Lehman Brothers

History

Henry Lehman founded the company as a groceries, dry goods and utensils shop in Montgomery, Ala., in 1844. His brothers, Emanuel and Mayer later joined the business, and in 1850, the name changed to Lehman Brothers. The younger brothers continued to run the firm after Henry's death in 1855.

The company expanded and became a commodities broker specialized in cotton trading for the Montgomery area. It opened its first New York office in 1858. The New York office became the focus of company operations after the Civil War. In 1870, Lehman Brothers helped form the New York Cotton Exchange, which was the country's first commodities futures business. The company also helped create the Coffee Exchange and Petroleum Exchange. The company's field of operations grew larger still when in 1867, it became Alabama's fiscal agent to help sell state bonds. From there, the firm began trading securities. In 1887, it became a member of the New York Stock Exchange. By now more of a merchant banker than a commodities trader, it further expanded into finance. Meanwhile, Kuhn, Loeb & Co., a company also founded in 1850 that would merge with Lehman Brothers decades later, was busy financing railroads, including the Pennsylvania Railroad and the Baltimore & Ohio.

In the early 1900s, Lehman Brothers underwrote securities issues for Sears, Roebuck & Co., F.W. Woolworth Co., R.H. Macy & Co. and other retail firms, doing so with Goldman Sachs. It became an adviser to entertainment companies as well, helping to fund RKO, Paramount and 20th Century Fox, as well as the Radio Corporation of America.

By the 1950s, Lehman Brothers was working with electronics companies such as Digital Equipment Corporation. In the next decade, it became a dealer in U.S. Treasuries. In the 1970s, it opened offices in Europe and Asia. In 1977, the company merged with Kuhn, Loeb & Co. Lehman Brothers entered the 1980s assisting biotech companies as well as such companies as Intel.

American Express acquired Lehman Brothers in 1984 and created Shearson Lehman Brothers out of the merger. Less than 10 years later, however, American Express divested itself of the business, and Lehman Brothers became a separate entity again.

In 2003, Lehman Brothers, under new contracting rules with the city of Chicago, acknowledged past ties to slavery; the firm disclosed that in 1854 the company had purchased a slave in Montgomery and that the founders might have owned other slaves. After the disclosure, Lehman Brothers publically apologized.

Present Day

A corporate decision with profound implications 10 years later came in 1997 with Lehman Brothers' acquisition of Harbourton Mortgage Investment Corporation, an expert in servicing Federal Housing Administration loans that were in default. Lehman renamed the company Aurora Loan Services Inc., and set about building its base in the mortgage service business. Other Wall Street banks, such as Bear Stearns, were doing the same thing, not only in prime mortgage markets but with subprime lending.

By 2006, Lehman Brothers had built up an 11 percent share in the subprime mortgage securities business. By August 2007, however, the country's subprime mortgage market was in meltdown, and Lehman Brothers sold its subprime mortgage unit, BNC Mortgage, with layoffs of more than 1,000 people. As the housing slump continued, Lehman Brothers laid off more employees and attempted to raise more capital.

In June 2008, however, it estimated it had lost about $3 billion in its second quarter. In September, it announced it had lost $3.9 billion in its third quarter. On Sept. 15, after failed talks with Wall Street executives and federal officials, Lehman Brothers filed for Chapter 11 bankruptcy protection. Liquidation followed, with Barclays and other companies buying pieces of the business.