...Introduction Page 2 * Crisis Page 3 1. Subprime Mortgage Crisis 2. Liquidation * Causes Page 5 * Impact Page 6 * Requirements Page 7-12 * Macro – Environment * Decision making method * Competitive strategy * Organization’s planning * Organization’s structure * Connection between Crisis & Culture * Resistance changes manage by manager * Advice to reduce crisis * Job related stress * The relevancy of innovation in mitigating the impact of the crisis and how the managers can foster innovation * Identification and description of relevant motivation theory that the managers can usefully apply to motivate the employees during the crisis * Feedback & Advices Page 12 * Referencing Guide Page 13 dfsfjn Introduction The organization in crisis that we chose to report on is the “Lehman brothers”. On September 15, 2008, Lehman Brothers declared the largest bankruptcy in history and changed the American and global economy....
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...Introduction History of Lehman Brothers Subprime Crisis Explained Vicious circle & the fall of Lehman Brothers Organizational Culture at Lehman Brothers Future Conclusion Introduction Lehman Brothers Holdings Inc, aka the fourth-largest investment financial institution in the US (behind Goldman Sachs, Morgan Stanley, and Merrill Lynch), was a 158 years old bank that had to declare its bankruptcy in September 2008. Led by its CEO, Richard Fuld, Lehman Brothers was a glorious and respected investment bank for which some of the most experienced and intelligent financial analysts/investors were working. How come then, than in a less than one week, the whole structure imploded and led to one historical bankruptcy and with the same occasion, became the trigger of the 2nd most dramatic worldwide financial crisis? This essay has been written, in what seemed to me, the most logical way to approach this very interesting and complex subject. A quick peak to Lehman Brothers’ history will help the reader to understand how, starting from very humble origins, Lehman Brothers became one of the top investment financial institutions in the US before its collapse. The financial crisis of 2008, also called the subprime crisis was the biggest reason of LB’s downfall. Having done some researches, the reader will be explained, in a very intuitive but complete manner, how this crisis began and how it evolved until it affected the whole world. One can already agree that LB’s got caught...
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...Lynch (now as Subsidiary of Bank of America), Lehman Brothers and Bear Steams (sold to JPMorgan Chase) were the world top five investment banks in United States. They were the key players in the financial markets and make significant contribution to the economics. But when they failed, the consequences would also be extremely fatal. The 158 years old Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy on Sunday 1:45am, September 15, 2008 (“Wikipedia: Lehman Brothers”, July 15, 2013). With a total assets of $639 billion and $619 billion in debts, Lehman Brothers’ bankruptcy filing became the largest in history, It’s assets far surpassed those of previous bankrupt giants such as WorldCom and Enron (“IInvestopedia: Case Study", April 02, 2009). The collapse of the Lehman Brothers is contagious and even triggered the Global Financial Crisis. LEHMAN BROTHERS HISTORY Three brothers – Henry Lehman, Emanuel Lehman and Mayer Lehman in 1850, founded Lehman Brothers. Started as a normal dry-goods store, the brothers grew the business by buying and selling cotton to planters living in and around Montgomery, Alabama ("History of Lehman Brothers", n.d). Eventually the brothers built a cotton storage warehouse together with a cotton merchant John Wesley Durr in a brief partnership form. Thereafter in 1858, an office in New York was opened to fulfill the needs of the growing sales and trades. After Civic War, Lehman Brothers who already have a strong pressure in the cotton...
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...Lehman faced an unprecedented loss due to the continuing subprime mortgage crisis in 2008. According to Jenny Anderson and Erick Dash’s article, “For Lehman More Cuts and Anxiety”, Lehman's loss was a result of having held on to large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages. During the years of the housing boom Lehman Brothers was increasing its revenue. They were increasing their profits from all of the home mortgages. Leman Brothers acquired subprime mortgage lenders. Between the year 2004 and 2006 Leman Brothers real estate business enabled revenues in the capital market to increase by 56%, giving the firm a securitized 146$ billion in mortgages in 2006. In 2007 the firm reported a net income of a record 4.2 billion on revenue of 19.3 billion (Case study p.1). Everything was going well for Lehman Brothers between 2005 and 2007. In beginning of 2007 Lehman’s stock prices had reached a high record. Unfortunately soon after that subprime mortgages began to default. Stocks for Lehman Brothers dropped dramatically after the default in subprime loans and from the start of the crisis. During the default in the subprime loans, Lehman Brother’s closed its subprime lender, eliminating 1,200 jobs in 23 of their locations. During the crisis in 2007 Lehman Brother’s leverage ratio jumped to 31 from 24 in 2004 (Case Study p.2). The leverage ratio shows how much more risky the company became. After Bear Stearns...
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...Case Study : Lehman Brother’s Demise of Lehman Brothers Lehman Brother’s demise was the event that gripped the US financial system into shock. It was the fourth largest investment firm in the US as of 2007 with 25,000 employees worldwide. The Firm had an exponential growth and recognized profits from 2005 to 2006 and in 2007 reported a net income of $4.2 billion dollars on revenues of 19.3 billion. The stock price of the company reached all-time high when it hit $86.18 per share. Lehman increased 56% in its revenues only from the subprime mortgage business alone. While the company kept reaping benefits, the real estate market in the US started to show signs of pending bubble burst. In March 2007 stock market experienced biggest drop in 5 years and mortgage defaults rose up to the highest percentage in almost a decade. Investors were confident with their money as they were satisfied with Lehman’s financial statements and their past resilience with depressions. According to NyTimes “Lehman never publicly disclosed its use of Repo 105 transactions, its accounting treatment for these transactions, the considerable escalation of its total Repo 105 usage in late 2007 and into 2008, or the material impact these transactions had on the firm’s publicly reported net leverage ratio.” Later when Lehman was exposed of their use of accounting gimmicks to mislead the investors. This led the investors to lose confidence in Lehman brothers. Investors started dumping their stocks while other...
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...Too Big To Fail: The Rise and Fall of Lehman Brothers and its effects on the Market Failure of Lehman Brothers was due to aggressive leveraging and poor regulation. Led to re evaluating credit default swaps and how large companies look at risk. The 15th of September in 2008 the United States 4th largest investment bank filed for bankruptcy with devastating consequences for the financial market. After a period of impudent investments and poor oversight both internally and externally this paper will look at the many causes and subsequent effects Lehman’s failure had on the U.S. financial system. Lehman Brothers A Versitile Company Henry Lehman Immigrated from Rimpar, Germany, to Montgomery, Alabama in 1944 where he established a small hardware store that sold groceries, dry goods, and cotton related tools and equipment to the local farmers. Six years later his brothers Emanuel and Mayer joined him in his endeavor and Lehman Brothers was born. Not too long after it’s inception Lehman Brothers branched out from general merchandising and involved themselves in commodities brokerage. Lehman’s became the major brokers for the purchase and sale of cotton in Montgomery and it’s surrounding areas. By 1858 Lehman Brothers had opened up an office in New York and expanded it’s commodities trading in addition to obtaining a foothold into the powerful New York financial community. After the Civil War passed Lehman Brothers drew most of their attention to their New York office...
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...On September 15, 2008, Lehman Brothers filed for bankruptcy. With $639 billion in assets and $619 billion in debt, Lehman's bankruptcy filing was the largest in history, as its assets far surpassed those of previous bankrupt giants such as WorldCom and Enron. Lehman was the fourth-largest U.S. investment bank at the time of its collapse, with 25,000 employees worldwide. Lehman's demise also made it the largest victim, of the U.S.subprime mortgage-induced financial crisis that swept through global financial markets in 2008. Lehman's collapse was a seminal event that greatly intensified the 2008 crisis and contributed to the erosion of close to $10 trillion in market capitalization from global equity markets in October 2008, the biggest monthly decline on record at the time. (For more information on the subprime meltdown, read Who Is To Blame For The Subprime Crisis?) The History of Lehman Brothers Lehman Brothers had humble origins, tracing its roots back to a small general store that was founded by German immigrant Henry Lehman in Montgomery, Alabama, in 1844. In 1850, Henry Lehman and his brothers, Emanuel and Mayer, founded Lehman Brothers. While the firm prospered over the following decades as the U.S. economy grew into an international powerhouse, Lehman had to contend with plenty of challenges over the years. 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...
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...Bankruptcy of Lehman Brothers Causes CAUSES Malfeasance A March 2010 report by the court-appointed examiner indicated that Lehman executives regularly used cosmetic accounting gimmicks at the end of each quarter to make its finances appear less shaky than they really were. This practice was a type of repurchase agreement that temporarily removed securities from the company's balance sheet. However, unlike typical repurchase agreements, these deals were described by Lehman as the outright sale of securities and created "a materially misleading picture of the firm’s financial condition in late 2007 and 2008 Subprime mortgage crisis In August 2007, the firm closed its subprime lender, BNC Mortgage, eliminating 1,200 positions in 23 locations, and took an after-tax charge of $25 million and a $27 million reduction in goodwill. Lehman said that poor market conditions in the mortgage space "necessitated a substantial reduction in its resources and capacity in the subprime space". In 2008, Lehman faced an unprecedented loss to the continuing subprime mortgage crisis. Lehman's loss was a result of having held on to large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages; whether Lehman did this because it was simply unable to sell the lower-rated bonds, or made a conscious decision to hold them, is unclear. In any event, huge losses accrued in lower-rated mortgage-backed securities throughout 2008. Short-selling allegations...
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...summer(winter in Australia) when we heard the news that Lehman Brothers filed for bankruptcy during the terrible ‘sub-prime meltdown’(Investopedia 2009). As a giant among investment banks with a history over 150 years,Lehman Brothers suddenly collapsed in few months. How did Lehman Brothers go bankrupt? Why did it happen? Are there any methods that could have been used to avoid the doomsday? These questions will be discussed below. Case study overview In early 2007, with the stock reached $86.18(Investopedia 2009), Lehman Brothers seemed to have done a great job. Therefore ,the company underestimated the risks posed by rising ‘home delinquencies’(Terry 2008) and overestimated the risk-enduring capacity of the US housing market. One real estate investment broker described Lehman as ‘the real estate A.T.M(Terry 2008).Then Lehman’s share price went into a tailspin when the dark days came in August 2007. Dramatically, at the end of 2007, Lehman’s share price rebounded, as ‘global equity markets reached new highs and prices for fixed-income assets staged a temporary rebound’(Terry 2008).However, Lehman failed to seize the chance to ‘trim its massive mortgage portfolio’(Investopedia 2009). According to the Investpedia (2009), the news was a deathblow to Lehman, leading to a 45% plunge in the stock and a 66% spike incredit-default swaps on the company's debt. With the company's hedge fund clients began pulling out, Lehman completely went bankrupt on September 15(Investopedia 2009)...
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...LEHMAN BROTHERS: CASE BACKGROUND On September 15, 2008, Lehman Brothers filed for bankruptcy. With $639 billion in assets and $619 billion in debt, Lehman's bankruptcy filing was the largest in history, as its assets far surpassed those of previous bankrupt giants such as WorldCom and Enron. Lehman was the fourth-largest U.S. investment bank at the time of its collapse, with 25,000 employees worldwide. Lehman's demise also made it the largest victim, of the U.S. subprime mortgage-induced financial crisis that swept through global financial markets in 2008. Lehman's collapse was a seminal event that greatly intensified the 2008 crisis and contributed to the erosion of close to $10 trillion in market capitalization from global equity markets in October 2008, the biggest monthly decline on record at the time. The History of Lehman Brothers Lehman Brothers had humble origins, tracing its roots back to a small general store that was founded by German immigrant Henry Lehman in Montgomery, Alabama, in 1844. In 1850, Henry Lehman and his brothers, Emanuel and Mayer, founded Lehman Brothers. While the firm prospered over the following decades as the U.S. economy grew into an international powerhouse, Lehman had to contend with plenty of challenges over the years. Lehman survived them all – the railroad bankruptcies of the 1800s, the Great Depression of the 1930s, two world wars, a capital shortage when American Express spun it off in 1994, and the Long Term Capital Management...
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...Lehman Brothers Holdings, Inc. Introduction - The Rise and Fall of Lehman Brothers. Loose regulations, deception, and greed were the root of all evil for one of the largest investment banks in the world. Lehman Brother’s was founded in 1850. Lehman Brother’s survived the Great Depression, WWI and WWII. In 1969 Lehman Brother’s hired Richard “Dick” S. Fuld Jr. as an intern who in 1994 became CEO of the Company. During Bill Clinton’s Presidency government started to support middle and lower class people to own their own houses. During this time a XX”Fair Housing Act” was created which was supposed to stop mortgage banks from discriminating lower income people from owning their own houses. The 911 attacks from 2001 created the greatest loss in Wall Street since The Great Depression. George Bush and the government encouraged Americans to buy more property. Mortgage companies started to take advantage of all these factors and lured low income uneducated people to buy mortgages with introductory rates. They never warned these buyers that these were just introductory rates that would later increase. This in turn created a larger problem for the new uneducated homeowners. These new loans created havoc for the homeowners that were struggling to make payments, and then came the massive layoffs. The economy nearly came to a standstill, and the housing market was one of the hardest hit sectors in the global economy. With the perfect situations created by loose regulations, and...
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...Introduction to the Financial Crisis The near-collapse of the financial system in the United States was the most substantial economic crisis in the U.S. since the Great Depression of the 1920s and 1930s. Since the crisis began in late-2007, more than 6 million Americans have lost their jobs, large and important financial institutions have failed, and trillions of dollars in savings and retirement accounts have been lost. It is generally accepted that problems in the United States housing market are at the root of the current United States and global financial crisis. However, even in mid-2009, twelve months after the financial crisis fully erupted in the United States, it is still too early to determine all of the precise causes and consequences of the crisis. Many different entities share the responsibility for creating or enabling the crisis: mortgage lenders, borrowers, regulators, investors, rating agencies, and probably many others. At its broadest level, this crisis was caused by a failure of governance: of political governance by regulators and legislators, of corporate governance by firms and executives, and of personal governance by individuals. After peaking in the United States in 2006, the global housing bubble collapsed. On the national level, home prices in the United States have dropped by almost 40% according to the Case-Schiller Home Price Index from 2006 peak to mid-2009. Securities with risk exposure to housing market plummeted, causing great damage to financial...
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...Lehman Brothers and the Impact to the Great Recession The question before me is if Lehman Brothers had been bailed out and not allowed to fail and declare bankruptcy, would it have prevented the Great Recession. My answer based upon my reading and research would lead me to the conclusion of no it would not have prevented the Great Recession. However, their failure did have an impact on the Great Recession. Lehman Brothers filed bankruptcy in September of 2008. It was the largest bankruptcy in the history of the United States (MacEwan and Miller, p.110). They were the fourth largest investment bank in the nation and had been in existence since 1850. Their collapse was the result of being heavily invested in the subprime mortgage market that was a major factor in the US housing bubble. Prior to Lehman Brothers failure, there had already been a bailout by the US government of another large financial institution, Bear Stearns. The bailout involved the Federal Reserve insuring J.P. Morgan Chase against loses of up to $29 billion on the “ill liquid” assets it was obtaining in the purchase of Bear Stearns. This was the beginning of the bailout of the financial sector by the federal government and would reach unprecedented levels by the end of 2008. Ben Bernanke, the chairman of the Federal Reserve, justified these actions to Congress with an argument that had Bear Stearns been allowed to fail, the result would have been chaos and would not have been limited to...
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... [pic] TABLE OF CONTENTS Introduction………………………………………………..………… The History…………………………………………………………… Causes………………………………………………………………. The Run Up………………………………………………………… Lehman Brothers………………………………………………… Bank of America…………………………………………………… Fallout……………………………………………………………… Conclusion………………………………………………………… INTRODUCTION In 2007, the United States was in the midst of the largest mortgage and financial crisis since the Great Depression. The impact of the financial collapse caused many Americans to lose their homes and their jobs. Across the country, mortgage delinquencies and foreclosures have hit an all-time recorded high, with 11% of loans currently two or more payments behind. Complicating matters, 24% of borrowers are “underwater,” having mortgage balances greater than the values of their homes. The lack of financial management caused two large investment banks and the largest insurance firm in the world to cripple the Dow Jones Industrial Average by nearly 30% within 2-3 weeks. The financial collapse did not just affect home owners, but many financial firms were now facing imminent bankruptcy including Morgan Stanley, Goldman Sachs, Citigroup, Wachovia and more. Many different combinations of deals and mergers were suggested, but the crisis advanced. Morgan Stanley eventually sold a 21% equity stake to Mitsubishi UFJ for $9 billion, which was paid as the largest check ever written. The people of the United States were frustrated...
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...Part A: 1. Introduction The Financial Crisis of 2007-2010 is often cited as the most significant downturn in the economy since the Great Depression of the 1930s. It erupted on August 9, 2007 and spread throughout the advanced market economies such as the US and the UK. The Financial crisis of 2007 is notably different from other crises we faced, for instance Anthony Herbst and Joseph Wu (2009) argued that ‘the financial crisis of this first decade of the 3rd millennium has features that make it both severe and somewhat intractable’. The crisis is argued to be not exogenous to our capitalist economic system, since it is intimately connected to financial innovation and de-regulation in financial markets. Furthermore, as Herbst and Wu (2009) advocate, ‘the current pandemic’ should be discussed in the light of ‘the political wrapper surrounding many aspects of it, and the threads running through it’. The economic situation and financial behaviour are always affected by political realm, so it is also necessary to consider political factors in evaluation of the crisis. General causes of this crisis are still being debated in the academic literature, and this paper aims to provide a relatively comprehensive outlook on the most common and empirically successful accounts of factors that contributed to the crisis. This report is organised as follows: part 1 provides a brief introduction to the current financial crisis; part 2 briefly evaluates the possible causes; part 3 examines whether...
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