Decline in the price of real state developed mortgage crisis in the USA. It is one of the reasons that are affected Lehman brothers, which was not predicted by the bank in advance. Due to mortgage crisis, interest rates were increased by Lehman Brothers on housing loans. This situation created difficulties for borrowers to repay the loan to the bank. Lehman Brother had not maintained healthy relationship with other banks due to the over- confidence of its CEO. Slowdown of USA economy and market share, terrorist attack, decrease in labor market, low government support, Higher Credit rates and borrowing costs etc. are the key external factors that were not properly anticipated and planned by Lehman Brothers (Richelson & Richelson, 2011).
Impact of external factors on Lehman Brothers
High credit rates and borrowing cost led to huge loss of the bank, because borrowers were enabled to repay the loan to the bank (Davies, 2010). Lack of healthy relations with other banks resulted into poor support to Lehman brothers that affected the business practices of the bank during the economic downturn. Apart from this, terrorist attack in the USA also negatively influenced the operations and market share of the bank.Assignment Help Due to economic slowdown of USA economy, five major independent brokers of Wall Street disappeared that further negatively affected the trading system of the bank. So, it also increased the loss of the bank. Low government support during the critical situation was another factor that affected financial policies of the bank.
Deal with external environment
To deal with the environment, bank could have developed effective risk and crisis management strategies and strong financial policies for attracting the shareholders. To deal with external environment, Lehman Brothers could have reduced interest rates on housing loan. In that condition, borrowers could have easily repaid the loan to the bank. Bank could have developed harmony in relations with others banks to reduce the adverse impact of the environment. Bank could have dealt with crisis by giving some relaxation to the borrower in repayment of the loan (Posner, 2010). Additionally, bank could have developed some contingency plans and forecasting strategies to estimate the crisis and take preventive actions to deal with external environment.
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Aikman, J. S. (2010). When Prime Brokers Fail: The Unheeded Risk to Hedge Funds, Banks, and the Financial Industry. USA: John Wiley and Sons.
Davies, H. (2010).The financial crisis: who is to blame?.Britain: Polity
Posner, R. A. (2010). The crisis of capitalist democracy. USA: Harvard University Press
Richelson, H. & Richelson, S. (2011). Bonds: The Unbeaten Path to Secure Investment Growth. Canada: Bloomberg Press.