Lehman Brothers started as an Alabama dry-goods shop paid in cotton
The bank whose collapse in September 2008 became the largest bankruptcy in American history began 158 years earlier as a small store in Montgomery, Alabama, run by three Bavarian immigrant brothers. Customers often paid in raw cotton instead of cash, and the brothers found trading that crop more lucrative than selling goods.
Hayum Lehmann arrived in 1844 aged 23, renamed himself Henry, and opened a dry-goods shop; his brothers Emanuel and Mayer followed, and by 1850 the business was Lehman Brothers. The cotton they accepted came from plantations worked by enslaved people, who made up nearly 45 percent of Alabama's population in 1860. That year's census listed Mayer himself as owning seven. After Henry died of yellow fever in 1855, the others concentrated on commodities, moved the centre of operations to New York, and helped found the New York Cotton Exchange in 1870.
The shift from trading goods to financing companies came in 1906, when Philip Lehman teamed up with Goldman Sachs to take General Cigar and then Sears, Roebuck public. Retailers including Woolworth and Macy's followed. Under Philip's son Robert, who ran the firm for 44 years, Lehman backed the first television maker, DuMont, helped fund RCA, financed oil companies and later floated Digital Equipment Corporation.
After Robert's death in 1969 no Lehman remained at the firm, and the partnership drifted. Pete Peterson rescued it in the 1970s, merging with Kuhn, Loeb, but feuding between bankers and traders pushed him out, and Stephen Schwarzman later described the culture as dysfunctional. American Express bought the weakened firm in 1984 for 360 million dollars, then spun it off in 1994 under Dick Fuld. It survived the September 2001 attacks on its offices at the World Trade Center, relocating staff into a Manhattan hotel and later buying a new tower.
Its final crisis was self-inflicted. Deep exposure to subprime mortgages and hard-to-sell assets drove clients away and the share price down. By May 2008 Lehman held 639 billion dollars in assets; in September it filed for Chapter 11. Barclays bought its North American operations days later, and Nomura took much of the rest.
Source: Lehman Brothers
