The Failure of Lehman Brothers II

The Failure of Lehman Brothers II

January Carmalt

20 years: Research & banking

Lehman had a colourful history of surviving crises, specifically under the guiding hand of its CEO, Richard S. Fuld Jr. Appointed Chief Executive after its spin off from American Express in 1994. In the second video of this series on "Someone had to fail", January gives us an overview of the history of  Lehman Brothers and what led the Lehman Brothers to collapse.

Lehman had a colourful history of surviving crises, specifically under the guiding hand of its CEO, Richard S. Fuld Jr. Appointed Chief Executive after its spin off from American Express in 1994. In the second video of this series on "Someone had to fail", January gives us an overview of the history of  Lehman Brothers and what led the Lehman Brothers to collapse.

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The Failure of Lehman Brothers II

10 mins 31 secs

Overview

Before it’s collapse, Lehman had a history of navigating financial disasters- having forged a reputation as a Wall Street Titan that could weather market headwinds with amazing foresight, specifically under the guiding hand of its long-standing CEO Dick Fuld. Indeed, Fuld was one of the longest standing CEOs on Wall Street and engendered a culture of fierce loyalty and commitment from his staff.

As the credit tsunami gained pace, Fuld sought to calm shareholders and acted to shore up capital through a series of rights issues and capital calls. But when a failed merger with Korea Development forced Lehman to bring forward further losses, their fate was sealed. The plan to save Lehman was now in the hands of Treasury Secretary Hank Paulson as he and other key players scrambled for a plan to bail out one of Wall Street’s giants but WITHOUT the backing of Federal loans or guarantees. With no buyers willing to take on Lehman’s losses, time ran out and in the end Lehman was sacrificed to prevent even larger bankruptcies that loomed ahead.

Key learning objectives:

  • Who was Dick Fuld and what role did history play in Lehman’s fall?

  • What is the difference in liquidity and solvency?

  • What accounting did Lehman use to hide losses?

  • What are Federal loans and guarantees and how are they important?

  • What role, if any, would personal rivalries play in the fall of Lehman?

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Summary
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Expert
January Carmalt

January Carmalt

January began her career in 1999 with Bank of America in Charlotte, NC. From the Credit Products team, she moved into fixed income bond research covering Telecoms and Financials. While in London, January focused on financial institutions bond research until her Director and head bond analyst role at Deutsche Bank. As of 2011, January has worked as a freelance writer.

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