Lehman Brothers Holdings, Inc.
Lehman Brothers Holdings, Inc. was a global financial services company at the time of its collapse in September 2008. It was formed in 1850, evolving from a dry goods store to a secondary trading business as the brothers began to accept cotton as barter payment for certain dry goods.
Cotton was a critical agrarian component to the United States economy during the 19th Century. The trading brokerage opened its first New York City office in 1858, beginning an operation that would last another 150 years.
Jewish immigrant brothers from Bavaria formed the firm. They initially settled in Montgomery, Alabama, and it would take nearly 20 years to shift to a full commodities trading company. However, they did not become a member of the New York Stock Exchange until 1887.
In 1906, the Lehman Brothers partnered with Goldman Sachs to bring their first company to market – marking the move out of commodities and into finance. They initially concentrated their financial efforts in the dry goods industry, introducing Sears & Roebuck and Woolworths to the market. Macy's and May Stores were also established by Lehman Brothers. They would then branch off to the vehicle market by introducing The Studebaker Corporation and B.F. Goodrich.
The company stayed in family control for over 100 years, but in 1969 Lehman Brothers began a path of corporate mergers that eventually partnered it with American Express in 1984. It would merge again in 1988 with E.F. Hutton. In 1993 American Express began to divest its holdings and Lehman Brothers Holdings, Inc. was offered in an IPO.
Lehman Brothers was probably the biggest loser in the financial meltdown of 2008. During the time before the collapse of the U.S. housing market, Lehman Brothers had grown into an investment giant with a stock price of over $86. Lehman's fall involved a portfolio of untradeable subprime mortgages.
As its fundamental, ruinous position was revealed, the stock price declined. This was aggravated by the refusal of company leadership to effectuate a timely merger. Eventually time ran out. Lehman Brother's Chapter 11 bankruptcy took place in September 2008. The company is still the target of litigation and ongoing investigations. It was the largest investment bank failure in U.S. history.
Lehman Brothers remains embroiled in controversy. An audit of the pay of top executives revealed that while Lehman Brothers was going bankrupt, the management had received steep increases in salary and bonuses. The assessment of performance bonuses for executives in a bankrupted company made little sense. Former CEO Richard Fuld, along with several other top executives, has been subpoenaed to testify in regards to these decisions.
Fuld recently sold his Florida mansion worth $14 million to his wife for a nominal $100 price. Shareholders are currently preparing a civil suit against the executives for mismanagement and overcompensation. If Fuld's transfer is determined by the court to be a tactic to protect the property from attachment, the transfer can be voided because of a lack of good faith following the bankruptcy. It is reasonable to assume that the enhanced pay packages could have been a contributor to the collapse and a misappropriation of company resources.
In 2010, the investigation found that Lehman Brothers had also moved some bad debt from its books to a small subsidiary corporation in order to give the appearance that the company was in better financial health. The firm was effectively doing business with itself, similar to what Enron had done prior to its collapse. It is not likely that the House of Lehman shall ever achieve the power and wealth it held prior to 2008 and the US housing crash.
News & Analysis
|09/16/08||Lehman Brothers Faces Failure, While Merrill Lynch Is Bought|
|08/22/08||Lehman Cash Call 'Shunned' by China and Korea|