Business Snapshot

The Lehman Bankruptcy

Los Osos (A)

Clement Chung
Cheah Cai Yun
Ian Kyo Evans
Agenda

What Happened?

Who Were The Players?

How It Could Have Been Prevented?

Lessons Learnt?
What Happened?
The Three Essential Reasons For The Collapse
What Happened?: Three Reasons

Over Leverage Risky Assets Capital Flight

Over Leverage: Repo & Over Leverage

Repo 105
Classifying Loans as Sales to pay down liabilities

Investment Bank
Not subject to same oversight as FDIC
Risky Assets: MortgageBacked Securities

The Collapse of the Housing Market

Capital Flight: The Final Straw
Who Were The Players?
Internal and External Parties
 Players: Internal

CHAIRMAN and CEO CHIEF RISK OFFICER EMPLOYEES

Madelyn Antoncic BOARD OF DIRECTORS
Dick Fuld Traders

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Players: Internal

Risky investments

Repo agreements

Deceived the public about companys liquidity

pool

CHAIRMAN and CEO

Dick Fuld

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Players: Internal

Voiced her doubts about the risky investments

to the Board but ignored

Removed from her position following that

CHIEF RISK OFFICER

Madelyn Antoncic

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Players: Internal

Unaware about the company breaching the risk

limit

Unaware that the company is using another

methodology to increase the risk-appetite
threshold

BOARD OF DIRECTORS

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Players: Internal

Ignored the risks following the subprime

implosion and continued accepting businesses

EMPLOYEES
Traders

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Players: External

GOVERNMENT CENTRAL BANK of the US

PUBLIC INVESTORS
Regulatory Bodies Federal Reserve System

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Players: External

As an investment bank, Lehman Brothers was

not subjected to any capital regulations like
other commercial banks

GOVERNMENT
Regulatory Bodies

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Players: External

The Central Bank did not bail out Lehman

Brothers during the crisis

Many argued that the Central Bank did not do

enough

CENTRAL BANK
Federal Reserve System

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Players: External

Stockholders dumped shares in London and

New York with the fall of Lehman Brothers

Stockmarkets from all around the world

including the Europe, Tokyo, Shanghai and
Taiwan experienced significant fall in share
prices

PUBLIC INVESTORS

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Players: The Federal Reserve?

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How Could It Have Been Prevented?
A Few Suggestions That Might Have Worked
Prevention: Greater Regulation (Dodd Frank)

Rules Regarding:

1) Consolidation of Regulatory Bodies

2) Regulation of Financial Markets
3) Consumer Protection
4) Tools for Financial Crisis
5) Improving International Standards

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Prevention: Internal Controls & Reward Structure

Better Internal Controls Reward Systems

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Prevention: Auditor Independence

Independent Appointment of Auditors by Shareholders?

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Lessons Learnt?
Our Key Takeaways From This Incident