Collapse
The Collapse of Lehman Brothers – Lessons Learned: Corporate Governance and Ethics.
Posted by erictse2 on February 11, 2012
The Collapse of Lehman Brothers – Lessons Learned: Corporate Governance and Ethics.
Executive summary This essay discusses about the collapse of Lehman Brothers in 2008, from the perspective of corporate governance and ethics. It first gives some background about the collapse and analyze financial situation of the company before the incident happened. It reveals unethical or misleading financial or accounting practices in the company. Then we provide problem determination and lesson learned from a corporate governance perspective. That is what government, financial institutions and companies can do to have better control in the future.
Introduction
Lehman Brothers was a company with a long and interesting history. It was founded in 1850 as a family business, by three brothers who immigrated to the US, and started as a shop, which later entered trading with cotton. During the more than 150 years existence the company became the fourth largest financial firm in the world. Before announcing bankruptcy on 15th of September 2008, they were providing full range of financial services. (See Exhibit 7) Lehman Brothers was tangled after the sub-prime mortgage disasters happened. The firm accumulated a very large commercial real estate portfolio. Lehman was also very highly leveraged and was taking no steps to get borrowing under control. On September 7th 2008, after the Government rescued Freddie Mac and Fannie Mae and Lehman announced a large third quarter loss three days later, the bank began to have pronounced liquidity problems. A large New York clearing bank asked the firm to provide more collateral to protect any daylight open position that may arise. Credit rating agencies threatened to downgrade the company unless some reasonable plan was announced that would restore capital and stabilize funding. Lehman had no such plan. That
Posted by erictse2 on February 11, 2012
The Collapse of Lehman Brothers – Lessons Learned: Corporate Governance and Ethics.
Executive summary This essay discusses about the collapse of Lehman Brothers in 2008, from the perspective of corporate governance and ethics. It first gives some background about the collapse and analyze financial situation of the company before the incident happened. It reveals unethical or misleading financial or accounting practices in the company. Then we provide problem determination and lesson learned from a corporate governance perspective. That is what government, financial institutions and companies can do to have better control in the future.
Introduction
Lehman Brothers was a company with a long and interesting history. It was founded in 1850 as a family business, by three brothers who immigrated to the US, and started as a shop, which later entered trading with cotton. During the more than 150 years existence the company became the fourth largest financial firm in the world. Before announcing bankruptcy on 15th of September 2008, they were providing full range of financial services. (See Exhibit 7) Lehman Brothers was tangled after the sub-prime mortgage disasters happened. The firm accumulated a very large commercial real estate portfolio. Lehman was also very highly leveraged and was taking no steps to get borrowing under control. On September 7th 2008, after the Government rescued Freddie Mac and Fannie Mae and Lehman announced a large third quarter loss three days later, the bank began to have pronounced liquidity problems. A large New York clearing bank asked the firm to provide more collateral to protect any daylight open position that may arise. Credit rating agencies threatened to downgrade the company unless some reasonable plan was announced that would restore capital and stabilize funding. Lehman had no such plan. That