Lehman Brothers : A Global Financial Services Firm

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The Report Submitted by Johannes Introduction Lehman Brothers Holdings Inc. was a global financial services firm. Henry and Emanuel Lehman founded it in the year of 1850 in the city of Alabama. Before declaring bankruptcy in 2008, Lehman was the fourth-largest investment bank in the US, doing business in investment banking, equity and fixed-income sales and trading especially U.S. Treasury securities, research, investment management, private equity, and private banking. Lehman Brothers had humble origins, tracing its roots back to a small general store that was founded by German immigrant Henry Lehman in Montgomery, Alabama, in 1844. In 1850, Henry Lehman and his brothers, Emanuel and Mayer, founded Lehman Brothers. While the…show more content…
Importantly, this behaviour was taking place in an environment of monetary easing, which led to falling interest rates and greater affordability of mortgages. Banks and thrifts had traditionally made mortgage loans and had held them to maturity on their balance sheets. They were required to allocate capital against these loans because of regulations. As the technology for securitizations became more robust and a market among investors for securitized investments gained critical mass, banks and thrifts found that returns from originating and holding the loans were often less attractive than simply taking fees for originating and selling these loans to Wall Street firms which used them in securitization, thereby avoiding capital charges and freeing up the balance sheet to originate new loans to sell. The gearing ratio as of 2007 of Lehman Brothers was 31:1. This meant even a decrease of 4% in the value of the assets would erode the entire equity of the bank. Most of these lending were converted into mortgage-backed securities (MBS) and collateralized debt obligations (CDO) which were offered to investors In its simplest form the
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