What is the Lehman Formula? A Comprehensive Legal Overview
Definition & Meaning
The Lehman Formula is a method used to calculate compensation for investment banking services, particularly in large stock transactions. Developed by Lehman Brothers in the early 1970s, this formula applies to transactions involving amounts greater than one million dollars. It specifies a tiered percentage structure for calculating fees based on the total transaction value, with different rates for each million involved.
Legal Use & context
The Lehman Formula is primarily used in the field of investment banking. It is relevant in transactions where investment banks or institutional brokers facilitate large stock investments. Legal practitioners may encounter this formula when negotiating fees for services rendered during significant financial deals. Users can manage some aspects of these transactions by utilizing legal templates available through US Legal Forms, which can help streamline the process.
Real-world examples
Here are a couple of examples of abatement:
For instance, if an investment bank facilitates a stock transaction valued at six million dollars, the fee calculated using the Lehman Formula would be:
- 5% of the first million: $50,000
- 4% of the second million: $40,000
- 3% of the third million: $30,000
- 2% of the fourth million: $20,000
- 1% of the remaining two million: $20,000
Total fee: $50,000 + $40,000 + $30,000 + $20,000 + $20,000 = $160,000.