Lehman Brothers

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Lehman Brothers

Reasons of Lehman Brothers Failure

Lehman Brothers was one of the five largest investment banks in USA and was regarded as the leader in fixed interest transactions . The bank had a substantial amount of investment in the subprime mortgage market of America . When the investments in this market were rejected as being very risky , the confidence of investors in Lehman Brothers decreased and the share prices started declining . In 2007 the bank made write downs of 700 million and this write

down amount rocketed to 7 .8 billion in 2008 and the largest loss of the bank 's history was reported . Even after this tremendous write down of value the bank had a risky investment of 54 billion in mortgage securities . The problem for Lehman Brothers was worsened by the financial policy of the management as the bank had a very high level leverage of 30 to 1 and high dependence on short term financing (Zingales . After the record loss the shares of the company took a nosedive by shedding 95 percent in prices . Although the bank had a substantial amount of cash reserves the shareholders lost confidence in the bank when on August 22 , 2008 the talks of the state owned Korea Development Bank acquisition of Lehman Brothers came to a halt . On September 10 , 2008 the bank reported a loss of 3 .9 billion and Barclays Bank also pulled out of the possible buyout of Lehman Brothers . The bank d...