Lehman Brothers

LEHMAN BROTHERS Where vision gets built…

CONTENTS • • • • • • • •

INTRODUCTION ORGANIZATION STRUCTURE PRODUCTS SALES ANALYSIS STRATEGIES COMPETITORS TREND PROJECTION REFERENCES

INTRODUCTION The journey begins…

LEHMAN BROTHERS • Lehman brothers holding inc and its subsidiaries together called Lehman brothers • Leading global investment bank • Serves institutional, corporate, government and high net worth individuals clients

OVER THE YEARS • Under the Lehman Family (1850–1969) • Into the Arms of a Giant (1969–1994) • On Their Own Again (1994–present) • Recovery from Disaster (9/11/2001)

LOCATIONS Headquarters • Worldwide: New York • Regional : Tokyo, London

Additional locations: • • • • •

North America Europe Middle east Latin America Asia pacific

PRIMARY BUSINESS • Capital markets • Investment banking • Investment management

OPERATING PRINCIPLES 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Delivering the entire firm to our clients Doing the right thing Demonstrating a commitment to excellence Promoting and demonstrating teamwork Ensuring our organization is a true meritocracy Respecting each other Demonstrating smart risk management Preserving and strengthening the culture Giving back to the community Acting always with an ownership mentality Building and protecting the brand Maximizing shareholder value

REVENUE GENERATION • • • • • • • •

Structuring transactions Market maker and intermediary Originating loans for distribution Provide investment management Provide advisory services Acting as an underwriter Maintain inventory Make principal investments

PHILANTHROPY • Supported daycare for 500 homeless children in Dallas • Provided 50,000 meals for families in New York • Funded rebuilding of a primary school in China • Built 100 houses in Malavli village,India • Provided high school education for 660 girls in Africa • Launched mentoring program for African-Caribbean boys

ORGANISATION STRUCTURE The basic framework…

BOARD OF DIRECTORS • • • • • • • • • •

Richard S. Fuld,Jr. Michael L. Ainslie John F. Akers Roger S. Berlind Thomas H. Cruikshank Marsha Johnson Evans Sir Christopher gent Roland A. Hernandez Dr. Henry Kaufman John D. Macomber

SENIOR MANAGEMENT • • • • •

Richard S. Fuld,Jr. (Chairman and CEO) Jasjit S. Bhattal (CEO,Asia) Scott J. Freidheim (CAO) Michael Gelband (Global Head, Fixed Income) Dave Goldfarb (Global Head, Strategic Partnership,Prime Investing and Risk) • Joseph M. Gregory (President and COO) • Jeremy M. Isaacs (CEO,Europe and Asia) • Theodore P.Janulis (Global head,Mortgage Capital)

SENIOR MANAGEMENT • • • • • • • •

Stephen M. Lessing (Head of CRM) Ian T. Lowitt (CAO) Herbert H. McDade III (Global head equities) Hugh e. McGee III (Global head IB) Roger B. Nagioff (COO ,Europe) Christopher M. O’Meara (CFO) Thomas A. Russo (VC and Chief legal officer) George H. Walker (Global Head IM)

PRODUCTS The inside story…

FIXED INCOME Businesses include : • Government and Agency Obligations • Corporate Debt Securities and Loans • High-yield Securities and Leveraged Bank Loans • Money Market Products • Mortgage and Loan Origination • Mortgage and Asset-backed Securities.

EQUITIES Products Include : • Listed and Over-the-counter Securities • American Depositary Receipts • Convertibles • Options • Futures • Warrants • Derivatives.

INVESTMENT BANKING 1. Underwriting 2. Advisory Services • Mergers and Acquisitions (M&A) • Restructuring 3. • • • •

Global Finance Activities Underwriting Private Placements Leveraged Finance Other Activities

INVESTMENT MANAGEMENT • • • • • •

Traditional Brokerage Services Comprehensive Investment Wealth Advisory Asset Management Hedge Funds Trust and Capital Markets Execution Services

SALES ANALYSIS The rewards..

HIGHLIGHTS OF 2006 • Net revenues $17.6 billion (20% increase) • Earnings per share $6.81 ( 25% increase) • Stock price rose to $73.67 (17 % increase)

HIGHLIGHTS OF 2006 • 2006 Sales (mil.) $46,709 (44.1% growth) • 2006 Net Income (mil.) $4,007 (22.9% growth) • 2006 Employees 25,900 (13.1% growth)

INCOME STATEMENT Income Statement Total Revenue

$46,709

Gross Profit

$16,170

Total Operating Expense

$40,804

Operating Income

$5,905

Net Income before taxes

$5,905

Net Income After taxes

$3,960

Net Profit Margin

8.0%

FINANCIAL STATUS

TOTAL ASSETS

$503,545

TOTAL LIABILITIES

$484,354

TOTAL STOCKHOLDERS’ EQUITY

$19,191

OVER LAST 5 YEARS

2006

2005

2004

2003

2002

Net Revenue

$17,583

$14630

$11576

$8647

$6155

Net income

$4007

$3260

$2369

$1699

$975

Total assets

$503545

$410063

$357168

$312061

$260336

STRATEGIES The style of doing things…

IN BRIEF • Hired worldwide for senior level jobs • Opened an office in Dubai an India • Strengthened asset management and private equity in Europe • Established investment management in Asia • Added new asset classes • Expanded energy trading platform • Expanded global client base • 2-for-1 common stock split in the form of stock dividend.

NEW VENTURES • Acquired Campus Door, provider of student loans • Entered Japan's mortgage capital business through L-STaRS one funding limited issue • Acquired Townsend Analytics, a software development and financial services provider • Invested in BATS trading Inc ad BIDS • Together with IBM formed China Investment Fund

ADVISORY • Financial advisor to AT&T in acquiring BellSouth Corporation • Advised Citadel Investment group and Och-Ziff capital management group about Hedge funds Advised abbey national PLC in its sale to Resolution PLC • Advised KKR led consortium in acquiring France telecom group’s stake in PagesJaunes groups SA

COMPETITIORS The main driving force…

COMPARISON TO INDUSTRY & MARKET Valuation

Company

Industry1

Market2

Price/Sales Ratio

0.55

1.88

2.06

Price/Earnings Ratio

7.04

20.01

18.01

Price/Book Ratio

1.40

2.16

2.06

Price/Cash Flow Ratio

--

19.60

12.51

•1Industry: Security And Commodity Brokers, Dealers, Exchanges, And Services •2Market: Public companies trading on the NYSE, AMEX, and NASDAQ

TOP COMPETITORS Revenue

Profit Margin

Employees

Market Cap

Morgan Stanley

$76,551.0

14.3%

58,333

$63,805.4

UBS AG (USA)

$73,127.5

30.6%

80,637

$104,934.9

Goldman Sachs Group, Inc. Merrill Lynch & Co., Inc. Lehman Brothers Holdings Inc. Credit Suisse Group (ADR) Nomura Holdings, Inc. (ADR) The Bear Stearns Companies Inc.

$69,353.0

20.4%

28,012

$72,888.1

$68,622.0

16.7%

61,900

$60,193.1

$46,709.0

11.9%

28,323

$29,607.2

$42,069.6

39.9%

45,600

$68,708.8

$17,311.7

18.5%

16,145

$34,287.5

$16,551.4

16.0%

15,120

$12,582.0

TREND PROJECTION What the future holds…

INDUSTRY • Global equity indices will gain 10% • Equity offering calendar to increase to 15% • $9.6 trillion of global fixed income origination • M&A activity to grow by 15%

COMPANY • Equities will boost and grow at about 50 % • Fixed income will continue to grow at around 15 % • Investment banking may grow at about 15% owing to new territories • Investment management will rise and grow at 45%

RISKS • • • • • • • •

Market risk Competitive environment Business environment Liquidity Credit ratings Credit exposure Operational risk Legal,Regulatory and Reputational risk

REFERENCES • • • • • •

Lehman Brothers 2006 annual report www.lehman.com www.investor.reuters.com Google Finance Yahoo Finance SEC filing for LEH

SWATHI VELISETTY MMS – I JBIMS 113