Lehman Brother’s Discussion Questions
The financial position of Lehman Brothers on September 14th was that they were facing bankruptcy. The firm’s liquidity problem was much more than they expected. Just 5 days earlier the firm’s management had assured the board that they had $42 billion in liquidity. The firm actually had much less than this. This problem was very serious and the firm did not know what to do. Companies like JP Morgan kept pulling money for collateral and the firm was running out of money to give them. I think that the firm would not be able to function and that they needed to file for bankruptcy. In order for the firm to open up for business, they would need a government bailout plus the banks that were bidding on them to take out there bad assets. Question 2
The fiduciary obligations and responsibilities of Lehman brothers board of directors is to make sure that the firm does not take certain risks to put them in a bad financial position. The board of directors should do anything that they can in order to make the firm profitable. They need to make sure that management should act responsibly. The board was acting kind of like management instead of acting like an independent board. Question 3
I do not think that the board fulfilled their fiduciary obligations and responsibilities because they should not have put that much risk on the firm. The amount of risk that the board put on the firm put the firm in a bad position essentially leading it to its bankruptcy. Lehman Brothers at the time had approximately $650 billion to $700 billion of assets on its balance sheet, most of it tied to the subprime market. With this being said, Lehman Brothers strategy focused on the subprime and commercial real estate markets. Their strategy was fully endorsed by the board of directors, which involved heavily borrowing to make increasingly risky loans. These loans took its leverage ratio up to 30 times its underlying...
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