Lehman Brothers
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| Lehman Brothers | |
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| Type | Public NYSE: LEH |
| Founded |  Montgomery, Alabama (1850) |
| Headquarters | New York City |
| Key people | Richard S. Fuld, Jr., Chairman & CEO Joseph M. Gregory, President and COO |
| Industry | Investment services |
| Products | Financial Services Investment Banking Investment management |
| Revenue | ▲$59.003 billionUSD (2007) |
| Net income | ▲$4.192 billion USD (2007) |
| Employees | 28,500 (2007) |
| Website | www.lehman.com |
Lehman Brothers Holdings Inc. (NYSE: LEH), founded in 1850, is a diversified, global financial services firm. As a top bulge bracket firm, it holds leadership positions in investment banking, equity and fixed income sales, research and trading, investment management, private equity, and private banking. It is a primary dealer in the U.S. Treasury securities market. Its primary subsidiaries include: Lehman Brothers Inc., Neuberger Berman Inc., Aurora Loan Services, Inc., SIB Mortgage Corporation, Lehman Brothers Bank, FSB, and the Crossroads Group. The firm's worldwide headquarters are in New York City, with regional headquarters in London and Tokyo, as well as offices located throughout the world.
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[edit] History
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[edit] Under the Lehman family, 1850–1969
In 1844, 23-year-old Henry Lehman, the son of a cattle merchant, emigrated to the United States from the town of Rimpar, in the German state of Bavaria. He settled in Montgomery, Alabama, where he opened a dry goods store, "H. Lehman". In 1847, following the arrival of Emanuel Lehman, the Firm became "H. Lehman and Bro." With the arrival of their youngest brother, Mayer Lehman, in 1850, the Firm changed its name again and "Lehman Brothers" was founded.
In the 1850s Southern United States, cotton was one of the most important crops. Capitalizing on cotton's high market value, the three brothers began to routinely accept raw cotton from customers as payment for merchandise, eventually beginning a second business trading in cotton. Within a few years this business grew to become the most significant part of their operation. Following Henry's death from yellow fever in 1855, the remaining brothers continued to focus on their commodities trading and brokerage operations.
By 1858, the center of cotton trading had shifted from the South to New York City, where factors and commission houses were based. Lehman Brothers opened its first branch office there at 119 Liberty Street, and thirty-two year old Emanuel relocated to New York to run the office. In 1862, facing difficulties as a result of the Civil War, the firm teamed up with a cotton merchant named John Durr to form Lehman, Durr & Co. Following the war the company helped finance Alabama's reconstruction. The firm's headquarters were eventually moved to New York City, where they helped found the New York Cotton Exchange in 1870; Emanuel would sit on the Board of Governors until 1884. The firm also dealt in the emerging market for railroad bonds and entered the financial advisory business.
Lehman Brothers became members of the Coffee Exchange as early as 1883 and finally the New York Stock Exchange in 1887. In 1899 they underwrote their first public offering, the preferred and common stock of the International Steam Pump Company.
Despite the 1899 offering of International Steam, the firm's real shift from being a commodities house to a house of issue did not begin until 1906. In that year, under Philip Lehman, the Firm partnered with Goldman, Sachs & Co., to bring the General Cigar Co. to market, followed closely by Sears, Roebuck and Company. During the following two decades, almost one hundred new issues were underwritten by Lehman Brothers, many times in conjunction with Goldman, Sachs. Among these were F.W. Woolworth Company, May Department Stores Company, Gimbel Brothers, Inc., R.H. Macy & Company, The Studebaker Corporation, The B.F. Goodrich Co. and Endicott Johnson Corporation.
Following Philip Lehman's retirement in 1925, his son Robert "Bobbie" Lehman took over as head of the firm. During Bobbie's tenure, the company weathered the capital crisis of the Great Depression by focusing on venture capital while the equities market recovered. By 1928, the firm moved to its now famous One William Street location.
In the 1930s, Lehman Brothers underwrote the initial public offering of the first television manufacturer, DuMont, and helped fund the Radio Corporation of America (RCA). They also helped finance the rapidly growing oil industry, including the companies Halliburton and Kerr-McGee. In the 1950s, Lehman Brothers underwrote the IPO of Digital Equipment Corporation. Later, they would arrange the acquisition of Digital by Compaq.
In 1924, John M. Hancock became the first non-family member to become a partner, followed by Monroe C. Gutman and Paul Mazur in 1927.
Robert Lehman died in 1969 and since that time, no member of the Lehman family has led the company. Robert's death left a void in the company, which coupled with a difficult economic environment, brought hard times to the firm. In 1973, Pete Peterson, Chairman and Chief Executive Officer of the Bell & Howell Corporation, was brought in to save the firm.
[edit] Merger with American Express (1969–94)
Under Peterson's leadership as Chairman and CEO, the firm acquired Abraham & Co. in 1975, and two years later merged with the venerable, but struggling, Kuhn, Loeb & Co., to form Lehman Brothers, Kuhn, Loeb Inc., the country's fourth largest investment bank, behind Salomon Brothers, Goldman Sachs and First Boston. [1] Peterson led the Firm from significant operating losses to five consecutive years of record profits with a return on equity among the highest in the investment banking industry.
However, hostilities between the firm's investment bankers and traders (who were driving most of the firm's profits) prompted Peterson to promote Lewis Glucksman, the firm's President, COO and former trader, to be his co-CEO in May 1983. Glucksman introduced a number of changes that had the effect of increasing tensions, which when coupled with Glucksman’s management style and a downturn in the markets, resulted in a power struggle that ousted Peterson and left Glucksman as the sole CEO.
Upset bankers, who had soured over the power struggle, left the company. Steve Schwarzman, chairman of the firm's M&A committee, recalled in a February 2003 interview with Private Equity International that "Lehman Brothers had an extremely competitive internal environment, which ultimately became dysfunctional." The company suffered under the disintegration, and Glucksman was pressured into selling the firm to Shearson, an American Express backed electronic transaction company, in 1984, for $360 million. On May 11, the combined firms became Shearson Lehman/American Express. In 1988, Shearson Lehman/American Express and E.F. Hutton & Co. merged as Shearson Lehman Hutton Inc.
[edit] Divestment and independence (1994–present)
In 1993, under newly appointed CEO, Harvey Golub, American Express began to divest itself of its banking and brokerage operations. It sold its retail brokerage and asset management operations to Primerica and in 1994 it spun off Lehman Brothers Kuhn Loeb in an initial public offering, as Lehman Brothers Holdings, Inc.
Despite rumors that it would be acquired again, Lehman Brothers performed quite well under CEO Richard S. Fuld, Jr.. In 2001, the firm acquired the private client services, or "PCS", business of Cowen & Co. and later, in 2003, aggressively re-entered the asset management business, which it had exited in 1989. Beginning with $2 billion in assets under management, the firm acquired The Crossroads Group, the fixed-income division of Lincoln Capital Management and Neuberger Berman. These businesses, together with the PCS business and Lehman's private equity business, comprise the Investment Management Division, which generated approximately $3.1 billion in net revenue and almost $800 million in pre-tax income in 2007. The firm currently has in excess of $275 billion in assets under management. Altogether, since going public in 1994, the firm has increased net revenues over 600% from $2.73 billion to $19.2 billion and increased employee headcount over 230% from 8,500 to almost 28,600.
The firm has had difficulties as well. In August 2007, the firm closed its subprime lender, BNC Mortgage, eliminating 1,200 positions, in 23 locations and took an after-tax charge of $25 million and a $27 million reduction in goodwill. Lehman said that poor market conditions in the mortgage space "necessitated a substantial reduction in its resources and capacity in the subprime space". [2]
[edit] Response to September 11 terrorist attacks
On September 11, 2001, Lehman Brothers occupied three floors of 1 WTC where one employee was killed. Its global headquarters in Three World Financial Center were severely damaged and rendered unusable by falling debris, displacing over 6,500 employees. The bank recovered quickly and rebuilt its presence. Trading operations moved across the Hudson River to its Jersey City facilities, where an impromptu trading floor was built and brought online less than forty-eight hours after the attacks. When stock markets reopened on September 17, 2001, Lehman Brothers' sales and trading capabilities were restored.
In the ensuing months, Lehman Brothers fanned out its operations across the New York City metropolitan area in over forty temporary locations. Notably, the investment banking division converted the first floor lounges, restaurants, and all 665 guestrooms of the Sheraton Manhattan Hotel into office space. The bank also experimented with flextime (to share office space) and telecommuting via virtual private networking. In October 2001, Lehman Brothers purchased a 32 story, 1,050,000 square foot office building. The building, located at 745 Seventh Avenue, had recently been built, and not yet occupied, by rival, Morgan Stanley, for a reported sum of $700 million. With Morgan Stanley's world headquarters located only two blocks away, at 1585 Broadway, in the wake of the attacks, the firm was re-evaluating its office plans which would have put over 10,000 employees in the Times Square area. Lehman Brothers began moving into the new facility in January and concluded in March 2002, a move that significantly boosted morale throughout the firm.
Lehman Brothers was criticized for not moving back to its former headquarters in lower Manhattan. Following the attacks, only Deutsche Bank, Goldman Sachs, and Merrill Lynch remained in the area. The firm, however, points to the fact that it was committed to remaining in New York City, that the new headquarters presented an ideal circumstance where Lehman Brothers was desperate to buy and Morgan Stanley was desperate to sell, that when the new building was purchased, the structural integrity of Three World Financial Center had not yet been given a clean bill of health, and that in any case, the company could not have waited until May 2002 for repairs to Three World Financial Center to conclude.
After the attacks, Lehman Brothers' management placed increased emphasis on business continuity planning. Unlike its rivals, Lehman Brothers was unusually concentrated for a bulge bracket investment bank. For example, Morgan Stanley maintains a 750,000-square foot trading and banking facility in Westchester County, NY. The trading floor of UBS is located in Stamford, Connecticut. Merrill Lynch's asset management division is located in Plainsboro Township, New Jersey. Aside from its headquarters in Three World Financial Center, Lehman Brothers maintained operations and backoffice facilities in Jersey City, space that the firm considered leaving prior to 9/11. The space was not only retained, but expanded, including the construction of backup trading facility. In addition, telecommuting technology first rolled out in the days following the attacks to allow employees to work from home has been expanded and enhanced for general use throughout the firm. [3]
[edit] 2003 SEC litigation
In 2003, Lehman Brothers was one of ten firms which simultaneously entered into a settlement with the U.S. Securities and Exchange Commission (SEC), the Office of the New York State Attorney General and various other securities regulators, regarding undue influence over each firms' research analysts by their investment banking divisions. Specifically, regulators alleged that the firms had improperly associated analyst compensation with the firms' investment banking revenues and, promised favorable, market-moving, research coverage, in exchange for underwriting opportunities. The settlement, known as the “global settlement”, provided for total financial penalties of $1.4 billion, including $80 million against Lehman Brothers, and structural reforms, including, a complete separation of investment banking departments from research departments, no analyst compensation, directly or indirectly, from investment banking revenues, and the provision of free, independent, third-party, research to the firms' clients.
[edit] Reference information
[edit] Board of Directors
- Richard S. Fuld, Jr., Chairman and Chief Executive Officer
- Michael L. Ainslie
- John F. Akers
- Roger S. Berlind
- Thomas Cruikshank
- Marsha Johnson Evans
- Sir Christopher Gent
- Roland A. Hernandez
- Dr. Henry Kaufman
- John D. Macomber
[edit] Senior management
- Richard S. Fuld, Jr., Chairman and Chief Executive Officer
- Jasjit S. Bhattal, Chief Executive Officer, Asia
- Erin Callan, Chief Financial Officer
- Scott J. Freidheim, Co-Chief Administrative Officer
- David Goldfarb, Global Head of Strategic Partnerships, Principal Investing and Risk
- Joseph M. Gregory, President and Chief Operating Officer
- Jeremy M. Isaacs, Chief Executive Officer, Europe & Asia
- Benoit Savoret, Chief Operating Officer, Europe & Asia
- Theodore P. Janulis, Global Head of Mortgage Capital
- Stephen M. Lessing, Head of Client Relationship Management
- Ian T. Lowitt, Co-Chief Administrative Officer
- Herbert H. McDade III, Global Head of Equities
- Hugh E. McGee III, Global Head of Investment Banking
- Andy Morton, Global Head of Fixed Income
- Thomas A. Russo, Vice Chairman/Chief Legal Officer
- George H. Walker, IV, Global Head of Investment Management
[edit] Partners
At 134 years old, the 72 partners of Lehman Brothers formed Wall Street's oldest partnership when it was acquired by American Express in 1984. Listed below, is a partial list of the firm's partners.
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** First non-family member to be admitted to the partnership.
[edit] Principal locations (first year of occupancy)
- 17 Court Square, Montgomery, Alabama (1847)*
- 119 Liberty Street, New York, NY (1858)
- 176 Fulton Street, New York, NY (1865-1866?)
- 133-35 Pearl Street, New York, NY (1867)
- 40 Exchange Place, New York, NY (1876)
- 16 William Street, New York, NY (1892)
- One William Street, New York, NY (1928) **
- 55 Water Street, New York, NY (1980) ***
- 3 World Financial Center
- 745 Seventh Avenue, New York, NY (2002)
* Henry Lehman established his first store location on Commerce Street, in Montgomery, in 1845. In 1848, one year after Emanuel's arrival, the brothers moved "H. Lehman & Bro." to 17 Court Square, where it remained when Mayer arrived in 1850, forming "Lehman Brothers".
** Designated as a landmark by the New York City Landmarks Preservation Committee in 1996.
*** Sales and trading personnel had been in this location since 1977, when they were joined by the firm's investment bankers and brokers.
[edit] Worldwide locations
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Americas
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Europe
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Asia Pacific
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[edit] Notable current and former employees
[edit] Business
- Boris Adlam - venture capitalist
- Joaquin Avila - managing director of the Carlyle Group
- Louis Bacon - hedge fund manager
- Pete Dawkins - Citigroup executive
- Steven Gluckstern - investor and former co-owner of the New York Islanders [4]
- F.Warren Hellman - Chairman and co-founder of Hellman and Friedman
- John D. Hertz - founder of The Hertz Corporation
- Ejovi Nuwere - entrepreneur
- Jeffrey Peterson - entrepreneur
- Peter Schiff - financial analyst
- Stephen A. Schwarzman, Chief Executive Officer and co-founder of the Blackstone Group
- David Swensen - chief investment officer of Yale University
- Jeffrey Vanderbeek - owner of the New Jersey Devils hockey team
[edit] Politics and public service
- Roger Altman - former Deputy Treasury Secretary under Bill Clinton, founder of Evercore Partners
- John Ellis "Jeb" Bush - 43rd Governor of Florida and brother of U.S. President, George Walker Bush
- Daniel Doctoroff - President of Bloomberg LP, former New York City Deputy Mayor for Economic Development and Rebuilding.
- Jeffrey Garten - former Undersecretary of Commerce, former Dean of the Yale School of Management, economist
- Ernest Green - member of the Little Rock Nine, Assistant Secretary of Labor (1977-1981)
- Emil Henry - former Assistant Secretary of the Treasury for Financial Institutions
- Richard Holbrooke - U.S. Ambassador to the United Nations (1999-2001)
- Bruce Jackson - president of the U.S. Committee in NATO
- James A. Johnson - U.S. Democratic Party political figure
- John Kasich - Member of the U.S. House of Representatives (1983-2001)
- Herbert Lehman - Governor, State of New York (1933-1942), Member of the United States Senate (1949-1957)
- Robert C. Lieber- New York City Deputy Mayor for Economic Development
- Edward Morse - Deputy Assistant Secretary of State for International Energy Policy (1979-81)
- Peter George Peterson - U.S. Secretary of Commerce (1972-73), co-founder, the Blackstone Group
- Steve Preston - Administrator of the U.S. Small Business Administration
- Felix G. Rohatyn - U.S. Ambassador to France (1997-2000)
- James R. Schlesinger - Director of the CIA (1973), U.S. Secretary of Defence (1973-75), U.S. Secretary of Energy (1977-79)
- Kathleen Kennedy Townsend - former Lieutenant Governor of Maryland
[edit] Other
- Andrew Gowers - editor of the Financial Times
- Jack H. Jacobs - Medal of Honor recipient
- David B. Jacobs - Stock broker, hedge fund manager of Golden Eagle, Inc.
- Hadassah Lieberman - wife of U.S. Senator Joe Lieberman
- Kenneth Lipper - hedge fund manager, deputy mayor of New York City, novelist, screenwriter, and academic
- Andrew Morton - academic, currently head of European Fixed Income Division, cf Heath-Jarrow-Morton framework
- Robert L. "Nob" Rauch - ultimate frisbee administrator
- Theodore Roosevelt IV - Great Grandson of Theodore Roosevelt, U.S President 1901-1909
- Theodore Roosevelt V - Great, Great, Grandson of Theodore Roosevelt, U.S. President 1901-1909
- George Herbert Walker IV - former partner of Goldman Sachs, son of former U.S Ambassador to Hungary, George Herbert Walker III, second cousin of George Walker Bush
[edit] See also
[edit] External links
- Lehman Brothers - official website
- Google Finance - Lehman Brothers
- Yahoo Finance - Lehman Brothers
- GrandCityHotels GmbH, subsidiary of Lehman Brothers Inc. in Germany
[edit] History
[edit] References
[edit] Further Reading
- Schack, Justin. (May 2005). "Restoring the House of Lehman". Institutional Investor, p. 24-32.
- Auletta, Ken. Greed and Glory on Wall Street: The Fall of the House of Lehman. Random House, 1985
- Geisst, Charles R. The Last Partnerships. McGraw-Hill, 1997
- Lehman Brothers. A Centennial - Lehman Brothers 1850 - 1950. Spiral Press, 1950
- Wechsberg, Joseph. The Merchant Bankers. Pocket Books, 1966
[edit] Footnotes
- ^ Sloane, Leonard (1977-11-29). Lehman and Kuhn Loeb to Merge; Lehman Brothers and Kuhn Loeb Sign Agreement to Merge Dec. 16. NY Times. Retrieved on 2008-03-29.
- ^ Kulikowski, Laura (2007-08-22). Lehman Brothers Amputates Mortgage Arm. TheStreet.com. Retrieved on 2008-03-18.
- ^ [1]
- ^ Islanders sold to computer executive
