The Bankruptcy of the Lehman Brothers’

Topics: Lehman Brothers, Subprime mortgage crisis, Debt Pages: 7 (2463 words) Published: December 13, 2010
* Table of Contents
1Introduction1
2What is the causal leading Lehman Brothers Holdings Inc into bankruptcy?3
2.1The subprime borrowers3
2.2Subprime Mortgage Crisis occur in Lehman Brothers Inc3
2.3The financing policy of the Lehman Brothers’ Inc4
2.3.1Lehman Brothers Liabilities and Shareholders’ Equity statement:5
3Lehman Brothers’ filing Chapter 11: Bankruptcy Protection6
3.1The impacts of Lehman Brothers’ Bankrupting6
4Conclusion7
4.1Personal Opinion8
5References9
6Appendix11
6.1Presentation Slides11

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Introduction
Lehman Brothers founded during 1850 but before that, the company was name H. Lehman & Bro. (1847) and H. Lehman (1844). The founder of the Lehman Brothers was Henry Lehman that migrated from Bavaria, Germany to Alabama, United States of America, and started up a dry-goods store. During the 1850’s, Lehman Brothers venturing on commodities trading in cotton cropping business as the market value for cotton is high. In contrast, the cotton trading business affected as the American Civil War started in 1862 and because of that Lehman Brothers joint venture with John Durr and formed a new company name Lehman, Durr & Co. After the Civil War, due to reconstruction of the Alabama State, the company headquarter have moved out from Alabama to New York City. The Lehman Brothers listed on NYCE (New York Cotton Exchange) in 1850, listed on CSCE (New York Coffee, Sugar and Cocoa Exchange) in 1883 and finally listed on NYSE (New York Stock Exchange) in 1887. In this 21st century, Lehman Brothers Holdings Inc. are well-known as world financial services firm; the company has seven (7) core subsidiaries company that was Lehman Brothers Inc., Neuberger Berman Inc., Aurora Loan Service Inc., SIB Mortgage Corp., Lehman Brothers Bank FSB, Eagle Energy Partners, and Crossroads Group. The type of businesses Lehman Brothers managing are Private Banking, Private Equity, Investment Management, Investment Banking, Equity and Fixed Income Sales, and research and Trading. In addition, Lehman Brothers is the main dealer in U.S. Treasury Securities which dealing with government bonds. Moreover, the international headquarter is located at New York City and there are two regional headquarter which located at London, United Kingdom and Tokyo, Japan. Lehman Brothers total assets worth 691 billion US Dollar and it total equities worth about 22 billion US Dollar in year 2007, and with 28600 employees’ who work with the Lehman Brothers.

Unfortunately, Lehman Brothers declare bankrupt and filed in for Chapter 11 Bankruptcy Protection on 15th September 2008 after 164 years of operation. The Lehman Brothers bankruptcy holding more than 600 billion assets as the largest bankruptcy filling in the United State of America history. What is the causal leading Lehman Brothers Holdings Inc into bankruptcy? The subprime borrowers

There core factor leading is the subprime borrowers which the people who is not eligible to obtain the loan due to low paid salary employees and with bad credit history but the banker still allowing the borrowers to obtain loan from the bank with low interest rates and easy loan terms and regulations. This factor has causing the increase of bad debts until turning into toxic debts, which unable to collect back the debts from the borrowers. Goolsbee, A (2007) stated, “We are sitting on a time bomb as a huge increase in unconventional home loans like a balloon mortgages taken out by customers who are not qualify for the regular mortgages. The high payments, he continued, “Are just beginning to come due and lots of people who were betting on interest rates would come down by now”, as they are risking to lose their homes, as they are unable to repay their debts. As stated above, subprime borrowers are the main causal for the crisis; leading the firm to bust, and this is not healthy as it is a threat, in banking system as it is affecting the cash...
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