Sunday, 26 January 2014

After The Fall:Should Lehman Brothers Have Been Saved?

After travelling through space for 40 light years, Bill finally arrived at the end of the universe and found religion.

Part One

So, you thought Lehman Brothers were dead and buried? Think again.

In the twilight world of finance, they are resurrected, moving 'zombie-like' through the global capital world, still operating in the rarified atmosphere of a universe still trying to catch its breath from recession.

Lehman Brothers, mired in debt, leveraged over its head, filed for chapter 11 bankruptcy on September 15, 2008.  It was the largest banking meltdown in history.  Over-leveraged the company had $600 billion (£377 billion) worth of assets when it filed, no longer able to pay their creditors.

The dark vultures of Wall Street and the City were soon circling, Barclays Bank swooped to purchase Lehman 's investment arm for a knockdown £250 million ($396 million) while, at the same time, Bank of America overpaid for Merrill Lynch.

Close to collapse Merrill were sold to Bank of America for $50 billion (£31.5 billion), though the latter soon became aware of the moribund state of its acquisition.  Bank of America did attempt to back out of the deal but found they were legally compelled to complete business, takeover Merrill and it's massive debts.

Bank of America, of course, did consider taking over Lehman Brothers, but unable to get assurances from the US government took their attentions elsewhere.

Also worth remembering that the much maligned UK prime minister Gordon Brown blocked Barclays bid for the collapsing giant at the last minute.  Astute?

Most of us were bemused by the events of September 2008, how could anyone with such assets leverage themselves out of business? But no matter what any of us thought, we all knew things would never be the same again.

The human cost of that dark day was huge, with around 25,000 people losing their jobs.  There were images on the evening news of people carrying their belongings out onto the street.  But...'The end of a banking giant' ... as one reporter put it, has proved premature.

In March 2012,Reuters, among others, reported that Lehman Brothers had exited bankruptcy and that the former mighty banking institution was still operating in Manhattan, albeit with a much reduced staffing compliment of 350.

To be continued

(Written -Starbucks, Buchanan Street, Glasgow, January 25, 2014.)

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