I recommend this article to anyone interested in the mounting woes of Lehman Brothers. The article covers everything from the company's history to its current troubles and where they came from. As I write this, Lehman is closing down another 10% on the day and it seems as though this is just more of what we'll continue to see as the financial sector, as a whole, continues to slip off its highs.
Probably the most interesting differentiating characteristic of Lehman Brothers compared to its investment banking cohorts, is its willingness to place significant bets (it's own capital) in real estate. The success that Lehman's CEO, Fuld, had with investments in real estate earlier this decade gave the firm a sense of proprietary knowledge in the sector and, consequently, gave it the confidence to make investments in new property developments that other banks would never have made. Of course, as we all know, the real estate market has been hit hard and this has only worked to worsen Lehman's struggles with the on-going credit crunch.
The author of the article seems fairly adamant that Lehman will remain independent and will manage to survive this latest episode in its history as it has in the past, but there's no doubt that every last dollar of its market value is at-risk. Investors in the firm are on shaky ground with value at risk far greater than what the entire firm is worth. Lehman has been issuing capital like made over the last few months and I'm sure that this will continue. Adding the fact that the Fed has promised both Lehman and its investment banking neighbors that it would stand by them in times of trouble, the likelihood of a Bears-like collapse is slim; that said, you've really got to be risk-loving to invest your own money in the firm with all the uncertainty that still exists.
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