Q4) What do you think about the involvement of The U.S. Treasury, the Fed and the SEC in negotiating for the Company and trying to design strategies and strategic transactions to avert collapse and panic in the financial markets? What about the roles and responsibilities of Dick Fuld in the situation: Did he do enough? Could he have done more?
The high profile government officials of the treasury, security exchange commission and the federal reserve were stalwartly criticized for the role, which they played in the merger between JP Morgan Chase and Bear Sterns. Things were quite ugly by 8th September and Korean Development Bank announced their withdrawal from bidding the Lehman Brothers. There was a drop to $7.79 per share, which is around 45% that day. U.S treasury secretary has a massive role to play because they have been told by the Bank of America that they won't show their willingness to buy Lehman Brothers unless the Government of US will help them in stopping transactions (Geanakoplos, 1985). Although, the Secretary at U.S treasury predicted that there were severe problems in the subprime mortgage market, but there was no major step taken by the Federal Reserve, security exchange and treasury. There was a massive delay by the Bank of America and the U.S treasury department, which was literally an inappropriate approach. This was also reported by the CEO Mr. Fuld at the board meeting. Mr. Fuld being the CEO tried his best by contacting several banks that includes: Bank of America, Korean Development Bank and the British Bank Barclays. These all negotiations somehow failed and it can be said that the approach of Mr. Fuld was not enough at all being the head. He should have contacted some global giants for the acquisition or merger. By following the full-service institutional security firm as strength; they must have acted in a more optimistic manner. The threat of collapse was there, but it was not well-tackled by Mr. Fluid and his board of directors.
Q5) If you were on the board of Lehman Brothers, which option would you choose? Further delay the decision regarding bankruptcy, vote not to bankrupt, or voted to file for bankruptcy? As possible, support your recommendation with facts, data and other evidence available at the time regarding the case.
Being on the board of the Lehman brothers, I will further delay the decision regarding the bankruptcy. The intention for this delay is quite clear because it will give some excess time to the company for further negotiations. They have a well-reputed brand and ranked at number fourth. They can make use of their name and status for further negotiations with both local and international firms. Although, this may increase some financial loss, but there is an immense chance that they may avoid this threat of filing a bankruptcy that is the final option. The pressure seemed to be increasing on Lehman Brothers because U.S started began to cut down the discount rate due to market distress, which is increasing at a rapid pace. As the credit disaster erupts back in August 2007 with the collapse of two Bear Stearns hedge funds, Lehman Brothers’ stock fell to a great extent. During that particular month, the Lehman Brothers eliminated around 2500 mortgage related jobs and closed its BNC mortgage unit. In addition, it also closed all of their offices of lender Aurora in 3 states and yes, it can be said that it is the beginning of an end. In the 2nd fiscal quarter of 2008, Lehman Brothers reported heavy losses of around $2.8 billion and decided to elevate $6 billion in additional capital. In the very first half of 2008, Lehman Brothers’ stock loss was around 73% of its value as the credit marketplace continued to tighten with a rapid pace. These consequent events led to the dismissal of 1500 employees, which is 6% of total employees till September 2008...........................
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