Enterprise Risk Management at Lehman Brothers

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Case Details:

Case Code : ERMT-016
Case Length : 09 Pages
Period : 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : Lehman Brothers
Industry : Banking
Countries : US, UK

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction

Founded in 1850, Lehman Brothers (Lehman) was a global player in equity and fixed income sales, trading and research, investment banking, private equity, and private client services. The firm was headquartered in New York, London, and Tokyo and served the financial needs of corporations, governments and municipalities, institutional clients, and high-net-worth individuals worldwide.

In 2002, Lehman recorded total sales of $ 6,155 million and net income of $ 975 million. Employees and management owned about a third of the company. One of the top bulge bracket firms, Lehman Brothers had investment bankers in 23 US offices and 17 locations worldwide.

Enterprise Risk Management | Case Study in Management, Operations, Strategies, Enterprise Risk Management, Case Studies

The downturn in the US economy and the reduced demand for underwriting, trading, and M&A services had taken their toll on investment banks, and Lehman's M&A activity in 2002 fell to its lowest level since 1995.

The firm responded by expanding other areas of its business, notably its Fixed Income segment, which produced record results for the year.

Lehman believed the planned acquisition of Neuberger Berman would enable it to significantly expand its services to wealthy investors and diversify its revenue sources with such high-margin businesses as asset management and private wealth management.

Once the $2.63 billion transaction was complete, (sometime in Lehman's 2003 fiscal fourth quarter), Neuberger Berman would become part of the Wealth and Asset Management division of Lehman's Client Services segment.

Background Note

Henry Lehman came to the US in 1844. He opened a dry goods store in Montgomery, Alabama. His brothers Emanuel and Mayer later joined him in the business. The brothers often accepted raw cotton instead of cash for merchandise and developed a thriving cotton business on the side. Soon cotton trading dominated the firm. In 1858, the company opened an office in New York. Despite the effects of the Civil War, in 1862 the Lehman brothers joined fellow cotton merchant John Durr to form Lehman, Durr & Co.

The company helped finance Alabama's postwar reconstruction and, in 1870, helped form the New York Cotton Exchange.

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