Liquidity Risk Management Case Study: Lehman Brothers Liquidity Run: Timeline
February 2007: Lehman share price reaches all-time high of $86.
13th March 2007: Stock market suffers largest one-day drop in 5 years on reports that Lehman’s profitability would be significantly impacted because of rising subprime mortgage delinquencies.
14th March 2007: Lehman reports record revenues and profits for its first fiscal quarter.
August 2007: Announces closing of subprime mortgage originator BNC Mortgage cutting 1200 jobs. Also closes down offices of Alt-A originator offices in a number of states. It continues to write business through its other mortgage lenders.
13th December 2007: Reports record net income for the year of $4.2 billion and revenue of $19.3 billion.
17th January 2008: Stops originating mortgages through its wholesale channels.
17th March 2008: Share price declines sharply by more than 48% following the collapse of Bear Stearns and the Federal-government backed takeover by JP Morgan Chase & Co. on 16th March 2008.
18th March 2008: Reports better than expected reported profits for the first fiscal quarter. Share prices rise to recover value lost the previous day.
1st April 2008: Announces that it has raised $4 billion in preferred stock.
15th April 2008: Lehman’s CEO Richard Fuld tells investors that worst of credit crisis is over but financial environment would remain challenging.
May 2008: Lehman’s share price falls on reports of hedge fund managers questioning first quarter mortgage asset valuation results . Lehman cuts an additional 5% of its work force.
9th June 2008: Lehman announces first quarterly loss of $3 billion since becoming a public company. Also announces sale of $6billion in stock to raise capital, an increased liquidity position of $45 billion, a 20% reduction in residential and commercial mortgages exposure and a reduced leverage ratio of 25 to 1.
12th June 2008: Removes CFO, Erin Callan and COO , Joseph Gregory.
19th August 2008: Lehman’s share price falls by around 13% on reports that 3-quarter results would be impact by significant asset write downs and rumors that the bank was looking for buyers for its investment management business.
22nd August 2008: Stock price recovers on news that was it had entered negotiations with state-controlled Korean Development Bank.
29th August 2008: News reports indicate that Lehman plans to cut an additional 6% of its work force.
2nd September 2008: New reports indicate that KDB would purchase a 25% stake in Lehman.
8th September 2008: Lehman’s share price falls sharply on reports that KDB talks are on hold due to fall global equity markets and no backing of investors and KDB regulators.
9th September 2008: New reports indicated talks with KDB have ended. Lehman’s share price falls by 45%. US government announces that it will not provide assistance or bail out Lehman. Credit Default Swaps rates increase indicate negative market perception regarding Lehman’s survival. Liquidity begins to dry up as hedge fund clients start pulling out, lines of credit are withdrawn, calls for more margin/ collateral increase and trades with Lehman are cancelled.
10th September 2008: Lehman reports third quarter results, a loss of $3.2 billion as a result of asset write-downs amounting to $5.6 billion. It announces plans to spin off its commercial real estate assets and a major stake of its asset management unit, Neuberger Berman. Its stock price declines by 7%. Moody’s announces potential credit ratings downgrade.
11-12th September 2008: Lehman’s stock declines a further 42% as it struggles to find a buyer. Bank of American and Barclays comes forward as potential buyers.
13th – 14th September 2008: Bids by both parties end as US government insists that it will not provide assistance.
15th September 2008: Lehman filed for bankruptcy protection. Dow Jones suffers its largest drop in a single day since 11th September 2001.
22nd – 23rd September 2008: US Bankruptcy Court approves the sale of Lehman’s brokerage holding to Barclays and its Asian pacific franchise to Nomura Holdings Inc.
October 2008: Nomura Holdings completes deal of acquired Lehman holdings in Europe and Middle East.