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Lehman Brothers

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Lehman Brothers Holdings Inc. was a massive American global financial services firm.

Lehman Brothers-NYC-20080915
Lehman Brothers-NYC-20080915

For 158 years, it played a major role in the world of finance. Before its collapse, it stood as the fourth-largest investment bank in the United States. It sat behind major names like Goldman Sachs, Morgan Stanley, and Merrill Lynch. The firm employed approximately 25,000 people across the globe. It provided many services, including investment banking and research. It also managed private wealth and traded various financial instruments. These included equity, fixed-income, and derivatives. Derivatives are complex financial contracts that derive their value from other assets.

The company's history began with the Lehman family in the mid-19th century. In 1844, Hayum Lehmann immigrated from Bavaria to the United States. He settled in Montgomery, Alabama, and changed his name to Henry Lehman. He opened a dry-goods store called "H. Lehman." His brothers, Emanuel and Mayer, joined him in the following years. By 1850, the three brothers formed Lehman Brothers. They grew the business by trading in cotton, a vital crop in the South. They even accepted raw cotton as payment for their merchandise. This commodity trading became the most significant part of their early operations.

As the economy changed, the firm shifted its focus toward New York City. The center of cotton trading moved North by 1858. Emanuel Lehman moved to New York to run a new branch office. In 1870, the firm helped found the New York Cotton Exchange. This organization helped turn cotton into a standardized commodity for trading. Later, the firm expanded into railroad bonds and financial advisory services. It became a member of the New York Stock Exchange in 1887. In 1899, the company handled its first public offering. This process allowed the International Steam Pump Company to sell stock to the public.

By the early 20th century, the firm became a major house of issue. Under Philip Lehman, the firm partnered with Goldman, Sachs & Co. They helped bring the General Cigar Co. to the market. The firm also worked with famous companies like Sears, Roebuck and Company. It supported the growth of the F.W. Woolworth Company and Macy's. During the 1930s, Lehman underwrote the first television manufacturer, DuMont Laboratories. It also helped fund the Radio Corporation of America (RCA). The firm provided financing for the growing oil industry, including Halliburton. These activities helped the company navigate the Great Depression through venture capital.

Leadership changes brought new eras of growth and internal tension. In 1973, Pete Peterson was brought in to lead the struggling firm.

PeterGeorgePeterson
PeterGeorgePeterson

Under his guidance, Lehman merged with Kuhn, Loeb & Co. This merger created Lehman Brothers, Kuhn, Loeb Inc. This new entity became the fourth-largest investment bank in the country. Peterson led the firm to five consecutive years of record profits. However, internal power struggles emerged in the early 1980s. Tensions grew between investment bankers and traders. This dysfunction eventually led to the sale of the firm in 1984.

In 1984, American Express acquired Lehman for $360 million.

Shearson Lehman Logo
Shearson Lehman Logo

The combined company was named Shearson Lehman/American Express. For a decade, the firm operated under this umbrella. In 1994, American Express began to divest its banking operations. This resulted in a spin-off known as Lehman Brothers Holdings, Inc. Dick Fuld became the CEO during this period of independence. He led the firm through several global economic challenges. He also aggressively re-entered the asset-management business. By May 2008, the firm held $639 billion in assets.

The end of Lehman Brothers was sudden and impactful. The firm became deeply involved in the subprime mortgage crisis. This crisis involved high-risk loans given to home buyers. Lehman also held many less liquid assets. These are assets that cannot be sold quickly for cash. As the crisis worsened, clients began to leave the firm. The stock price declined drastically, and credit agencies devalued its assets. On September 15, 2008, Lehman filed for Chapter 11 bankruptcy protection. This was the largest bankruptcy filing in United States history. It surpassed the previous record held by Worldcom, Inc.

The collapse had massive consequences for the entire world. Global markets plummeted immediately after the filing. The event is believed to have helped trigger the 2008 financial crisis. It also strengthened the "too big to fail" doctrine in economics. Following the filing, parts of the firm were sold to other companies. Barclays agreed to purchase the North American investment-banking division.

Lehman Brothers Times Square by David Shankbone
Lehman Brothers Times Square by David Shankbone

Later, Nomura Holdings acquired the franchise in the Asia-Pacific region. This deal included businesses in Japan, Hong Kong, and Australia. The acquisition of the European and Middle Eastern businesses became effective in October 2008.

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Shearson Lehman Logo.png
File:Lehman Brothers Times Square by David Shankbone.jpg
Lehman Brothers Times Square by David...
File:Lehman Brothers-NYC-20080915.jpg
Lehman Brothers-NYC-20080915.jpg
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