Collapse of Lehman Brothers

Topics: Lehman Brothers, Federal Reserve System, Subprime mortgage crisis Pages: 8 (3173 words) Published: November 27, 2010
Collapse of Lehman Brothers

Lehman Brothers was an investment bank that went back to the 1850s, surviving the Civil War, two World Wars, the Great Depression and any other great misfortune that this 160 year old company’s history had gone bankrupt. Lehman brothers were an important part in the financial and commercial industries in the United States. People may have thought that leverage was a bad thing; they should have realized that a dry-goods store turned into a huge investment bank then years later bringing attention to the whole world.

Lehman brothers began when an immigrate by the name Henry Lehman came from Germany and settled in Montgomery, Alabama where he started a small shop selling groceries, dry-food and utensils to local farmers. By the late 1840s early 1850s both of his brothers Emanuel and Mayer joined him in the business and named the company Lehman Brothers. After the death of their brother Henry the two younger brothers took over the business for the next forty years. During that policy only family members were allowed as partners whom continued until the 1920s. Lehman brothers grew from being regular merchandising business to a commodities broker which bought and sold cotton to planters around the area of Montgomery, Alabama. The business grew and formed a small partnership with John Wesley Durr to build a warehouse which helped Lehman brothers to take on larger sales.

Lehman brothers opened a New York office giving them a stronger presence in commodities. Lehman brothers had to rebuild their firm due to the civil war, but wanted to focus on their operations in the New York office. Mayer Lehman was the first person appointed as the board of directors. Lehman Brothers commodities and trading business grew that they help establish the Coffee and Petroleum Exchange.

Robert Lehman became a partner in the firm during the 1920s and he moved to the leadership role. He led the firm from the 1929 to 1969 which that time there was a significant growth for the firm. Robert’s business philosophy was centered around his beliefs on consumption, not production would determine America’s future prosperity. The firm was guided to help emerging industries geared to mass consumption. Robert Lehman’s commitment to recognize growing industries is what led the firm to become active especially in the airlines and the motion picture industries.

Many U.S. companies started expanding internationally and Lehman Brothers increased its global presence as well, opening offices in Europe and Asia in the 1960s and 1970s. In the 1980s, financial advisory centered on mergers and acquisitions as major corporations moved to expand both domestically and internationally. Lehman Brothers acted as an advisor on several large U.S. and cross-border transactions, including Bendix/Allied, Chrysler/American Motors, General Foods/Philip Morris, and Genentech/Hoffman-LaRoche.

In the late 1980s, Lehman brothers were active in helping new companies especially Cetus and they also bought into Intel, which the company introduced the very first microprocessor rose its funds to expand the business to meet the demands of the personal computer market. In 1975 the firm merged with Kuhn, Loeb and Company to form at the time the 4th largest investment bank. The merger didn’t go quite as planned and trouble arose in the firm. The firm was sold to American Express. AMEX started to break away from banking and brokerage operations and sold off operations to Primerica which in 1994 was broken off as an IPO for the current Lehman Brothers ticker. The firm did exceptionally well purchasing fixed income such as Lincoln Capital Management and Neuberger Berman. Lehman had steadily increased revenues and grew in employees from 8,500 to approximately 28,000 in 1994. In the article, Collapse of Lehman Brothers on September 15, 2008, Lehman Brothers filed for chapter 11 bankruptcy protection. Lehman's bankruptcy filing was the largest in history;...
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