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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The firm continued to grow and diversify, underwriting its first IPO in 1899 for International Steam Pump Co. Seven years later Lehman joined with Goldman Sachs to take Sears, Roebuck public. Lehman continued its investment operations, pioneering private placements during the stock market depression in the 1930s. The company remained under family management until the death of Robert Lehman (Emanuel's grandson) in 1969.

Background Note Contd...

In 1977, Lehman merged with Kuhn Loeb & Co., which had helped finance, the railroad industry. Kuhn Loeb had significant business overseas dating from the turn of the century, when it helped the Japanese government finance the Russo-Japanese War.

By 1984, Lehman Brothers Kuhn Loeb was torn by infighting among its partners and managers and was ripe for a sellout to Sanford Weill, who had sold his Shearson brokerage to American Express and become that company's president. He was attempting to assemble a financial supermarket and needed an investment-banking firm.

Lehman Brothers Kuhn Loeb had trouble adjusting to Shearson and mass defections ensued. In 1992, American Express began to divest its financial services by business lines. Lehman kept investment banking but lost brokerage.

American Express spun off Lehman in 1994, but Lehman's independence came at a price.

It had to struggle to increase sales and cut costs. The firm overhauled leadership, cut extravagant personnel costs, and introduced its Restricted Stock Unit employee ownership program. In 2002, Lehman strengthened its Asian operations by agreeing to purchase a minority stake (in convertible bonds) in South Korea's Woori Financial Holding Co.- the country's second-largest financial services firm - along with a portfolio of Woori's non-performing loans.

Also in 2002, Lehman created a $1.6 billion real estate fund. The company also acquired a 6.5% stake in car maker, Ferrari from Italian merchant banker Mediobanca in September 2002.

Lehman's World Trade Center offices were destroyed by the 2001 terrorist attacks. After operating temporarily from a hotel, the company bought Morgan Stanley's newly completed office building in Manhattan...

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