American history remembers the multitude of financial crises and corporate crashes that affected the country's economy. One of such significant events was the collapse of Lehman Brothers, an organization that was previously considered the leader of the American investment business and ranked 4th in the success rating.
History of creation
Lehman Brothers was founded in 1850 by the Lehman brothers from Germany. Henry was the first to emigrate from Europe in 1844. In the city of Montgomery, Alabama, a haberdashery and manufactory shop, owned by a 23-year-old boy, was opened. After saving up some money, he helped his brother Emanuel move in 1847. Three years later, the younger Mayer joined the brothers.
In the middle of the 19th century, cotton was the most important agricultural crop in America. Given its high market value, the brothers initially accepted the product as payment for goods from the store, but cotton soon became their main business. At that time, barter was emerging, so agricultural products were regularly used instead of money, since most of the Leman's clients were farmers. Often, when accepting cotton, the brothers underestimated its market value, and subsequently successfully sold it. In order to evaluate the goods received from barter and then resell or exchange them, the idea arose to create a commodity exchange.
Turning into a bank
In 1855, the family suffered grief, the disease took away the 33-year-old older brother Henry. The remaining brothers continued to trade and finance.
When New York became the center of the cotton trade in 1858, the Lemans opened a branch of their firm there, which Emanuel went to manage. During the Civil War, the company experienced difficulties and in order to stay afloat, it merged with the John Durr trading house. The southern states were particularly affected by the war, and the firm felt it was necessary to help rebuild Alabama.
Emanuel Lehman helped organize the New York Cotton Exchange in 1870 and remained on the board of directors for 10 years. In addition to cotton, the brothers traded in everything that was profitable, in particular oil and coffee. Their sphere of activity was investment in cotton production and financing of start-up companies in the securities market. All this guaranteed a good profit. Often the brothers began to collaborate with companies in which others were afraid to invest. So, for example, it was with the tire manufacturer B. F. Goodrich and several successful retail chains to this day.
Lehman Brothers development
Starting in the 1860s, the growth of railways began in the United States, and the country experienced a real boom. In a short time, hundreds of kilometers of railroad tracks were built, which made it possible for people to quickly and inexpensively move from state to state and transport goods. Very soon the USA instead of an agrarian power became an industrially developed country. The companies involved in the construction of the roads subsidized the funds to issue bonds. After that, valuable assets could be resold profitably. This was a decisive factor for Lehman Brothers to enter the New York Stock Exchange. The debut took place in 1887, and soon they became active bidders.
Until 1884, Emanuel participated in the work of the Council of Governors, and served on the Financial Advisory Council. Lehman was on the board of a coffee exchange, and in 1899 was a stockist in a steam pumping company.
In 1906, Emuel's son Philip Lehman took over the business. As a result of his fruitful collaboration with the financier Henry Goldman, securities were issued by large firms trading in popular goods.
In the 1930s, Robert Lehman joined the team - a representative of the next generation. The young man graduated from Yale University and brought new knowledge and a fresh look to the company. From 1925 to 1969, he was at the helm of the company, ensuring its sustainable success. Robert kept the bank even during the Great Depression, when many of America's financial institutions collapsed.
The heyday of the company
Lehman Brothers issued securities, traded assets and consulted on transactions. An example is the merger of two American circus companies. As a result, more than 700 US circuses have become a single holding company.
The bank financed domestic radio and television companies. Lehman Brothers managers noticed in time that you can make good money in the entertainment industry. The then almost unknown film companies Paramount Pictures and 20th Century Fox, as well as companies specializing in the extraction and transportation of oil, received help. The bank invested in retail chains and the aviation industry.
In the 50s, the priority areas of the bank's activity were electronics and the computer industry. Having started financing these projects, the organization continued to pay sufficient attention to these areas in the future. In the 90s, the bank invested money in the activities of defense enterprises.
The owners of the powerful bank lehman have won respect and authority in society. Herbert Henry Lehman supported Franklin Roosevelt, the future president of the United States. Herbert himself was nominated for the post of mayor of New York, however, luck was on his side only the second time.
Ups and downs
The time of Robert Lehman's management is considered to be the most successful period for the company, it achieved high results and influenced the country's economy. In 1969, after the death of the last member of the dynasty, a struggle for power began within the financial organization. It unfolded among traders and investors, even the ex-minister of trade could not stop the strife. After merging with Kuhn, Loeb & Co, the bank slightly strengthened its position and by 1975 was ranked 4th in the ranking of the largest banks in the country.
In the 80s, some of the employees left the company, it was difficult for them to resist the traders who increased their premiums unilaterally. In 1984 American Express took advantage of the internal instability and turned the bank into one of its subsidiaries. Only 10 years later, Lehman Brothers became independent, and its capitalization skyrocketed.
The bank's profit grew every year, in 2006 it increased by 22% and amounted to $ 4 billion. Lehman Brothers' revenues increased by 20.2% and amounted to $ 17.58 billion. The bank's specialists continued to consult on billions of dollars in transactions and received good remuneration for this. By 2007, the company's assets amounted to more than $ 500 billion. Branches of the bank appeared in the capitals of England and Japan, and the number of the staff reached 26 thousand employees.
Last days of the company
The collapse of Lehman Brothers was unexpected and extremely rapid. First, the bank has spent too much money on mortgage-backed securities. Secondly, the state refused to help the company when it became necessary, although cases where the Central Bank rescued large companies were not uncommon.
In the summer of 2007, rumors spread that the company was hiding the real state of affairs, did not disclose the real scale of losses and forged reporting. This happened a few months before the bankruptcy of Lehman Brothers. Some of the rumors about the bank's problems were confirmed, but they continued to grow like a snowball. Brokers have begun to conclude very risky fixed-term contracts with all interested persons at future interest rates on mortgage bonds. Such contracts were not registered anywhere, quite a lot of them were issued. Then brokers opened the sale of contracts for mortgage assets that they did not own, that is, they "sold air." By concluding new contracts, brokers covered payments under previously signed contracts. But when the market became volatile, it turned out that Lehman Brothers was unable to fulfill its obligations.
In the first half of 2008, the bank suffered losses - $ 2, 8 billion, so on June 9 it announced an additional issue. But the amount demanded by creditors for payments was 830 billion dollars, nothing could save the situation. The state refused to nationalize, not wanting to pay for the mistakes of managers. On September 15, Lehman Brothers' management filed for bankruptcy. The collapse of the famous financial institution is considered the beginning of the global financial crisis of the late 2000s. Two artistic films are dedicated to the company's history: "The Limit of Risk" (2011) and "The Selling Game" (2015).
