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Lehman Brothers Holdings, Inc. - Investment Banking -
Category Directory
(212)
526-7000
745
Seventh Avenue
New York, New York 10019
www.lehman.com
Sales
$17
billion
Business Description
Lehman Brothers is one of the leading global investment banks, serving
institutional, corporate, government and high-net-worth individual clients
and customers. The Company’s worldwide headquarters in New York and regional
headquarters in London and Tokyo are complemented by offices in additional
locations in the United States, Europe, the Middle East, Latin America and
the Asia Pacific region. The Company is engaged primarily in providing
financial services. Other businesses in which the Company is engaged
represent less than 10 percent of each of consolidated assets, revenues and
pre-tax income.
The Company’s business includes capital raising for clients through
securities underwriting and direct placements, corporate finance and
strategic advisory services, securities sales and trading, research, the
trading of foreign exchange and derivative products and certain commodities,
asset management for high-net-worth and institutional clients and private
equity investments. The Company acts as a market-maker in all major equity
and fixed income products in both the U.S. and international markets. Lehman
Brothers is a member of all principal securities and commodities exchanges
in the United States, as well as NASD, Inc., and holds memberships or
associate memberships on several principal international securities and
commodities exchanges, including the London, Tokyo, Hong Kong, Frankfurt,
Paris and Milan stock exchanges.
Lehman Brothers provides a full array of capital markets products,
investment banking services and investment management and advisory services
worldwide. Through the Company’s investment banking, trading, research,
structuring and distribution capabilities in equity and fixed income
products, the Company continues its focus of building its client/customer
business model. This “customer flow” model is based on facilitating customer
transactions in all major global capital markets products and services. The
Company generates customer flow revenues from institutional and
high-net-worth clients and customers by (i) advising on and structuring
transactions specifically suited to meet client needs; (ii) serving as a
market maker and/or intermediary in the global marketplace, including making
securities and other financial instrument products available to clients to
rebalance their portfolios and diversify risks across different market
cycles; (iii) providing asset management services to high-net-worth and
institutional clients; and (iv) acting as an underwriter to clients.
Customer flow activities represent a preponderance of the Company’s
revenues. In addition, the Company also takes proprietary positions, the
success of which is dependent on its ability to anticipate economic and
market trends. The Company believes its customer flow orientation helps to
mitigate its overall revenue volatility.
The Company operates in three business segments (each of which is described
below): Investment Banking, Capital Markets and Client Services. Financial
information concerning the Company for the fiscal years ended November 30,
2003, November 30, 2002, and November 30, 2001, including the amount of net
revenue contributed by each segment in such periods, is set forth in the
Consolidated Financial Statements and the Notes thereto in the 2003 Annual
Report and is incorporated herein by reference. Information with respect to
the Company’s operations by segment and net revenues by geographic area is
set forth under the captions “Management’s Discussion and Analysis—Segments”
and “—Geographic Diversification” and in Note 22 of the Notes to
Consolidated Financial Statements in the 2003 Annual Report and is
incorporated herein by reference.
Investment Banking
The Investment Banking Division provides advice to corporate, institutional
and government clients throughout the world on mergers, acquisitions and
other financial matters. Investment Banking also raises capital for clients
by underwriting public and private offerings of debt and equity securities.
Lehman Brothers’ Investment Banking professionals are responsible for
developing and maintaining relationships with issuer clients, gaining a
thorough understanding of their specific needs and bringing together the
full resources of Lehman Brothers to accomplish their financial and
strategic objectives. Investment Banking is organized into industry, product
and geographic coverage groups, enabling individual bankers to develop
specific expertise in particular industries and markets. Industry coverage
groups include Communications and Media, Consumer/Retailing, Financial
Institutions, Financial Sponsors, Healthcare, Industrial, Natural Resources,
Power, Real Estate and Technology. Specialized product groups within Mergers
and Acquisitions and Global Finance are partnered with global relationship
managers in the global industry groups to provide comprehensive solutions
for clients. Specialists in product development and derivatives also are
engaged to tailor specific structures for clients. Global Finance
encompasses Equity Capital Markets, which consists of equity and
equity-related securities and derivatives, Debt Capital Markets, which
incorporates expertise in syndicate, liability management, derivatives and
bank loan syndication, Leveraged Finance and Private Placements.
Geographically, Lehman Brothers maintains investment banking offices in
seven cities in the U.S. and in sixteen cities in Europe, the Middle East,
Asia and Latin America. The high degree of integration among the Company’s
industry, product and geographic groups has allowed Lehman Brothers to
become a leading source of one-stop financial solutions for its global
clients.
Underwriting. The Company is a leading underwriter of initial and other
public and private offerings of equity and fixed income securities,
including listed and over-the-counter securities, government and agency
securities and mortgage- and asset-backed securities.
Mergers & Acquisitions/Strategic Advisory. Lehman Brothers has a long
history of providing strategic advisory services to corporate, institutional
and government clients around the world on a wide range of financial
matters, including mergers and acquisitions, restructurings and spin-offs,
targeted stock transactions, share repurchase strategies, government
privatization programs, takeover defenses and other strategic advice.
Capital Markets
The Capital Markets segment includes institutional customer flow activities,
research and secondary-trading and financing activities in fixed income and
equity products. These products include a wide range of cash, derivative,
secured financing and structured instruments and investments. The Company is
a leading global market-maker in numerous equity and fixed income products
including U.S., European and Asian equities, government and agency
securities, money market products, corporate high grade, high yield and
emerging market securities, mortgage- and asset-backed securities and real
estate, preferred stock, municipal securities, bank loans, foreign exchange,
financing and derivative products. The Company is one of the largest
investment banks in terms of U.S. and pan-European listed equities trading
volume and maintains a major presence in over-the-counter U.S. stocks, major
Asian large capitalization stocks, warrants, convertible debentures and
preferred issues. The Capital Markets segment also includes the risk
arbitrage and secured financing businesses as well as realized and
unrealized gains and losses related to private equity investments. Lehman
Brothers combines the skills from the sales, trading and research areas of
its Equities and Fixed Income Divisions to serve the financial needs of the
Company’s clients and customers. This integrated approach enables Lehman
Brothers to structure and execute global transactions for clients and to
provide worldwide liquidity in marketable securities.
Equities
The Equities group is responsible for the Company’s equity operations and
all dollar and non-dollar equity and equity-related products worldwide.
These products include listed and over-the-counter securities, American
Depositary Receipts, convertibles, options, warrants and derivatives.
Equity Cash Products. Lehman Brothers makes markets in equity and
equity-related securities, and executes block trades on behalf of clients
and customers. The Company participates in the global equity and
equity-related markets in all major currencies through its worldwide
presence and membership in major stock exchanges, including, among others,
those in New York, London, Tokyo, Hong Kong, Frankfurt, Paris and Milan.
Equity Derivatives. Lehman Brothers offers equity derivative capabilities
across a wide spectrum of products and currencies, including domestic and
international portfolio trading, listed options and futures and
over-the-counter derivatives. The Firm’s equity derivatives business is
organized into two major product areas: a global volatility business,
encompassing options-related products, and a global portfolio trading
business that specializes in agency/risk baskets and other structured
products.
Equity Finance and Prime Broker. Lehman Brothers maintains an integrated
equity financing and prime broker business to provide liquidity to its
clients and customers and supply a source of secured financing for the Firm.
Equity Financing provides financing in all markets on a margin basis for
customer purchases of equities and other capital markets products as well as
securities lending and short-selling facilitation. The Prime Broker business
also engages in full operations, clearing and processing services for that
unit’s customers.
Arbitrage. Lehman Brothers engages in a variety of arbitrage activities
including “riskless” arbitrage, where the Company seeks to benefit from
temporary price discrepancies that occur when a security is traded in two or
more markets, and “risk” arbitrage activities, which involve the purchase of
securities at discounts from the expected values that would be realized if
certain proposed or anticipated corporate transactions (such as mergers,
acquisitions, recapitalizations, exchange offers, reorganizations,
bankruptcies, liquidations or spin-offs) were to occur. Lehman Brothers’
arbitrage activities benefit from the Company’s presence in the global
capital markets, access to advanced information technology, in-depth market
research, proprietary risk management tools and general experience in
assessing rapidly changing market conditions.
Fixed Income
Lehman Brothers actively participates in key fixed income markets worldwide
and maintains a 24-hour trading presence in global fixed income securities.
The Company is a preeminent market-maker in new issue and other fixed income
securities. Fixed Income businesses include the following:
Government and Agency Obligations. Lehman Brothers is one of the leading
primary dealers in U.S. government securities, participating in the
underwriting and market-making of U.S. Treasury bills, notes and bonds, and
securities of federal agencies. The Company is also a market-maker in the
government securities of all G7 countries, and participates in other major
European and Asian government bond markets.
Corporate Debt Securities and Loans. Lehman Brothers makes markets in fixed
and floating rate investment grade debt worldwide. The Company is also a
major participant in the preferred stock market, managing numerous offerings
of long-term and perpetual preferreds and auction rate securities.
High Yield Securities and Leveraged Bank Loans. The Company also makes
markets in non-investment grade debt securities and bank loans. Lehman
Brothers provides “one-stop” leveraged financing solutions for corporate and
financial acquirers and high yield issuers, including multi-tranche,
multi-product acquisition financing. The Company remains one of the leading
investment banks in the syndication of leveraged loans.
Money Market Products. Lehman Brothers holds leading market positions in the
origination and distribution of medium-term notes and commercial paper. The
Company is an appointed dealer or agent for numerous active commercial paper
and medium-term note programs on behalf of companies and government agencies
worldwide.
Mortgage- and Asset-Backed Securities. The Company is a leading underwriter
of and market-maker in residential and commercial mortgage- and asset-backed
securities and is active in all areas of secured lending, structured finance
and securitized products. Lehman Brothers underwrites and makes markets in
the full range of U.S. agency-backed mortgage products, mortgage-backed
securities, asset-backed securities and whole loan products. It is also a
leader in the global market for residential and commercial mortgages
(including multi-family financing) and leases. The Company originates
commercial and residential mortgage loans through the Company’s domestic
savings bank, Lehman Brothers Bank, FSB, and other subsidiaries. Lehman
Brothers Bank offers traditional and online mortgage and banking services
nationally to individuals as well as institutions and their customers. The
Bank is a major part of the Firm’s institutional mortgage business,
providing an origination pipeline for mortgages and asset-backed securities.
During 2003, the Company acquired controlling interests in two residential
mortgage loan originator/servicers. The Company believes these acquisition
will allow further vertical integration of the mortgage business platform.
Mortgage loans originated by these companies are intended to provide a more
cost efficient source of loan product for the Company’s securitization
pipeline.
Real Estate Investment. In addition to its lending activities, the Company
invests in commercial and residential real estate (both existing properties
and development projects) in the form of joint venture equity investments as
well as direct ownership interests. The Company has interests in several
hundred properties throughout the world.
Municipal and Tax-Exempt Securities. Lehman Brothers is a major dealer in
municipal and tax-exempt securities, including general obligation and
revenue bonds, notes issued by states, counties, cities, and state and local
governmental agencies, municipal leases, tax-exempt commercial paper and put
bonds.
Financing. The Financing unit engages in three primary functions: managing
the Company’s matched book activities, supplying secured financing to
institutional clients and customers and providing secured funding for the
Company’s activities. Matched book funding involves borrowing and lending
cash on a short-term basis to institutional customers collateralized by
marketable securities, typically government or government agency securities.
The Company enters into these agreements in various currencies and seeks to
generate profits from the difference between interest earned and interest
paid. The Financing unit works with the Company’s institutional sales force
to identify customers that have cash to invest and/or securities to pledge
to meet the financing and investment objectives of the Company and its
customers. Financing also coordinates with the Company’s Treasury area to
provide collateralized financing for a large portion of the Company’s
securities and other financial instruments owned. In addition to its
activities on behalf of its U.S. clients and customers, the Company is a
major participant in the European and Asian repurchase agreement markets,
providing secured financing for the Firm’s customers in those regions.
Fixed Income Derivatives. The Company offers a broad range of derivative,
interest rate and credit products and services. Derivatives professionals
are integrated into all of the Company’s fixed income areas in response to
the worldwide convergence of the cash and derivative markets.
Foreign Exchange. Lehman Brothers’ global foreign exchange operations
provide market access and liquidity in all currencies for spot, forward and
over-the-counter options markets around the clock. Lehman Brothers offers
its customers superior execution, market information, analysis and hedging
capabilities, utilizing foreign exchange as well as foreign exchange options
and derivatives. Lehman Brothers also provides advisory services to central
banks, corporations and investors worldwide, structuring innovative products
to fit their specific needs. The Firm makes extensive use of its global
macroeconomics research to advise clients on the appropriate strategies to
minimize interest rate and currency risk.
Global Distribution
Lehman Brothers’ institutional sales organizations encompass distinct global
sales forces that have been integrated into the Capital Markets businesses
to provide investors with the full array of products and research offered by
the Firm.
Equity Sales. Lehman Brothers’ institutional Equities sales force provides
an extensive range of services to institutional investors through locations
in the U.S., Europe and Asia. The Equity sales organization focuses on
developing long-term relationships though a comprehensive understanding of
customers’ investment objectives, while providing proficient execution and
consistent liquidity in a wide range of global equity securities and
derivatives.
Fixed Income Sales. Lehman Brothers’ Fixed Income sales force is one of the
most productive in the industry, serving the investing and liquidity needs
of major institutional investors by employing a relationship management
approach that provides superior information flow and product opportunities
for the Firm’s customers.
Research
Research at Lehman Brothers encompasses the full range of research
disciplines, including quantitative, economic, strategic, credit, relative
value and market-specific analysis.
Equity Research. To ensure in-depth expertise within various markets, Equity
Research has established regional teams on a worldwide basis that are
staffed with industry and strategy specialists.
Fixed Income Research. The Firm’s Fixed Income Research specialists provide
expertise in U.S., European and Asian government and agency securities,
derivatives, sovereign issues, corporate securities, high yield, asset- and
mortgage-backed securities, indices, emerging market debt and municipal
securities.
Client Services
Client Services consists of the Company’s Private Client and Asset
Management businesses.
Private Client Services
The Company’s Private Client Services business generates customer flow
transactional revenues by serving the investment needs of private investors
with substantial assets as well as thousands of mid-sized institutional
accounts worldwide. The group has investment representatives located in 14
offices around the globe. Investment professionals provide their clients
with direct access to investment banking, fixed income, equity, foreign
exchange and derivative products, as well as the Firm’s research and
execution capabilities.
Asset Management
Asset Management generates fee-based revenues from customized investment
management services for high-net-worth clients as well as asset management
fees from mutual fund and other institutional investors. Lehman Brothers has
been expanding its asset management activities to focus on the strategic
development of a comprehensive asset management platform for the Firm,
drawing on—and providing both individual and institutional clients with
access to—Lehman Brothers’ investment advisory expertise across various
asset classes and geographies.
The Company significantly enhanced its market position in asset management
in October 2003 through the acquisition of Neuberger Berman Inc. Neuberger
Berman is a leading asset management firm that provides wealth management
services (private asset management, estate planning, tax planning, trust and
fiduciary services); manages and advises open-end and closed-end mutual
funds, institutional separate accounts and wrap accounts sponsored by third
party brokerage firms and banks; and provides professional investor clearing
services. This acquisition positions the Company as a leading provider of
services to high-net-worth investors. The Company believes the acquisition
will provide revenue synergies by making Neuberger Berman products available
to the Lehman Brothers network of institutional and high-net-worth
individual clients and offering Neuberger Berman clients an expanded range
of investment and risk management products, including structured capital
markets products, private equity and other alternative asset management
products. The Company intends for the Neuberger Berman brand to remain
intact.
In January 2003, the Company acquired the fixed income asset management
business of Lincoln Capital Management, which is the Firm’s primary U.S.
institutional fixed income management platform for large institutional
investors. In July 2003, the Company launched Lehman Brothers First Trust
Income Opportunity Fund, a new closed-end management investment company with
the investment objective to seek high total return by investing primarily in
high yield debt securities. Other asset management initiatives in recent
years include Lehman Brothers Alternative Investment Management (the Firm’s
joint venture with Ehrenkranz & Ehrenkranz).
Lehman Brothers also provides Investment Consulting Services, a wrap-fee
series of third party managed products, management of multiple manager funds
onshore and offshore and a managed futures advisory business. In addition,
the Firm also has dealer agreements with a large number of mutual fund
families.
In addition, Asset Management generates management and incentive fees from
the Company’s role as general partner for private equity and alternative
investment partnerships. The Company’s Private Equity business operates in
five major asset classes: Merchant Banking, Venture Capital, Real Estate,
Fixed Income-related and Third Party Funds. The primary goal of each asset
class is to make investments that provide attractive risk-adjusted returns
to investors, including institutions, high-net-worth individuals, the Firm
and certain employees of the Firm. The Company has raised privately-placed
funds in all of these classes, for which the Company acts as general
partner. In addition, the Company generally co-invests directly in the
investments made by the funds and occasionally makes other non-fund-related
direct investments. (Gains and losses related to proprietary private equity
investments are included in the results of the Capital Markets segment.) In
October 2003, the Company acquired substantially all of the operating assets
of The Crossroads Group (“Crossroads”), a diversified private equity fund
manager, which significantly expanded the Company’s global private equity
assets under management.
The Neuberger Berman LibertyView division manages several alternative
investment master funds. Their investment products include both
multi-strategy and single strategy funds that focus on achieving market
neutral returns utilizing equity, credit, volatility and mortgage-backed
arbitrage trading strategies.
Corporate
The Company’s Corporate division provides support to its businesses through
the processing of certain securities and commodities transactions; receipt,
identification and delivery of funds and securities; safeguarding of
customers’ securities; risk management; and compliance with regulatory and
legal requirements. In addition, this staff is responsible for technology
infrastructure and systems development, treasury operations, financial
control and analysis, tax planning and compliance, internal audit, expense
management, career development and recruiting and other support functions.
Risk Management
As a leading global investment banking company, risk is an inherent part of
the Company’s businesses. Global markets, by their nature, are prone to
uncertainty and subject participants to a variety of risks. Lehman Brothers
has developed policies and procedures designed to identify, measure and
monitor each of the risks involved in its trading, brokerage and investment
banking activities on a global basis. The principal risks of Lehman Brothers
are market, credit, liquidity, legal and operational risks. Risk management
is considered to be of paramount importance in the Company’s day-to-day
operations. Consequently, the Company devotes significant resources
(including investments in personnel and technology) across all of its
worldwide trading operations to the measurement, analysis and management of
risk.
The Company seeks to reduce risk through the diversification of its
businesses, counterparties and activities in geographic regions. The Company
accomplishes this objective by allocating the usage of capital to each of
its businesses, establishing trading limits and setting credit limits for
individual counterparties, including regional concentrations. The Company
seeks to achieve adequate returns from each of its businesses commensurate
with the risks they assume. Nonetheless, the effectiveness of the Company’s
policies and procedures for managing risk exposure can never be completely
or accurately predicted or fully assured. For example, unexpectedly large or
rapid movements or disruptions in one or more markets or other unforeseen
developments can have an adverse effect on the Company’s results of
operations and financial condition. The consequences of these developments
can include losses due to adverse changes in inventory values, decreases in
the liquidity of trading positions, higher volatility in the Company’s
earnings, increases in the Company’s credit exposure to customers and
counterparties and increases in general systemic risk. If any of the
strategies used to hedge or otherwise mitigate exposures to the various
types of risks described above are not effective, the Company could incur
losses.
Lehman Brothers has developed a control infrastructure to monitor and manage
each type of risk on a global basis throughout the Company. A full
description of the Firm’s Risk Management infrastructure and procedures is
contained in “Management’s Discussion and Analysis—Risk Management” in the
2003 Annual Report, and is incorporated herein by reference. Information
regarding the Company’s use of derivative financial instruments to hedge
interest rate, currency, security and commodity price and other market risks
is contained in Notes 1 and 3 to the Consolidated Financial Statements in
the 2003 Annual Report, and is incorporated herein by reference.
Competition
All aspects of the Company’s business are highly competitive. The Company
competes in U.S. and international markets directly with numerous other
firms in the areas of securities underwriting and placement, corporate
finance and strategic advisory services, securities sales and trading,
research, foreign exchange and derivative products, asset management and
private equity, including investment banking firms, traditional and online
securities brokerage firms, mutual fund companies and other asset managers,
investment advisers, venture capital firms and certain commercial banks and,
indirectly for investment funds, with insurance companies and others. Lehman
Brothers’ competitive ability depends on many factors, including its
reputation, the quality of its services and advice, product innovation,
execution ability, pricing, advertising and sales efforts and the talent of
its personnel.
The financial services industry has become considerably more concentrated as
numerous securities firms have been acquired by or merged into other firms.
These developments have increased competition from other firms, many of
which have significantly greater equity capital than the Company.
Legislative and regulatory changes in the United States allow commercial
banks to enter businesses previously limited to investment banks, and
several large commercial banks, insurance companies and other broad-based
financial services firms have established or acquired broker-dealers or have
merged with other financial institutions. Many of these firms have greater
capital than the Company and have the ability to offer a wide range of
products, from loans, deposit-taking and insurance to brokerage, asset
management and investment banking services, which may enhance their
competitive position. They also have the ability to support their investment
banking and securities products with commercial banking, insurance and other
financial services revenues in an effort to gain market share, which could
result in pricing pressure in the Company’s businesses. Moreover, the Firm
has faced, and expects to continue to face, pressure to retain market share
by committing capital to businesses or transactions on terms that offer
returns that may not be commensurate with their risks. In particular,
corporate clients sometimes seek to require lending and other commitments
from financial services firms in connection with investment banking
assignments. In addition, the trend towards consolidation and globalization
presents infrastructure, technology, risk management and other challenges.
Lehman Brothers has experienced intense price competition in some of its
businesses in recent years. For example, equity and debt underwriting
discounts, as well as trading spreads, have been under pressure for a number
of years, and the ability to execute trades electronically, through the
internet and through other alternative trading systems, has increased the
pressure on trading commissions. It appears that this trend toward
alternative trading systems will continue. The Company may experience
competitive pressures in these and other areas in the future as some of its
competitors seek to obtain market share by reducing prices.
The Company also faces competition in attracting and retaining qualified
employees. Our ability to continue to compete effectively in our businesses
will depend upon our ability to attract new employees and retain and
motivate our existing employees while managing compensation costs.
Ticker
LEH
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