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The firm said that poor market conditions in the mortgage space "necessitated a substantial reduction in its resources and capacity in the subprime space".
In 2008, Lehman faced an unprecedented loss due to the continuing subprime mortgage crisis.
Lehman's loss resulted from having held onto large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages.
Whether Lehman did this because it was simply unable to sell the lower-rated bonds, or made a conscious decision to hold them, is unclear.
(This drop was subsequently exceeded by an even larger −7.0% plunge on September 29, 2008.) Lehman's bankruptcy was expected to cause some depreciation in the price of commercial real estate.
The prospect for Lehman's .3 billion in mortgage securities getting liquidated sparked a selloff in the commercial mortgage-backed securities (CMBS) market.
One measure of this risk-taking was its leverage ratio, a measure of the ratio of assets to owners equity, which increased from approximately 24:1 in 2003 to 31:1 by 2007.
In August 2007, Lehman closed its subprime lender, BNC Mortgage, eliminating 1,200 positions in 23 locations, and took a -million after-tax charge and a -million reduction in goodwill.
Lehman quickly became a force in the subprime market.The filing for Chapter 11 bankruptcy protection by financial services firm Lehman Brothers on September 15, 2008, remains the largest bankruptcy filing in U. history, with Lehman holding over US0,000,000,000 in assets.The bank had become so deeply involved in mortgage origination that it had effectively become a real estate hedge fund disguised as an investment bank.Further, Barclays will not acquire Lehman's Eagle Energy unit, but will have entities known as Lehman Brothers Canada Inc, Lehman Brothers Sudamerica, Lehman Brothers Uruguay and its Private Investment Management business for high-net-worth individuals.Finally, Lehman will retain billion of securities assets in Lehman Brothers Inc that are not being transferred to Barclays.
Lehman Brothers filed for Chapter 11 bankruptcy protection on September 15, 2008. provided Lehman Brothers with a total of $138 billion in "Federal Reserve-backed advances." The "Federal Reserve-backed advances" as provided by JPMorgan Chase were for $87 billion on September 15 and $51 billion on September 16.