Case Study Case: The Bankruptcy Of Lehman Brothers

Study Case: The bankruptcy of Lehman Brothers

1. Methodology

The purpose of the second part of this papers is to understand the collapse of Lehman Brothers and how it became a systemic for the whole economy. We will also try to understand the loophole in the regulation that made such an accumulation of risk possible. To do so we will develop this study case in several parts: fist we will quickly review this history of the bank and trying to understand how it has growth to be the fourth largest investment bank in the us which was considered too big to fail at the dawn of the crisis. Then we will analyse the mechanisms that drove the bank to accumulate so much systemic risk in its trading books. In a third part the study will focus on the

Lehman Brothers was born. Until 1906 it was a commodity house specialized in cotton and coffee. The next step when was the firm partnered with Goldman Sachs for several issues such as B.F. Goodricht CO and Endicott Johnson Corporation. The company survived the Great Depression mainly because it was focused on venture capital. A major step was taken during the merger with American Express in 1984 when Shearson/American Express acquired the firm and became Shearson Lehman Brothers, which focused on building leverage finance. On 1994 the firm became independently afresh and went public. Since 1994 to before its bankruptcy the firm had increased net revenues from $2,73 billions to $19,2 billions with almost 28,600 employees all over the

But with a huge difference: this time it was to securitized the assets and sell them to others investors, they keep all those assets recently bough in their trading books hoping for greater profit. As a result at the end of 2007 Lehman Brothers was exposed to 111 billions in commercial or residential related assets and securities. The issue is that with a significant position on the real estate market it became more difficult for the bank to raise cash, sell its assets, hedge the risk and reduce the