- Warren Buffett had at least three opportunities to save Lehman Brothers from bankruptcy.
- The investor analyzed the embattled bank and decided it was too risky to help.
- Lehman Brothers’ collapse was a key catalyst for the global financial crisis.
- See more stories on Insider’s business page.
Warren Buffett had at least three chances to bail out Lehman Brothers before the investment bank collapsed in September 2008, fueling the global financial crisis. The billionaire investor and Berkshire Hathaway CEO rejected the first two invitations, and a technology mix-up meant he didn’t get the third one.
Buffett has repeatedly underscored the severity of the situation in the fall of 2008, when investors were pulling billions of dollars out of money-market funds, and credit markets were frozen.
It was “as close to a total meltdown throughout the financial system as you can imagine,” Buffett said at Berkshire’s 2008 shareholder meeting. “We really were looking into the abyss at that time.”
“I describe it as an economic Pearl Harbor,” he told Vice News in 2018, a decade after the financial crisis began.
Lehman CEO Richard Fuld first called Buffett in March 2008 to suggest Berkshire inject several billion dollars into the ailing bank, the investor told CNBC in 2018.
Buffett was open to the idea, and spent a night in his office scouring hundreds of pages of Lehman’s latest financial reports. He jotted down every red flag he spotted, and soon had a lengthy list.
“There was clearly a lot of trouble there,” Buffett told The Wall Street Journal in 2018.
“I just saw a lot of things that made me very worried about their financial condition, and what would be happening to them under the circumstances that were happening on Wall Street,” the investor told CNBC.
Lehman executives tried their luck again in the weeks before the bank’s collapse, Reuters reported. However, Buffett rejected the overture and dismissed the idea of an investment as “unrealistic.”
Barclays’ president at the time, Bob Diamond, called Buffett in September 2008. The British bank was looking to buy Lehman, and he asked Buffett if Berkshire would insure Lehman’s trades until Barclays shareholders could vote on the prospective deal.
Buffett was staying at a hotel at the time, and asked Diamond to fax him the details, he told CNBC. However, the Barclays boss was operating out of the Federal Reserve and couldn’t find a fax machine, so he left Buffett a voicemail instead. The investor didn’t notice, and only heard it the following summer when his daughter spotted it and played it for him.
Regardless, Buffett told CNBC that he couldn’t have offered the sweeping guarantee that Diamond wanted.
“It would have been an unlimited exposure that wouldn’t have made sense,” he said, especially “with the whole world falling apart.”
While Berkshire had the cash to swoop in and save Lehman, Buffett dismissed the idea that doing so would have prevented the financial crisis. “I really don’t think the world would have changed,” he said.
While Buffett said no to Lehman, he noted in his 2010 shareholder letter that Berkshire deployed about $16 billion in the 25 days after the bank filed for bankruptcy on September 15, 2008. For example, it made vital investments in Goldman Sachs, General Electric, and other struggling businesses.