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The Failue of a Venerable Wall Street InstitutionBy Anthony Wayne Lehman Brothers was originally founded in 1850 by two cotton brokers in Montgomery Alabama and has since grown into one of Wall Street's investment giants. On September 15, 2008 Lehman Brothers filed for bankruptcy protection in the largest bankruptcy filing in the history of the United States. Like many other Wall Street firms affected by the current financial crisis Lehman Brothers had a troubled history. In 2003 the Securities Exchange Commission obtained a settlement of $80 million dollars against Lehman Brothers alleging that the firm had improperly associated analyst compensation with the firm's investment banking revenues. In August 2007 Lehman Brothers closed their subprime lender BNC mortgage resulting in the loss of 1200 jobs in 23 locations. In 2008 Lehman faced serious losses due to the subprime mortgage crisis that struck Wall Street. Because of tightening credit markets Lehman Brothers stock lost 73% of its value. Reports in August 2008 indicated that a Korean bank was interested in buying the troubled firm but Lehman's stock continued to plunge and the deal was called off. Lehman's stock declined further on September 11, 2008. On September 15, 2008 Lehman Brothers announced that it would seek chapter 11 bankruptcy protection making it the largest filing in US history. Because of the Federal Bailout of mortgage giants Fannie Mae and Freddie Mac there was speculation that the Federal government would step in and bail out Lehman Brothers. The speculation ended when the Secretary of the Treasury announced that there would be no taxpayer funded bailout of Lehman Brothers. Both Bank of America and Barclays Bank had expressed interest in buying part of Lehman Brothers but interest waned when it was announced that there would be no Federal money to back up the assets. After behind the scenes machinations that would have done credit to a Byzantine emperor it was announced the game was over. Barclays, and bank based in the United Kingdom, announced a buyout of the bankrupt bank which saved the jobs of approximately one third of Lehman's staff. Barclay's CEO John Varley stated to Reuters that his company had opportunities but not the obligation to take over Lehman's operations in Europe and Asia. How the takeover will work in anyone's guess. Since the US financial crisis began, uncertainty has been the feeling in markets throughout the world. The failure of this venerable Wall Street institution will certainly become a commonplace case study in economics classes for decades to come. About the author Anthony Wayne works in the marketing department of the Forex Information site Forex Opportunity in Pennsylvania. He is also editor of the Internet Bingo Blog a great source of internet bingo information. |
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