Lehman Brothers Bank Failure

I don’t think there are many people who haven’t heard of the Lehman collapse. However it is only when you do research on the subject that you really get a scale of the losses that were incurred along with the contributing factors to those losses. It is estimated that it may take up to 5 yrs to close out with Lehman’s Creditors. For this report I will outline my contribution to the final presentation and how my learning’s in the class applied to my work.

There are countless articles and news reports on the Lehman’s brother’s collapse with each one having a different opinion as to what went wrong and how it could have been prevented. I conducted the main body of research for our group and after careful consideration & countless disagreements we finally agreed that our final presentation would be based upon the information contained within the “REPORT OF ANTON R. VALUKAS, EXAMINER” Chapter 11 Case number: 08‐13555.

We also looked at Testimony of Luigi Zingales on "Causes and Effects of the Lehman Brothers Bankruptcy” Before the Committee on Oversight and Government Reform. United States House of Representatives October 6, 2008.

So what did I learn from all this. Well as outlined in our presentation with attributed Lehman’s Demise to 3 main factors: Leverage, Liquidity, and Losses. So what have I learned that applies to the Lehman assignment.

1. Agency Theory:

a. Lehman employees owned 30 % of Lehman’s Stock. The CEO had $10m worth of shares in the company at the time of the collapse. Over the previous 14yrs he had cashed in over $500M worth of shares.

i. So what am I saying? What I am saying is there was real self-interest here. There was nearly an obligation to take risks in order to maximise Profits and maintain a high share price. Moral hazard certainly had a role to play here.

2. Bank Failure: Management Problems “One Person Rule”

b. This appears to have been true...