Conclusion(s): Lehman falling next in line spread, its

Conclusion(s):
Lehman Brothers board of
directors should vote to file for bankruptcy.

 

 

Reason(s):
There are several
reasons as to why it is in the best interest of the company to declare
bankruptcy keeping in mind the urgency to reach a decision since there was
uncertainty and distress in the markets. Lehman’s high leverage ratio brought the downfall of the
company quickly. As Lehman Brothers reputation dwindled and they were highly
prone to market risks, investors lost confidence in the company. They stopped
funding billions of dollars, which served as the company’s day-to-day operating
costs.

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 The firm’s liquidity and financial condition
was not stable enough to open for business. Moreover, a merger or buy out was
crucial for Lehman at this point. Several attempts to work out a negotiation
were unsuccessful thus bankruptcy was inevitable. It was also clear that the
government i.e. Federal Reserve and Treasury, was not going to act as a
“helping hand” in terms of financing a deal for Lehman Brothers.

 

Lastly, the
company’s corporate governance failed to safeguard them against market risks. Governance
failures were not visible when the market had an upward trend. Therefore,
economic crisis at that time played a role in highlighting the weak corporate
governance executed by the Board of Directors. The company’s risk prone
strategies targeted to increase profits undermined the consequences of failing
in volatile market conditions.

 

 

Evidence(s): As the
news of Lehman falling next in line spread, its substantial shareholder, GLG
Partners, seized further business. Furthermore, it was evident that the company
was facing major liquidity problem soon after JP Morgan realized that the
Fenway commercial paper which was pledged as collateral to them were worthless
and ordered to receive cash instead. This transaction with JP Morgan wiped out
the company’s liquid assets completely.

 

The two
big potential buyers for Lehman Brothers were Bank of America and Barclays.

After inspecting the financials of the company, Ken Lewis, the president of
Bank of America hesitated in getting involved. UK’s Financial Services
Authority (FSA) were concerned with the negative effects of this merger to
their country’s monetary stability and denied Barclays from proceeding with the
merger.

 

By the
final meeting of the Board of Directors of Lehman on September 14, 2008, the
Federal Reserve had manifested their views for the company to file Chapter 11 Bankruptcy.

Chris Cox who was the chairman of the Securities and Exchange Commission was on
board with the proposed suggestion for Lehman Brothers.

 

 

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