Lehman Brothers Inc. ( ) was an American global financial services firm founded in 1850. Before filing for bankruptcy in 2008, Lehman was the fourth-largest

investment bank Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

in the United States (behind

Goldman Sachs The Goldman Sachs Group, Inc. ( ) is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered in Lower Manhattan in New York City, with regional headquarters in many internationa ...

Morgan Stanley Morgan Stanley is an American multinational investment bank and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in 42 countries and more than 80,000 employees, the firm's clients in ...

, and

Merrill Lynch Merrill Lynch, Pierce, Fenner & Smith Incorporated, doing business as Merrill, and previously branded Merrill Lynch, is an American investment management and wealth management division of Bank of America. Along with BofA Securities, the investm ...

), with about 25,000 employees worldwide. It was doing business in investment banking, equity,

fixed-income Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a fixed rate once a year and repay the prin ...

and derivatives sales and

trading Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market (economics), market. Traders generally negotiate throu ...

(especially U.S. Treasury securities), research,

investment management Investment management (sometimes referred to more generally as financial asset management) is the professional asset management of various Security (finance), securities, including shareholdings, Bond (finance), bonds, and other assets, such as r ...

private equity Private equity (PE) is stock in a private company that does not offer stock to the general public; instead it is offered to specialized investment funds and limited partnerships that take an active role in the management and structuring of the co ...

, and

private banking Private banking is a general description for banking, investment and other financial services provided by banks and financial institutions primarily serving high-net-worth individuals (HNWIs) – those with very high income or substantial asset ...

. Lehman was operational for 158 years from its founding in 1850 until 2008. On September 15, 2008, Lehman Brothers filed for

Chapter 11 bankruptcy protection Chapter 11 of the United States Bankruptcy Code (Title 11 of the United States Code) permits reorganization under the bankruptcy laws of the United States. Such reorganization, known as Chapter 11 bankruptcy, is available to every business, wh ...

following the exodus of most of its clients, drastic declines in its stock price, and the devaluation of assets by

credit rating agencies A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely principal and interest payments and the likelihood of default. An agency may r ...

. The collapse was largely due to Lehman's involvement in the

subprime mortgage crisis The American subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010, contributing to the 2008 financial crisis. It led to a severe economic recession, with millions becoming unemployed and many busines ...

and its exposure to less liquid assets. Lehman's bankruptcy filing is the largest in US history, having beaten the previous record holder

Worldcom, Inc. MCI, Inc. (formerly WorldCom and MCI WorldCom) was a telecommunications company. For a time, it was the second-largest long-distance telephone company in the United States, after AT&T. WorldCom grew largely by acquiring other telecommunicatio ...

, and is thought to have played a major role in the unfolding of the

2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...

. The market collapse also gave support to the "

too big to fail "Too big to fail" (TBTF) is a theory in banking and finance that asserts that certain corporations, particularly financial institutions, are so large and so interconnected with an economy that their failure would be disastrous to the greater e ...

" doctrine. After Lehman Brothers filed for bankruptcy, global markets immediately plummeted. The following day, major British bank

Barclays Barclays PLC (, occasionally ) is a British multinational universal bank, headquartered in London, England. Barclays operates as two divisions, Barclays UK and Barclays International, supported by a service company, Barclays Execution Services ...

announced its agreement to purchase, subject to regulatory approval, a significant and controlling interest in Lehman's North American investment-banking and trading divisions, along with its New York headquarters building. On September 20, 2008, a revised version of that agreement was approved by

U.S. Bankruptcy Court United States bankruptcy courts are courts created under Article I of the United States Constitution. The current system of bankruptcy courts was created by the United States Congress in 1978, effective April 1, 1984. United States bankruptcy ...

Judge James M. Peck. The next week,

Nomura Holdings is a financial holding company and a principal member of the Nomura Group, which is Japan's largest List of investment banks#Largest full-service investment banks#Bulge Bracket#Membership, investment bank and Broker-dealer#Japan, brokerage group. ...

announced that it would acquire Lehman Brothers' franchise in the Asia–Pacific region, including Japan,

Hong Kong Hong Kong)., Legally Hong Kong, China in international treaties and organizations. is a special administrative region of China. With 7.5 million residents in a territory, Hong Kong is the fourth most densely populated region in the wor ...

and Australia, as well as Lehman Brothers' investment banking and equities businesses in Europe and the Middle East. The deal became effective on October 13, 2008.

History

Under the Lehman family (1850–1969)

In 1844, 23-year-old Hayum Lehmann, who changed his name to

Henry Lehman Henry Lehman (born Hayum Lehmann; September 29, 1822 – November 17, 1855) was a German-born American businessman and the founder of Lehman Brothers, which grew from a cotton and fabrics shop during his life to become a large finance firm under ...

,Geisst, Charles R. ''The Last Partnerships''. McGraw-Hill, 1997, page 49 the son of a Jewish cattle merchant, emigrated to the United States from

Rimpar Rimpar is a market town in the district of Würzburg in the German state of Bavaria. It is located about 10 km (6 mi) north of the City of Würzburg. The municipality includes the villages of Gramschatz and Maidbronn, incorporated in 19 ...

Bavaria Bavaria, officially the Free State of Bavaria, is a States of Germany, state in the southeast of Germany. With an area of , it is the list of German states by area, largest German state by land area, comprising approximately 1/5 of the total l ...

.Bernhard, William, L., Birge, June Rossbach Bingham, Loeb, John L., Jr.. '' Lots of Lehmans – The Family of Mayer Lehman of Lehman Brothers, Remembered by His Descendants''.

Center For Jewish History The Center for Jewish History is a partnership of five Jewish history, scholarship, and art organizations in New York City, namely the American Jewish Historical Society, American Sephardi Federation, Leo Baeck Institute New York, Yeshiva Univ ...

, 2007, page 1 He settled in

Montgomery, Alabama Montgomery is the List of capitals in the United States, capital city of the U.S. state of Alabama. Named for Continental Army major general Richard Montgomery, it stands beside the Alabama River on the Gulf Coastal Plain. The population was 2 ...

, where he opened a dry-goods store, "H. Lehman".Wechsberg, Joseph. ''The Merchant Bankers''. Pocket Books, 1966, page 233 In 1847, following the arrival of his brother

Emanuel Lehman Emanuel Lehman (born Mendel Lehmann; February 15, 1827 – January 10, 1907) was an American banker. He was the younger brother of Henry Lehman and the older brother of Mayer Lehman, and he was a co-founder of Lehman Brothers. Biography Emanue ...

, the firm became "H. Lehman and Bro."Bernhard, William, L., Birge, June Rossbach Bingham, Loeb, John L., Jr.. '' Lots of Lehmans – The Family of Mayer Lehman of Lehman Brothers, Remembered by His Descendants''. Center For Jewish History, 2007, page 5 With the arrival of their youngest brother,

Mayer Lehman Mayer Lehman (January 9, 1830 – June 21, 1897) was an American businessman, banker, slave owner, and philanthropist. He was one of the three founding brothers of the investment bank Lehman Brothers. Early life Mayer Lehman was born in 1830 t ...

, in 1850, the firm changed its name again and "Lehman Brothers" was founded.Birmingham, Stephen. '' Our Crowd: The Great Jewish Families of New York''. Harper and Row, 1967, page 47 During the 1850s, cotton was one of the most important crops in the United States, and was Alabama's highest-grossing cash crop. Until the U.S. Civil War, nearly all U.S. cotton was produced by

slave labor Slavery is the ownership of a person as property, especially in regards to their labour. Slavery typically involves compulsory work, with the slave's location of work and residence dictated by the party that holds them in bondage. Enslavemen ...

, and by the 1860 census, slaves constituted nearly 45% of Alabama's total population. Mayer Lehman was listed as the owner of seven slaves ("three males and four females ranging in age from 5 to 50") in the U.S. Census of 1860. Capitalizing on cotton's high market value, the three brothers began to routinely accept raw cotton from slave plantations as payment for merchandise, eventually beginning a second business trading in cotton. Within a few years this business grew to become the most significant part of their operation. Following Henry's death from yellow fever in 1855,Geisst, Charles R. ''The Last Partnerships''.

McGraw-Hill McGraw Hill is an American education science company that provides educational content, software, and services for students and educators across various levels—from K-12 to higher education and professional settings. They produce textbooks, ...

, 1997, page 50 the remaining brothers continued to focus on their commodities-trading/brokerage operations. By 1858, the center of cotton trading had shifted from the

South South is one of the cardinal directions or compass points. The direction is the opposite of north and is perpendicular to both west and east. Etymology The word ''south'' comes from Old English ''sūþ'', from earlier Proto-Germanic ''*sunþa ...

to New York City, where

factors Factor (Latin, ) may refer to: Commerce * Factor (agent), a person who acts for, notably a mercantile and colonial agent * Factor (Scotland), a person or firm managing a Scottish estate * Factors of production, such a factor is a resource used ...

and commission houses were based. Lehman opened its first branch office at 119 Liberty Street, and 32-year-old Emanuel relocated there to run the office. In 1862, facing difficulties as a result of the

Civil War A civil war is a war between organized groups within the same Sovereign state, state (or country). The aim of one side may be to take control of the country or a region, to achieve independence for a region, or to change government policies.J ...

, the firm teamed up with a cotton merchant named John Durr to form Lehman, Durr & Co.Birmingham, Stephen. '' Our Crowd: The Great Jewish Families of New York''. Harper and Row, 1967, page 77Bernhard, William, L., Birge, June Rossbach Bingham, Loeb, John L., Jr.. '' Lots of Lehmans – The Family of Mayer Lehman of Lehman Brothers, Remembered by His Descendants''. Center For Jewish History, 2007, page 8 Following the war the company helped finance Alabama's reconstruction. The firm's headquarters was eventually moved to New York City, where it helped found the

New York Cotton Exchange The New York Cotton Exchange (NYCE) is a commodities exchange founded in 1870 by a group of one hundred cotton brokers and merchants in New York City. In 1998, the New York Board of Trade (NYBOT) became the parent company of the New York Cotton ...

in 1870, commodifying the crop;Wechsberg, Joseph. ''The Merchant Bankers''. Pocket Books, 1966, page 235 Emanuel sat on the board of governors until 1884. The firm also dealt in the emerging market for railroad bonds and entered the financial-advisory business. Lehman became a member of the

Coffee Exchange The Coffee, Sugar and Cocoa Exchange (CSCE) was founded in 1882 as the Coffee Exchange in the City of New York. Sugar futures were added in 1914, and, on September 28, 1979, the New York Coffee and Sugar Exchange merged with the New York Cocoa Exc ...

as early as 1883 and finally the

New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It is the List of stock exchanges, largest stock excha ...

in 1887. In 1899, it underwrote its first public offering, the preferred and common stock of the International Steam Pump Company. Despite the offering of International Steam, the firm's real shift from being a commodities house to a house of issue did not begin until 1906. In that year, under Emanuel's son

Philip Lehman Philip Lehman (November 9, 1861 – March 21, 1947) was an American investment banker. Biography Philip Lehman was born in New York City to Emanuel Lehman (1827–1907) and Pauline Sondheim (1843–1871). Emanuel was a co-founder of the now ...

, the firm partnered with Goldman, Sachs & Co.,Geisst, Charles R. ''The Last Partnerships''. McGraw-Hill, 1997, page 51Geisst, Charles R. ''The Last Partnerships''. McGraw-Hill, 1997, page 285 to bring the General Cigar Co. to market,Wechsberg, Joseph. ''The Merchant Bankers''. Pocket Books, 1966, page 238 followed closely by

Sears, Roebuck and Company Sears, Roebuck and Co., commonly known as Sears ( ), is an American chain of department stores and online retailer founded in 1892 by Richard Warren Sears and Alvah Curtis Roebuck and reincorporated in 1906 by Richard Sears and Julius Rosen ...

. Among these were

F.W. Woolworth Company The F. W. Woolworth Company (often referred to as Woolworth's or simply Woolworth) was a retail company and one of the pioneers of the five-and-dime store. It was among the most successful American and international five-and-dime businesses, se ...

,Geisst, Charles R. ''The Last Partnerships''. McGraw-Hill, 1997, page 53

May Department Stores Company The May Department Stores Company was an American holding company of department stores founded in 1877 by David May. It operated several regional department stores throughout the United States, which were managed as distinct business divisions ...

, Gimbel Brothers, Inc.,Wechsberg, Joseph. ''The Merchant Bankers''. Pocket Books, 1966, page 241 R.H. Macy & Company,

The Studebaker Corporation Studebaker was an American wagon and automobile manufacturer based in South Bend, Indiana, with a building at 1600 Broadway, Times Square, Midtown Manhattan, New York City. Founded in 1852 and incorporated in 1868 as the Studebaker Brothers Man ...

, the B.F. Goodrich Co., and

Endicott Johnson Corporation The Endicott-Johnson Shoe Company ("E-J") was a prosperous manufacturer of shoes based in New York's Southern Tier, with factories mostly located in the area's Triple Cities of Binghamton, Johnson City, and Endicott. An estimated 20,000 peop ...

. Following Philip Lehman's retirement in 1925, his son Robert "Bobbie" Lehman took over as head of the firm. During Bobbie's tenure, the company weathered the capital crisis of the

Great Depression The Great Depression was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...

by focusing on

venture capital Venture capital (VC) is a form of private equity financing provided by firms or funds to start-up company, startup, early-stage, and emerging companies, that have been deemed to have high growth potential or that have demonstrated high growth in ...

while the

equities Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporation in proportion t ...

market recovered. In 1924, John M. Hancock became the first non-family member to join the firm, followed by Monroe C. Gutman and Paul Mazur, who became partners in 1927. By 1928, the firm had moved to its One William Street location. In the 1930s, Lehman underwrote the

initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investm ...

of the first television manufacturer,

DuMont Laboratories Allen B. DuMont Laboratories, Inc. (printed on products as Allen B. Du Mont Laboratories, Inc., referred to as DuMont Laboratories or DuMont Labs, and DuMont on company documents) was an American television equipment manufacturer and broadcasting ...

, and helped fund the

Radio Corporation of America RCA Corporation was a major American electronics company, which was founded in 1919 as the Radio Corporation of America. It was initially a patent pool, patent trust owned by General Electric (GE), Westinghouse Electric Corporation, Westinghou ...

(RCA). It also helped finance the rapidly growing oil industry, including the companies

Halliburton Halliburton Company is an American multinational corporation and the world's second-largest oil service company which is responsible for most of the world's fracking operations. It employs approximately 55,000 people through its hundreds of su ...

and

Kerr-McGee The Kerr-McGee Corporation, founded in 1929, was an American energy company involved in oil exploration, production of crude oil, natural gas, perchlorate and uranium mining and milling in various countries. On June 23, 2006, Anadarko Petroleu ...

. In the 1950s, Lehman underwrote the IPO of

Digital Equipment Corporation Digital Equipment Corporation (DEC ), using the trademark Digital, was a major American company in the computer industry from the 1960s to the 1990s. The company was co-founded by Ken Olsen and Harlan Anderson in 1957. Olsen was president until ...

. Later, it arranged the acquisition of Digital by

Compaq Compaq Computer Corporation was an American information technology, information technology company founded in 1982 that developed, sold, and supported computers and related products and services. Compaq produced some of the first IBM PC compati ...

An evolving partnership (1969–1984)

Robert Lehman Robert Owen Lehman Sr. (September 29, 1891 – August 9, 1969) was an American banker, longtime head of the Lehman Brothers investment bank, and a racehorse owner, art collector, and philanthropist. Life and career Lehman was born to a Jewish ...

died in 1969 after 44 years in a leadership position for the firm, leaving no member of the Lehman family actively involved with the partnership. At the same time, Lehman was facing strong headwinds amidst the difficult economic environment of the early 1970s. By 1972, the firm was facing hard times and in 1973,

Pete Peterson Douglas Brian "Pete" Peterson (born June 26, 1935) is an American politician and diplomat. He served as a United States Air Force pilot during the Vietnam War and spent over six years as a prisoner of the North Vietnamese army after his plane was ...

, chairman and chief executive officer of the

Bell & Howell Bell and Howell is a United States brand of cameras, lenses, and motion picture machinery. It was originally founded as a company in 1907, and headquartered in Wheeling, Illinois. The company was acquired by Böwe Systec in 2003. Since 2010, the ...

Corporation, was brought in to save the firm.Geisst, Charles R. ''The Last Partnerships''. McGraw-Hill, 1997, page 77 Under Peterson's leadership as chairman and CEO, the firm acquired Abraham & Co. in 1975, and two years later merged with Kuhn, Loeb & Co., to form

Lehman Brothers, Kuhn, Loeb Inc. Lehman Brothers Inc. ( ) was an American global financial services firm founded in 1850. Before filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States (behind Goldman Sachs, Morgan Stanley, and Merrill ...

, the country's fourth-largest investment bank, behind

Salomon Brothers Salomon Brothers, Inc., was an American multinational bulge bracket investment bank headquartered in New York City. It was one of the five List of investment banks, largest investment banking enterprises in the United States and a very profitabl ...

and

First Boston : ''For the company after its acquisition by Credit Suisse, see Credit Suisse First Boston (known as CSFB and CS First Boston)'' The First Boston Corporation was a New York–based bulge bracket investment bank, founded in 1932 and acquired by ...

. Peterson led the firm from significant operating losses to five consecutive years of record profits with a

return on equity The return on equity (ROE) is a measure of the profitability of a business in relation to its equity; where: : Jason Fernando (2023)"Return on Equity (ROE) Calculation and What It Means" Investopedia Thus, ROE is equal to a fiscal year's net in ...

among the highest in the investment-banking industry. By the early 1980s, hostilities between the firm's

investment banker Investment banking is an advisory-based financial service for institutional investors, corporations, governments, and similar clients. Traditionally associated with corporate finance, such a bank might assist in raising financial capital by unde ...

s and traders prompted Peterson to promote Lewis Glucksman, the firm's President, COO and former trader, to be his co-CEO in May 1983. Glucksman introduced a number of changes that had the effect of increasing tensions, which when coupled with Glucksman's management style and a downturn in the markets, resulted in a power struggle that ousted Peterson and left Glucksman as the sole CEO.Geisst, Charles R. ''The Last Partnerships''. McGraw-Hill, 1997, page 78 Upset bankers, who had soured over the power struggle, left the company.

Stephen A. Schwarzman Stephen Allen Schwarzman (born February 14, 1947) is an American businessman. He is the chairman and CEO of the Blackstone Group, a global private equity firm he established in 1985 with Peter G. Peterson. Schwarzman was chairman of President Do ...

, chairman of the firm's M&A committee, recalled in a February 2003 interview with ''

Private Equity International ''Private Equity International'' (PEI) is a global insight, analysis and data provider for the private equity industry, with a core focus on the relationship between investors and fund managers: the LP- GP nexus. Launched in December 2001, the t ...

'' that "Lehman Brothers had an extremely competitive internal environment, which ultimately became dysfunctional." The company suffered under the disintegration, and Glucksman was pressured into selling the firm.

Merger with American Express (1984–1994)

Shearson/American Express Shearson was the name of a series of investment banking and retail brokerage firms from 1902 until 1994, named for Edward ShearsonAmerican Express American Express Company or Amex is an American bank holding company and multinational financial services corporation that specializes in payment card industry, payment cards. It is headquartered at 200 Vesey Street, also known as American Expr ...

-owned securities company focused on brokerage rather than investment banking, acquired Lehman in 1984, for $360 million. On May 11, the combined firms became Shearson Lehman/American Express. From 1983 to 1990,

Peter A. Cohen Peter A. Cohen is the chairman and CEO of Andover National Corporation, a public holding company. He was formerly the chairman and CEO of Cowen Group, Cowen Inc., also known as Cowen & Company now TD Cowen. Prior to his current role, Cohen founde ...

was CEO and chairman of Shearson Lehman Brothers, where he led the $1 billion purchase of

E.F. Hutton EF Hutton was an American stock brokerage firm founded in 1904 by Edward Francis Hutton and his brother, Franklyn Laws Hutton. Later, it was led by well-known Wall Street trader Gerald M. Loeb. Under their leadership, EF Hutton became the se ...

to form

Shearson Lehman Hutton Shearson was the name of a series of investment banking and retail brokerage firms from 1902 until 1994, named for Edward Shearson In 1989, Shearson backed F. Ross Johnson's management team in its attempted

management buyout A management buyout (MBO) is a form of acquisition in which a company's existing managers acquire a large part, or all, of the company, whether from a parent company or individual. Management- and/or leveraged buyouts became noted phenomena of 19 ...

RJR Nabisco R. J. Reynolds Nabisco, Inc., doing business as RJR Nabisco, was an American conglomerate, selling tobacco and food products, headquartered in the Calyon Building in Midtown Manhattan, New York City. R. J. Reynolds Nabisco stopped ...

, but were ultimately outbid by private equity firm

Kohlberg Kravis Roberts KKR & Co. Inc., also known as Kohlberg Kravis Roberts & Co., is an American global private-equity and investment company. , the firm had completed private-equity investments in portfolio companies with approximately $710 billion of total ...

, who was backed by

Drexel Burnham Lambert Drexel Burnham Lambert Inc. was an American multinational investment bank that was forced into bankruptcy in 1990 due to its involvement in illegal activities in the junk bond market, driven by senior executive Michael Milken. At its height, i ...

Divestment and independence (1994–2008)

In 1993, under newly appointed CEO

Harvey Golub Harvey Golub (born April 16, 1939) is an American businessman. Biography Born to a Jewish family, Golub attended Cornell University and received a Bachelor of Science from the New York University. He worked as a senior partner with McKinsey & C ...

, American Express began to divest itself of its banking and brokerage operations. It sold its retail brokerage and asset management operations to

Primerica Primerica, Inc. is a multi-level marketing company that provides insurance, Investment management, investment and financial services to middle-income families in the United States and Canada. Primerica is the parent company of National Bene ...

and in 1994 it spun off Lehman Brothers Kuhn Loeb in an

, as Lehman Brothers Holdings, Inc.Geisst, Charles R. ''The Last Partnerships''. McGraw-Hill, 1997, page 79 After being spun off,

Dick Fuld Richard Severin Fuld Jr. (born April 26, 1946) is an American banker best known as the final chairman and chief executive officer of investment bank Lehman Brothers. Fuld held this position from April 1, 1994 after the firm's spinoff from America ...

became CEO of the company. He led one of the United States and the world's bulge-bracket investment banks. Fuld steered Lehman through the

1997 Asian financial crisis The 1997 Asian financial crisis gripped much of East Asia, East and Southeast Asia during the late 1990s. The crisis began in Thailand in July 1997 before spreading to several other countries with a ripple effect, raising fears of a worldwide eco ...

, and when the

Long Term Capital Management Long-Term Capital Management L.P. (LTCM) was a highly leveraged hedge fund. In 1998, it received a $3.6 billion bailout from a group of 14 banks, in a deal brokered and put together by the Federal Reserve Bank of New York. LTCM was founded in 1 ...

hedge fund collapsed in 1998. In 2001, the firm acquired the private-client services, or "PCS", business of Cowen & Co. and later, in 2003, aggressively re-entered the asset-management business, which it had exited in 1989. Beginning with $2 billion in

assets under management In finance, assets under management (AUM), sometimes called fund under management, refers to the total market value of all financial assets that a financial institution—such as a mutual fund, venture capital firm, or depository institutio ...

, the firm acquired the

Crossroads Group The Crossroads Group was a Dallas-based private equity fund of funds firm focusing on venture capital investments. The firm, founded in 1981 by Brad Heppner, was acquired by Lehman Brothers in October 2003. Since Lehman Brothers' 2008 bankruptcy ...

, the fixed-income division of Lincoln Capital Management and

Neuberger Berman Neuberger Berman Group LLC is an American private, independent, employee-owned investment management firm. The firm manages equities, fixed income, private equity and hedge fund portfolios for global institutional investors, advisors and high-ne ...

. These businesses, together with the PCS business and Lehman's private-equity business, comprised the Investment Management Division, which generated approximately $3.1 billion in net revenue. During the

, Fuld kept his job while CEOs of rivals like

Bear Stearns The Bear Stearns Companies, Inc. was an American investment bank, securities trading, and brokerage firm that failed in 2008 during the 2008 financial crisis and the Great Recession. After its closure it was subsequently sold to JPMorgan Chas ...

, and

Citigroup Citigroup Inc. or Citi (Style (visual arts), stylized as citi) is an American multinational investment banking, investment bank and financial services company based in New York City. The company was formed in 1998 by the merger of Citicorp, t ...

were forced to resign. In addition, Lehman's board of directors, which included retired CEOs like

Vodafone Vodafone Group Public Limited Company () is a British Multinational company, multinational telecommunications company. Its registered office and global headquarters are in Newbury, Berkshire, England. It predominantly operates Service (economic ...

's Christopher Gent and

IBM International Business Machines Corporation (using the trademark IBM), nicknamed Big Blue, is an American Multinational corporation, multinational technology company headquartered in Armonk, New York, and present in over 175 countries. It is ...

John Akers John Fellows Akers (December 28, 1934 – August 22, 2014) was an American businessman. He was president (1983–1989), chief executive officer (1985–1993) and chairman (1986–1993) of IBM. Education Akers attended Yale, and while there joined ...

were reluctant to challenge Fuld as the firm's share price spiraled lower. In May 2008, prior to going bankrupt, the firm had $639 billion in assets.

Response to September 11, 2001 attacks

On September 11, 2001, Lehman occupied three floors (38–40) of

1 World Trade Center One World Trade Center, also known as One WTC and as the Freedom Tower, is the main building of the rebuilt World Trade Center complex in Lower Manhattan, New York City. Designed by David Childs of Skidmore, Owings & Merrill, One World Tra ...

, where one of its employees was killed in the terrorist attacks of that day. Its global headquarters in

Three World Financial Center 200 Vesey Street, formerly known as Three World Financial Center and also known as the American Express Tower, is one of four towers that comprise the Brookfield Place complex in the Battery Park City, directly adjacent to the Financial Distric ...

were severely damaged and rendered unusable by falling debris, displacing over 6,500 employees. Trading operations moved to

Jersey City Jersey City is the List of municipalities in New Jersey, second-most populous

New Jersey New Jersey is a U.S. state, state located in both the Mid-Atlantic States, Mid-Atlantic and Northeastern United States, Northeastern regions of the United States. Located at the geographic hub of the urban area, heavily urbanized Northeas ...

. When stock markets reopened on September 17, 2001, Lehman's sales and trading capabilities were restored. In the ensuing months, the firm spread its operations across New York City in over 40 temporary locations. The investment-banking division converted the first-floor lounges, restaurants, and all 665 guest rooms of the Sheraton Manhattan Hotel into office space. The bank also experimented with

flextime Flextime, also spelled flex-time or flexitime ( BE), is a flexible hours schedule that allows workers to alter their workday and adjust their start and finish times. In contrast to traditional work arrangements that require employees to work a sta ...

(to share office space) and

remote work Remote work (also called telecommuting, telework, work from or at home, WFH as an initialism, hybrid work, and other terms) is the practice of work (human activity), working at or from one's home or Third place, another space rather than from ...

via

virtual private networking Virtual private network (VPN) is a network architecture for virtually extending a private network (i.e. any computer network which is not the public Internet) across one or multiple other networks which are either untrusted (as they are not con ...

after the attacks. In October 2001, Lehman purchased a 32-story, office building for a reported sum of $700 million. The building, located at

745 Seventh Avenue 745 Seventh Avenue (also known as the Lehman Brothers Building and Barclays Building) is a , 38-story skyscraper in the Midtown Manhattan neighborhood of New York City, New York. Designed by Kohn Pedersen Fox and originally built in 2001 for fi ...

, had recently been completed, and not yet occupied, by rival

. Lehman began moving into the new facility in January and finished in March 2002. The firm did not return to

as its structural integrity had not been given a clean bill of health, and the company could not have waited for repairs to Three World Financial Center to conclude. After the attacks, Lehman's management placed increased emphasis on

business continuity planning Business continuity may be defined as "the capability of an organization to continue the delivery of products or services at pre-defined acceptable levels following a disruptive incident", and business continuity planning (or business continuity ...

. Aside from its headquarters in Three World Financial Center, Lehman maintained operations-and-backoffice facilities in

Jersey City Jersey City is the List of municipalities in New Jersey, second-most populous

, space that the firm considered leaving prior to 9/11. The space was not only retained, but expanded, including the construction of a backup-trading facility.

June 2003 SEC litigation

In June 2003, the company was one of ten firms which simultaneously entered into a settlement with the

U.S. Securities and Exchange Commission The United States Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street crash of 1929. Its primary purpose is to enforce laws against market m ...

(SEC), the Office of the New York State Attorney General and various other securities regulators, regarding undue influence over each firm's research analysts by its investment-banking divisions. Regulators alleged that the firms had improperly associated analyst compensation with the firms' investment-banking revenues, and promised favorable, market-moving research coverage, in exchange for underwriting opportunities. The settlement, known as the "global settlement", provided for total financial penalties of $1.4 billion, including $80 million against Lehman, and structural reforms including a complete separation of investment banking departments from research departments, no analyst compensation, directly or indirectly, from investment-banking revenues, and the provision of free, independent, third-party, research to the firms' clients.

Rise of mortgage origination (1997–2006)

Lehman was one of the first Wall Street firms to move into the business of

mortgage origination In consumer lending, mortgage origination, a specialized subset of loan origination, is the process by which a lender works with a borrower to complete a mortgage transaction, resulting in a mortgage loan. A mortgage loan is a loan in which p ...

. In 1997, Lehman bought Colorado-based lender, Aurora Loan Services (not a bank), an

Alt-A An Alt-A mortgage, short for Alternative A-paper, is a type of U.S. Mortgage loan, mortgage that, for various reasons, is considered riskier than A-paper, or "prime", and less risky than "subprime lending, subprime," the riskiest category. For thes ...

lender. In 2000, to expand their mortgage origination pipeline, Lehman purchased West Coast subprime mortgage lender BNC Mortgage LLC. Lehman quickly became a force in the subprime market. By 2003 Lehman made $18.2 billion in loans and ranked third in lending. By 2004, this number topped $40 billion. By 2006, Aurora and BNC were lending almost $50 billion per month. By 2008, Lehman had assets of $680 billion supported by only $22.5 billion of firm capital. From an equity position, its risky commercial real estate holdings were thirty times greater than capital. In such a highly leveraged structure, a 3 to 5 percent decline in real estate values would wipe out all capital.

Collapse

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 A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is a form of secured short-term borrowing, usually, though not always using government securities as collateral. A contracting party sells a security to a lend ...

that temporarily removed securities from the company's

balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...

. 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 In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule. Historically, subpr ...

, 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 Goodwill or good will may refer to: * Goodwill (accounting), the value of a business entity not directly attributable to its assets and liabilities * Goodwill ambassador, occupation or title of a person that advocates a cause * Goodwill Games, a f ...

. Lehman said that poor market conditions in the mortgage space "necessitated a substantial reduction in its resources and capacity in the subprime space." In September 2007, Joe Gregory appointed Erin Callan as CFO. On March 16, 2008, after rival

was taken over by

JPMorgan Chase JPMorgan Chase & Co. (stylized as JPMorganChase) is an American multinational financial services, finance corporation headquartered in New York City and incorporated in Delaware. It is List of largest banks in the United States, the largest ba ...

in a

fire sale A fire sale is the sale of goods at extremely discounted prices. The term originated in reference to the sale of goods at a heavy discount due to fire damage. It may or may not be defined as a closeout, the final sale of goods to zero inventor ...

, market analysts suggested that Lehman would be the next major investment bank to fall. Callan fielded Lehman's first quarter conference call, where the firm posted a profit of $48.9 million, compared to

's $5.1 billion and

's $1.97 billion losses which was Lehman's 55th consecutive profitable quarter. The firm's stock price leapt 46 percent after that announcement. In 2008, Lehman faced an unprecedented loss to the continuing

. Lehman's loss was a result of having held on to large positions in subprime and other lower-rated mortgage

tranche In structured finance, a tranche () is one of a number of related securities offered as part of the same transaction. In the financial sense of the word, each bond is a different slice of the deal's risk. Transaction documentation (see indent ...

s when securitizing the underlying mortgages; it is unclear whether Lehman was simply unable to sell the lower-rated bonds or voluntarily kept them. In any event, huge losses accrued in lower-rated mortgage-backed securities throughout 2008. In the second fiscal quarter, Lehman reported losses of $2.8 billion and was forced to sell off $6 billion in assets. In the first half of 2008 alone, Lehman stock lost 73% of its value as the credit market continued to tighten. On June 9, 2008, Lehman Brothers announced a US$2.8 billion second-quarter loss, its first since being spun off from

American Express American Express Company or Amex is an American bank holding company and multinational financial services corporation that specializes in payment card industry, payment cards. It is headquartered at 200 Vesey Street, also known as American Expr ...

, as market volatility rendered many of its hedges ineffective during that time. Lehman also reported that it had raised a further $6 billion in capital. As a result, there was major management shakeup, in which

Hugh "Skip" McGee III Hugh E. "Skip" McGee III (born 1959) is an American investment banker who was formerly a senior executive at Lehman Brothers and Barclays. He is presently co-founder and chief executive officer of Intrepid Financial Partners, a power and energy foc ...

(head of investment banking) held a meeting with senior staff to strip CEO Richard Fuld and his lieutenants of their authority. Consequently, Joe Gregory agreed to resign as president and COO, and afterward he told Erin Callan that she had to resign as CFO. Callan was appointed CFO of Lehman in 2008 but served only for six months, before departing after her mentor Joe Gregory was demoted. Bart McDade was named to succeed Gregory as president and COO, when several senior executives threatened to leave if he was not promoted. McDade took charge and brought back Michael Gelband and Alex Kirk, who had previously been pushed out of the firm by Gregory for not taking risks. Although Fuld remained CEO, he soon became isolated from McDade's team. In August 2008, Lehman reported that it intended to release 6% of its work force, 1,500 people, just ahead of its third-quarter-reporting deadline in September. On August 22, 2008, shares in Lehman closed up 5% (16% for the week) on reports that the state-controlled

Korea Development Bank Korea Development Bank (KDB Bank) is a South Korean state-owned development bank which aims to encourage the industrial development of South Korea. It was founded in 1954 in accordance with The Korea Development Bank Act to finance and manage ...

was considering buying the bank. Most of those gains were quickly eroded as news came in that Korea Development Bank was "facing difficulties pleasing regulators and attracting partners for the deal." On September 9, Lehman's shares plunged 45% to $7.79, after it was reported that the state-run South Korean firm had put talks on hold. Investor confidence continued to erode as Lehman's stock lost roughly half its value and pushed the

S&P 500 The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 leading companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices and in ...

down 3.4% on September 9. The

Dow Jones Dow Jones is a combination of the names of business partners Charles Dow and Edward Jones. Dow Jones & Company Dow, Jones and Charles Bergstresser founded Dow Jones & Company in 1882. That company eventually became a subsidiary of News Corp, an ...

lost 300 points the same day on investors' concerns about the security of the bank. The U.S. government did not announce any plans to assist with any possible financial crisis that emerged at Lehman. The next day, Lehman announced a loss of $3.9 billion and its intent to sell off a majority stake in its investment-management business, which included

. The stock slid seven percent that day. Lehman, after earlier rejecting questions on the sale of the company, was reportedly searching for a buyer as its stock price dropped another 40 percent on September 11, 2008. Just before the collapse of Lehman Brothers, executives at Neuberger Berman sent e-mail memos suggesting, among other things, that the Lehman Brothers' top people forgo multimillion-dollar bonuses to "send a strong message to both employees and investors that management is not shirking accountability for recent performance." Lehman Brothers Investment Management Director

George Herbert Walker IV George Herbert Walker IV (born April 1969) is an American investment manager. He is the chairman and CEO of Neuberger Berman, one of the largest independent, employee-owned investment management firms. During Walker's tenure, the firm survived the ...

dismissed the proposal, going so far as to actually apologize to other members of the Lehman Brothers executive committee for the idea having been suggested. He wrote, "Sorry team. I am not sure what's in the water at Neuberger Berman. I'm embarrassed and I apologize."

Short-selling allegations

During hearings on the bankruptcy filing by Lehman Brothers and bailout of

AIG American International Group, Inc. (AIG) is an American multinational finance and insurance corporation with operations in more than 80 countries and jurisdictions. As of 2023, AIG employed 25,200 people. The company operates through three core ...

before the House Committee on Oversight and Government Reform, former Lehman Brothers CEO

Richard Fuld Richard Severin Fuld Jr. (born April 26, 1946) is an American banker best known as the final chairman and chief executive officer of investment bank Lehman Brothers. Fuld held this position from April 1, 1994 after the firm's spinoff from America ...

said a host of factors including a crisis of confidence and naked short-selling attacks followed by false rumors contributed to both the collapse of Bear Stearns and Lehman Brothers. House committee Chairman

Henry Waxman Henry Arnold Waxman (born September 12, 1939) is an American politician and lobbyist who was a U.S. representative from California from 1975 to 2015. He is a member of the Democratic Party. His district included much of the western part of the ...

said the committee received thousands of pages of internal documents from Lehman and these documents portray a company in which there was "no accountability for failure". An article by journalist

Matt Taibbi Matthew Colin Taibbi (; born March 2, 1970) is an American author, journalist and podcaster. A former contributing editor for ''Rolling Stone'', he is the author of several books and publisher of ''Racket News'' (formerly ''TK News''). He has re ...

in ''

Rolling Stone ''Rolling Stone'' is an American monthly magazine that focuses on music, politics, and popular culture. It was founded in San Francisco, California, in 1967 by Jann Wenner and the music critic Ralph J. Gleason. The magazine was first known fo ...

'' contended that naked short selling contributed to the demise of both Lehman and

. A study by finance researchers at the

University of Oklahoma The University of Oklahoma (OU) is a Public university, public research university in Norman, Oklahoma, United States. Founded in 1890, it had existed in Oklahoma Territory near Indian Territory for 17 years before the two territories became the ...

Price College of Business studied trading in financial stocks, including Lehman Brothers and Bear Stearns, and found "no evidence that stock price declines were caused by naked short selling".

Bankruptcy

On Saturday, September 13, 2008, Timothy F. Geithner, then the president of the

Federal Reserve Bank of New York The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is responsible for the Second District of the Federal Reserve System, which encompasses the New York (state), State of New York, the 12 norther ...

, called a meeting on the future of Lehman, which included the possibility of an emergency liquidation of its assets. Lehman reported that it had been in talks with

Bank of America The Bank of America Corporation (Bank of America) (often abbreviated BofA or BoA) is an American multinational investment banking, investment bank and financial services holding company headquartered at the Bank of America Corporate Center in ...

and

for the company's possible sale; however, both Barclays and Bank of America ultimately declined to purchase the entire company, in the former case because the British government (in particular, the

Chancellor of the Exchequer The chancellor of the exchequer, often abbreviated to chancellor, is a senior minister of the Crown within the Government of the United Kingdom, and the head of HM Treasury, His Majesty's Treasury. As one of the four Great Offices of State, t ...

Alistair Darling Alistair Maclean Darling, Baron Darling of Roulanish, (28 November 1953 – 30 November 2023) was a British politician who served as Chancellor of the Exchequer under prime minister Gordon Brown from 2007 to 2010. A member of the Labour Party ...

and the CEO of the

Financial Services Authority The Financial Services Authority (FSA) was a quasi-judicial body accountable for the regulation of the financial services industry in the United Kingdom between 2001 and 2013. It was founded as the Securities and Investments Board (SIB) in 1985 ...

Hector Sants Sir Hector William Hepburn Sants (born 15 December 1955) is a British investment banker. He was appointed chief executive officer of the Financial Services Authority in July 2007 and stepped down in June 2012. He took up a new position with Bar ...

) refused to allow the transaction at the last minute, quoting stockholder regulations in the UK, despite a deal having apparently been completed. The next day, Sunday, September 14, the

International Swaps and Derivatives Association The International Swaps and Derivatives Association (ISDA ) is a trade organization of participants in the market for derivative (finance)#Over-the-counter derivatives, over-the-counter derivatives. It is headquartered in New York City, and has c ...

(ISDA) offered an exceptional trading session to allow market participants to offset positions in various derivatives on the condition of a Lehman bankruptcy later that day. Although the bankruptcy filing missed the deadline, many dealers honored the trades they made in the special session. Shortly before 1 am Monday morning (UTC−5), Lehman Brothers Holdings announced it would

file File or filing may refer to: Mechanical tools and processes * File (tool), a tool used to remove fine amounts of material from a workpiece. ** Filing (metalworking), a material removal process in manufacturing ** Nail file, a tool used to gen ...

for

citing bank debt of $613 billion, $155 billion in bond debt, and assets worth $639 billion. It further announced that its subsidiaries would continue to operate as normal. A group of Wall Street firms agreed to provide capital and financial assistance for the bank's orderly

liquidation Liquidation is the process in accounting by which a Company (law), company is brought to an end. The assets and property of the business are redistributed. When a firm has been liquidated, it is sometimes referred to as :wikt:wind up#Noun, w ...

and the Federal Reserve, in turn, agreed to a swap of lower-quality assets in exchange for loans and other assistance from the government. The morning witnessed scenes of Lehman employees removing files, items with the company logo, and other belongings from the world headquarters at

. The spectacle continued throughout the day and into the following day. Brian Marsal, co-chief executive of the restructuring firm

Alvarez and Marsal Alvarez & Marsal Holdings, LLC (A&M) is a global professional services firm notable for its work in turnaround management and performance improvement of a number of large, high-profile businesses both in the US and abroad such as Lehman Brothers, ...

was appointed as

chief restructuring officer A chief restructuring officer (CRO) is a senior officer of a company given broad powers to renegotiate all aspects of a company's finances to deal with an impending bankruptcy or to restructure a company following a bankruptcy filing. The use of CR ...

and subsequently chief executive officer of the company. Later that day, the

Australian Securities Exchange Australian Securities Exchange Ltd (ASX) is an Australian public company that operates Australia's primary Exchange (organized market), securities exchange, the Australian Securities Exchange (sometimes referred to outside of Australia as, or c ...

(ASX) suspended Lehman's Australian subsidiary as a market participant after clearing-houses terminated contracts with the firm. Lehman shares tumbled over 90% on September 15, 2008. The Dow Jones closed down just over 500 points on September 15, 2008, which was at the time the largest drop in a single day since the days following the attacks on September 11, 2001. In the United Kingdom, the investment bank went to

administration Administration may refer to: Management of organizations * Management, the act of directing people towards accomplishing a goal: the process of dealing with or controlling things or people. ** Administrative assistant, traditionally known as a se ...

with

PricewaterhouseCoopers PricewaterhouseCoopers, also known as PwC, is a multinational professional services network based in London, United Kingdom. It is the second-largest professional services network in the world and is one of the Big Four accounting firms, alon ...

appointed as administrators. In Japan, the Japanese branch, Lehman Brothers Japan Inc., and its holding company filed for civil reorganization on September 16, 2008, in

Tokyo District Court is a district court located at 1-1-4 Kasumigaseki, Chiyoda, Tokyo, Japan. See also *Judicial system of Japan In the judicial system of Japan, the Constitution of Japan guarantees that "all judges shall be independent in the exercise of thei ...

. On September 17, 2008, the New York Stock Exchange delisted Lehman Brothers. On March 16, 2011 some three years after filing for bankruptcy and following a filing in a Manhattan

U.S. bankruptcy court United States bankruptcy courts are courts created under Article I of the United States Constitution. The current system of bankruptcy courts was created by the United States Congress in 1978, effective April 1, 1984. United States bankruptcy ...

, Lehman Brothers Holdings Inc announced it would seek creditor approval of its reorganization plan by October 14 followed by a confirmation hearing to follow on November 17.

Liquidation

Barclays acquisition

On September 16, 2008,

Barclays PLC Barclays PLC (, occasionally ) is a British multinational universal bank, headquartered in London, England. Barclays operates as two divisions, Barclays UK and Barclays International, supported by a service company, Barclays Execution Services ...

announced that they would acquire a "stripped clean" portion of Lehman for $1.75 billion, including most of Lehman's North America operations. On September 20, 2008, a revised version of the deal, a $1.35 billion (£700 million) plan for

to acquire the core business of Lehman (mainly its $960-million headquarters, a 38-story office building at

Midtown Manhattan Midtown Manhattan is the central portion of the New York City borough of Manhattan, serving as the city's primary central business district. Midtown is home to some of the city's most prominent buildings, including the Empire State Building, the ...

, with responsibility for 9,000 former employees), was approved. After a 7-hour hearing,

U.S. bankruptcy judge United States bankruptcy courts are courts created under Article I of the United States Constitution. The current system of bankruptcy courts was created by the United States Congress in 1978, effective April 1, 1984. United States bankruptcy ...

James Peck 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."

Luc Despins, then a partner at

Milbank, Tweed, Hadley & McCloy Milbank LLP (commonly known as Milbank) is an international law firm headquartered in New York City. It also has offices in Washington, D.C., Los Angeles, London, Frankfurt, Munich, Tokyo, Hong Kong, São Paulo, Seoul, and Singapore. History Mi ...

, the creditors committee counsel, said: "The reason we're not objecting is really based on the lack of a viable alternative. We did not support the transaction because there had not been enough time to properly review it." In the amended agreement, Barclays would absorb $47.4 billion in securities and assume $45.5 billion in trading liabilities. Lehman's attorney

Harvey R. Miller Harvey Robert Miller (March 1, 1933 – April 27, 2015) was an American lawyer. The ''New York Times'' called him "the most prominent bankruptcy lawyer in the nation." Born in New York City, Miller graduated from Brooklyn College (A.B., 1954) an ...

Weil, Gotshal & Manges Weil, Gotshal & Manges LLP ( ) is an American law firm headquartered in New York City. Founded in 1931, it employs approximately 1,100 attorneys and reported annual revenues of over $1.8 billion, ranking it within''The American Lawyer'' AmLaw 10 ...

, said "the purchase price for the real estate components of the deal would be $1.29 billion, including $960 million for Lehman's New York headquarters and $330 million for two New Jersey data centers. Lehman's original estimate valued its headquarters at $1.02 billion but an appraisal from CB Richard Ellis this week valued it at $900 million." Barclays were not to acquire Lehman's Eagle Energy unit, but to have entities known as Lehman Brothers Canada Inc, Lehman Brothers Sudamerica, Lehman Brothers Uruguay and its Private Investment Management business for high-net-worth individuals. Finally, Lehman would retain $20 billion of securities assets in Lehman Brothers Inc that are not being transferred to Barclays. Barclays acquired a potential liability of $2.5 billion to be paid as severance, if it chooses not to retain some Lehman employees beyond the guaranteed 90 days.

Nomura acquisition

, Japan's top brokerage firm, agreed to buy the Asian division of Lehman Brothers for $225 million and parts of the European division for a nominal fee of $2. It would not take on any trading assets or liabilities in the European units. Nomura negotiated such a low price because it acquired only Lehman's employees in the regions, and not its stocks, bonds or other assets. The last Lehman Brothers Annual Report identified that these non-US subsidiaries of Lehman Brothers were responsible for over 50% of global revenue produced.

Sale of asset management businesses

On September 29, 2008, Lehman agreed to sell Neuberger Berman, part of its investment management business, to a pair of private-equity firms,

Bain Capital Partners Bain Capital, LP is an American private investment firm based in Boston, Massachusetts, with around $185 billion of assets under management. It specializes in private equity, venture capital, credit, public equity, impact investing, life scien ...

and

Hellman & Friedman Hellman & Friedman LLC (H&F) is an American private equity firm, founded in 1984 by Warren Hellman and Tully Friedman, that makes investments primarily through leveraged buyouts as well as growth capital investments. H&F has focused its efforts ...

, for $2.15 billion. The transaction was expected to close in early 2009, subject to approval by the U.S. Bankruptcy Court, but a competing bid was entered by the firm's management, who ultimately prevailed in a bankruptcy auction on December 3, 2008. Creditors of Lehman Brothers Holdings Inc. retain a 49% common equity interest in the firm, now known as Neuberger Berman Group LLC. In Europe, the Quantitative Asset Management Business has been acquired back by its employees on November 13, 2008 and has been renamed back to TOBAM.

Financial fallout

Lehman's bankruptcy was the largest failure of an investment bank since

collapsed in 1990 amid fraud allegations. Immediately following the bankruptcy filing, an already distressed financial market began a period of extreme volatility, during which the Dow experienced its largest one day point loss, largest intra-day range (more than 1,000 points) and largest daily point gain. What followed was what many have called the "

perfect storm A perfect storm is a confluence of events that drastically aggravates a situation. Perfect storm may also refer to: * 1991 Perfect Storm, a weather event ** ''The Perfect Storm'' (book), a 1997 book by Sebastian Junger about the 1991 Perfect S ...

" of economic distress factors and eventually a $700bn bailout package (

Troubled Asset Relief Program The Troubled Asset Relief Program (TARP) is a program of the United States government to purchase toxic assets and equity from financial institutions to strengthen its financial sector that was passed by Congress and signed into law by U.S. Presi ...

) prepared by

Henry Paulson Henry "Hank" Merritt Paulson Jr. (born March 28, 1946) is an American investment banker and financier who served as the 74th United States secretary of the treasury from 2006 to 2009. Prior to his role in the Department of the Treasury, Paulson ...

Secretary of the Treasury The United States secretary of the treasury is the head of the United States Department of the Treasury, and is the chief financial officer of the federal government of the United States. The secretary of the treasury serves as the principal a ...

, and approved by Congress. The Dow eventually closed at a new six-year low of 7,552.29 on November 20, followed by a further drop to 6626 by March of the next year. The fall of Lehman also had a strong effect on small private investors such as bond holders and holders of so-called minibonds. In Germany, structured products, often based on an index, were sold mostly to private investors, elderly, retired persons, students and families. Most of those now worthless derivatives were sold by the German arm of Citigroup, the German Citibank now owned by

Crédit Mutuel Crédit Mutuel () is a French cooperative banking group, one of the country's top five banks with over 30 million customers. It traces its origins back to the German cooperative movement inspired by Friedrich Wilhelm Raiffeisen in Alsace–Lorr ...

Ongoing litigation

On March 11, 2010, Anton R. Valukas, a court-appointed examiner, published the results of its year-long investigation into the finances of Lehman Brothers. This report revealed that Lehman Brothers used an accounting procedure termed

repo 105 Repo 105 is Lehman Brothers' name for an accounting maneuver that it used where a short-term repurchase agreement is classified as a sale. The cash obtained through this "sale" is then used to pay down debt, allowing the company to appear to redu ...

to temporarily exchange $50 billion of assets into cash just before publishing its financial statements. The action could be seen to implicate both

Ernst & Young EY, previously known as Ernst & Young, is a multinational corporation, multinational professional services partnership, network based in London, United Kingdom. Along with Deloitte, KPMG and PwC, it is one of the Big Four accounting firms, Big F ...

, the bank's accountancy firm and Richard S. Fuld, Jr, the former CEO. This could potentially lead to Ernst & Young being found guilty of financial malpractice and Fuld facing time in prison. According to ''

The Wall Street Journal ''The Wall Street Journal'' (''WSJ''), also referred to simply as the ''Journal,'' is an American newspaper based in New York City. The newspaper provides extensive coverage of news, especially business and finance. It operates on a subscriptio ...

'', in March 2011, the SEC announced that they weren't confident that they could prove that Lehman Brothers violated US laws in its accounting practices. In October 2011, the administrators of Lehman Brothers Holding Inc. lost their appeal to overturn a court order forcing them to pay £148 million into their underfunded pensions plan. As of January 2016, Lehman paid more than $105 billion to its unsecured creditors. In addition, JPMorgan will pay $1.42 billion in cash to settle a lawsuit accusing JPMorgan of draining Lehman Brothers liquidity right before the crash. The settlement would permit another $1.496 billion to be paid to creditors and a separate $76 million deposit. The brokerage unit of Lehman Brothers completed its liquidation process on September 28, 2022, after paying out over $115 billion to its customers and creditors over the course of 14 years. As of December 2022, Lehman's British operations were being administrated by

, which expected to complete the administration process no earlier than 2025.

Merger and acquisition history

The following is an illustration of the company's major mergers and acquisitions and historical predecessors (this is not a comprehensive list):"Salomon Smith Barney" from Gambee, Robert.
Wall Street
'. W. W. Norton & Company, 1999. p.73

Former officers

Richard S. Fuld Jr. Richard Severin Fuld Jr. (born April 26, 1946) is an American banker best known as the final chairman and chief executive officer of investment bank Lehman Brothers. Fuld held this position from April 1, 1994 after the firm's spinoff from America ...

Scott J. Freidheim Scott Jon Freidheim (born July 31, 1965) is an American businessman. He is the managing partner of Freidheim Capital. Business career In 2019, Freidheim Capital invested in Ettain and Freidheim became co-chairman of Ettain Group. In August 202 ...

Rodger Krouse Rodger Russell Krouse (born 1961) is an American businessperson who co-founded Sun Capital Partners, Inc., an American investment firm based in Boca Raton, Florida, Boca Raton, Florida, United States. Early life and education Krouse was born to ...

(born 1961) *

Jack Langer Jack Langer is an American former basketball player. During his basketball career, he played college basketball at Yale University, and won a silver medal with Team USA in the 1969 Maccabiah Games in Israel. The National Collegiate Athletic Ass ...

(born 1948/1949), basketball player and investment banker *

Bart McDade Herbert "Bart" H. McDade III is an American businessman who was the President and COO of Lehman Brothers at the time of its bankruptcy. During the end of Lehman's existence, McDade was tasked with largely running the firm and saving it as the t ...

Hugh McGee Hugh is the English-language variant of the masculine given name , itself the Old French variant of '' Hugo (name)">Hugo'', a short form of Continental Germanic Germanic name">given names beginning in the element "mind, spirit" (Old English ). ...

* Frederick M. Warburg * Joseph Rosenberg

In popular culture

The events of the weekend leading up to Lehman's bankruptcy are dramatized in the 2009

BBC The British Broadcasting Corporation (BBC) is a British public service broadcaster headquartered at Broadcasting House in London, England. Originally established in 1922 as the British Broadcasting Company, it evolved into its current sta ...

television film ''

The Last Days of Lehman Brothers ''The Last Days of Lehman Brothers'' is a British television film, first broadcast on BBC Two and BBC HD on Wednesday 9 September 2009. Filmed in London, it was written by Craig Warner and directed by Michael Samuels. It was shown as part of the ...

''. In the 2010 animated film ''

Despicable Me ''Despicable Me'' is an American media franchise created by Sergio Pablos, Cinco Paul and Ken Daurio. It centers on a supervillain turned secret agent named Gru, his adoptive daughters, Margo, Edith, and Agnes, and his yellow-colored Minions ...

'', the main character Gru visits the Bank of Evil, which funds all evil plots for villains around the world and has a sign reading "Formerly Lehman Brothers". The 2011 drama film ''

Margin Call ''Margin Call'' is a 2011 American drama film written and directed by J. C. Chandor in his feature directorial debut. The principal story takes place over a 24-hour period at a large Wall Street investment bank during the initial stages of the ...

'' focuses on the events of a 24-hour period at a large investment bank based on an amalgam of investment banks, drawing heavily from the culture of Lehman Brothers. However, the events in the film are primarily a depiction of the actions of

. The 2011

HBO Home Box Office (HBO) is an American pay television service, which is the flagship property of namesake parent-subsidiary Home Box Office, Inc., itself a unit owned by Warner Bros. Discovery. The overall Home Box Office business unit is based a ...

film ''

Too Big to Fail "Too big to fail" (TBTF) is a theory in banking and finance that asserts that certain corporations, particularly financial institutions, are so large and so interconnected with an economy that their failure would be disastrous to the greater e ...

'' recounts the days before Lehman Brothers declared bankruptcy and the fallout afterward. The 2011 film ''

Horrible Bosses ''Horrible Bosses'' is a 2011 American black comedy crime film directed by Seth Gordon, written by Michael Markowitz, John Francis Daley, and Jonathan Goldstein, from a story by Markowitz. It stars Jason Bateman, Charlie Day, Jason Sudeikis, ...

'' features a character by the name of Kenny Sommerfield (played by

P. J. Byrne Paul Jeffrey Byrne (born December 15, 1974) is an American actor. He is best known for his roles as Nicky "Rugrat" Koskoff in the Martin Scorsese film '' The Wolf of Wall Street'' (2013); Irv Smiff on the UPN/ CW series '' The Game''; and Boli ...

) who worked at Lehman Brothers until its bankruptcy, ending up broke. The fall of Lehman Brothers is depicted in the 2015 film ''

The Big Short ''The Big Short: Inside the Doomsday Machine'' is a nonfiction book by Michael Lewis about the build-up of the United States housing bubble during the 2000s. It was released on March 15, 2010, by W. W. Norton & Company. It spent 28 weeks on '' ...

'', where two of the characters walk around the Lehman Brothers offices after the bankruptcy to see the main trading floor. In Imbolo Mbue's 2016 debut novel ''

Behold the Dreamers ''Behold the Dreamers'' is a 2016 debut novel by Imbolo Mbue. The novel details the experiences of two New York City families during the 2008 financial crisis: an immigrant family from Cameroon, the Jonga family, and their wealthy employers, the ...

'', an immigrant from Cameroon is a chauffeur for Clark Edwards, an executive at Lehman Brothers. In the 2016 animated film ''

Zootopia ''Zootopia'' (titled ''Zootropolis'' or ''Zoomania'' in various regions) is a 2016 American animated buddy cop comedy film produced by Walt Disney Animation Studios. Directed by Byron Howard and Rich Moore from a screenplay by Jared Bush an ...

'', there is a brief appearance of a bank called Lemming Brothers, which is staffed by lemmings. ''

The Lehman Trilogy ''The Lehman Trilogy'' is a three-act play by Italian novelist and playwright Stefano Massini. It follows the lives of three immigrant brothers from when they arrived in America and founded an investment firm through the collapse of Lehman Broth ...

'' is a three-act play by Italian dramatist Stefano Massini about the history of the Lehman Brothers. In the 2019

Showtime Showtime or Show Time may refer to: Film * ''Showtime'' (film), a 2002 American action/comedy film * ''Showtime'' (video), a 1995 live concert video by Blur Television Networks and channels * Showtime Networks, a division of Paramount Global w ...

comedy series ''

Black Monday Black Monday refers to specific Mondays when undesirable or turbulent events have occurred. It has been used to designate massacres, military battles, and stock market crashes. Historic events *1209, Dublin – when a group of 500 recently arriv ...

'', a fictionalized version of Lehman Brothers with an altered spelling is central to the plot and represented by brothers Larry & Lenny Leighman.

Principal locations (first year of occupancy)

* 17 Court Square, Montgomery, Alabama (1847)*Lehman Brothers. A Centennial – Lehman Brothers 1850–1950. Spiral Press, 1950, pages 62–63 * 119 Liberty Street, New York, NY (1858) * 176 Fulton Street, New York, NY (1865–1866?) * 133–35 Pearl Street, New York, NY (1867) * 40 Exchange Place, New York, NY (1876) * 16 William Street, New York, NY (1892) * One William Street, New York, NY (1928) ** *

55 Water Street 55 Water Street is a skyscraper on the East River in the Financial District, Manhattan, Financial District of Lower Manhattan, New York City, United States. The 53-story, structure was completed in 1972. Designed by Emery Roth and Sons, the ...

(1980) *** *

3 World Financial Center 200 Vesey Street, formerly known as Three World Financial Center and also known as the American Express Tower, is one of four towers that comprise the Brookfield Place complex in the Battery Park City, directly adjacent to the Financial Distric ...

(1985) *

, New York, NY (2002) * Henry Lehman established his first store location on Commerce Street, in Montgomery, in 1845. In 1848, one year after Emanuel's arrival, the brothers moved "H. Lehman & Bro." to 17 Court Square, where it remained when Mayer arrived in 1850, forming "Lehman Brothers".
** Designated as a landmark by the New York City Landmarks Preservation Committee in 1996.
*** Sales and trading personnel had been in this location since 1977; they were joined by the firm's investment bankers and brokers in 1980.

References

External links

*
Lehman Brothers Records at

Baker Library/Bloomberg Center The Baker Library/Bloomberg Center is a building complex at Harvard Business School on the campus of Harvard University in the Allston neighborhood of Boston, Massachusetts, United States. It includes the Baker Library, built in 1927, and the Bl ...

Historical Collections,

Harvard Business School Harvard Business School (HBS) is the graduate school, graduate business school of Harvard University, a Private university, private Ivy League research university. Located in Allston, Massachusetts, HBS owns Harvard Business Publishing, which p ...

Lehman Brothers
–

Archives:
Lehman Brothers' Hong Kong incorporated entities
–

KPMG KPMG is a multinational professional services network, based in London, United Kingdom. As one of the Big Four accounting firms, along with Ernst & Young (EY), Deloitte, and PwC. KPMG is a network of firms in 145 countries with 275,288 emplo ...

Hong Kong
Lehman Brothers bankruptcy site linked to from Lehman Brothers' home pageThe Lehman Brothers Treasure Trove
– slideshow by ''

Life magazine ''Life'' (stylized as ''LIFE'') is an American magazine launched in 1883 as a weekly publication. In 1972, it transitioned to publishing "special" issues before running as a monthly from 1978 to 2000. Since then, ''Life'' has irregularly publi ...

'' * * {{Authority control Barclays 1850 establishments in the United States Banks based in New York City American companies established in 1850 Financial services companies established in 1850 Banks established in 1850 Financial services companies disestablished in 2008 Banks disestablished in 2008 Former investment banks of the United States Companies formerly listed on the New York Stock Exchange Companies that filed for Chapter 11 bankruptcy in 2008 Defunct banks of the United States Defunct companies based in New York City Defunct financial services companies of the United States History of Montgomery, Alabama Shearson Lehman/American Express 2008 disestablishments in New York (state) Nomura Holdings American companies disestablished in 2008

History

Under the Lehman family (1850–1969)

An evolving partnership (1969–1984)

Merger with American Express (1984–1994)

Divestment and independence (1994–2008)

Response to September 11, 2001 attacks

June 2003 SEC litigation

Rise of mortgage origination (1997–2006)

Collapse

Causes

Malfeasance

Subprime mortgage crisis

Short-selling allegations

Bankruptcy

Liquidation

Barclays acquisition

Nomura acquisition

Sale of asset management businesses

Financial fallout

Ongoing litigation

Merger and acquisition history

Former officers

In popular culture

Principal locations (first year of occupancy)

See also

References

Further reading

External links