Investment Risk Management and Lehman Brothers' Financial Failure (Case Study Sample)
Factors that contributed to the Lehman BrotherS financial failuresource..
Investment Risk Management
Date of Submission
Finance 355: Investment Risk Management
Factors that contributed to the Lehman Brother financial failure
Concerning the failure of firms, several aspects may lead to a large extent of a particular company's demise. They include the company's general culture, the interaction between the senior management team and the managing board, and departments for managing several existing risks in a firm. Furthermore, the tools that are employed alongside failure for meeting better practices and regulatory standards. From the above aspects, it can be stated that Lehman Brothers was faltering in those concerns. Conversely, the firm seemed to overleverage itself but failed to maintain the required minimum capital, thus relying on risk tools in isolation.
The weaknesses of managing risks led to the massive financial turmoil of Lehman Brothers firm (Duong, 2009). This was mainly at larger financial firms globally, which used to create and hold complicated credit products. Several investment banks had to embrace a variety of risk management means in the business industry. Nevertheless, to be in a good position for countering probable threats originating from unstable mortgage-backed securities. However, managerial risk teams do weigh each available class for investing before decision making for investment. Although this trait helps lower the acquiring of massive quantities of securities with no profit and bond, the managers should have an international perspective and know-how on aggregate portfolio exposures on primary assets. The investment goals have been aligned as well as border models by the managers. This alignment is dealing with every single element that is involved with no restrictions on available strategies. Consequently, the monitoring of risks focuses on the procedure assessments of transformations in the portfolio within a given time frame (Bushuyev & Verenych, 2018).
The structure of Lehman Brothers were complex. Furthermore, the firm could internationally conduct business since it had around 3000 legal entities. However, the composition of the managing board of directors consists of only ten persons. Moreover, Lehman's corporate culture was based on risk-orientation. This is because the risk appetite had its setup from the top management of the firm. Then Richard Fuld, the Chief Executive Officer, had extreme greed for money and power hunger. The company also suffered from a lack of communication
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