IMPACT OF LEHMAN

BROTHER’s
HISTORY
UNDER THE LEHMAN FAMILY(1850-1969)

•In 1844,23yrs old Henry Lehman- son of a

cattle merchant emigrated to
•U.S. and settled in Montgomery Albama where
he opened dry goods store.
•After joining his brother 1847, Emanul Lehman
the firm became ‘H.Lehman
•And Bro’ and with the arrival of their youngest
 Impact Of Lehman
Brother’s
• In August 2007,Lehman closed it’s
subprime lender, BNC mortgage
eliminating 1200 positions in 23
locations & took a $25million after
tax charge & $27 million reduction in
goodwill.
• In 2008 Lehman faced an
unprecedented loss due to subprime
mortgage.
 Subprime Mortgage
Crisis:
• Ongoing financial crisis triggered by
a dramatic rise in mortgage
delinquences.
• Become apparent in 2007.
• Approx. 80% of U.S. mortgages were
adjustable rate mortgages.
• U.S. house prices decline in year
2006-07,refinancing become more
difficult & mortgage delinquences
soared.
 Subprime Mortgage
Crisis:
• Result – the U.S. Govt. sponsored
enterprises,
tightening of credit cards around the
world.
 CAUSES:
• Boom & burst in the housing market.
• Speculation
• High risk mortgage loans &
lending/burrowing practices
• Securitizing practices
• Inaccurate credit ratings
• Govt. policies
 CAUSES:
• Policies of Central Banks
• Financial institution debts levels and
incentives
• Credit default swaps
• Boom and collapse of shadow
banking system
 IMPACT:
• Impacts in U.S.

• Impacts on Indian Economy.

• Financial market impacts – 2007.

• Financial market impacts – 2008.

 IMPACTS IN
U.S.-

Robin Radaetz holds a sign in front of

the Lehman Brothers headquarters in
New York. Lehman Brothers, a 158-
year-old investment bank choked by
the credit crisis, filed for bankruptcy
 IMPACTS IN
U.S.-

A woman carries a box after

leaving the Lehman Brothers
European Headquarters building in
Canary Wharf in east London. The
blue riband US investment bank
 IMPACTS IN
U.S.-

People walk out of the Lehman Brothers

building carrying boxes of their belongings as
security guards look on in New York
September 14, 2008. Talks faltered when
Britain's Barclays Plc, which had appeared to
be front-runner to take over Lehman excluding
its toxic mortgage-related assets said it had
 IMPACTS IN
U.S.-
People walk out of the Lehman Brothers
building carrying boxes of their
belongings as security guards look on
in New York September 14, 2008. Talks
faltered when Britain's Barclays Plc,
which had appeared to be front-runner
to take over Lehman excluding its toxic
mortgage-related assets said it had
 IMPACTS IN
U.S.- of the Lehman Brothers
The headquarters
investment bank on Sixth Avenue is seen on
September 14, 2008 in New York. The troubled
Wall Street investment bank moved closer to
collapse as British bank Barclays pulled out of
talks.
Former Federal
Reserve Board
chairman Alan
Greenspan appears for
an interview on ABC's
in Washington, on
September 14, 2008.
Without offering a
 IMPACTS IN
U.S.-
Greenspan said the government faces tough
choices as it tries to help arrange a rescue of
Lehman Brothers without using public money.
He cautioned that more major US financial
institutions may fail in the future, but the
government should not protect them all.
Employees Employees of Lehman
Brothers enter the
headquarters building of
the troubled bank on
September 12, 2008 in
New York. The no 4 US
investment bank is
currently searching Wall
 IMPACTS IN
U.S.-

People walk under a ticker sign announcing

Lehman Brothers financial losses on
September 10, 2008 in New York. Lehman
Brothers plans to sell a majority stake in its
investment management business and said a
sale of the entire company was possible.
 IMPACT OF LEHMAN
BROTHR’s ON INDIAN
• ECONOMY
According to experts impact will be limited &
restricted in only three areas –

• Stock – markets

• Realty (Real – estate)

• Outsourcing

• -ive impact impact on those areas where these

companies have operations (realty sectors)
 IMPACT OF LEHMAN
BROTHR’s ON INDIAN
• This will shake the confidence of the
industry which was banking too
much on foreign institutional
investors.

• Lehman has investment in Indian

companies like Spice
Communication, Spice Mobile,
Development Credit Bank & Golden
 BANKRUPTCY OF LEHMAN
BROTHER’s
• Lehman Brother’s filled for Chapter
11 bankruptcy protection on Sept.
15/2008
• Largest bankruptcy filling in U.S.
history with Lehman holdings over
$600 billion in assets.
• Until declaring bankruptcy in 2008,
participated in business like –
investment banking, equity & fixed
income sales, research & trading,
 BANKRUPTCY OF LEHMAN
BROTHER’s
• Primary dealer in U.S.

• Subsidiaries included Lehman

brother’s Inc.,Neuberger berman
Inc.,SIB mortgage corporation, Lehman
Brother’s Bank, FSB, Eagle energy
partners & crossroad groups.
BANKRUPTCY OF LEHMAN
BROTHER’s

Trading specialists work at the

New York Stock Exchange. Wall
Street had its worst day since
markets reopened after the
BANKRUPTCY OF LEHMAN
BROTHER’s

Pedestrians walk past the Lehman

Brothers building in New York.
Lehman Brothers filed for
bankruptcy after trying to finance
too many risky assets with too
little capital.
 BANKRUPTCY OF LEHMAN
BROTHER’s

• Traders react in the S&P 500 pit at

the Chicago Mercantile Exchange.
Global markets plummeted after
investment bank Lehman Brothers
filed for bankruptcy protection.
 BANKRUPTCY OF LEHMAN
BROTHER’s

• The sign for Lehman Brothers

headquarters is seen in New York.
Treasury Secretary Henry Paulson
said that the US banking system is
'safe and sound' despite growing
financial turmoil (AFP)
 BANKRUPTCY OF LEHMAN
BROTHER’s

• Lehman Brothers Holdings Inc

employee Jennifer Roeder writes
a message on a portrait of
Lehman Brothers Chief Executive
BANKRUPTCY OF LEHMAN
BROTHER’s

Merill Lynch CEO John Thain leaves The Federal

Reserve Bank of New York on September 13, 2008
where deliberations resumed as leading Wall Street
executives and top US financial officials tried to find a
buyer or financing for the nation's No 4 investment
bank, Lehman Brothers, and to stop the crisis of
BANKRUPTCY OF LEHMAN
BROTHER’s

A man walks out of Lehman Brothers

building carrying a box of his
belongings in New York. Lehman
Brothers filed for bankruptcy after
trying to finance too many risky assets
 RESPONSES:

• Federal Reserve and Central Bank

• Economic stimulus
• Bank Solvency and Capital
replenishment.
• Homeowner assistance
• Regulatory proposal and long – term
solutions
• Implications
 Regulatory proposals and
long-term solutions
• Ben Bernanke: Establish resolution
procedures for closing troubled financial
institutions in the
shadow banking system, such as
investment banks and hedge funds.
• Joseph Stiglitz: Restrict the leverage that
financial institutions can assume.
Require executive compensation to be
more related to long-term performance.
Re-instate the separation of commercial
(depository) and investment banking
 Regulatory proposals and
long-term solutions
• Simon Johnson: Break-up institutions
that are "too big to fail" to limit
systemic risk.
• Paul Krugman: Regulate institutions
that "act like banks " similarly to
banks.
• Alan Greenspan: Banks should have
a stronger capital cushion, with
graduated regulatory capital
requirements (i.e., capital ratios that
increase with bank size), to
 Regulatory proposals and
long-term solutions
• Warren Buffett: Require minimum
down payments for home mortgages
of at least 10% and income
verification

• Eric Dinallo: Ensure any financial

institution has the necessary capital
to support its financial commitments.
Regulate credit derivatives and
ensure they are traded on well-
 Regulatory proposals and
long-term solutions
• Raghuram Rajan: Require financial
institutions to maintain sufficient
"contingent capital" (i.e., pay
insurance premiums to the
government during boom periods, in
exchange for payments during a
downturn.)

• A. Michael Spence and Gordon Brown

: Establish an early-warning system
 Regulatory proposals and
long-term solutions
• Niall Ferguson and Jeffrey Sachs:
Impose haircuts on bondholders and
counterparties prior to using
taxpayer money in bailouts.
• Nouriel Roubini: Nationalize insolvent
banks. Reduce debt levels
across the financial system through
debt for equity swaps. Reduce
mortgage balances to assist
homeowners, giving the lender a
share in any future home
 Regulatory proposals and
long-term solutions
• Paul McCulley advocated "counter-
cyclical regulatory policy to help
modulate human nature." He cited the
work of economist Hyman Minsky, who
believed that human behavior is pro-
cyclical, meaning it amplifies the extent
of booms and busts. In other words,
humans are momentum investors
rather than value investors. Counter-
cyclical policies would include
increasing capital requirements during
 Implications
• Estimates of impact have continued to
climb. During April 2008,
International Monetary Fund (IMF)
estimated that global losses for
financial institutions would approach $1
trillion. One year later, the IMF
estimated cumulative losses of banks
and other financial institutions globally
would exceed $4 trillion. This is equal to
U.S. $20,000 for each of 200,000,000
people.
• Francis Fukuyama has argued that the
crisis represents the end of Reaganism
in the financial sector, which was
 Implications
• Economist Paul Krugman wrote in 2009:
"The prosperity of a few years ago, such as
it was — profits were terrific, wages not so
much — depended on a huge bubble in
housing, which replaced an earlier huge
bubble in stocks. And since the housing
bubble isn’t coming back, the spending that
sustained the economy in the pre-crisis
years isn’t coming back either. “ Niall
Ferguson stated that excluding the effect of
home equity extraction, the U.S. economy
grew at a 1% rate during the Bush years.
Microsoft CEO Steve Ballmer has argued
that this is an economic reset at a lower
level, rather than a recession, meaning that
 Implications
• The current credit crisis will come to an
end when the overhang of inventories
of newly built homes is largely
liquidated, and home price deflation
comes to an end. That will stabilize the
now-uncertain value of the home equity
that acts as a buffer for all home
mortgages, but most importantly for
those held as collateral for residential
mortgage-backed securities. Very large
losses will, no doubt, be taken as a
consequence of the crisis. But after a
period of protracted adjustment, the
U.S. economy, and the world economy