Cmi Analysis

I. Lehman Brothers Introduction:

Lehman Brothers Holdings is a global financial services company. It offers a wide range of products and services in investment banking, trading & research, equity and fixed income sales, private equity, private investment management, and asset management.

On 15th September 2008, when the investment bank Lehman Brother fell was the largestbankruptcy ever in the history. The bank had assets nearly $639 billion, the Lehman bankbusiness areas before the collapse was investments banking, equities, capital markets andinvestment management (Lehman Brothers, 2007, annual report; 2008). Due to competitionfrom other investment banks, Lehman Brothers decided to change from lower risk brokerageto higher risk, they focused on making long term investment. They were also involved indifferent types of Subprime loans and Mortgages, these loans were issued to people whohad little security and this led to higher interest rates. The government also encouragedbanks to issue loans so that even financially weak people could buy houses. However,things changed when cheap loans and real estate prices burst in 2006. Interest rates startedto become very high and led to default which meant then a lot of loss in revenue and severeincrease in Liquidity risk. Prices of real estate also fell and assets lost value (Bankruptcyreport, 2008). In the beginning of 2008, Lehman Brothers started losing millionsof money with their high debts and their balance sheet filled with weak, illiquidassets.Lenders and other parties lost confidence in the bank increasing capital costs andmade it hard for the bank to get short-term funding to maintain Liquidity (Lehman Brotherssecond quarterly report, 2008). They tried to negotiate with other banks for sale but nosettlements were made, therefore due to their disregard of risk awareness, the USgovernment had lost confidence in the bank and chose not to intervene in the inevitable endof Lehman Brothers.There are things that need...