Enterprise Risk Management at Lehman Brothers

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Case Details:

Case Code : ERMT-016
Case Length : 09 Pages
Period : 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : Lehman Brothers
Industry : Banking
Countries : US, UK

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Overview of Risks

As a leading, global investment banking company, risk was an inherent part of Lehman's businesses. Global financial markets were prone to uncertainty and exposed participants to a variety of risks.

Lehman attempted to reduce risk through the diversification of its businesses, counterparties and activities in geographic regions. Lehman also allocated the usage of capital to each of its businesses, established trading limits and set credit limits for individual counterparties, and regions/sectors...

Organizational Structure

Lehman's overall risk management policy was established at the Office of the Chairman and began with The Capital Markets Committee, which consisted of the Chief Executive Officer, other members of the Company's Executive Committee, the Global Head of Risk, the Chief Economist and Strategist as well as various other business heads...

Credit Risk
Lehman's Credit Risk Management Department (CRM) had global responsibility for implementing the company's overall credit risk management framework. CRM managed the credit exposure related to trading activities by giving initial credit approval for counter-parties and by establishing credit limits by counterparty, country and industry group...

Market Risk
The Market Risk Management Department (MRM) had global responsibility for implementing Lehman's overall market risk management framework. It was responsible for the preparation and dissemination of risk reports, developing and implementing the firm wide risk management guidelines, and evaluating adherence to these guidelines...

Risk Measurement
For purposes of Securities and Exchange Commission (“SEC”) risk disclosure requirements, Lehman disclosed an entity-wide value-at-risk for virtually all of its trading activities. In general, Lehman's value-at-risk measured potential loss of trading revenues at a given confidence level over a specified time horizon...


Exhibit I: Lehman: Business Segment Financial Highlights
Exhibit II: Lehman: Segment Results
Exhibit III: Value-At-Risk Information


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