case analysis lehman brothers

Topics: Subprime mortgage crisis, Asset, Lehman Brothers Pages: 11 (1262 words) Published: November 30, 2014
Case Analysis

Lehman Brothers Holdings, Inc.
Belleza, Arianne
Dela Cruz, Edgan Bryan

Delgado, Daisy
Maliwat, Melanie

CASE ANALYSIS

Lehman Brothers Holdings Inc.
Viewpoint
The Board of Directors and CEO Richard Fuld Jr., of Lehman Brothers.

Time Context
1st two months of 3rd Quarter of 2008.

I. Problem Statement

What specific financial strategy LBHI should take to prevent an imminent bankruptcy, to sustain operation & profitability?

CASE ANALYSIS

Lehman Brothers Holdings Inc.
II. Statement of Objective
To identify a specific financial strategy to reduce their leverage and prevent impending bankruptcy in the midst of recession.

CASE ANALYSIS

Lehman Brothers Holdings Inc.
III. Areas of Consideration
STRENGTH

 A global financial services firm.
 Lehman was the fourth-largest investment bank in the US
 Un-waivered experience in terms of investment banking, equity and fixed-income sales and trading (especially U.S. Treasury securities), research, investment management, private equity, and private banking.

CASE ANALYSIS

Lehman Brothers Holdings Inc.
 As of 3rd Quarter of 2008 LBHI had $140 billion in collateral  Lehman continued to be a major player in the mortgage market.  In 2007, Lehman underwrote more mortgage-backed securities than any other firm, accumulating an $85-billion portfolio.

 Lehman's stock rebounded, as global equity markets reached new highs and prices for fixed-income assets staged a temporary rebound.

CASE ANALYSIS

Lehman Brothers Holdings Inc.
III. Areas of Consideration
WEAKNESSES

 LBHI did not take the opportunity to trim its massive mortgage portfolio.

 Lehman's high degree of leverage - the ratio of total assets to shareholders equity - was 31 in 2007, and its huge portfolio of mortgage securities made it increasingly vulnerable to deteriorating market conditions

CASE ANALYSIS

Lehman Brothers Holdings Inc.
 On March 17, 2008, following the near-collapse of Bear Stearns - the second-largest underwriter of mortgage-backed securities - Lehman shares fell as much as 48% on concern it would be the next Wall Street firm to fail.

 The company's hedge fund clients began pulling out, while its short-term creditors cut credit lines.

 The firm reported a loss of $3.9 billion, including a write-down of $5.6 billion, and also announced a sweeping strategic restructuring of its businesses.

CASE ANALYSIS

Lehman Brothers Holdings Inc.
III. Areas of Consideration
OPPORTUNITIES:
 Recession in the economy
 Goldman Sachs and Morgan Stanley changed their charters to become commercial banks, in an attempt to stabilize their capital situations.

 The federal takeover of Fannie Mae and Freddie Mac refers to the placing into

conservatorship of government-sponsored enterprises Fannie Mae and Freddie Mac by the U.S. Treasury in 6 September 2008.

 Bear Stearns was acquired by JPMC 1st quarter of 2008.

CASE ANALYSIS

Lehman Brothers Holdings Inc.
III. Areas of Consideration
THREATS
 The U.S. subprime mortgage crisis that became manifestly visible in 2008.  The financial crisis of 2007–2008, also known as the Global Financial Crisis

and 2008 financial crisis.
 The bursting of the U.S. (United States) housing bubble, which peaked in 2006.
 First quarter of 2007, cracks in the U.S. housing market were already becoming apparent as defaults on subprime mortgages rose to a seven-year high.

CASE ANALYSIS

Lehman Brothers Holdings Inc.
 March 14, 2007, a day after the stock had its biggest one-day drop in five years on concerns that rising defaults would affect Lehman's profitability, the firm reported record revenues and profit for its fiscal first quarter.

 CFO said that he did not foresee problems in the subprime market spreading to the rest of the housing market or hurting the U.S. economy.

 The stock plunged 77% in the first week of September 2008, amid plummeting equity markets...
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