franklyn Laws Hutton. Later, it was led by well known Wall Street trader Gerald M. Loeb. Under their leadership, EF Hutton became one of ...

to form

Shearson Lehman Hutton Shearson was the name of a series of investment banking and retail brokerage firms from 1902 until 1994, named for Edward Shearson In 1989, Shearson backed

F. Ross Johnson Frederick Ross Johnson, OC (December 13, 1931 – December 29, 2016) was a Canadian businessman, best known as the chief executive officer of RJR Nabisco in the 1980s. Early life and education Born in Winnipeg, Manitoba, on December 13, 1931, ...

's management team in its attempted

management buyout A management buyout (MBO) is a form of acquisition in which a company's existing managers acquire a large part, or all, of the company, whether from a parent company or individual. Management-, and/or leveraged buyout became noted phenomena of 1 ...

of RJR Nabisco, but were ultimately outbid by private equity firm Kohlberg Kravis Roberts, who was backed by

Drexel Burnham Lambert Drexel Burnham Lambert was an American multinational investment bank that was forced into bankruptcy in 1990 due to its involvement in illegal activities in the junk bond market, driven by senior executive Michael Milken. At its height, it was a ...

Divestment and independence (1994–2008)

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 and in 1994 it spun off Lehman Brothers Kuhn Loeb in an initial public offering, as Lehman Brothers Holdings, Inc.Geisst, Charles R. ''The Last Partnerships''. McGraw-Hill, 1997, page 79 After being spun off,

Dick Fuld Richard Severin Fuld Jr. (born April 26, 1946) is an American banker best known as the final chairman and chief executive officer of investment bank Lehman Brothers. Fuld held this position from the firm's 1994 spinoff from American Express unti ...

became CEO of the company. Fuld steered Lehman through the

1997 Asian Financial Crisis The Asian financial crisis was a period of financial crisis that gripped much of East Asia and Southeast Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion. However, the recovery in 1998–1 ...

, and when the

Long Term Capital Management Long-Term Capital Management L.P. (LTCM) was a highly-leveraged hedge fund. In 1998, it received a $3.6 billion bailout from a group of 14 banks, in a deal brokered and put together by the Federal Reserve Bank of New York. LTCM was founded in 1 ...

hedge fund collapsed in 1998. In 2001, the firm acquired the private-client services, or "PCS", business of Cowen & Co. and later, in 2003, aggressively re-entered the asset-management business, which it had exited in 1989. Beginning with $2 billion in assets under management, the firm acquired the

Crossroads Group The Crossroads Group was a Dallas-based private equity fund of funds firm focusing on venture capital investments. The firm, founded in 1981 by Brad Heppner, was acquired by Lehman Brothers in October 2003. Since Lehman Brothers' 2008 bankruptcy ...

, the fixed-income division of Lincoln Capital Management and Neuberger Berman. These businesses, together with the PCS business and Lehman's private-equity business, comprised the Investment Management Division, which generated approximately $3.1 billion in net revenue. During the

, Fuld kept his job while CEOs of rivals like Bear Stearns,

, and

Citigroup Citigroup Inc. or Citi (Style (visual arts), stylized as citi) is an American multinational investment banking, investment bank and financial services corporation headquartered in New York City. The company was formed by the merger of banking ...

were forced to resign. In addition, Lehman's board of directors, which included retired CEOs like Vodafone's Christopher Gent and IBM's John Akers were reluctant to challenge Fuld as the firm's share price spiraled lower. In May 2008, prior to going bankrupt, the firm had $639 billion in assets.

Response to September 11, 2001 attacks

On September 11, 2001, Lehman occupied three floors (38-40) of

1 World Trade Center One World Trade Center (also known as One World Trade, One WTC, and formerly Freedom Tower) is the main building of the rebuilt World Trade Center complex in Lower Manhattan, New York City. Designed by David Childs of Skidmore, Owings & Merr ...

, where one of its employees was killed in the terrorist attacks of that day. Its global headquarters in

Three World Financial Center 200 Vesey Street, formerly known as Three World Financial Center and also known as the American Express Tower, is one of four towers that comprise the Brookfield Place complex in the Financial District of Lower Manhattan in New York City. Risin ...

were severely damaged and rendered unusable by falling debris, displacing over 6,500 employees. Trading operations moved to

Jersey City Jersey City is the second-most populous city in the U.S. state of New Jersey, after Newark.New Jersey. When stock markets reopened on September 17, 2001, Lehman's sales and trading capabilities were restored. In the ensuing months, the firm spread its operations across New York City in over 40 temporary locations. The investment-banking division converted the first-floor lounges, restaurants, and all 665 guest rooms of the Sheraton Manhattan Hotel into office space. The bank also experimented with

flextime Flextime (also spelled flexitime ( BE) or flex-time) is a flexible hours schedule that allows workers to alter their workday and decide/adjust their start and finish times. In contrast to traditional work arrangements that require employees to wo ...

(to share office space) and

remote work Remote work, also called work from home (WFH), work from anywhere, telework, remote job, mobile work, and distance work is an employment arrangement in which employees do not commute to a central place of work, such as an office building, ware ...

via virtual private networking after the attacks. In October 2001, Lehman purchased a 32-story, office building for a reported sum of $700 million. The building, located at 745 Seventh Avenue, had recently been completed, and not yet occupied, by rival Morgan Stanley. Lehman began moving into the new facility in January and finished in March 2002. The firm did not return to

as its structural integrity had not been given a clean bill of health, and the company could not have waited for repairs to Three World Financial Center to conclude. After the attacks, Lehman's management placed increased emphasis on business continuity planning. Aside from its headquarters in Three World Financial Center, Lehman maintained operations-and-backoffice facilities in

Jersey City Jersey City is the second-most populous city in the U.S. state of New Jersey, after Newark. The space was not only retained, but expanded, including the construction of a backup-trading facility.

June 2003 SEC litigation

In June 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 firm's research analysts by its investment-banking divisions. 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.

Rise of mortgage origination (1997–2006)

Lehman was one of the first Wall Street firms to move into the business of mortgage origination. In 1997, Lehman bought Colorado-based lender, Aurora Loan Services, an

Alt-A An Alt-A mortgage, short for Alternative A-paper, is a type of U.S. mortgage that, for various reasons, is considered riskier than A-paper, or "prime", and less risky than "subprime," the riskiest category. For these reasons, as well as in some ca ...

lender. In 2000, to expand their mortgage origination pipeline, Lehman purchased West Coast subprime mortgage lender BNC Mortgage LLC. Lehman quickly became a force in the subprime market. By 2003 Lehman made $18.2 billion in loans and ranked third in lending. By 2004, this number topped $40 billion. By 2006, Aurora and BNC were lending almost $50 billion per month. By 2008, Lehman had assets of $680 billion supported by only $22.5 billion of firm capital. From an equity position, its risky commercial real estate holdings were thirty times greater than capital. In such a highly leveraged structure, a 3 to 5 percent decline in real estate values would wipe out all capital.

Collapse

Causes

Malfeasance

A March 2010 report by the court appointed examiner indicated that Lehman executives regularly used cosmetic accounting gimmicks at the end of each quarter to make its finances appear less shaky than they really were. This practice was a type of repurchase agreement that temporarily removed securities from the company's balance sheet. However, unlike typical repurchase agreements, these deals were described by Lehman as the outright sale of securities and created "a materially misleading picture of the firm’s financial condition in late 2007 and 2008."

Subprime mortgage crisis

In August 2007, the firm closed its

subprime lender In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule. Historically, subpri ...

, 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." In September 2007, Joe Gregory appointed Erin Callan as CFO. On March 16, 2008, after rival Bear Stearns was taken over by JP Morgan Chase in a fire sale, market analysts suggested that Lehman would be the next major investment bank to fall. Callan fielded Lehman's first quarter conference call, where the firm posted a profit of $489 million, compared to

's $5.1 billion and

's $1.97 billion losses which was Lehman’s 55th consecutive profitable quarter. The firm's stock price leapt 46 percent after that announcement. In 2008, Lehman faced an unprecedented loss to the continuing

. Lehman's loss was a result of having held on to large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages; it is unclear whether Lehman was simply unable to sell the lower-rated bonds or voluntarily kept them. 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. In the first half of 2008 alone, Lehman stock lost 73% of its value as the credit market continued to tighten. On June 9, 2008, Lehman Brothers announced US$2.8 billion second-quarter loss, its first since being spun off from

American Express American Express Company (Amex) is an American multinational corporation specialized in payment card services headquartered at 200 Vesey Street in the Battery Park City neighborhood of Lower Manhattan in New York City. The company was found ...

, as market volatility rendered many of its hedges ineffective during that time. Lehman also reported that it had raised a further $6 billion in capital. As a result, there was major management shakeup, in which

Hugh "Skip" McGee III Hugh E. "Skip" McGee III (born 1959) is an American investment banker who was formerly a senior executive at Lehman Brothers and Barclays. He is presently co-founder and chief executive officer of Intrepid Financial Partners, a power and energy f ...

(head of investment banking) held a meeting with senior staff to strip CEO Richard Fuld and his lieutenants of their authority. Consequently, Joe Gregory agreed to resign as president and COO, and afterward he told Erin Callan that she had to resign as CFO. Callan was appointed CFO of Lehman in 2008 but served only for six months, before departing after her mentor Joe Gregory was demoted. Bart McDade was named to succeed Gregory as president and COO, when several senior executives threatened to leave if he was not promoted. McDade took charge and brought back Michael Gelband and Alex Kirk, who had previously been pushed out of the firm by Gregory for not taking risks. Although Fuld remained CEO, he soon became isolated from McDade's team. 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. 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. 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." On September 9, Lehman's shares plunged 45% to $7.79, after it was reported that the state-run South Korean firm had put talks on hold. 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 Dow Jones is a combination of the names of business partners Charles Dow and Edward Jones. Dow Jones & Company Dow, Jones and Charles Bergstresser founded Dow Jones & Company in 1882. That company eventually became a subsidiary of News Corp, and ...

lost 300 points the same day on investors' concerns about the security of the bank. The U.S. government did not announce any plans to assist with any possible financial crisis that emerged at Lehman. The next day, Lehman announced a loss of $3.9 billion and its intent to sell off a majority stake in its investment-management business, which included Neuberger Berman. The stock slid seven percent that day. 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. Just before the collapse of Lehman Brothers, executives at Neuberger Berman sent e-mail memos suggesting, among other things, that the Lehman Brothers' top people forgo multimillion-dollar bonuses to "send a strong message to both employees and investors that management is not shirking accountability for recent performance." Lehman Brothers Investment Management Director

George Herbert Walker IV George Herbert Walker IV (born 1969) is an American investment banker. He is the chairman and CEO of Neuberger Berman, one of the largest independent, employee-owned investment management firms. During Walker's tenure, the firm survived the implos ...

dismissed the proposal, going so far as to actually apologize to other members of the Lehman Brothers executive committee for the idea having been suggested. He wrote, "Sorry team. I am not sure what's in the water at Neuberger Berman. I'm embarrassed and I apologize."

Short-selling allegations

During hearings on the bankruptcy filing by Lehman Brothers and bailout of AIG before the House Committee on Oversight and Government Reform, former Lehman Brothers CEO

Richard Fuld Richard Severin Fuld Jr. (born April 26, 1946) is an American banker best known as the final chairman and chief executive officer of investment bank Lehman Brothers. Fuld held this position from the firm's 1994 spinoff from American Express unti ...

said a host of factors including a crisis of confidence and

naked short-selling Naked short selling, or naked shorting, is the practice of short-selling a tradable asset of any kind without first borrowing the asset from someone else or ensuring that it can be borrowed. When the seller does not obtain the asset and deliv ...

attacks followed by false rumors contributed to both the collapse of Bear Stearns and Lehman Brothers. House committee Chairman Henry Waxman said the committee received thousands of pages of internal documents from Lehman and these documents portray a company in which there was "no accountability for failure". An article by journalist

Matt Taibbi Matthew Colin Taibbi (; born March 2, 1970) is an American author, journalist, and podcaster. He has reported on finance, media, politics, and sports. A former contributing editor for ''Rolling Stone'', he is an author of several books, co-host o ...

in '' Rolling Stone'' contended that naked short selling contributed to the demise of both Lehman and Bear Stearns. A study by finance researchers at the University of Oklahoma Price College of Business studied trading in financial stocks, including Lehman Brothers and Bear Stearns, and found "no evidence that stock price declines were caused by naked short selling".

Bankruptcy

On Saturday, September 13, 2008,

Timothy F. Geithner Timothy Franz Geithner (; born August 18, 1961) is a former American central banker who served as the 75th United States Secretary of the Treasury under President Barack Obama from 2009 to 2013. He was the President of the Federal Reserve Bank o ...

, then the president of the

Federal Reserve Bank of New York The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is responsible for the Second District of the Federal Reserve System, which encompasses the State of New York, the 12 northern counties of New ...

, 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

for the company's possible sale; however, both Barclays and Bank of America ultimately declined to purchase the entire company, in the former case because the British government (in particular, the

Chancellor of the Exchequer The chancellor of the Exchequer, often abbreviated to chancellor, is a senior minister of the Crown within the Government of the United Kingdom, and head of His Majesty's Treasury. As one of the four Great Offices of State, the Chancellor is ...

Alastair Darling and the CEO of the

Financial Services Authority The Financial Services Authority (FSA) was a quasi-judicial body accountable for the financial regulation, regulation of the financial services industry in the United Kingdom between 2001 and 2013. It was founded as the Securities and Investmen ...

Hector Sants Sir Hector William Hepburn Sants (born 15 December 1955) is a British investment banker. He was appointed Chief Executive Officer of the Financial Services Authority in July 2007 and stepped down in June 2012. He took up a new position with Ba ...

) refused to allow the transaction at the last minute, quoting stockholder regulations in the UK, despite a deal having apparently been completed. The next day, Sunday, September 14, the International Swaps and Derivatives Association (ISDA) offered an exceptional trading session to allow market participants to offset positions in various

on the condition of a Lehman bankruptcy later that day. Although the bankruptcy filing missed the deadline, many dealers honored the trades they made in the special session. Shortly before 1 am Monday morning (UTC−5), Lehman Brothers Holdings announced it would file for Chapter 11 bankruptcy protection citing bank debt of $613 billion, $155 billion in bond debt, and assets worth $639 billion. It further announced that its subsidiaries would continue to operate as normal. A group of Wall Street firms agreed to provide capital and financial assistance for the bank's orderly

liquidation Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistrib ...

and the Federal Reserve, in turn, agreed to a swap of lower-quality assets in exchange for loans and other assistance from the government. The morning witnessed scenes of Lehman employees removing files, items with the company logo, and other belongings from the world headquarters at 745 Seventh Avenue. The spectacle continued throughout the day and into the following day. Brian Marsal, co-chief executive of the restructuring firm

Alvarez and Marsal Alvarez & Marsal (A&M) is a global professional services firm notable for its work in turnaround management and performance improvement of a number of large, high-profile businesses both in the US and abroad such as Lehman Brothers, HealthSouth, T ...

was appointed as Chief restructuring officer and subsequently Chief executive officer of the company. Later that day, the

Australian Securities Exchange Australian Securities Exchange Ltd or ASX, is an Australian public company that operates Australia's primary securities exchange, the Australian Securities Exchange (sometimes referred to outside of Australia as, or confused within Australia as ...

(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. The Dow Jones closed down just over 500 points on September 15, 2008, which was at the time the largest drop in a single day since the days following the attacks on September 11, 2001. In the United Kingdom, the investment bank went to administration with PricewaterhouseCoopers appointed as administrators. In Japan, the Japanese branch, Lehman Brothers Japan Inc., and its holding company filed for civil reorganization on September 16, 2008, in Tokyo District Court. On September 17, 2008, the New York Stock Exchange delisted Lehman Brothers. On March 16, 2011 some three years after filing for bankruptcy and following a filing in a Manhattan

U.S. bankruptcy court United States bankruptcy courts are courts created under Article I of the United States Constitution. The current system of bankruptcy courts was created by the United States Congress in 1978, effective April 1, 1984. United States bankruptcy c ...

, Lehman Brothers Holdings Inc announced it would seek creditor approval of its reorganization plan by October 14 followed by a confirmation hearing to follow on November 17.

Liquidation

Barclays acquisition

On September 16, 2008, Barclays PLC announced that they would acquire a "stripped clean" portion of Lehman for $1.75 billion, including most of Lehman's North America operations. On September 20, 2008, a revised version of the deal, a $1.35 billion (£700 million) plan for

to acquire the core business of Lehman (mainly its $960-million headquarters, a 38-story office building in

Midtown Manhattan Midtown Manhattan is the central portion of the New York City borough of Manhattan and serves as the city's primary central business district. Midtown is home to some of the city's most prominent buildings, including the Empire State Buildin ...

, with responsibility for 9,000 former employees), was approved. Manhattan court bankruptcy Judge James Peck, after a 7-hour hearing, ruled:

"I have to approve this transaction because it is the only available transaction. Lehman Brothers became a victim, in effect the only true icon to fall in a tsunami that has befallen the credit markets. This is the most momentous bankruptcy hearing I've ever sat through. It can never be deemed precedent for future cases. It's hard for me to imagine a similar emergency."

Luc Despins, then a partner at Milbank, Tweed, Hadley & McCloy, the creditors committee counsel, said: "The reason we're not objecting is really based on the lack of a viable alternative. We did not support the transaction because there had not been enough time to properly review it." In the amended agreement, Barclays would absorb $47.4 billion in securities and assume $45.5 billion in trading liabilities. Lehman's attorney

Harvey R. Miller Harvey Robert Miller (March 1, 1933 – April 27, 2015) was an American lawyer. The ''New York Times'' called him "the most prominent bankruptcy lawyer in the nation." Born in New York City, Miller graduated from Brooklyn College (A.B., 1954) an ...

Weil, Gotshal & Manges Weil, Gotshal & Manges LLP is an American international law firm with approximately 1,100 attorneys, headquartered in New York City. With a gross annual revenue in excess of $1.8 billion, it is among the world's largest law firms according to ' ...

, said "the purchase price for the real estate components of the deal would be $1.29 billion, including $960 million for Lehman's New York headquarters and $330 million for two New Jersey data centers. Lehman's original estimate valued its headquarters at $1.02 billion but an appraisal from CB Richard Ellis this week valued it at $900 million." Barclays were not to acquire Lehman's Eagle Energy unit, but to have entities known as Lehman Brothers Canada Inc, Lehman Brothers Sudamerica, Lehman Brothers Uruguay and its Private Investment Management business for high-net-worth individuals. Finally, Lehman would retain $20 billion of securities assets in Lehman Brothers Inc that are not being transferred to Barclays. Barclays acquired a potential liability of $2.5 billion to be paid as

severance Severance may refer to: Arts and entertainment * ''Severance'' (film), a 2006 British horror film * ''Severance'' (novel), a 2018 novel by Ling Ma *''Severance'', a 2006 short-story collection by Robert Olen Butler * ''Severance'' (TV series), ...

, if it chooses not to retain some Lehman employees beyond the guaranteed 90 days.

Nomura acquisition

, Japan's top brokerage firm, agreed to buy the Asian division of Lehman Brothers for $225 million and parts of the European division for a nominal fee of $2. It would not take on any trading assets or liabilities in the European units. Nomura negotiated such a low price because it acquired only Lehman's employees in the regions, and not its stocks, bonds or other assets. The last Lehman Brothers Annual Report identified that these non-US subsidiaries of Lehman Brothers were responsible for over 50% of global revenue produced.

Sale of asset management businesses

On September 29, 2008, Lehman agreed to sell Neuberger Berman, part of its investment management business, to a pair of private-equity firms,

Bain Capital Partners Bain Capital is an American private investment firm based in Boston. It specializes in private equity, venture capital, credit, public equity, impact investing, life sciences, and real estate. Bain Capital invests across a range of industry se ...

and Hellman & Friedman, for $2.15 billion. The transaction was expected to close in early 2009, subject to approval by the U.S. Bankruptcy Court, but a competing bid was entered by the firm's management, who ultimately prevailed in a bankruptcy auction on December 3, 2008. Creditors of Lehman Brothers Holdings Inc. retain a 49% common equity interest in the firm, now known as Neuberger Berman Group LLC. In Europe, the Quantitative Asset Management Business has been acquired back by its employees on November 13, 2008 and has been renamed back to TOBAM.

Financial fallout

Lehman's bankruptcy was the largest failure of an investment bank since

collapsed in 1990 amid fraud allegations. Immediately following the bankruptcy filing, an already distressed financial market began a period of extreme volatility, during which the Dow experienced its largest one day point loss, largest intra-day range (more than 1,000 points) and largest daily point gain. What followed was what many have called the " perfect storm" of economic distress factors and eventually a $700bn bailout package ( Troubled Asset Relief Program) prepared by

Henry Paulson Henry Merritt Paulson Jr. (born March 28, 1946) is an American banker and financier who served as the 74th United States Secretary of the Treasury from 2006 to 2009. Prior to his role in the Department of the Treasury, Paulson was the Chairman a ...

, Secretary of the Treasury, and approved by Congress. The Dow eventually closed at a new six-year low of 7,552.29 on November 20, followed by a further drop to 6626 by March of the next year. The fall of Lehman also had a strong effect on small private investors such as bond holders and holders of so-called

Minibonds Minibond is a brand name for a series of structured financial notes issued in Hong Kong and Singapore under the control of Lehman Brothers. The term "Minibond" is also used to refer to other likewise structured Notes, namely Constellation Notes ...

. In Germany, structured products, often based on an index, were sold mostly to private investors, elderly, retired persons, students and families. Most of those now worthless derivatives were sold by the German arm of Citigroup, the German Citibank now owned by Crédit Mutuel.

Ongoing litigation

On March 11, 2010,

Anton R. Valukas Anton R. Valukas (born 1943) is an American attorney who served as the United States Attorney for the Northern District of Illinois from 1985 to 1989. In 2007, he became the chairman of Jenner & Block. He was later appointed bankruptcy examiner d ...

, a court-appointed examiner, published the results of its year-long investigation into the finances of Lehman Brothers. This report revealed that Lehman Brothers used an accounting procedure termed repo 105 to temporarily exchange $50 billion of assets into cash just before publishing its financial statements. The action could be seen to implicate both Ernst & Young, the bank's accountancy firm and

Richard S. Fuld Richard Severin Fuld Jr. (born April 26, 1946) is an American banker best known as the final chairman and chief executive officer of investment bank Lehman Brothers. Fuld held this position from the firm's 1994 spinoff from American Express until ...

, Jr, the former CEO. This could potentially lead to Ernst & Young being found guilty of financial malpractice and Fuld facing time in prison. According to '' The Wall Street Journal'', in March 2011, the SEC announced that they weren't confident that they could prove that Lehman Brothers violated US laws in its accounting practices. In October 2011 the administrators of Lehman Brothers Holding Inc. lost their appeal to overturn a court order forcing them to pay £148 million into their underfunded pensions plan. As of January 2016, Lehman paid more than $105 billion to its unsecured creditors. In addition, JPMorgan will pay $1.42 billion in cash to settle a lawsuit accusing JPMorgan of draining Lehman Brothers liquidity right before the crash. The settlement would permit another $1.496 billion to be paid to creditors and a separate $76 million deposit.

Merger and acquisition history

The following is an illustration of the company's major mergers and acquisitions and historical predecessors (this is not a comprehensive list):"Salomon Smith Barney" from Gambee, Robert.
Wall Street
'. W. W. Norton & Company, 1999. p.73

Former officers

* Richard S. Fuld Jr. *

Scott J. Freidheim Scott Jon Freidheim (born July 31, 1965) is an American businessman. He is the managing partner of Freidheim Capital. Business career In 2019, Freidheim Capital invested in Ettain and Freidheim became co-chairman of Ettain Group. In August 202 ...

Bart McDade Herbert "Bart" H. McDade III is an American businessman who was the President and COO of Lehman Brothers at the time of its bankruptcy. During the end of Lehman's existence, McDade was tasked with largely running the firm and saving it as the then ...

* Joe Gregory * Ian Lowitt, chief financial officer at the time of Lehman's collapse * Jessie Bhattal * Jeremy Isaacs (not Sir Jeremy Isaacs, the British television producer and executive) *

Hugh McGee Hugh may refer to: * Hugh (given name) Noblemen and clergy French * Hugh the Great (died 956), Duke of the Franks * Hugh Magnus of France (1007–1025), co-King of France under his father, Robert II * Hugh, Duke of Alsace (died 895), modern-day ...

* Frederick M. Warburg * Michael Gelband * Joseph Rosenberg

In popular culture

The events of the weekend leading up to Lehman's bankruptcy are dramatized in the 2009 BBC television film '' The Last Days of Lehman Brothers''. In the 2010 animated film ''

Despicable Me ''Despicable Me'' is a computer-animated media franchise centering on Gru, a reformed super-villain (who later becomes a father, husband, and secret agent), and his yellow-colored Minions. It is produced by Illumination and distributed by ...

'', the main character Gru visits the Bank of Evil, which funds all evil plots for villains around the world and has a sign reading "Formerly Lehman Brothers". The 2011 drama film '' Margin Call'' focuses on the events of a 24-hour period at a large investment bank based on amalgam of investment banks, drawing heavily from the culture of Lehman Brothers. However, the events in the film are primarily a depiction of the actions of

. The 2011

HBO Home Box Office (HBO) is an American premium television network, which is the flagship property of namesake parent subsidiary Home Box Office, Inc., itself a unit owned by Warner Bros. Discovery. The overall Home Box Office business unit is ba ...

film '' Too Big to Fail'' recounts the days before Lehman Brothers declared bankruptcy and the fallout afterward. The 2011 film ''

Horrible Bosses ''Horrible Bosses'' is a 2011 American black comedy film directed by Seth Gordon, written by Michael Markowitz, John Francis Daley, and Jonathan Goldstein, from a story by Markowitz. It stars Jason Bateman, Charlie Day, Jason Sudeikis, Jennifer ...

'' features a character by the name of Kenny Sommerfield (played by

P. J. Byrne Paul Jeffrey Byrne (born December 15, 1974) is an American film and television actor. He is best known for his roles as Nicky "Rugrat" Koskoff in the Martin Scorsese film ''The Wolf of Wall Street (2013 film), The Wolf of Wall Street'' (2013) a ...

) who worked at Lehman Brothers till its bankruptcy, ending up broke. The fall of Lehman Brothers is depicted in the 2015 film ''

The Big Short ''The Big Short: Inside the Doomsday Machine'' is a nonfiction book by Michael Lewis about the build-up of the United States housing bubble during the 2000s. It was released on March 15, 2010, by W. W. Norton & Company. It spent 28 weeks on '' ...

'', where two of the characters walk around the Lehman Brothers offices after the bankruptcy to see the main trading floor. In Imbolo Mbue's 2016 debut novel ''

Behold the Dreamers ''Behold the Dreamers'' is a 2016 debut novel by Imbolo Mbue. The novel details the experiences of two New York City families during the 2008 financial crisis: an immigrant family from Cameroon, the Jonga family, and their wealthy employers, th ...

'', an immigrant from Cameroon is a chauffeur for Clark Edwards, an executive at Lehman Brothers. In the 2016 animated film ''

Zootopia ''Zootopia'' (titled ''Zootropolis'' in various regions) is a 2016 American computer-animated buddy cop action comedy film produced by Walt Disney Animation Studios and released by Walt Disney Pictures. The 55th Disney animated feature film, ...

'', there is a brief appearance of a bank called Lemming Brothers, which is staffed by lemmings. '' The Lehman Trilogy'' is a three-act play by Italian dramatist Stefano Massini about the history of the Lehman Brothers. In the 2019

Showtime Showtime or Show Time may refer to: Film * ''Showtime'' (film), a 2002 American action/comedy film * ''Showtime'' (video), a 1995 live concert video by Blur Television Networks and channels * Showtime Networks, a division of Paramount Global w ...

comedy series ''

Black Monday Black Monday refers to specific Mondays when undesirable or turbulent events have occurred. It has been used to designate massacres, military battles, and stock market crashes. Historic events *1209, Dublin – when a group of 500 recently arriv ...

'', a fictionalized version of Lehman Brothers with an altered spelling is central to the plot and represented by brothers Larry & Lenny Leighman.

Principal locations (first year of occupancy)

* 17 Court Square, Montgomery, Alabama (1847)*Lehman Brothers. A Centennial – Lehman Brothers 1850–1950. Spiral Press, 1950, pages 62–63 * 119 Liberty Street, New York, NY (1858) * 176 Fulton Street, New York, NY (1865–1866?) * 133–35 Pearl Street, New York, NY (1867) * 40 Exchange Place, New York, NY (1876) * 16 William Street, New York, NY (1892) *

, New York, NY (1928) ** *

55 Water Street 55 Water Street is a skyscraper on the East River in the Financial District, Manhattan, Financial District of Lower Manhattan, New York City. The 53-story, structure was completed in 1972. Designed by Emery Roth and Sons, the building was de ...

(1980) *** *

3 World Financial Center 200 Vesey Street, formerly known as Three World Financial Center and also known as the American Express Tower, is one of four towers that comprise the Brookfield Place complex in the Financial District of Lower Manhattan in New York City. Rising ...

(1985) *
745 Seventh Avenue, New York, NY
(2002) * Henry Lehman established his first store location on Commerce Street, in Montgomery, in 1845. In 1848, one year after Emanuel's arrival, the brothers moved "H. Lehman & Bro." to 17 Court Square, where it remained when Mayer arrived in 1850, forming "Lehman Brothers".
** Designated as a landmark by the New York City Landmarks Preservation Committee in 1996.
*** Sales and trading personnel had been in this location since 1977; they were joined by the firm's investment bankers and brokers in 1980.

References

External links

*
Lehman Brothers Records at

Baker Library/Bloomberg Center The Baker Library/Bloomberg Center is a building complex at Harvard Business School on the campus of Harvard University in Boston, Massachusetts. It includes the Baker Library, built in 1927, and the Bloomberg Center, completed in 2005. Overview ...

Historical Collections,

Harvard Business School Harvard Business School (HBS) is the graduate business school of Harvard University, a private research university in Boston, Massachusetts. It is consistently ranked among the top business schools in the world and offers a large full-time MBA p ...

Lehman Brothers
-

Archives:
Lehman Brothers' Hong Kong incorporated entities
-

KPMG KPMG International Limited (or simply KPMG) is a multinational professional services network, and one of the Big Four accounting organizations. Headquartered in Amstelveen, Netherlands, although incorporated in London, England, KPMG is a net ...

Hong Kong
Lehman Brothers bankruptcy site linked to from Lehman Brothers' home pageThe Lehman Brothers Treasure Trove
– slideshow by ''

Life magazine ''Life'' was an American magazine published weekly from 1883 to 1972, as an intermittent "special" until 1978, and as a monthly from 1978 until 2000. During its golden age from 1936 to 1972, ''Life'' was a wide-ranging weekly general-interest ma ...

'' * * {{Authority control Barclays 1850 establishments in the United States Banks based in New York City American companies established in 1850 Financial services companies established in 1850 Banks established in 1850 Financial services companies disestablished in 2008 Banks disestablished in 2008 Former investment banks of the United States Companies formerly listed on the New York Stock Exchange Companies that filed for Chapter 11 bankruptcy in 2008 Defunct banks of the United States Defunct companies based in New York City Defunct financial services companies of the United States History of Montgomery, Alabama Shearson Lehman/American Express 2008 disestablishments in New York (state) Nomura Holdings American companies disestablished in 2008