Lehmann had to fire sale assets because people were scared to do business o

Lehmann had to fire sale assets because people were

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Lehmann had to fire sale assets because people were scared to do  business o Banks over-leveraged o IBs suffered large mortgage securities related losses in proprietary trading, underwriting, and asset management New Landscape Leverage dropped from 30 to 12x ROE drops Short term financing reductions Risk based capital increase Proprietary and principal investment activities reduced Access to discount window and FDIC guarantees Additional regulatory controls o However, very tough to make them consistent internationally (different  accounting systems), also have to be weary of competition due to  overregulation  TUESDAY OCTOBER 1     st INVESTMENT BANKING IN 2008 (just read book for better info) Lehman Brothers
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o CEO Dick Fuld approached by numerous international banks, Fuld refused to sell at half price because he had essentially built Lehman Lehman: summary in book o Barclays takes some US assets after bankruptcy, Nomura takes  international ones Merrill Lynch o Fire Stan O’Neil and hire John Thain o Thain announces writedown of 5 Billion at beginning of 2008 to be  conservative, turns out to be around $15 Billion o Company, after fall of Lehman and increasing losses, sells to Bank of  America, now a separate unit Huge lawsuit over shareholder agreement to approve merger Morgan Stanley o Raises capital from Asian banks to stay alive (Mitsubishi bank bought  20%) o Then transforms into bank holding company Regulation from Federal Reserve Ability to take deposits FDIC Insurance Goldman o Warren Buffet bought $5 Billion in preferred shares, paid less than half  price—got an unbelievable deal Also had call warrants (worth near 22% interest) o Goldman bought back shares for $10 Billion SECURITIES REGULATION OVERVIEW Securities Act of 1933 o Two objectives: Require investors receive financial and other significant  information concerning securities offered for sail To prohibit deceit, misrepresentations and other fraud in sales o In general, securities sold must be registered with SEC (some exceptions)  and have minimum required amount of info o After registration is filed, investment prospectus must be provided to  investors o Accredited investors ($1M net worth and certain income) not focus of  SEC, meant to protect ordinary people Glass-Steagall Act (1933) o Seperated commercial and investment banks and limited underwriting  capability of commercial banks o Officials of firms associated with security investments restricted from  serving as directors or officers of commercial banks o Federal Deposit Insurance Corporation found to insure bank deposits
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