Founded in 1850, Lehman Brothers filed for bankruptcy in 2008 due to its overexposure to subprime mortgages through securitization and derivatives trading. Its collapse exacerbated the global financial crisis and had far-reaching consequences. Money market funds broke the buck due to Lehman losses. Lehman's $639 billion in assets and $613 billion in debt overwhelmed the bankruptcy system. Its failure devastated the financial industry and significantly deepened the worldwide economic recession.

2. GROUP MEMBERS
Muhammad Hassaan Arif
Shehroz Shabbir
Uneeb Ahmed

3. LEHMAN BROTHERS

4. HISTORY OF LEHMAN BROTHERS
• Founded by German immigrant Henry Lehman in Montgomery, Alabama,
in 1844.
• In 1850, Henry Lehman and his brothers, Emanuel and Mayer, founded
Lehman Brothers
Lehman survived them all:
The railroad bankruptcies of the 1800s, The Great Depression of the 1930s,
two world wars, a capital shortage when it was spun off by American
Express in 1994, and the Long Term Capital Management collapse and
Russian debt default of 1998.
LEHMAN BROTHERS

5. INTRODUCTION
• The disorderly and costly nature of the LBHI bankruptcy the largest, and
still ongoing, financial bankruptcy in U.S. history contributed to the
massive financial disruption of late 2008.
• The collapse of Lehman Brothers Holdings Inc. (LEH) had a crippling
effect on the global economy with the financial crisis escalating to other
parts of the world. In the aftermath of this event, financial institutions
froze lending activities thereby creating liquidity problems in the shadow
banking financial system.
LEHMAN BROTHERS

6. According to the World Bank, the economic recession hit USA and the
world at large in three phases
Phase 1
U.S.-subprime-mortgage-cum-structured-finance catastrophe .
Phase 2
Post-Lehman global financial market turmoil
Phase 3
The worldwide economic recession
LEHMAN BROTHERS

7. PRIME CULPRIT
In 2003 and 2004, Lehman acquired five mortgage lenders,
including subprime lender BNC Mortgage and Aurora Loan Services, which
specialized in Alt-A loans (made to borrowers without full documentation)
LEHMAN BROTHERS

8. REASONS BEHIND THE COLLAPSE
 SUBPRIME BOOM
 THE REAL STATE BUBBLE
LEHMAN BROTHERS

9. LEHMAN BROTHERS

10. • Asset-backed securities (ABS) and Collateral debt obligations(CDOs)
• Lehman underwrote mortage-backed securities more than any other
firm, accumulating an $85-billion portfolio, or four times its shareholders'
equity
• Leverage levels up to 20-35 percent of their equity capital in order to
invest on securitized products using debt capital.
• Excessive risk-taking
REASONS BEHIND THE COLLAPSE
LEHMAN BROTHERS

11. • Passing the investment risks through unregulated ‘credit default
swaps’ (CDS) where they didn’t have any adequate capital behind
them.(AIG case)
• Weakness of the FED to recognize the economic catastrophe that
Lehman Brothers bankruptcy would cause.
LEHMAN BROTHERS

12. IMPACT
• At the time when LEH filed for bankruptcy, the Lehman Brothers’
worth was estimated at $639 billion while on the other hand the Lehman
Brothers were $613 billion in debt.
• After the Lehman Brothers had filed for bankruptcy in the US, the
financial markets in the country nearly collapsed when the Washington
Mutual failed, a double tragedy for the American economy .
• Due to their extensive global imprint on the debt, equity and derivatives
markets, the Lehman Brothers had subsidiaries all over the world.
LEHMAN BROTHERS

13. LEHMAN BROTHERS

14. • Consequently, these global subsidiaries and companies affiliated to the
Lehman Brothers also filed for financial insolvency hence catalyzing the
traumatic as well as catastrophic effects of the global economic recession
on financial markets worldwide .
• Several money funds and institutional cash funds had significant exposure
to Lehman with the institutional cash fund run by The Bank of New York
Mellon and the Primary Reserve Fund, a money-market fund, both falling
below $1 per share, called "breaking the buck", following losses on their
holdings of Lehman assets
LEHMAN BROTHERS

15. • The Dow Jones closed down just over 500 points (−4.4%) on September 15,
2008, at the time the largest drop by points in a single day since the days
following the attacks on September 11, 2001.
• Lehman's bankruptcy is expected to cause some depreciation in the price of
commercial real estate. The prospect for Lehman's $4.3 billion in mortgage
securities getting liquidated sparked a selloff in the commercial mortgage-
backed securities (CMBS).
• In Japan, banks and insurers announced a combined 249 billion yen ($2.4
billion) in potential losses tied to the collapse of Lehman. Mizuho Trust &
Banking Co. cut its profit forecast by more than half, citing 11.8 billion yen
in losses on bonds and loans linked to Lehman.
LEHMAN BROTHERS

16. • Several money funds and institutional cash funds had significant
exposure to Lehman with the institutional cash fund run by The Bank
of New York Mellon and the Primary Reserve Fund, a money-market
fund, both falling below $1 per share, called "breaking the buck",
following losses on their holdings of Lehman assets.
• Putnam Investments, a unit of Canada's Great-West Life co, shut a
$12.3 billion money-market fund as it faced "significant redemption
pressure" on September 17, 2008.
• Lehman Brothers International held close to 40 billion dollars of
clients assets when it filed for Chapter 11 Bankruptcy. Of this, 22
billion had been re-hypothecated.
LEHMAN BROTHERS

17. CONTROVERSIES
CONTROVERSY OF EXECUTIVE PAY DURING CRISIS
ACCOUNTING MANIPULATION
SECTION 363 SALE
LEHMAN BROTHERS

18. ACTIONS TAKEN
 LBHI filed a petition under Chapter 11 of the US
bankruptcy code.
 Its US broker-dealer subsidiary was acquired by Barclays
a few days later.
LEHMAN BROTHERS

19. This box discusses three particular market implications linked to the failure of
Lehman Brothers that had the potential to cause systemic liquidity
disturbances:
1) The impact on the CDS market;
2) The liquidation of money market funds due to losses suffered on Lehman
debt; and
3) The consequences of the bankruptcy for the company's prime brokerage
clients.
LEHMAN BROTHERS

20. • Lehman's bankruptcy led to more than $46 billion of its market value
being wiped out.
• Its collapse also served as the catalyst for the purchase of Merrill Lynch
by Bank of America in an emergency deal that was also announced on
September 15.
LEHMAN BROTHERS

21. THANK YOU