Lehman Brothers
investment bank, Lehman Brothers collapsed in September 2008 - the largest bankruptcy in U.S.
The fourth-largest U.S. investment bank, Lehman Brothers collapsed in September 2008 - the largest bankruptcy in U.S. history ($691 billion in assets). The extinction resulted from overexposure to real estate, insufficient liquidity buffers, and failure to secure rescue during the 2008 financial crisis.
Founded in 1850, Lehman was a major investment bank in underwriting, trading, and asset management. In the 2000s, Lehman aggressively expanded into mortgage-backed securities and real estate, funding subprime mortgages and holding $80-100 billion in mortgage-related assets.
Lehman's leverage ratio was 31:1 (2007) - far higher than peers at 20-25:1. When the housing market collapsed and credit markets froze, Lehman couldn't access short-term credit and had no cash buffer. Unlike Bear Stearns (rescued by JPMorgan) or Goldman Sachs and Morgan Stanley (converted to bank holding companies), Lehman received no government bailout.
Cautionary Notes on Lehman Brothers
- 31:1 leverage ratio - small asset losses wiped out equity
- Relied on short-term funding with illiquid assets
- Overexposure to single sector (real estate)