7 Mind-Blowing Numbers From the Lehman Brothers Disaster

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September 15th will mark the five-year anniversary of the Chapter 11 bankruptcy filing for Lehman Brothers. While five years was enough time for Lehman to emerge from bankruptcy, I'd argue it isn't nearly enough time to digest some of the most eye-popping numbers associated with the downfall of the giant investment bank.

Here are seven of those numbers that continue to blow my mind today.

The number above represents the total assets reported by Lehman Brothers for the quarter ending May 31, 2008. That quarterly report -- issued in July of 2008 -- was the last quarterly filing that Lehman would make. The asset base made Lehman Brothers the largest bankruptcy in U.S. history.

For comparison, General Motors had just $89 billion in assets prior to its bankruptcy filing (it has $163 billion today), and Enron was a mere small fry with $66 billion in pre-filing assets.

Lehman's largest single-line item on its balance sheet was "Financial instruments and other inventory positions owned" at $269 billion. And that's exactly where much of the problem lay. The counterparties Lehman relied on for credit lost confidence that the reported value of those assets represented the reality of what they could fetch on the open markets.

This was the total shareholders' equity that Lehman reported prior to its bankruptcy filing. The number is significant for two primary reasons. 

Shareholders' equity is the difference between a company's assets and liabilities and essentially represents the that a company has against losses. A $26 billion cushion may sound like a sizable chunk of change, and it is. What's shocking here is that in the course of just a few months, the company went from having a multi-billion equity cushion to sagging into bankruptcy protection.

The equity tally is also notable in relation to the asset total above. One measure of a bank's leverage is a simple division of its total assets by shareholders' equity. With $639 billion in assets against $26 billion in equity, Lehman's leverage was a sky-high 24-to-1. Incredibly, that wasn't the highest among the big banks. Morgan Stanley's (NYSE: MS  ) was 30-to-1 (it's since come down to 12-to-1). Prior to being taken over by Bank of America  (NYSE: BAC  ) , Merrill Lynch's was around 28-to-1.

According to Bloomberg, creditors of the Lehman estate will receive roughly $0.18 on the dollar when all is said and done in 2016. I don't have much more to say about that -- that number does a darn good job speaking for itself.

According to the latest estimates from Lehman, this is the amount that will cumulatively be paid out for the operations between 2012 and 2014. A staggering $1.1 billion of that amount is for "professional fees" which goes principally to the lawyers and restructuring specialists working with the company. If you're curious who specifically are the big beneficiaries of this payout, look no further than Alvarez & Marsal, Houlihan Lokey Howard & Zukin, and Lazard Freres & Co. (a subsidiary of Lazard  (NYSE: LAZ  ) ).

Of the remaining $1.1 billion, close to $800 million of it is expected to go to compensation for the remaining employees that are running the operations around the remaining assets so they retain as much value as possible.

And do note: The $2.25 billion here is on top of the costs and fees racked up prior to 2012.

Believe it or not, this was the amount Barclays  (NYSE: BCS  ) paid for the investment banking and capital markets operations that it purchased from Lehman. In total, Barclays coughed up $1.75 billion for the purchase, but $1.5 billion of that was allocated to real assets -- Lehman's New York City headquarters and two data centers.

That Barclays was able to grab Lehman's operations for such a small sum is incredible looking back today. Notably, Barclays was one of the lead underwriters on the recent $49 billion debt issuance for Verizon. Would it have been in that position without the Lehman operations? I doubt it. 

Promise me you won't lose your lunch, here: This number represents the total compensation for Dick Fuld, the former CEO of Lehman Brothers, for 2007. Amazingly, just one year after receiving this compensation package, Fuld led the company into bankruptcy.

To be perfectly fair though, much of the compensation package was in stock and options -- $29.2 million of it to be precise. And that stock ended up worthless. Further, Fuld owned 10.9 million Lehman shares at the beginning of 2008 -- an ownership position worth nearly $700 million at that point. His equity stake was lit on fire just like the rest of the equity shareholders'.

Still, $5 million of Fuld's 2007 compensation was in cash. That's an amount most of us would probably be ecstatic to save over a lifetime.

This final number fell in my lap just today thanks to a Bloomberg Businessweek interview. It represents Meredith Whitney's estimate of her own personal losses on financial stocks during the meltdown. This is a major revelation considering Whitney was lauded as a financial-stock genius and crisis seer both during and after the downturn.

As she told Businessweek: "I rode Lehman all the way down to zero. It's pretty ironic, right? That, I don't think anyone knows." They do now, Meredith, they do now.

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Comments from our Foolish Readers

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  • Report this Comment On September 14, 2013, at 12:16 PM, prginww wrote:

    I know a couple who lost $3.5 million, which was pretty much their entire stake, in the Lehman bankruptcy. At this point I imagine they will be relieved to at least come out of it with $630,000 in 2016.

  • Report this Comment On September 15, 2013, at 8:05 PM, prginww wrote:

    Lehman moved a large quantity of its "toxic" assets off its balance sheet just before the close of each financial quarter, and then returned those assets to its balance sheet the day after the close of the quarter. Apparently the procedure was then 'legal' although it made the financial statements inaccurate.

    Has this approach to balance sheet manipulation been prohibited by Dodd-Frank or other regulations or is the practice still permitted?

  • Report this Comment On September 16, 2013, at 10:01 AM, prginww wrote:

    Nicegirl10, the 18cts on the dollar are for creditors, and not for shareholders (I think?)

  • Report this Comment On September 19, 2013, at 8:01 AM, prginww wrote:

    The fact that a CEO could make $5 million in cash in one year (a small amount of his compensation package had backruptcy not been in the cards), and amount as you say, most would be ecstatic to save over a lifetime, is just one indication of how out-of-round CEO (and other very high managers) pay is relative to the rest of the population. It is a money grab, plain and simple. I'm surprised there aren't more attempts by stockholders to reign in these salaries & compensation.


  • Report this Comment On September 20, 2013, at 5:34 PM, prginww wrote:

    What's truly ironic (or disturbing) is that, a month before Lehman's crash, S&P rated them as A+++. Why does S&P have any credibility anymore?

  • Report this Comment On September 20, 2013, at 6:34 PM, prginww wrote:

    I bought Lehman bonds, marketed by Fidelity to IRA customers like me just a few months before the crash. I lost 80% of my purchase plus all the interest that it could have been earning during the 5 years the courts were figuring out how much to pay out. I noticed that the large investors who had purchased credit default swaps on Lehman (betting it would fail) were paid off before the small bond investors like me. In other words the gamblers got paid first and us bond holders were last. Lehman bonds were rated A- when I purchased them. Hard to believe anything the ratings companies publish these days.

  • Report this Comment On September 23, 2013, at 8:07 AM, prginww wrote:

    Corp Mgmnt compensation should be deferred 3-5 years. Most of their decisions affect the mid to longer term viability of a company.....they ought to wait and see how it all pans out.

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