To be honest, Lehman Brothers was really unlucky.
The Lehman Brothers crisis was exposed last year, in September 2007.
On September 11, seven years ago, two planes crashed into the World Trade Center in New York. Lehman's headquarters located in the World Trade Center suffered heavy losses, but it also escaped death.
On the same day seven years later, Lehman's stock price fell below $4 per share, and it once again faced a life-and-death moment.
At the end of 2007, Lehman's total assets were worth about $700 billion, and after deducting various liabilities, the company's net worth was about $20 billion, with a leverage ratio of 35 times. However, in the first half of 2008, Lehman's mortgage asset problems gradually came to light, and the loss may have reached tens of billions of dollars. The company lost its capital, and its net worth became $10 billion to support $690 billion in assets, and its leverage ratio suddenly soared to nearly 70 times.
At this time, Lehman was already in a precarious situation. If there was any slight disturbance, Lehman would collapse.
At this time, Korea Development Bank, or KDB, in East Asia, was willing to invest in Lehman. As soon as the news came out, Lehman's stock price immediately stabilized.
The main reason why KDB was willing to help Lehman Brothers at this time was because the CEO of KDB was previously the head of Lehman's Korean branch and had deep feelings for his old employer.
At that time, KDB was willing to offer $26 per share, while Lehman insisted on $28. Dick Fuld, the head of Lehman Brothers, was indeed unwilling to "sell at a low price", after all, Lehman was quite profitable, with a profit of $4.2 billion in 2007. But this is the terrible thing about liquidity - when the air is exhausted, what's the point of showing off your eight-pack abs?
As a result, the delayed deal finally ran into problems. On September 7, 2008, the U.S. government suddenly announced that it would take over the two housing agencies and insert $200 billion of preferred stock investment into their capital structure.
The next day, the Korean financial regulator expressed its opinion in an oriental euphemism: "KDB should be extremely cautious in its injection of capital into Lehman." KDB then issued a statement to terminate negotiations with Lehman. As a result, Lehman's stock price plummeted. What was even more fatal was that no one would borrow from Lehman, and liquidity was about to be cut off.
Looking around, Goldman Sachs and Citigroup are struggling to protect themselves, and the Bank of England just acquired Bear Stearns, so they would not be interested in Lehman Brothers, which is in a similar situation.
There were only two blind date candidates left: Bank of America, which was born in commercial banking and was relatively simple and honest, and Barclays Bank from Great Britain.
That weekend in mid-September 2008 was just an ordinary holiday for many people on the planet, but it was a matter of life and death for Lehman.
Before this, Bank of America and Merrill Lynch had been flirting with each other for a long time. Merrill Lynch looked at the mortgage assets on its books and knew that if Bank of America bought Lehman, the next short-selling target of this financial vulture would be itself. Bank of America also did not forget the old friendship and sat upright at the negotiation table to talk with Lehman, but always aimed at Merrill Lynch.
Can this matter be delayed any longer? Without further ado, Merrill Lynch decisively leaned forward and took the room card handed over by Bank of America under the table.
Upon learning about the good news about Merrill Lynch and Bank of America, Treasury Secretary Henry Paulson was overjoyed and ordered both parties not to hesitate and to complete the merger.
That weekend, Paulson Sr. gathered all the executives of Wall Street giants to the Federal Reserve building to do two things. First, he would imitate the LTCM crisis in 1998 and have Wall Street set up a rescue team to buy Lehman's problematic assets, and then have the acquirer purchase Lehman's remaining assets. Second, he would finalize the deal to acquire Lehman.
Would Goldman Sachs dare to discredit its old boss? Of course not. Therefore, the rescue mission went surprisingly smoothly. Lehman Brothers was about to be saved, but the merger was stuck on a seemingly insignificant detail: Barclays is a British bank. It turned out that according to British regulatory laws, the merger had to be approved by the shareholders' meeting before it could be counted.
This is no different from US regulations, but the following one is fatal: before then, Barclays cannot guarantee Lehman's transaction because it will constitute a "substantial merger and acquisition." Shareholders' vote will take at least a few days, during which time Lehman has to open for business. If investors continue to withdraw their funds, Lehman may not be able to survive the merger and acquisition case and will go bankrupt because the transaction cannot be settled.
Once, when Paulson Sr. was persuading Dick Fuld, the latter replied, "I have been in charge of Lehman Brothers longer than you have been in charge of Goldman Sachs." The meaning was very clear: you are nothing!
So some people later said that it was Fuld's usual arrogance that completely angered Paulson. Others said that Paulson wanted to kill a chicken to scare the monkeys and teach a lesson to the greedy Wall Street. In short, Paulson made it clear early on that the government should not pay for Lehman.
Humph, I just want to use you as the chicken that scares the monkey, what can you do to me? If you dare to say that to me, I will kill you!
But Paulson still had to save face. He asked the British regulator to exempt the relevant regulations, but the British shook their heads like rattles: We already have enough troubles in our own financial system. Opening a backdoor to save an American investment bank? No way!
Paulson had something to say. See? I'm not a fussy person. I even went to the British to ask for Lehman Brothers' help.
However, when Barclays tried to persuade the US government to change its mind, Paulson Sr.'s attitude was very firm - our country's financial system cannot be easily destroyed... The implication was clear, no way!
Therefore, Lehman Brothers' fate of being a chicken could not be changed, and the 158-year-old Lehman Brothers finally came to the end of his life.
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