Essay on Awesome: Lehman Brothers Lehman

Submitted By Apcox1205
Words: 1094
Pages: 5

Lehman Brothers Lehman Brothers was founded in 1850 by Henry, Emmanuel, and Mayer Lehman. In the beginning the company was a buyer and seller of cotton. As the company received foothold and expanded, they changed their business to a broker company through the financial world. They created an office in New York City and established themselves as a trading business and financial company. As the years rolled on, the company grew into a very profitable company. Each of the booms of the centuries, Lehman was attached to it. The company was involved in the cotton age during the 1850’s, railroads and railroad bonds of the 1890’s, the retail industry and selling goods during the beginning of the 20th century, the entertainment boom of the 1930’s. Around this time, the leader of the company was Robert Lehman. He was the grandson of Emmanuel Lehman. Robert Lehman really sought growth during his time as the leader of the company. There is a quote he said of running a business in general and in America but his philosophy was, “centered on his belief that consumption, not production, would determine America's future prosperity”. Throughout this time, Lehman has been growing itself and establishing itself as a financial services firm. The services that Lehman had, was they were considered a global financial services firm that specialized in investment and financial services. At the time of Lehman’s collapse, they had employed nearly 26,000 employees, from top to bottom of the chain. A year and a half before the fall of Lehman Brothers collapse, their stock was being sold at around $80 per share, whereas just six months later it had dropped to $55. By September of 2008 the shares of Lehman were down to $30. Most of the recent sales and income, before the bankruptcy, had come from their fixed income. The assets that they traded with and were made and couldn’t be un-done made up 40% of the sales.
On September 15, 2008, Lehman Brothers had filed for chapter 11 bankruptcy. Chapter 11 bankruptcy is described as in most instances the debtor remains in control of its business operations as a debtor in possession, and is subject to the oversight and jurisdiction of the court. A short summary of how Lehman Brothers could possibly have gone broke, is they hid $50 billion off their books, when it all was borrowed money. They wanted to hide it all to show they were not as dependent on borrowing money as much as they really were. Most of the executive people of office and even the auditing company knew of the misdeeds. Ernst & Young, the auditing company manipulated the books by using accounting trick “Repo 105”. Repo 105 is an accounting trick in which a company classifies a short-term loan as a sale and subsequently uses the cash proceeds from said sale to reduce its liabilities. In the repo market, companies are able to gain access to the excess funds of other firms for short periods in exchange for collateral (usually a bond). The company that borrows the funds will promise to pay back the short-term loan with a small amount of interest and the collateral typically never changes hands. This is what allows firms to record the incoming cash as a sale; the collateral is assumed to have been "sold off" and bought back later.Repo 105 made headlines following the collapse of Lehman Brothers. It was reported that Lehman accountants used the accounting maneuver to pay down $50 billion in liabilities to reduce leverage on their balance sheet before earnings were announced. This made it look like Lehman was much less reliant on debt than it actually was. By using this trick, Lehman’s balance sheets and their income statements were understated by a lot in the liabilities they owed and the fake revenue they reported was overstated.
Lehman was able to hide their false debt for a while. It was around 2005 that the debt became a problem, it was just growing larger and larger till the company could not handle it anymore. Lehman Brothers used accounting sleight