Bankruptcy of Lehman Brothers
On September 15, 2008, 158 years old US investment banking giant Lehman Brothers Inc filed for bankruptcy.
At the time, it was the largest bankruptcy in US history holding over $600 billion in assets. Lehman had bet heavily on subprime housing loans, increasing from $24 loan exposure per $1 capital in 2003 to $31 loan exposure per $1 capital in 2007. The investment bank profited greatly during the US housing boom. In 2007, signs of problems surfaced as it closed its subprime lender, BNC Mortgage (reducing 1,200 jobs in 23 locations).
In 2007, the filing is the largest bankruptcy filing in U.S. history, with Lehman holding over $600 billion in assets.
Richard S. Fuld, Jr was the Chairman and CEO since 1994. His total compensation from 1993 to 2007 is nearly $500 Million.
Bankrupt and almost:
Fannie Mae, Freddie Mac, AIA, Citigroup, Northern Rock, Ireland, Greece
Pre-Lehman
Bear Stearns sold to JPMorgan Chase for $2 a share.
A day before Lehman filed for bankruptcy, Merrill Lynch was sold to Bank of America.
15 September 2008
Lehman filed for bankruptcy
Post-Lehman
17 Sep 2008 Fed lends $65 billion to AIG to avoid bankruptcy
19 Sep 2008 Fed unveiled $700 billion emergency funds
25 Sep 2008 JP MorganChase buys Washington Mutual for $1.9 billion, arranged by Federal Deposit Insurance Corporation
29 Sep 2008 Citigroup buys banking operations of Wachovia, arranged by Federal Deposit Insurance Corporation
3 Oct 2008 Wells Fargo makes a higher offer for Wachovia, taking over from Citigroup
Oct 6–10 Worst week in 75 years. The Dow Jones loses 22.1 percent, its worst week on record, down 40.3 percent since reaching a record high of 14,164.53 October 9, 2007.
Oct 6 Fed announces $900 billion in short-term cash loans to banks
Oct 7 Fed lend around $1.3 trillion directly to companies outside the financial sector
Oct 8 Central banks in US, England, China, Canada, Sweden, Switzerland and the European Central Bank cut interest rates
Oct 11 The Dow Jones Industrial Average recorded highest volatility day in its 112 year history.
Nov 24 US government rescue Citigroup after share price plunge 60% over a week.
Events
2008 Lehman faced mounting losses on subprime mortgages and securitised sub-prime mortgages
July 2008 Reported losses of $2.8 billion and raised $6 billion in capital. Share down > 70%
Aug 2008 Reduce 1,500 or 6% employees
Aug 22 2008 Korea Development Bank considering to buy Lehman. Share up 5%, 16% for the week
Sep 9 2008 Korea Development Bank face difficulties on the deal (regulators, partners) Share down > 45%
Sep 10 2008 Reported loss of $3.9 billion and to sell investment management businesses, including Neuberger Berman. Share down > 7%
Sep 13 2008 Federal Reserve Bank of New York, President Timothy F. Geithner arranged a meeting to discuss about an emergency liquidation of Lehman’s assets. Lehman in talks with Bank of America and Barclays
Sep 14 2008 Barclays ended discussion to buy Lehman. The deal was rejected by Bank of England and the UK’s Financial Services Authority.
Sep 15 2008 Lehman Brothers filed for Chapter 11 Bankruptcy
On September 22, 2008, in Manhattan court bankruptcy proceeding, Lehman’s brokerage core business was sold to Barclays for GBP 700 Million.
Notable
Judge James Peck, after a 7 hour hearing, ruled: “I have to approve this transaction because it is the only available transaction. Lehman Brothers became a victim, in effect the only true icon to fall in a tsunami that has befallen the credit markets. This is the most momentous bankruptcy hearing I’ve ever sat through. It can never be deemed precedent for future cases. It’s hard for me to imagine a similar emergency
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