Submitted To:- Mr. Mahavir Narwal

Submitted By:- Akshay(16) Mandeep(25)

Divya(28)Geeta(30)

Intro. of Lehman brothers

Their bankruptcy Their scandal

Lehman brothers was a global financial services firm. It was founded in 1850. It was doing business in investment banking, investment management. The firm was the 4th largest investment bank in the united states.They had headquarters in New York City.

Founders of Lehman brothers

Henry Lehman

Emanuel LehmanMayer Lehman

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The seed of bankruptcyYear 2003-04

Alt A Lende

rs

Sub prime

REAL ESTATE HEDGEINVESTMENT BANK

Morphed into a real estate hedge

Total asset to equity ratio of Lehman brothers

31:1

Subprime Mortgage

CrisisFeb. 2007

Reason behind the bankruptcy

•Too much investment in Mortgage related securities.•Sub Prime Mortgage Crisis•Very high Leverage Ratio.

15 Sept. 2015

Top ten bankruptcy

Don’t Put All Your Eggs In One Basket.

Lehman Brothers Scandal

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Hid over $50 billion in loans by showing

them as sales at the end of each quarter

What was scandal ?

The trick made Lehman Brothers look much healthier — on paper, at least. These guys were desperate to fool investors and credit rating agencies. They had screwed up on a truly colossal scale, and lined their pockets all the while.

Reason for the scam

How they did it

They was able to manipulate the books by using “Repo 105”.

Repo (repurchase options)105:-An accounting trick in which a company classifies a

short-term loan as a sale and subsequently uses the cash proceeds from said sale to reduce its

liabilities.

How they got caught?

Who was involved?

Chief Financial Officer (CFO)Erin Callan

Auditor, Ernst & Young 

Chief Executive Officer (CEO)Richard Fuld

Impact

1.This was the largest bankruptcy

in the entire

world, so basically everyone

got affected

3. Cost of borrowings also increased

2. Less profits of U.S based companies

6. millions of investors lost all or almost all of their money

4. Almost 6 million jobs were lost all over world 5. Unemployment rate almost doubling to 10 %

7. Reduced global market value by $10 trillion in market capitalisation

8. Intensified the downturn that started in late 2007 created from the sub prime mortgage

9. Popular index DOW JONES fell by 5000 point

Action taken against this scandal

Action taken against Lehman brothers

1.The Lehman brothers are still under investigation and analysis

2.No action have been taken against the Lehman brother as of today due to lack of evidence

Action taken against Ernst & young

1. Ernst &young was sued by New York supreme court because they are believed to be responsible for hiding the Lehman brothers’

2. Ernst & young was sued for a some of about 150million dollars for helping the Lehman brothers.

3. On 15 April 2015 the attorney general said that the Ernst $ young will pay 10 million dollars .

1. On September 20 ,2008 the Barclays acquired most of Lehman's north America operation for 1.3 billion dollars.

2. Nomura holdings Japan's top brokerage firm agree to buy Asia divisions of Lehman brother for 225 millions.

3. The Lehman Brothers are still a corporation today with roughly 300 employees and is trying to pay off its debt

4. As of January 2016, Lehman brother already pay 105 billions dollar to his unsecured creditor

What happened to the Lehman Brothers

Impact on Indian economy

1. Impact on BSE Sensex

2. ICICI Bank was the hardest hit

3. Impact India's GDP growth

4. Impact on India's exchange rate

5. Impact on reserve bank

How to avoid

1. Screen applicants thoroughly before hiring them.

2. Implement internal controls to reduce fraud risk. 

3. Comparative financial statement must be used

4. Consider annual audits5. Financial statement check