Lehman Brothers

Lehman Brothers Lehman Brothers Holdings Inc. (Pink Sheets: LEHMQ, former NYSE ticker symbol LEH) (pronounced / ˈliːm ə n/ ) was a global financial services firm which, until declaring bankruptcy in 2008, participated in business in investment banking, equity and fixed-income sales, research and trading, investment management, private equity, and private banking. It was a primary dealer in the U.S. Treasury securities market. Its primary subsidiaries included Lehman Brothers Inc., Neuberger Berman Inc., Aurora Loan Services, Inc., SIB Mortgage Corporation, Lehman Brothers Bank, FSB, Eagle Energy Partners, and the Crossroads Group. The firm's worldwide headquarters were in New York City, with regional headquarters in London and Tokyo, as well as offices located throughout the world. On September 15, 2008, the firm filed for Chapter 11 bankruptcy protection following the massive exodus of most of its clients, drastic losses in its stock, and devaluation of its assets by credit rating agencies. The filing marked the largest bankruptcy in U.S. history.[2] The following day, the British bank Barclays announced its agreement to purchase, subject to regulatory approval, Lehman's North American investment-banking and trading divisions along with its New York headquarters building.[3][4] On September 20, 2008, a revised version of that agreement was approved by U.S. Bankruptcy Judge James M. Peck.[5] During the week of September 22, 2008, Nomura Holdings announced that it would acquire Lehman Brothers' franchise in the Asia Pacific region, including Japan, Hong Kong and Australia.[6] as well as, Lehman Brothers' investment banking and equities businesses in Europe and the Middle East. The deal became effective on 13 October 2008.[7] Lehman Brothers' investment management business, including Neuberger Berman, was sold to its management on December 3, 2008. Creditors of Lehman Brothers Holdings Inc. retain a 49% common equity interest in the firm, now known as Neuberger Berman Group LLC.[8] It is the fourth largest private employee-controlled asset management firm globally, behind Fidelity Investments, The Capital Group Companies and Wellington Management Company. A March 2010 report by the court-appointed examiner indicated that Lehman executives regularly used cosmetic accounting gimmicks at the end of each quarter to make its finances appear less shaky than they really were. This practice was a type of repurchase agreement that temporarily removed securities from the company's balance sheet. However, unlike typical repurchase agreements, these deals were described by Lehman as the outright sale of securities and created "a materially misleading picture of the firm’s financial condition in late 2007 and 2008."[9] History Under the Lehman family (1850–1969) In 1844, 23-year-old Henry Lehman,[10] the son of a Jewish cattle merchant, emigrated to the United States from Rimpar, Bavaria.[11] He settled in Montgomery, Alabama,[10] where he opened a dry-goods store, "H. Lehman".[12] In 1847, following the arrival of his brother Emanuel Lehman, the firm became "H. Lehman and Bro."[13] With the arrival of their youngest brother, Mayer Lehman, in 1850, the firm changed its name again and "Lehman Brothers" was founded. [12][14] During the 1850s, cotton was one of the most important crops in the United States. Capitalizing on cotton's high market value, the three brothers began to routinely accept raw cotton from customers as payment for merchandise, eventually beginning a second business trading in cotton. Within a few years this business grew to become the most significant part of their operation. Following Henry's death from yellow fever in 1855,[12][15] the remaining brothers continued to focus on their commodities-trading/brokerage operations. By 1858, the center of cotton trading had shifted from the South to New York City, where factors and commission houses were based. Lehman opened its first branch office in New York City's Manhattan borough at 119 Liberty Street,[15] and 32-year-old Emanuel relocated there to run the office.[12] In 1862, facing difficulties as a result of the Civil War, the firm teamed up with a cotton merchant named John Durr to form Lehman, Durr & Co.[16][17] Following the war the company helped finance Alabama's reconstruction. The firm's headquarters were eventually moved to New York City, where it helped found the New York Cotton Exchange in 1870;[15][18] Emanuel sat on the Board of Governors until 1884. The firm also dealt in the emerging market for railroad bonds and entered the financial-advisory business. Lehman became a member of the Coffee Exchange as early as 1883 and finally the New York Stock Exchange in 1887.[15][18] In 1899, it underwrote its first public offering, the preferred and common stock of the International Steam Pump Company. Despite the offering of International Steam, the firm's real shift from being a commodities house to a house of issue did not begin until 1906. In that year, under Philip Lehman, the firm partnered with Goldman, Sachs & Co.,[19][20] to bring the General Cigar Co. to market,[21] followed closely by Sears, Roebuck and Company.[21] During the following two decades, almost one hundred new issues were underwritten by Lehman, many times in conjunction with Goldman, Sachs. Among these were F.W. Woolworth Company,[21][22] May Department Stores Company, Gimbel Brothers, Inc.,[23] R.H. Macy & Company,[23] The Studebaker Corporation,[22] the B.F. Goodrich Co. and Endicott Johnson Corporation. Following Philip Lehman's retirement in 1925, his son Robert "Bobbie" Lehman took over as head of the firm. During Bobbie's tenure, the company weathered the capital crisis of the Great Depression by focusing on venture capital while the equities market recovered. Traditionally, a family-only partnership, in 1924 John M. Hancock became the first non-family member to join the firm,[19][24] followed by Monroe C. Gutman and Paul Mazur in 1927. By 1928, the firm moved to its now famous One William Street location. In the 1950s, Lehman underwrote the IPO of Digital Equipment Corporation. In the 1930s, Lehman underwrote the initial public offering of the first television manufacturer, DuMont, and helped fund the Radio Corporation of America (RCA).[25] It also helped finance the rapidly growing oil industry, including the companies Halliburton and Kerr-McGee. Later, it arranged the acquisition of Digital by Compaq. An evolving partnership (1969-1984) Robert Lehman died in 1969 after forty-four years as the patriarch of the firm, leaving no member of the Lehman family actively involved with the partnership.[26] Robert's death, coupled with a lack of a clear successor from within the Lehman family left a void in the company. At the same time, Lehman was facing strong headwinds amidst the difficult economic environment of the early 1970s. By 1972, the firm was facing hard times and in 1973, Pete Peterson, Chairman and Chief Executive Officer of the Bell & Howell Corporation, was brought in to save the firm. [26] Under Peterson's leadership as Chairman and CEO, the firm acquired Abraham & Co. in 1975, and two years later merged with the venerable, but struggling, Kuhn, Loeb & Co.,[26] to form Lehman Brothers, Kuhn, Loeb Inc., the country's fourth-largest investment bank, behind Salomon Brothers, Goldman Sachs and First Boston.[27] Peterson led the firm from significant operating losses to five consecutive years of record profits with a return on equity among the highest in the investment-banking industry. By the early 1980s, hostilities between the firm's investment bankers and traders (who were driving most of the firm's profits) prompted Peterson to promote Lewis Glucksman, the firm's President, COO and former trader, to be his co-CEO in May 1983. Glucksman introduced a number of changes that had the effect of increasing tensions, which when coupled with Glucksman’s management style and a downturn in the markets, resulted in a power struggle that ousted Peterson and left Glucksman as the sole CEO.[28] Upset bankers who had soured over the power struggle, left the company. Steve Schwarzman, chairman of the firm's M&A committee, recalled in a February 2003 interview with Private Equity International that "Lehman Brothers had an extremely competitive internal environment, which ultimately became dysfunctional." The company suffered under the disintegration, and Glucksman was pressured into selling the firm. Merger with American Express (1984–1994) Shearson/American Express, an American Express-owned securities company focused on brokerage rather than investment banking, acquired Lehman in 1984, for $360 million. On May 11, the combined firms became Shearson Lehman/American Express.[28] In 1988, Shearson Lehman/American Express and E.F. Hutton & Co. merged as Shearson Lehman Hutton Inc. [29] From 1983 to 1990, Peter A. Cohen was CEO and Chairman of Shearson Lehman Brothers,[30] where he led the one billion dollar purchase of E.F. Hutton to form Shearson Lehman Hutton.[31] During this period, Shearson Lehman was aggressive in building its leveraged finance business in the model of rival Drexel Burnham Lambert. In 1989, Shearson backed F. Ross Johnson's management team in its attempted management buyout of RJR Nabisco but were ultimately outbid by private equity firm Kohlberg Kravis Roberts, who were backed by Drexel. Divestment and independence (1994–2008) In 1993, under newly appointed CEO, Harvey Golub, American Express began to divest itself of its banking and brokerage operations. It sold its retail brokerage and asset management operations to Primerica [32] and in 1994 it spun off Lehman Brothers Kuhn Loeb in an initial public offering, as Lehman Brothers Holdings, Inc.[33] Despite rumors that it would be acquired again, Lehman performed quite well under Chairman and CEO Richard S. Fuld, Jr.. By 2008, Fuld had been with the company for 30 years, and would be the longest-tenured CEO on Wall Street.

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