On Monday, September 15, 2008, at 1:45 a.m., Lehman Brothers filed for bankruptcy, taking the world by surprise. Weighed down by subprime mortgages, the bank is leaving a debt of $691 billion and 25,000 employees behind. It is the biggest bankruptcy in American history. On Wall Street, the Dow Jones plunged 500 points, its biggest fall since the attacks on the Twin Towers in 2001. Boxes under their arms, the stunned traders left the bank headquarters the same day, under the lenses of the paparazzi. “We didn’t see anything coming!”, assured an employee of the group in London. But for others, like Lawrence McDonald, a former trader, co-author of a book published in 2009 on the bank’s collapse, Lehman’s bosses had long been alerted to the excessive risks they were taking to increase their profits. short term.
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A look back at the 18 months that led to the bankruptcy of the Lehman Brothers bank, symbol of the 2008 global financial crisis.
In February, several American banking establishments specializing in subprime mortgage loans went bankrupt. These variable rate loans, granted almost blindly to financially fragile households, turned against borrowers when they began to skyrocket. Millions of households found themselves unable to pay rising monthly payments, plunging their creditors, while the value of their homes plummeted. Some analysts then speak of a “risk” for the financial markets, but most are optimistic, considering that this sector “has a minimal impact” on the American economy.
In June, the investment bank Bear Stearns announced the bankruptcy of two hedge funds which had invested heavily in financial securities created from “subprime” loans, which collapsed. It is the first major banking establishment to suffer damage from the crisis. In August, while other banks such as the French BNP Paribas revealed their investments in these risky loans, the world stock markets went off the rails. As the interbank market is affected (banks are reluctant to lend each other money), several central banks intervene by injecting billions of liquidity.
While the major global banks (UBS, Citigroup) continue to suffer from the crisis, depreciating billions of dollars of assets reduced to nothing, Lehman Brothers published record annual results in December 2007, with a net profit of 4.2 billion of dollars. The New York investment bank does not report any new depreciation or provision to absorb the consequences of “subprimes”, welcoming its ability “to operate beyond market cycles” thanks to its diversification. Lehman Brothers laid off more than 3,000 employees in its mortgage business between August 2007 and January 2008.
On January 22, 2008, faced with the fall in world stock markets, the American central bank lowered its key rate by three-quarters of a point, to 3.50%, an exceptional measure, followed by a further reduction of half a point a week later. In February, the Northern Rock bank, Britain’s fifth largest bank, in critical condition, was nationalized by the British government. On March 16, JP Morgan Chase bought Bear Stearns for a pittance (15 times less than its market capitalization), in order to avoid cascading bankruptcies. The market believes that Lehman, which cut 1,400 new jobs earlier this month, could be the next bank to “fall.”
On June 2, the rating agency Standard and Poor’s lowered the group’s rating by one notch to “A”. A week later, Lehman Brothers preemptively reports a quarterly loss of $2.8 billion, its first since the bank went public in 1994. The stock collapses, numbers two and three are landed . The group is seeking at all costs to raise cash, in particular by finding a partner to buy part of its activities. On September 10, the South Korean bank KDB, likely to acquire a stake, announced the end of discussions. Lehman published catastrophic results on the same day. Despite an attempt by the US Treasury to organize a takeover, Lehman Brothers filed for bankruptcy on September 15, due to a lack of a buyer. The American authorities refrained from saving her.
This choice was criticized, while the authorities rescued other banks such as Goldman Sachs. “Lehman was very weak, even compared to other institutions. It was very difficult to find someone strong enough, in this period of all dangers, to assume this risk,” explained Timothy Geithner, then head of the New York Fed. But for some, like the economist Laurence Ball, who published a book on the fall of Lehman, the investment bank bore the brunt of “enormous political pressure”, while public opinion denounced the bailout of Wall Street giants at taxpayers’ expense.