14 years ago..
Nearly 25000 employees packed their bags from Lehman Brothers hoping for survival during the 2008 economic crisis. Among many bankruptcies during the depression, Lehman Brothers stood at a different spot, holding the position of one of the largest investment bodies during that era.
Founded in 1847, Lehman Brothers used to be the top global financial services company alongside Goldman Sachs, Morgan Stanley, and Merrill Lynch before its drastic fall during the subprime mortgage economic crisis.
One among the major reasons for Lehman's fall is not appropriately evaluating the risk appetite. While many of the surviving multinational bodies took a back step in 2006, Lehman Brothers maintained a humongous leverage ratio.
During 2000-2007, the average ratio of assets to owners equity was 28:1. These high-risky ratios earned them tremendous profits during the 2003-2005 economic boom, but one could see the adverse effect.
As many economists say, there comes a depression after a boom, such was it in the case of most of the Americas' leading mortgage companies, including Lehman. The 28:1 ratio is such a risky position that even a mere 4% decline in the value of its assets would entirely wipe out the company.
Lehman Brothers was at the tip of the coin. It could have helped the nation during the subprime mortgage crisis by wisely choosing the portfolios during earlier years, but who could have thought that it could be the penultimate victim of it?
Lack of employee morale in Lehman Brothers was an invisible reason for its bankruptcy. While the operational deficiencies burned down the company, executive level approaches like cosmetic accountings covered the whole wounds.
Bank of America and Barclays were at the doors to purchase Lehman Brothers just before its bankruptcy, but the dealings were left without seal and sign, witnessing one of biggest corporate falls.