Lehman Brothers Flashcards
How much did Lehman keep of its financial statements in liabilities?
Did the auditors know about it?
$50 billion
Yes
Lehman’s executives had routinely used multi billion dollar accounting motivated transactions to…
Embellish their company’s financial data
What sector of the derivatives market was Lehman very active in?
Active in market for residential mortgage backed securities (RMBS)
2 aspects that imposed increasing risks for Lehman
1 falling housing market
2 over leveraged
Conventional leverage ration of 30.7 means?
Company had $1 in stockholders equity for every $30.70 in assets
Held
Repo 105 practice
Allowed Lehman not to disclose its true leverage ratios and
Sculpt the company’s leverage ratio presented in financial
statements
Repo
Transfer securities to be held onto by another party with
contractual commitment to purchase securities at later date
Ex. Transfer $100 million and charge a 2% fee
How were the repurchase agreements in repo 105 treated?
Treated as sales to reduce company’s net leverage ratio
Was there a business purpose for the use of repo 105s?
No, accounting motivated merely used to make balance sheet
appear stronger
Who was lehman’s independent auditor?
Ernst and Young
What was lehman’s reported net leverage for the end of 2007?
16.1
