Abstract

The case discusses the rise and fall of Lehman Brothers Inc (Lehman Brothers) from a small dry goods store to one of the leading investment banks in the US. It examines in detail the reasons that led to the subprime crisis since the year 2007 in the US and how it led to the collapse of 158 year old Lehman Brothers. The case highlights the role of several stake holders in the mortgage business that contributed to the crisis. It examines the various factors that contributed to the fall of Lehman Brothers including leadership issues, excessive leverage, failure of risk measures employed like ‘Value at Risk’ and poor regulation of the investment banking industry. It also explains the role of certain OTC derivative instruments that led to the collapse of the company.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Understand the reasons that led to the subprime crisis in the US and its impact on financial institutions. Analyze the aggressive strategies that Lehman Brothers followed in the mortgage business. Study the role of leadership at Lehman Brothers behind t

Keywords

Lehman Brothers, US Subprime Crisis, Risk Management, Investment Banking, Chapter 11 Bankruptcy, Fed Funds Rate, Home loans, Adjustable Rate Mortgages, Subprime borrowers, Mortgage backed securities, Mortgage Lending Mechanism, Credit Default Swap, US Federal Reserve, Aurora Loan Services, BNC Mortgage Inc, Richard Fuld, Alan Greenspan, Bear Sterns, Korea Development Bank, Value at Risk, Leverage Ratio