• Choose a category
• All
• Classic-Fiction

In the 1960s the firm expanded rapidly becoming designated as an official dealer for US Treasuries as well as opening offices in Europe and Asia. Then came the inevitable mergers and acquisitions – or, to quote Patrick Bateman in Bret Easton Ellis’s masterpiece American Psycho – ‘murders and executions’. Indeed, it’s amazing how many times companies seeking to expand this way hammer the nails in their own coffin, by losing their focus, bluring their brand. So, the nails... In 1977 it merged with the Kuhn, Loeb & Co a reputable investment bank and seven years later was acquired by American Express and in turn merged with its retail brokerage Shearson to form Shearson Lehman Brothers. That’s a lot of water to dilute the brand Juice. In 1993 American Express went through a consolidation phase spinning the company out to become known again as Lehman Brothers. Richard Severin Fuld, a commercial paper trader who joined the firm in 1969, took over running the spun-out firm. Fuld, named by colleagues The Gorilla, ruled over his staff by fear, seeing Wall Street as a battlefield where victory was defined by size. A real-life Gordon Gekko, in 2004 Fuld eventually won a significant battle in his war taking over Neuberger Berman, a money-management firm focusing on the affluent, in a deal valued at $2.63 billion. Now Fuld’s company, with $63.7 billion under management, was on equal footing with Morgan Stanley, Merrill Lynch and Goldman Sachs – all brands ranked in the top 100 most valuable brands, along with its erstwhile owner American Express.

But greed is not always good.

Barely four years later Fuld was to lose the war, taking the world’s fourth largest Wall Street investment bank, and its oldest, into oblivion. Long before dawn on Monday, 15 September 2008, Lehman Brothers filed for bankruptcy, the biggest in American history by a factor of six, leaving its 25,000 staff pushing their private belongings into cardboard packing boxes.

Lessons from Lehman Brothers

No brand is too big to fail. Fuld rejected offers from potential buyers earlier in that year, 2008, though there were plenty of smart brains who reckoned the bank was too weak to survive on its own. The cocktail of ego and outdated thinking (chiefly that Fuld’s bank was too big to be allowed to fail) led to disaster. The decision to let Lehman go to the wall was ultimately caused by a clash of economic philosophies. Laissez-faire capitalism and the belief that if no bank was allowed to fail just because it was big, moral hazard would set in with banks taking ever higher risks using tax payers’ money to support their deals.

Financial engineering is not a business model. Lehman Brothers used a financial innovation, the private placement, to leverage its growth during the 1929 depression. It moved into even less well charted waters this time using a technique, known in the trade as Repo 105, to make its liabilities disappear, albeit temporarily, by playing with the financial calendar. The sums made invisible in this way while Lehman was in its death throes exceeded $50 billion, sufficient to flatter even the most overgeared balance sheet. E&Y’s annual fees earned from Lehman Brothers were $31 million, small beer to keep Lehman afloat for a few more months in the hope of a miracle.

Don’t spell team with an I. Lehman’s was fighting a war on two fronts. Its competition for business with Goldman Sachs and the like was well publicized. What was less well known, except within the company, was how much unhealthy rivalry there was inside and how much of the top management’s energies that took up. According to Larry McDonald, a former Lehman Brothers vice-president, Fuld ‘secluded himself in his palatial offices up there on the 31st floor, remote from the action, dreaming only of accelerating growth, nursing ambitions far removed from reality’. In 2005 three of Fuld’s top executives told him that ‘the real estate market was living on borrowed time and that Lehman Brothers was headed directly for the biggest subprime iceberg ever seen’. But by