Skip navigation
Watchlist Sponsored By :


Current DateTime: 12:41:21 16 Nov 2009
LinksList Documentid: 24355697

FEATURED QUIZZES


Current DateTime: 12:41:21 16 Nov 2009
LinksList Documentid: 33793611
  • How Much Do You Know About Green?

      Green has become part of our everyday lives. Green is everywhere-- energy, clothing, food, housing, transportation. It's a big business and a global business.

  • The Billionaire BFF's

      Philanthropists. Bridge partners. Hockey players. Which responses are based on facts from Buffett's and Gates' real lives?

  • The Many Myths of Coca-Cola

      Can you tell which statements are true, and which ones are just rumors?


Current DateTime: 12:41:21 16 Nov 2009
LinksList Documentid: 24890560
  • Winterizing Your Portfolio

      If 2009 was the winter of our discontent, will 2010 be a winter wonderland for investors? A lot depends on the recovery—or lack thereof.

  • Investor's Guide to Real Estate

      Some even say the long-awaited recovery is here. Regardless, buyers and sellers alike can profit from our guide.

  • Alternative Investing

      Stocks and bonds? Sure. But it's a big world out there for investors.

powered by digg
By: Charles Gasparino, , On-Air Editor | 16 May 2008 | 03:31 PM ET
Text Size

Lehman Brothers will begin long-anticipated layoffs early next week, CNBC has learned, on the way to roughly a 5 percent cut to its 28,000-strong workforce.

Lehman Brothers layoffs, job cuts
Lehman Brothers headquarters.

The layoffs of about 1,400 workers—which come in addition to a previously announced 5 percent cut—are part of an initiative by Lehman [LEH  Loading...      ()   ] Chief Executive Officer Dick Fuld to remake the firm into a smaller, more nimble, and less leveraged outfit, following the implosion of Bear Stearns [BSC  Loading...      ()   ].

One source has told CNBC the latest round of cuts will begin Monday.

Bear Stearns' leverage—particularly its massive borrowing of money from hedge funds to finance operations through so-called "repo trades"—has been cited as a primary cause of its implosion in March.

As rumors spread alleging that Bear Stearns had liquidity problems, those same hedge funds stopped lending money to the firm and, moreover, began shorting its stock until current Bear Stearns CEO Alan Schwartz went to the Federal Reserve and JPMorgan Chase [JPM  Loading...      ()   ] for emergency funding.

JPMorgan offered to buy Bear for $2 a share. Though the final price tag eventually rose to $10, the bargain-basement sale sent shudders through Wall Street—and Lehman in particular—as the firm became the target of many of the same hedge funds that had shorted Bear Stearns.

Fuld, one of the toughest CEOs on Wall Street, went on the attack: First, he alleged to the Securities and Exchange Commission that he had evidence that hedge funds colluded to short Lehman into oblivion the moment the Bear Stearns deal was complete.

He then went to work on Lehman's balance sheet, putting in place the layoffs that will begin next week. He also embarked on a massive deleveraging of Lehman.

At the time of the Bear implosion, Lehman was leveraged 20-to-1—meaning 20 borrowed dollars for every dollar in capital available to the firm. Bear Stearns, by contrast, was leveraged about 40-to-1. According to people close to the company, Lehman is now leveraged between 12-to-1 and 14-to-1.

A Lehman spokeswoman declined to comment.

Borrowing is essential for any Wall Street firm to survive. Investment banks typically receive financing by engaging in repo trades: They borrow money from hedge funds and other firms, providing securities such as bonds and other fixed-income investments as collateral.

One of the reasons Bear Stearns collapsed is that hedge funds stopping accepting the firm's collateral, leaving the firm unable to borrow and, by extension, stay in business. Because Bear Stearns was so reliant on this borrowing, it was only a matter of time before it could no longer compete with other firms.

Fuld, it seems apparent, wants to prevent the same thing from happening to Lehman.

© 2009 CNBC.com
Tools:
Print EmailAdd This share icon
  • digg share

CNBC HIGHLIGHTS

  • CNBC's Jim Goldman asks: Has the sun begun to set on Twitter? Data suggests its best days are over.
  • High unemployment is likely to persist for a while—you might need to change how you look for work.
  • De Loach Vineyards is selling its pinot noir the old fashioned way, helping to cut energy and transportation costs.
  • Why are the Chinese concerned about the progress of U.S. health care legislation?
  • Snoop Dogg
  • CNBC's Maria Bartiromo talks to rapper Snoop Dogg about brand identity in both business and music.
ADD COMMENTS
Remaining characters


Current DateTime: 10:28:52 16 Nov 2009
LinksList Documentid: 29778428

Current DateTime: 10:28:53 16 Nov 2009
LinksList Documentid: 29779196

Current DateTime: 11:11:30 16 Nov 2009
LinksList Documentid: 29779199

Current DateTime: 10:42:55 16 Nov 2009
LinksList Documentid: 29779198
  Data is a real-time snapshot  *Data is delayed at least 15 minutes
Global Business and Financial News, Stock Quotes, and Market Data and Analysis

© 2009 CNBC, Inc.  All Rights Reserved.
A Division of NBC Universal
Thomson ReutersThomson Reuters