The Failure of Lehman Brothers II
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?
