Lehman Brothers

Fifteen years after Lehman's collapse, many say banking system regulation does not work as intended

In their different ways, Bank of America Merrill Lynch, Nomura and Barclays have come to define the successes and challenges that have shaped banking in the past decade.

The Depository Trust & Clearing Corporation (DTCC) on Wednesday called for "esoteric" exchange traded funds (ETFs) to be “closely monitored” and for a further expansion of clearing of derivatives and cash markets.

Imagining capital markets and investment banking in 2018 without the global financial crisis is a big leap. The chaos and turmoil of 2008 deeply scarred traders, bankers and regulators and defined the intellectual imperatives for the changes that followed — the wholesale revamp of prudential and markets regulation, the bailouts, the reorganisations, the new monetary tools and new ways of seeing the world. But the past 10 years haven’t all been about the crisis.

Following Lehman Brothers' collapse, rival investment banks are cherry-picking the carcass for talented staff. But the longer term ramifications are ominous. The bank was heavily involved in credit derivatives, and its demise will sour confidence in structured products and derivatives. Naomi Rovnick, Ruth David, Pamela Tang, and Richard Morrow report.

Nomura this week bought the investment banking and equities businesses of Lehman Brothers in Europe and the Middle East.

Nomura Holdings, Japan’s biggest independent brokerage, is set to announce the purchase of Lehman Brothers’ Asian operations later today after winning a bidding war, EuroWeek has learned.

Bankruptcies of this size are just not supposed to happen. At 5.30am London time this Monday, Lehman Brothers — one of the remaining investment banking giants of Wall Street — announced it was filing for Chapter 11 bankruptcy.

Barclays Capital provided a small glimmer of hope for the thousands of Lehman Brothers staff in Asia this morning, with the news that it may acquire some of the bankrupt firm’s Asian operations. But some warned that Lehman’s Asian capital markets business may not be Barcap’s number one priority.

Lehman’s worst mistake was to get its timing wrong — six months ago it might have been saved by Hank Paulson. But Bear Stearns and the US mortgage agencies used up the Treasury’s willpower and that left Lehman horribly exposed and alone.

Asia’s financial markets were reeling on Tuesday as the full impact of the spectacular collapse of Lehman Brothers became clear.

• $3.9bn Q3 loss racked up after Alt-A hedging failure • $30bn plan to spin-off REI comes too late • Fannie and Freddie bailout euphoria wiped out Lehman Brothers was front, back and centre of events in the credit market this week and at the close in New York yesterday rumours gathered strength that Bank of America is poised to rescue the ailing investment bank.

Lehman Brothers began the week reshuffling its senior management in global fixed income and across the European investment bank as it attempted to put in place a team that could guide it through an independent future.

Korea Development Bank pulled out of negotiations to buy a stake in embattled Lehman Brothers on Tuesday, sparking a week of intense activity amid concern over Lehman’s future.

Korea Development Bank has re-emerged as a potential bidder for a stake in Lehman Brothers, despite comments from Korea’s top financial regulator last week that such an investment was too risky for a state-owned institution.

The chairman of Korea’s Financial Services Commission poured cold water on any plans the Korea Development Bank may have had to acquire a stake in Lehman Brothers this week, arguing that a state-owned bank, albeit one which is due to be privatised, should not take such risks.

A noose of market speculation and rumour tightened around Lehman Brothers this week pushing five year default protection on the venerable New York investment bank wider by 70bp to 375bp — equivalent to a lowly double B rated credit.

"The general question is: have you taken sufficient write-downs? The reason I ask is there are cases of other top management officials at other companies saying they were finished and then other quarters, they had big writedowns again." Michael Mayo, an analyst at Deutsche Bank, presses Dick Fuld, chief executive of Lehman Brothers, about the bank’s calculations of its subprime and illiquid assets during a conference call on Monday.