Sample Essay Collapse of Lehman Brothers and Northern Rock

Sample Essay on the Collapse of Lehman Brothers and Northern Rock

In the year 2008, two financial behemoths were pushed to oblivion after they were declared bankrupt. The collapse of Lehman Brothers and Northern Rock, which was headquartered in London marked the beginning of the global financial crisis. Eichengreen et al., (2009) observe that the fall of Lehman Brothers was the direct cause of the global recession, as the effects of the fall spread through contagion and spillover effects to the rest of the global economies.

Other scholars opine that the collapse of Lehman Brothers and Northern Rock accelerated and intensified the global financial crisis. The two financial institutions were key players in their respective countries, the United Kingdom and the United States of America, however, the two financial giants failed in the year 2008. Reasons cited for the failure of these financial behemoths are strategy miscalculation and financial weaknesses.

These essay seeks to evaluate, compare and contract strategic and financial reasons for the collapse of Lehman Brothers and Northern Rock, both which were operating different business models and in different geographical locations and finish with outlining what major world financial institutions should learn from the collapse of the two financial behemoths.

Overview of the Collapse of Lehman Brothers and Northern Rock

Overview of Lehman Brothers and its Collapse

Lehman Brothers CollapseAccording to Swedberg  (2010) Lehman Brothers was founded by German immigrants Henry Lehman, Emanuel Lehman and Mayer Lehman in 1850 in Montgomery. The growth and prosperity of Lehman Brothers was buttressed by a bludgeoning U.S economy at that time, which aided the financial institution to become an international financial industry player. Through the years until its collapse, Lehman Brothers were faced with numerous challenges, with the most glaring being the First World War, the Great Depression of the 1930 and the Second World War, however, it was unable to withstand the housing bubble burst of 2007, which eventually brought the financial giant to its knees. Levine (2010) observes that in the year 2003, the United States of America was experiencing a housing boom and Lehman Brothers plunged into the housing business by acquiring five mortgage lenders. Initially, the new acquisitions, which were dealing in securitisation of mortgages, were highly profitable and growing faster than other business lines, lifting profits for the company by over 56% in two years, 2004 to 2006. However, crack emerged in the mortgage business with the burst of the housing bubble in the year 2007-2008, ending the bull run of the company stock and growth.

Overview of Northern Rock and its Collapse

Collapse of Northern RockNorthern Rock started as a building society in 1955 following the merger between Northern Countries Permanent Building Society, which was formed in 1850, and Rock Building Society, which was formed in 1865. The merger gave rise to a new entity Northern Rock Building Society that later merged with small building societies.  Northern Rock was listed on the London Stock Exchange in the year 2007 and had its headquarters located in North Eastern part of England. According to Shin (2009) Northern Rock core businesses before the collapse in the year 2008 was in residential mortgage lending, retail savings and insurance products. Therefore, Northern Rock was involved in three business lines, receiving deposits, lending mortgage loans and selling insurance products. The future of Northern Rock was inherent in the success or failure of its business-funding model. Following the conversion of Northern Rock Building Society into a fully-fledged bank, the United Kingdom North Eastern based financial institution started offering a wide range of banking services but still maintained the residential mortgage lending business. Capitalising on its two businesses, Cash flow from the banking business was channeled to fund loans in the mortgage business. Ungureanu and Cocris (2008) opine that Northern Rock would use the cheap deposit and offer them to consumers as mortgage loans at high interest rates. Katie (2012) explains that with increased fortunes the residential business segment and financial innovations, Northern Rock gave prominence to the residential market through creating mortgage-backed securities. Additionally, it shifted its focus from cheap deposits to interbank loans and other short term funding mechanisms from the money market and capital markets to sustain the residential market business, which is what caused cracks in Northern Rock. With the drying up of funds from financial markets falling the bubble burst and lack of confidence in the institution due to its subprime mortgage business, which at that time was in deep mess in the United States of America, depositors ran into a panic mode resulting into a bank run, drying up Northern Rock’s liquidity.

Strategic Reasons for the Collapse of Lehman Brothers and Northern Rock

Contemporary business environment, both in product and service, market is characterised by cutthroat competition that threatens the very survival of firms whether big or small. In order to stay afloat, Delios (2012) asserts that business managers devise both short term and long-term strategies in order to remain competitive or gain competitive advantage; consequently, a business strategy is an indispensable tool both in product and service market. Since financial institutions are driven by profit maximisation and growth attainment, managers of financial institutions devise business strategies, both in the short term and long-term business in order to drive profitability and growth both in the long term and short-term goals. However, strategies do not always yield intended purposes, as constant changes in market conditions may render them blunt and obsolete.

Lehman Brothers and Northern Rock had to pursue strategies to gain a competitive edge in the financial industry, more so to benefit from the boom in the housing market in the early years of 200s both in the United States of America and in the United Kingdom. According to Duta, Caplan and Lawson (2010) among the reasons that point to the collapse of Lehman Brothers are excessive exposure to the subprime business, fraud, poor credit risk rating by credit rating companies, complex company structure and overall company business strategy.  Barkhausen (2010) observes that Lehman Brothers in the year 2006 made its intention to pursue an aggressive growth business strategy. As a result, Barkhausen (2010) expounds that the once financial behemoth “switched from a low risk brokerage model to a capital intensive banking model”. Lehman Brothers, therefore, reoriented their business strategy to a business that was involved in buying assets and storing them awaiting their appreciation in value instead of channeling them to a third party. The financial giant in pursuing its aggressive business strategy started buying into real estate, leverage lending and private equity, which are highly illiquid assets with vague prospect.

This was a profitable business model in the short term but a very risky model in the long term given the low prospects of illiquid assets such as private equity, which would only cripple financial performance. While Lehman Brothers was pursuing an aggressive growth strategy to increase profitability levels, Northern Rock, on the other hand, was pursuing a different business model from Lehman Brothers but that was also an aggressive business strategy to increase profitability levels. Einsenbeis and Kaufman (2009) assert that the predominant reason of the collapse of Northern Rock was precipitated by its aggressive business strategy that it adopted following its conversion into a fully fledged bank in the year 1997. Einsenbeis and Kaufman (2009) continues to assert that in 1997, Northern Rock re-oriented its business model from “a traditional thrift and mortgage lender that originated and held mortgages to one that relied upon mortgage origination, servicing and repackaging through securitisation.” Just like in Lehman Brothers case, the new business model proved profitable in the short term lifting assets in mid 2005 from $16 billion to a record $32 billion at the end of 2007. In addition, according to the Bank of England (2007) the new business model tripled Northern Rock’s mortgage market share from 6% to a record 19% from the year 1999 to the year 2007. These aggressive business strategies that re-oriented earlier business models of Lehman Brothers and Northern Rock constrained liquidity for the both financial behemoth. An observation supported by Llewellyn (2004) who observes that the exponential growth of Northern Rock of above 20% saw mortgage lending outpace retail deposit, forcing the financial giant to fill the gap using market funding mechanisms.

Due to constrained liquidity, Lehman Brothers and Northern Rock adopted new funding strategies. For instance, Einsenbeis and Kaufman (2009) observe that the new business model of originating and distributing repackaged mortgage loans as securities caused the lender to be highly leveraged; as a result, Northern Rock turned to short term borrowing from the markets to support the securitisation process of mortgages, creating a maturity mismatch. Similarly, Swedberg (2010) asserts that despite immense losses from the countercyclical strategy that sought to re-orient the Lehman Brothers strategy into an aggressive business model, the bank failed to sell the illiquid assets instead focused on short term borrowing from the money market using repos, this saw Lehman Brothers increase its short term liabilities than peer banks. Over-reliance on short term borrowing posed high impact risk to the corporations in case of sudden steep rise in interest rates as it would make borrowing unsustainable drying up liquidity in the corporations, and that is what happened following the start of the subprime crisis, which was marked by the fall of Bear Stearns and a dip in investor confidence.

Financial Reasons for the Collapse of Lehman Brothers and Northern Rock

Following a boom in the housing prices in the United Kingdom and the United States of America, Northern Rock and Lehman Brothers started securitisation of mortgages, that is the origination and distribution of mortgage backed securities. According to Fabozzi and Kothari (2008) securitisation of mortgages is the process in which illiquid assets such as mortgage loans are converted to liquid assets through packaging them into asset backed securities and selling them to investors and other third party agents. The originator of mortgages, in this case Lehman Brothers and Northern Rock, sells issued loans to a special purpose vehicle, which in turns creates tranches and sells them to investors who are willing to take up the risks, cash flow from borrowers of the loans is what is used to pay the investors. Both Lehman Brothers and Northern Rock became key players in distributing securitised mortgages, Barkhausen (2010) observes that by the year 2007, Lehman Brothers had accumulated $85 billion worth of mortgage backed securities in its portfolio, which represented four times its shareholders equity. This over concentration in the mortgage business made the company highly vulnerable to a dip in housing price. The bursting of the housing bubble in 2008 brought out the consequences of over-exposure to the mortgage market to light with disastrous consequences; similar situation was reflected in Northern Rock, which was originating and distributing mortgage backed securities to investors. Securitisation posed an adverse effect of undercapitalisation to Lehman Brothers and Northern Rock due to mismatch of maturity of amount lent out and borrowed funds, as the two institutions borrowed funds on short term basis while lent out on a long term basis creating liquidity crisis on the two financial firms. Following increased credit risk due to default on subprime mortgage loans, investors grew wary of mortgage backed securities, as a result, starving cash Northern Rock and Lehman Brothers who were using proceeds from investors to settle the short term loans, therefore increasing their financial risk.

Key Lesson from the Collapse of Lehman Brothers and Northern Rock

The collapse of Lehman Brothers and Northern Rock, which at the time were dominant players in the financial industry, resulted into catastrophic effects of the global financial system. Due to the adverse effects that the fall of these two dominant players in the financial industry caused the global economy, a lot of research has been done to deduce lessons that players can learn from the their collapse. The other major reasons cited for the collapse of Lehman Brothers and Northern Rock were greed, deregulation of the financial industry, weak corporate governance structures and weak risk management systems. Due to the competitive nature of the financial industry, players were undercutting peers by under pricing risks and engaging in other unethical practices to drive up businesses. Weak corporate governance structures contributed to the collapse of Lehman Brothers and Northern Rock by allowing the management to pursue high impact business strategies.  As a result, the financial industry need to be regulated to curb unethical business practices and play a greater oversight role in the operational activities and risk levels of players in the financial industry. Financial institutions should be required to establish effective risk management frameworks and corporate governance structures.


In the past two decades, the world has witnessed mixed happening in the global financial sector, from the bubble burst in the United States of America in the early 2000’s to the recent banking crisis that has hit the developed countries of Northern America and Europe. Bank failures are mainly caused by liberalisation of the financial markets and deregulation of the financial systems in a country. In the case of the collapse of Lehman Brothers and Northern Rock, it was because of strategic and financial reasons caused by the aggressiveness of the management of these two firms to increase profitability levels and growth. The two institutions reoriented their business strategy in order to spur growth; however, the results had far reaching effects. The lessons learnt include a need for regulations in the financial services industry, enhanced risk management systems and enhanced corporate governance structures in financial institutions to avert another global financial crisis.

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Delios, A. 2012. International business: an Asia Pacific perspective. London: FT Press.

Dutta, S., Caplan, D. & Lawson, R. 2010. Lehman’s shell game poor risk management. Strategic Finance, 92(2) 23-29.

Eichengreen, B., Mody, A. Nedeljkovic, M. & Samo, L. 2009. How the subprime crisis went global: evidence from bank credit default  swap  spreads.  NBER  Working  Paper  Series.

Eisenbeis, R. A. & Kaufman, G. G. 2009. The failure of Northern Rock: a multi-dimensional case study. Vienna: SUERF.

Fabozzi, F. J. & Kothari, V. 2008. Introduction to securitisation. New York: John Wiley & Sons.

Katie, J. 2012. Why banks fail: a case study of Northern Rock, Lehman Brothers and Union Bank of Switzerland (UBS)? Munich: GRIN Publishing.

Levine, R. 2010. An autopsy of the US financial system: accident, suicide, or negligent homicide. Journal of Financial Economic Policy, 2(3), 196-213.

Llewellyn, D. T. 2004. Institutional Structure of financial regulation ad supervision:  the basic issues. In Carmichael, J, Alexander F.& David,  L. Aligning Financial Supervisory Structures with Country Needs. Washington: World Bank Institute,

Shin, H. S. 2009. Reflections on Northern Rock: the bank run that heralded  the Global Financial Crisis. Journal of Economic Perspectives, 23(1), 101–119.

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Ungureanu, M. & Cocris, V 2008. Northern Rock: the crisis of a UK mortgage lender. Available at: [Accessed 20 May 2013]

How to Write MBA Capstone Projects

How to Write MBA Capstone Projects

MBA capstone project writing serviceBefore crowning an MBA, a capstone project will be required whereby scholars will have the platform to apply in a real business setting what they have learned throughout their academic years. The objective of the capstone is to identify and scrutinize a problem of real strategic importance to an organization from a managerial perspective. Unlike MBA dissertation that is focused on theory and performing research to add to the body of new knowledge in a certain business aspect.

Though dissertation and capstone share some similarities in research and format. It is important to differentiate MBA dissertation and MBA capstone. Since most students come to us requesting for help with writing MBA dissertation when they are supposed to mean MBA project.

A capstone project necessitates MBA learners to use their research abilities and proficiency they’ve gained over the entire MBA studies so far to either decipher real world business related difficulties or come up with a business plan for an entrepreneurial effort. Depending on the program; these high-level projects can be finalized in two semesters of students MBA’ program or extended out the full academic year. The capstone project can be commenced either individually or in a small group of 3 to 4 members.

Many capstones are selected by a student with the approval of a faculty member who will require them to write down a vast pool of recommendations for how certain problematic areas for an organization can be eradicated. In crafting these recommendations, students are given an avenue to exhibit their capability in MBA areas of study in the areas of finance, accounting, marketing, strategic management, and operations. They are defined in approximately 30-50 pages, outlined by a SWOT analysis of the company’s strengths and weaknesses, potential opportunities for growth and threats from competitors.

Process of Writing MBA Capstone Projects

Research proposal writersThe most challenging yet imperative fragment to any significant capstone project is to come up with an original MBA project topic. The focal attention for an MBA project topic should be its significance to the business realm; it is central to avoid topics that are either too broad or ambiguous as this will entail students requiring extra time when reaches the point when they are researching for data.

Furthermore, the topic must look into problems that are of strategic significance for the organization concerned and give the students the platform to come up with plausible recommendations. Additionally, the MBA project topic should be relevant and address emerging issue. For instance, HR studies are concerned with the evolution of future of work. This will be an interesting topic for any HR student interested with how artificial intelligence will impact on professions and future careers.

Read: Impact of Artificial Intelligence on Accounting profession

The application will prove beneficial to students in different ways. First, it will enable students to formulate tangible connections between the theories and methods studies during the academic year and present everyday strategic and managerial concerns. Secondly, it will assist in applying the different components of the program to carry out an extensive study. Thirdly, it will help students to enhance abilities in arbitration; collective behavior and leadership; and finally it will promote the development both written and oral skills when presenting the final outcomes from data gathered and combined for the capstone.

Students must first submit a proposal that defines the project they wish to carry out, clarify the reasons for pursuing that topic, sketch the objectives they hope to accomplish and how they strategize to meet them and display their initial research into the capstone idea. All this must be permitted a faculty member who will act as an academic mentor for the student(s) throughout the process of writing MBA capstone projects.

As soon as the capstone proposal has been ratified, students conduct an investigation and collect data on the project. If the capstone project involves conscripting a business plan for a new business venture, students will need to analyze data of its business rivals, identify a target market, and prospective sources of funding. During the course, the faculty mentor will appraise the students’ research undertakings and evaluate their process, and provide both accountability and guidance to keep students on the assignment at hand and how to proceed if they are facing any difficulty with any part of their project.

Lastly, the students methodically organize all data they have gathered to formally present the final written portion of the project to their professor. The project must exhibit the highest level of proficiency that one would expect to find in reports submitted to associates of an executive board. A presentation of the capstone follows afterward in front of a capstone committee panel of at least three members, and students may be required to answer questions about their work. The written report must feature the results and conclude with strategic recommendations, supported by an action plan which indicates the practicability of outlined recommendations.

Importance of Writing MBA Capstone Projects

MBA capstone writers UKCapstone projects are the final pieces of a student MBA graduate program. They are considered the most integral elements to students due to various reasons. First and foremost, they teach students to exhibit excellent academic and professional standards as they learn to apply the principles and theories of business management they learn in the MBA curriculum to the real world.

After all; it is overall beneficial knowing all there is to know about strategic management and sophisticated quantitative research skills and applying them to gather data from a real world organization so as to draw conclusions about staff productivity or profitability and make improvements on that data. Secondly capstone projects demonstrate students’ ability to collect and analyze either primary or secondary data from relevant and credible sources. Thirdly, once the agreed upon issues have the fully addressed and new recommendations provided, organizations can be able to use them in their ongoing work and decision-making processes.


Writing MBA capstone projects requires experience and expertise.  Most students lack time or necessary research writing skills to develop a winning final MBA project. Hiring MBA capstone project writer offers them relieve as the writer infuses business knowledge and much needed critical thinking skills in the paper. Students who come to us for help to write MBA projects ace through their MBA program with distinction.