Extended-form Case Study

Strategic risk management: the case of Lehman Brothers

Published on June 30, 2016   11 min

Other Talks in the Category: Finance, Accounting & Economics

Hello, my name is Pat McConnell. And in this session, I'm going to talk about the topics of strategic risk in general and the failure of Lehman Brothers in particular.
Bankruptcy of Lehman Brothers in 2008 was a critical event in the global financial crisis. It exposed serious fault lines in the structure of the global financial markets and led to widespread economic disruption. But how did Lehman, a company with over 150 years of experience as a successful investment banker, reach such a precarious position? The official examiners report into Lehman's bankruptcy by Anton Valukas runs to some nine volumes and 2,100 pages and explains in great details the events that led up to the demise of the firm.
On September 15, 2008, Lehman Brothers, successful US investment bank, filed for bankruptcy with the largest failure of a bank in history to that point and it precipitated but did not cause what became known as the global financial crisis. The immediate cause of Lehman's insolvency was that the firm was overly exposed to the US commercial and residential property markets, and when the housing bubble burst in 2007, Lehman Failed. At the time, Lehman was sitting on a large warehouse of securities, so called Collateralized Debt Obligations or CDOs, the value of which were falling rapidly as a result of rating agency downgrades. However, the bankruptcy, the examiner concluded that it was the firm's flawed strategy that was the ultimate cause of the failure.

Strategic risk management: the case of Lehman Brothers

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