this presentation are used to fulfill my final examination

1. Yani Frince Sihite
(016201600028)

2. Lehman Brother Profile
Its Rise and Fall
Factors contributed
Impacts of its Failure
Conclusion

3. Lehman brothers was a
global financial services
firm. It was founded in
1850.
Its main business were
typical investment banking
and investment
management.
investment banking
business provided
financial services such as
mergers and acquisitions,
underwritings and issuing
securities
The firm was the 4th largest
investment bank in the
United States.
They had headquarters in
New York City

4. in 1844. Henry Lehman, opens a small dry goods store in Montgomery, Alabama.
In 1850 Henry is joined by his brothers Emanuel and Mayer and they name the business Lehman
Brothers. (focused on commodity trading, and Brokerage operations)
In 1858 they opened a New York office.
In 1860 establish the New York Cotton Exchange.
In 1887 got its membership in New York Stock Exchange (it became become Merchant Banking Firm)
in 1960s and 1970s, increased its global presence as well, opening offices in Europe and Asia.
1970s Lehman went on some acquisition.

6. In 1889 Lehman underwrites its
first public offering, for the
International Steam Pump
Company
1962 With Salomon Brothers, Merrill
Lynch and Blyth, Lehman forms an
association nicknamed the
"fearsome foursome"
in 1972 Lehman acquires
Abraham & Co.
1975 American Express
acquires Lehman Brothers and
merges it with Shearson
1984 Seat on the London
Stock Exchange
1986 Seat on the Tokyo Stock
Exchange
In 1994, Richard Fuld became
the top head of Lehman
1999 Lehman establishes an alliance
with Bank of Tokyo-Mitsubishi for
Japanese mergers and acquisitions.

7. “On a sunny morning in 2001, a piece of investment plan landed
on the desk of Richard Fuld (CEO). The document was
calculation to show how the bank will always end up with a
profit if they invested on real estate markets. Fuld was
impressed. The next five years saw the bank borrowing billions
of dollars to invest in the housing market. It worked. The housing
market boom had turned Lehman Brothers from a modest firm
into the world’s fourth largest investment bank”
(Boedihardjo 2009)

9. 11 September 2001, The whole nation was shocked
The people were afraid to spent money
The economy was in a recession
The government decreased the interest rate to stimulate the economy
People started to spent more and more money

10. People bought houses with mortgage credits
Banks gave credits with lower credit requirements
More than 50% get a own house
The demand increased
The house prices increased

11. In 2003 and 2004, with the U.S. housing boom ,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's acquisitions at first seemed prescient; record revenues from
Lehman's real estate businesses enabled revenues in the capital markets
unit to surge 56% from 2004 to 2006,a faster rate of growth than other
businesses in investment banking or asset management.
The firm securitized $146 billion of mortgages in 2006, a 10% increase
from 2005. Lehman reported record profits every year from 2005 to
2007. In 2007, the firm reported net income of a record $4.2 billion on
revenue of $19.3 billion.

12. The economy was on a top
the interest raise more and more
The mortgage loans also increased
people came in trouble
to pay back their loans
debtor failed and had to
leave their houses
Houses stood
empty
House prices
decreased

13. bubble that was about to burst

15. the mortgage loans
couldn`t be paid ,the debt
higher then its actual
value
The Bank were not able to
cover the debt Banks
The gambling of the
Banks started , the
packages with the toxic
investments were spread
around the world

16.  On 15 September 2008, Lehman Brothers Holdings filed for
Chapter 11 bankruptcy protection.
 With $639 billion in assets and $619 billion in debt, Lehman's
bankruptcy filing was the largest in history
 it failed because had too much investment in Mortgage
related securities, sub Prime Mortgage Crisis and its Very
high Leverage Ratio.

19.  Lehman Brothers had weak
corporate governance
arrangements which failed to
safeguard against excessive
risk taking are partly to
blame for the economic crisis.
 Such failures remained
hidden in a prosperous
market but the downturn has
revealed a number of flaws.
 The key areas of weakness that
have been highlighted are:
Corporate risk management;
Board of directors;
Compensation Scheme and
Nomination committees

20.  Timothy Geithner (Secretary Of The Treasury),said in his report,
“Lehman’s plunge into high-risk businesses in the years before its
bankruptcy . In pursuing of higher earnings
 Matthew Lee, a former Lehman senior vice president wrote a letter to
senior management warning that the company may have been masking the
true risks on its balance sheet. His warnings, revealed in the bankruptcy
report, show that Lehman's auditors knew of potential accounting
irregularities and allegedly failed to raise the issue with Lehman's board.
 investments in long term assets like the commercial real estate, private
equity and leveraged loans had more vague prospects and were less liquid
than its usual investments.

21.  Lehman Brothers had six committee, one of
them was a Finance and Risk Committee,
which consists of the Firm’s Executive
Committee
 the CRO and the CFO, should meet weekly to
discuss all risk exposures, position
concentrations and risk taking activities, but it
only met twice in both 2006 and 2007

22.  The House of Representatives Committee offered the following observations
on the composition of the board: “Nine are retired. Four of them are over 75
years old. One is a theater producer, another a former Navy admiral. Only
two have direct experience in the financial services industry”.
 Independent directors may lack the incentive and the time to take care of the
corporation, because, most of them were very busy and had many
responsibilities. For instance, Marsha Johnson Evans serves as a director of
Weight Watchers International, Huntsman Corporation and Office Depot, as
well as chairman of Lehman’s nominating and governance committee and a
member of both the compensation committee and the finance and risk
committee

23. Another factor that spelled disaster for Lehman Brothers
was the bonus system that compensated people for
generating stellar returns. In general, the investment
banks set up plans that paid a bonus when the firm
performs well. But when the firm did poorly, employees
weren’t asked to give any money back. The plan
rewarded risk taking for high returns but did not punish
for low returns or losses. There was no personal
downside to taking risk

24.  Fuld (CEO) received nearly half a billion dollars in total
compensation Between 1993 and 2007.
 In 2007, Fuld earned a total of $22 million, including:
 a base salary of $750,000;
 a cash bonus of $4.25 million; and
 stock grants of $16 million.
 The staff received a disproportionately high percentage
of their pay in Lehman stock and options. When the firm
went public, employees owned 4 per cent of the firm,
worth $60m. By 2006, they owned around 30 per cent,
equivalent to $11billion, at least on paper.

25.  Four of the ten member board at Lehman
Brothers were over 75 years of age and only
one had current financial sector knowledge.

26.  CEO Fuld failed to realize the severity of the situation. He still
continued that they were too big to fail so that a rescue plan would
come to their help.
 After a meeting with Paulson, former secretary of the U.S Treasury
on April 12, he expressed his self confidence that they would have
the full backing of Paulson, as he put “We have huge brand with
treasury” (Fuld, 2008). Until the end, Fuld insisted on that it was
rumors and short sale that brought down Lehman, not its huge
losses and its failure to find a deal.
 Fuld told a journalist that “I will never sell this firm” (Gowers
2008). So, one of the reason of failure may be attributed to the
Lehman CEO for his overconfidence, greed for money and failure
to recognize and accept the momentous crisis.

29.  Lehman Brothers was overleveraged. They borrowed money in
order to invest in mortgage-backed securities (MBS) (as well as a
variety of other investments). In the case of the MBSs, when it
was revealed that the assets used as collateral for those mortgage-
backed securities were worth a lot less than they thought, the
MBSs became worthless and Lehman Brothers’ spread went from
positive to negative.
 In balance sheet terms, they started with a balance sheet in which
they owned more than they owed. They ended up with a balance
sheet in which they owed more than they owned. That’s never
good, and Lehman Brothers went bankrupt

30. the ratio of total assets to shareholders
equity was 31 in 2007, and its huge
portfolio of mortgage securities made it
increasingly vulnerable to deteriorating
market conditions. it had borrowed
much more than it could afford. Its
leverage ratio increased from 24 in 2003
to 31 (Blackburn 2008).

31. analysts say the US Treasury has put a line
under its willingness to use public
money to rescue banks which have
made wrong decisions.

32.  Paulson began the meetings by stating the
government would do all it could – but
that it could not fund a solution. The US
government’s analysis on Lehman was
that it did not have the legal authority to
make a direct capital investment, and
Lehman’s assets were insufficient to
support a loan large enough to avoid its
collapse

34. 1. This was the largest bankruptcy in the entire world, so basically
everyone got affected.
2. Less profits of U.S based companies
3. Cost of borrowings also increased
4 Almost 6 million jobs were lost all over world
5. Unemployment rate almost doubling to10 %

35. millions of investors lost all or almost all of their money
Reduced global market value by $10 trillion in market capitalization
Intensified the downturn that started in late 2007 created from
the sub prime mortgage
Popular index DOWJONES fell by 5000 point

37.  On September 20 ,2008 the Barclays acquired most
of Lehman's north America operation for 1.3 billion
dollars.
 Nomura holdings Japan's top brokerage firm agree
to buy Asia divisions of Lehman brother for 225
millions.
 The Lehman Brothers are still a corporation today
with roughly 300 employees and is trying to pay off
its debt
 As of January 2016, Lehman brother already pay 105
billions dollar to his unsecured creditor the Lehman
Brothers

38. The old saying “do not put all of your
eggs in the same basket” is always
relevant and true. What Lehman did
when the housing market was booming,
was borrowing excessively and
investing all the proceeds in the
mortgage market
never assumes too big to fail. Even the most
sophisticated financial tools, cannot predict or
time the market properly. No one and nothing
guarantees you that having past successes, you
can be granted the same in the future. Profit is
just a matter of chance, luck rather than a skill
or a prediction. No one can beat the market
unless the market beats you.

40.  Lehman Brothers bankruptcy had devastating
effects for the financial markets and economies
worldwide. It was not just a banking failure, it
was a human failure, and it was the face of the
financial crisis