Justin Brown
2A
Lehman Brothers Paper
What made the Lehman Brothers go bankrupt in 2008? There is more to the story that appears on newspaper articles and in books, this story has background, history, and family that all contribute and have a big influence on what happened. In 1844 a man by the name of Henry Lehman emigrated from Rimpar, Bavaria to the United States for a better lifestyle. He then settled down in Montgomery, Alabama. When he lived there he opened a dry goods store and named it “H Lehman”. Three years later Henry’s brother Emanuel Lehman moved to Alabama and they both decided to change the store name to “H. Lehman and Bro”, an when their youngest brother Mayer moved to the U.S and helped both of them out with the store, they changed the name to Lehman Brothers and a new era started to form. Back then tobacco and cotton were one of the most important agriculture crops in the U.S, and so the brothers decided to take cotton and trade their goods for cotton because they knew it would go up in value over time (commonly known as bartering). After a few years, their business grew and became a big part of their lives and a hefty source of income. After Henry’s death in 1855 caused by yellow fever, Emanuel and Mayer decided to focus on trading commodities and brokerage operations.
By 1858, the cotton business shifted to New York City from the South and so Emanuel Lehman opened his first branch office in Manhattan and took control to run his business at the age of 32 years old. During the civil war in 1862, Lehman was facing a bit of a difficult time so he decided to team up with a cotton merchant named John Durr and later formed Lehman, Durr and Co. Years passed and the firm finally moved to New York City where they later started the New York Cotton Exchange in 1870. in 1883, Lehman became a member of the Coffee Exchange and finally the New York Stock Exchange in 1899; it was in that same year that Lehman purchased his first stock of the International Steam Pump Company. Even though that was not his main focus, his son, Philip Lehman teamed up with Goldman, Sachs, and Co. to bring the cigar companies in the economic mix. After doing that, Lehman decided to bring in Sears, Woolworth company, Gimbel Brothers Inc., R.H Macy and Company, B.F. Goodrich Co. and much more bigger names.
After Lehman’s Retirement, his son Bobbie Lehman took over as head of the firm. During Bobbie’s tenture, the company weathered the capital crisis of the Great Depression by focusing on venture capital while the market recovered. After Bobbie’s death at only 44 years old, he handed the business over to Pete Peterson. Under Pete’s leadership as CEO, Pete led the firm from significant operating losses to five years of record profits with a return on equity among the highest in the investment banking industry. As Lehman’s empire started to rise further and further, they decided to team up with Shearson and American Express; on May 11th, 1984 the combined firms Shearson Lehman/American Express, and in 1988 Shearson Lehman/American Express merged with E.F. Hutton and C.o and became Shearson Lehman Hutton Inc.
In 1983 to 1990 the CEO of the Shearson Lehman Brothers was Peter Cohen. He led a one billion dollar purchase of E.F Hutton and later formed Shearson Lehman Hutton. During this time period the company Shearson Lehman was busy building it’s leveraged finance business to compete with their main competitor, Drexel Burnham Lambert. These two companies were always competing and always trying to stay one step in front of each other. During this period in time, Lehman was giving out several housing loans to many different people in the U.S and Lehman did not foresee or plan for the future if the housing market were to crash. Lehman had bought several properties for mortgages but when their prices dropped down, it went against the bank. This is what did happen and so the banks raised the interest rates on the housing loans which made the repayment of the loans quite difficult for the borrower’s. In the long run this was a huge blow to Lehman that caused a sixty billion dollar loss to the Lehman Brothers in real estate loans. This truly did hurt and effect the company and it was only going to get worse.
In September, 2008, the president of the federal reserve bank of New York Timothy Geithner planned a meeting on the future of Lehman which involved an immediate liquidation of all it’s assets. Lehman wanted to go to Bank of America and Barclays for acquisition help but both banks, Bank of America and Barclays turned down the offer because they were not pleased with what Lehman did in the past. Lehman had failed to manage good relations with Bank of America and Barclays and along with some of the top banks in America. Lehman was stuck. The snowball effect started to become a nightmare for this company and when it was all said and done, Lehman had a total debt of over six hundred thirty nine billion dollars. Lehman had no choice but to file for bankruptcy on September 15, 2008. The Lehman Brothers bankruptcy is the largest bankruptcy in all of America, and economists say that because of this event, it played a major roll in our late 2000s global financial crisis. On September 20th, 2008, there was an agreement that was approved by the U.S Bankruptcy Court that gave Nomura Holdings permission to acquire the Lehman Brother’s Franchise in the Asia Pacific region including Hong Kong, Japan, and Australia.
This Event changed America and it is sad to see something like this happen to a huge organization. To think that it started with just three brothers that immigrated to the U.S from Bavaria starting their own dry goods store which then later transformed into a multi billion dollar company is unimaginable. It turns out that a well function business must start with good morals and true ethics in order to succeed. It is a shame that the housing market crashed and the debt started to pile up on them, I can relate to this because my dad is a realtor and his business was doing well from 2003-2007 and now it is much more challenging for him to do as well as he was doing due to the market crash; it’s a great time to buy a house on todays market but also a terrible time to sell. It truly is sad to see what happened to the Lehman Brothers but I guess that I learned that in order to manage a well profitable business, it comes down to honesty and trust. If you cannot trust your client or business partner then you cannot progress forward. Trust is key in the business world and it will help a person achieve their goals and make a promising future.
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