Could Lehman Brothers’ Collapse Be Anticipated? An Examination Using CAMELS Rating System

Apostolos G. Christopoulos, John Mylonakis, Pavlos Diktapanidis

Abstract


The collapse of Lehman Brothers, the largest investment bank that has ever declared bankrupt has had a major impact among economies and in most stock markets across the globe. For this reason, the case of Lehman Brothers is being examined by analysing its financial particulars of the last five years (2003-2007) using the CAMELS ratios. Research results showed that its credits were found as bad and doubtful while its management appeared to be unwilling and unable to reverse its declining course. Also, the management was not complying with the rules set by the supervisory authorities while the risk management methods followed is regarded as insufficient proportionally to its size. Finally, the bank appeared to be vulnerable against risks or unstable conditions while the supervisory authorities and the US Federal Reserve should have foreseen that Lehman Brothers presented several signs of decline and react accordingly.


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International Business Research  ISSN 1913-9004 (Print), ISSN 1913-9012 (Online)

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