Since I have heard about the Lehman Brothers, there is a bit of acknowledgement. This is why I chose to blog about it. I have watched the documentary on Lehman brothers, namely The Last Days of Lehman Brothers. The drama was inspired by the real events that occurred leading to the bankruptcy of Lehman Brothers. They were in trouble after six months of turbulence in which their real estate investments have lost billions of dollars, causing a huge drop in their stock. I have also found out that Merrill Lynch was also having the same trouble. Fortunately, they have avoided the situation with luck. Even Barclays and Bank of America backed off from purchasing Lehman Brothers as they are fully loaded with toxic assets. In the end, Lehman Brothers has not been saved.
I have noticed two reasons that have led to Lehman Brother's bankruptcy.
Firstly, they did not take the situation seriously. Dick Fuld, the boss of Lehman Brothers kept repeating that 'the situation is not critical' when their stock has gone down. How can it not be taken seriously? Or is he trying to perceive that his company can manage to get away from critical situation like this? It is a fact that Lehman Brothers used to be the fourth biggest investment bank in the U.S. But in my honest opinion, if a situation like this was not taken seriously, it can lead to serious trouble for the company, such as, in this case, bankruptcy. Other than Dick Fuld, the management groups were also responsible for the fall. As they were too optimistic about the whole situation. In my opinion, one of the biggest mistakes that they have made was that they believed that Lehman Brothers was too big to even go bankrupt. Personally, I do not agree with this thinking. In the clip, Dick Fuld keeps repeating on the statement on who would want his company. I feel that he have always been desperate and thinking too positive towards everything.
Secondly, there was no good risk management in the company and got criticized for it. Dick Fuld has denied that and said "regardless of what you heard of Lehman Brothers' risk management, I had 27,000 risk managers, because they all owned a piece of the firm" explaining that the staffs had owned more then 30% of the bank's stock (The Guardian, 2015). According to Hutchinson (2008), in the annual report of Lehman Brothers in year 2008, they stated that they had a culture of risk management at every level of the firm. But, if there was a culture of risk management, why would they allow the leverage ratio to rise from 26.2:1 to 30.7:1 from year 2006-2007? This is the question. I think they could have done it better managing their strategic risk a little bit better. According to McConnell (2012), strategic risk is one of the greatest risk facing of all firms because of the uncertainties in the global economy. It should really be taken more seriously to avoid such problem.
I send my heartfelt regards to the 27,000 employees that had lost their jobs from the bankruptcy of Lehman Brothers. I have learned to not take things lightly, even if they won't be as serious as I thought. It is because everything is unpredictable and we have to make sure that we try our best to leave no regrets. In the future, if I were to own a business or become a manager at any level, I have to be a good example or a role model to the staffs. Dick Fuld has definitely taught me some lessons.
Links:
http://www.theguardian.com/business/2015/may/28/lehman-brothers-former-ceo-blames-bad-regulations-for-banks-collapse
http://moneymorning.com/2008/09/12/lehman-brothers-holdings/
http://www.capco.com/uploads/articlefiles/308/file_0_1420620061.pdf
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