Lehman Brothers’ Bankruptcy

In September, 2008, the largest bankruptcy in history was filled in the United States. On filling, Lehman had $619 billion in debt and $639 in assets. Its assets at that time surpassed by far the highest ever recorded bankruptcy assets by WorldCom and Enron. At the time of collapse, Lehman was the ranked as the fourth largest investment bank in the United States. It had in various parts of the world and had a total of 25, 000 employees working in its branches worldwide. The collapse of the business was as a result of the subprime mortgage financial crisis that affected the United States in the year 2008. Lehman was the largest victim that suffered from the crisis. The 2008 crisis that spread out throughout the world led to erosion in the market capitalization by close to $10 trillion of the global equity. This was a decrease of a single month.

Lehman’s Mortgage Errors

After the establishment of the bank by the three Lehman brothers in 1850, Lehman grew into a strong economy power house. However, they faced tremendous challenges throughout their growth. They were able to overcome the difficult and trying times like the Great Recession of 1930s and the Russian debt Default of 1998 among others. The banking institution was however unable to 2008 disaster that brought the Housing market to its knees. In 2003, the mortgage business was at its best. Lehman had a deal with five market leaders in the mortgage business. They gave loans to investors in easy procedures that did fail in the right documentation process for mortgage loans criteria. In the few years following 2004, they made revenues from the real estate and invested in banking. Profits were seen until in the year 2007.

Beginning of the end

In early 2007, there were cases of defaults to repay mortgage loans. The stock price of Lehman began to fall and dropped by five percent in the month of August alone. However, the companies CFO did not see any cause for alarm. He did not anticipate the problem to grow to a point of affecting the US economy. However, in the following months, the stock of all fixed assets hit rebounds. Meanwhile, Lehman stock prices in the market continued to decline. By September, the stock had plunged by 78%. A Korean Development Bank was interested in investing in Lehman, but the move was blocked by a state-owned Korean Bank. This was the last move to save Lehman. They started reporting loss and shutdowns.

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