Lehman ten years on: Industry reflects on hard lessons and future challenges

A decade ago this last weekend Lehman Brothers crashed into bankruptcy in the biggest corporate failure in history. The ensuing crisis reshaped financial markets, economies and politics around the world. In an extended feature for International Investment, Pedro Gonçalves assesses the landscape today and asks what, if anything, has changed.

The US government was forced into a $700bn bailout of the banking sector, while in the UK, LLoyds Bank (then Lloyds TSB) rescued HBOS and the government was then forced to rescue both Lloyds TSB and the Royal Bank of Scotland. Barclays went cap-in-hand to the Qatari government.

The global financial crisis brought turmoil to mainland Europe’s shores with the Benelux governments having to rescue of the Belgian bank Fortis with a €11.2bn bailout package. Franco-Belgian bank Dexia also had to be bailed out.

Ten years on, industry experts comment on lessons learned and mistakes that could just happen again as memory fades.

“What went wrong? In a nutshell, it was the under-appreciation of risk. Credit was too easy. Extending property loans to unemployed people, who had no hope of ever servicing them, was symptomatic of this.

“What lessons of the crisis should be reinforced today? Firstly, there needs to be a healthy appreciation for risk and to price it accordingly. Secondly, it is important for investors to truly understand what assets are underpinning their investments.

“Finally, there must be more of an appreciation of how interconnected the world has become,” Mark Appleton, global head of multi-asset strategy at Ashburton Investments, said in a statement.

Larry Lau, manager of the Trium Diversified Macro Fund was there to see it all fall in the blink of an eye.

“As a Lehman alumnus, I lived through the before, during and after of the fateful event. While the bank was a progressive institution and prided itself on innovation – excessive over-reaching ultimately led to its downfall.

“The global economy has recovered, but scars remain. Regulation has tempered aggressive risk-taking, while conservative balance sheet management is now at work.

“Stricter rules and higher capital hurdles have reset an industry that had lost perspective. Loose corporate risk management, particularly in non-core ventures, should not jeopardise ordinary users of the system”. (continued on the next page…)

Pedro Gonçalves
Pedro Gonçalves is Financial Correspondent at International Investment.

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