Lehman Brothers Will Remain Research Paper

Pages: 5 (1409 words)  ·  Bibliography Sources: ≈ 8  ·  File: .docx  ·  Topic: Business

Lehman Brothers will remain in the U.S. And world history as the largest bankruptcy ever: when Lehman Brothers filed for bankruptcy, in September 2008, signaling the beginning of the 2008-2009 economic and financial crisis, it had $613 billion in debt, with $639 billion total assets. By comparison, the largest bankruptcy before that was WorldCom's bankruptcy, a company that had $104 billion of assets

Lehman Brothers actually started as a dry-goods store, when a German emigrant named Henry Lehman opened such a store in Montgomery, Alabama. He was later joined by his two brothers, so what was originally called H. Lehman became "Lehman Brothers." The start of Lehman's financial activities was a result of his original line of work: raw cotton started to be accepted at the store as barter in exchange for merchandise. The brothers were actually making a wise investment, since the cotton market was peaking at the time. This also led them to start a secondary business as operators in the cotton market.

Over time, this activity, as well as related trading operations, became more important than the store business and the brothers became more and more focused on this part. Since the cotton trading was less about operational activities and more about market and financial-related ones, New York became a more important hub and Lehman Brothers opened an office in the city in 1858. One of the brothers, Emanuel, moved to New York and coordinated the office's activity there.

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During the Civil War, Lehman Brothers merged with John Durr, a cotton merchant, and formed Lehman, Durr & Co. The move was motivated primarily by the challenging times that required a larger operational base. The company remained important in New York, where the headquarters were now located: it was one of the founders of the New York Stock Exchange, in 1870, and Emanuel Lehman sat on the Board of Governors until 1884

. The company's activity became more and more diverse, to include railroad bonds and financial advice.

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At the end of the 19th century, Lehman Brothers began to underwrite public offerings and, in 1906, the company partnered with Goldman Sachs, moving to more complex operations. Together, the two firms supported the public offering for General Cigar Co. Lehman Brothers and Goldman Sachs successfully underwrote almost one hundred public offers in the next two decades.

During the Depression, Lehman Brothers diversified into venture capital in order to balance the challenges of a dwindling market. During the 1930s, it financed several oil companies, such as Halliburton, and participated into several technology deals during the 1950s. However, the 1970s were tough economic times, particularly because of the decline of the economy due to the 1973 oil crises.

The company brought in the first CEO outside the family, Pete Peterson. It merged with Kuhn, Loeb & Co. And became the fourth largest investment bank in the United States, a position that it would retain up to its bankruptcy. Pete Peterson was probably one of the most successful CEOs in the history of Lehman Brothers. His work turned the things around and the company went from operational loss to five consecutive profitable years. Peterson promoted the COO, Lewis Glucksman, as the company's co-CEO, but this resulted in his being ousted and Glucksman remaining as the sole CEO of the company.

Despite the economic and financial success of the late 1970s, Lehman Brothers also had significant internal problems, resulting from conflicting interests. The two groups (bankers and traders) fought over power and influence, particularly since Glucksman was a former trader himself. When Pete Peterson was ousted, the bankers were unhappy and left the company. As a result, equilibrium was fundamentally upset at Lehman Brothers: as an investment bank, it no longer had bankers. These problems translated into the company being purchased by American Express for $360 million in 1984.

The new companies adopted many of the customs of the 1980s, becoming heavily involved in leveraged finance, including through its activity in the attempted management buyout of RJR Nabisco, the largest in history (eventually, management buyout was not successful in this case). During the 1990s, American Express started to sell parts of its banking business and Lehman Brothers was one of the selected companies to be sold. Lehman… [END OF PREVIEW] . . . READ MORE

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