Economics, Commerce and Trade Management: An International Journal (ECTIJ)
Lehman Brothers Collapse
1. Q. Why has Lehman Brothers collapsed . It was one of the most exposed banks to the US sub-prime mortgage market. It did not give out mortgages to ordinary American citizens. Rather, it bought up billions of dollars worth of These loans from US banks, re-packaged them, and sold them on to global.
2. Q. Why has Lehman Brothers collapsed . It also invested heavily in property, both commercial and residential. With the US housing market in free-fall these re-packaged loans and its property portfolio have plummeted in value. In June to August last year, the bank said it would write off $700 million (£390 million), from its balance sheet as a result. In the same three months this year, this figure soared to $7.8 billion (£4.34 billion). The bank tried to sell itself but no one – including the UK's Barclays – was willing to take on these "toxic" assets
3. Q. Could others follow Lehman Brothers? A. Yes. Merrill Lynch, one of the most venerable Wall Street firms, has been bought out by the Bank of America to save it going under. AIG, the world's largest insurance company is also running short of funds, it is understood. It is almost certain another major financial institution will collapse
4. Why does it matter that Lehman has collapsed and others are in trouble? A. Lehman does not have any High Street branches, ordinary savers or mortgage customers. However, its collapse will have profound implications for people around the world – and not just for its 25,000 staff, 5,000 of them in the UK who are almost certainly out of a job. Crucially, the US's central bank, the Federal Reserve has refused to step in to rescue the firm, even though it bailed out Bear Stearns, Fannie Mae and Freddie Mac earlier this year. This has rattled Wall Street and the City as investors realise that others could be allowed to go to the wall. As a result, share prices have fallen heavily on stock markets around the world
5. CHRONOLOGY OF EVENTS(NEWYORK LOCAL TIME) FRIDAY 16:00: U.S. market closes after a see saw session dominated by the fate of Lehman Brothers. After initially opening 140 points down in the wake of disappointment that Lehman had not secured a rescue by early Friday, the Dow Jones Industrials index recovered and closed down just 10 points. 16:25: Sources say Lehman Brothers has received bids for its asset management division from private equity firms Clayton Dubilier & Rice and Bain Capital. 20:00: U.K. newspapers say Barclays is considering a bid for Lehman Brothers
6. CHRONOLOGY OF EVENTS(NEWYORK LOCAL TIME) SUNDAY 12:00 The rest of Wall Street's banks and brokers are called into work to start addressing Lehman Brothers outstanding trades in the over-the-counter derivatives markets. 12:57: Barclays says it is pulling out of its bid for Lehman Brothers 15:11: Newspaper reports say AIG is seeking to raise between $10bn and $20 billion from buyout investors including Kohlberg Kravis & Roberts and J.C Flowers & Co to bolster its balance sheet. 15:45: Bank of America says it is pulling out of talks to acquire Lehman Brothers 16:18 : The Wall Street Journal reports that Bank of America and Lehman Brothers are in merger talks 22:00: A global consortium of 10 banks announces it is provide a total of $ 70bn for a U.S. borrowing facility aimed at providing liquidity.
7. CHRONOLOGY OF EVENTS(NEWYORK LOCAL TIME) MONDAY 00:32: Lehman Brothers announces it is filing for bankruptcy. 00:36: Bank of America announces takeover of Merrill Lynch for $50 billion. .
