Bankruptcy of Lehman Brothers, 2008
Lehman Brothers Bankruptcy of 2008
Kim Bonville
Corporate finance Case Study for Week 5
In 2007 Lehman Brothers underwrote more backed securities than any other firm in the investment banking industry. Their portfolio was $85 billion and this was four times the shareholders equity. The history of Lehman Brothers, they are a worldwide financial bank and they are the fourth largest investment bank in the United States. Their services they offer are investment banking, equity and fixed income sales and trading with the United States treasury securities, research, investment management, private equity, and private banking. On September 15, 2008 Lehman Brothers announced it would file for chapter 11 Bankruptcy protection. Lehman was a large financial system in which they were the fourth largest investment banks in the United States. Their firm employed thousands of brokers and analysts, with billions of dollars in assets that were instantly worthless and the collapse sent a shock wave through the global economy basically collapsing the world. What caused the filing of the bankruptcy was that the Lehman Brothers had acquired at least five mortgage lenders, including many subprime lenders such as BNC Mortgage and Aurora Loan Services where they specialized in Alt-A loans. The definition of a Alt-A loan is classified as a mortgage where the risk profile falls between prime and subprime. The borrowers behind these mortgages will typically have a clean credit history but the mortgage itself will generally have some issues that increase its risk profile. These issues include higher loan- to- value and debt -to-income ratios or inadequate documentation of the borrower’s income. These types of loan are attractive to lenders because the rates are higher than rates on prime classified mortgages, but they are still backed by borrowers with stronger credit ratings than subprime borrowers. However, with the
Kim Bonville
Corporate finance Case Study for Week 5
In 2007 Lehman Brothers underwrote more backed securities than any other firm in the investment banking industry. Their portfolio was $85 billion and this was four times the shareholders equity. The history of Lehman Brothers, they are a worldwide financial bank and they are the fourth largest investment bank in the United States. Their services they offer are investment banking, equity and fixed income sales and trading with the United States treasury securities, research, investment management, private equity, and private banking. On September 15, 2008 Lehman Brothers announced it would file for chapter 11 Bankruptcy protection. Lehman was a large financial system in which they were the fourth largest investment banks in the United States. Their firm employed thousands of brokers and analysts, with billions of dollars in assets that were instantly worthless and the collapse sent a shock wave through the global economy basically collapsing the world. What caused the filing of the bankruptcy was that the Lehman Brothers had acquired at least five mortgage lenders, including many subprime lenders such as BNC Mortgage and Aurora Loan Services where they specialized in Alt-A loans. The definition of a Alt-A loan is classified as a mortgage where the risk profile falls between prime and subprime. The borrowers behind these mortgages will typically have a clean credit history but the mortgage itself will generally have some issues that increase its risk profile. These issues include higher loan- to- value and debt -to-income ratios or inadequate documentation of the borrower’s income. These types of loan are attractive to lenders because the rates are higher than rates on prime classified mortgages, but they are still backed by borrowers with stronger credit ratings than subprime borrowers. However, with the