Bankruptcies are one of the biggest problems in the world economy today, and much of the global recession has been extended due to bankruptcies from large financial corporations in the United States and elsewhere. Whether it’s a financial fraud or scandal, or just poor management and speculation, bankruptcies cause lasting shockwaves in the marketplace and economy.
Some bankruptcies are larger than others, and today, we’ve researched the 10 biggest bankruptcies of all time. You’ll undoubtedly remember a few of these, but there’s some you may not have known about. Many of these bankruptcies have occurred in recent years and are still having implications today.
Lehman Brothers – $639 Billion
Lehman Brothers Holdings Inc. was a global financial-services firm which, until declaring bankruptcy in 2008, participated in business in investment banking, equity and fixed-income sales, research and trading, investment management, private equity, and private banking. It was a primary dealer in the U.S. Treasury securities market.
On September 15, 2008, the firm filed for Chapter 11 bankruptcy protection following the massive exodus of most of its clients, drastic losses in its stock, and devaluation of its assets by credit rating agencies. The filing marked the largest bankruptcy in U.S. history. The following day, Barclays announced its agreement to purchase, subject to regulatory approval, Lehman’s North American investment-banking and trading divisions along with its New York headquarters building. On September 20, 2008, a revised version of that agreement was approved by U.S. Bankruptcy Judge James M. Peck.
Washington Mutual – $327 Billion
WorldCom – $103 Billion
WorldCom was a telecommunications company that at one point was the second largest long distance phone company behind AT&T, after it acquired MCI and other communications companies. WorldCom was set to merge with Sprint until the Justice Department stepped in. After an accounting scandal that is regarded as one of the most criminal corporate acts in history, on July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection in the largest such filing in United States history at the time (since overtaken by the collapse of Lehman Brothers and Washington Mutual in September 2008).
The WorldCom bankruptcy proceedings were held before U.S. Federal Bankruptcy Judge Arthur J. Gonzalez who simultaneously heard the Enron bankruptcy proceedings which were the second largest bankruptcy case resulting from one of the largest corporate fraud scandals. None of the criminal proceedings against WorldCom and its officers and agents was originated by referral from Gonzalez or the Department of Justice lawyers.
General Motors – $91 Billion
General Motors (GM) is a US automaker headquartered in Detroit, Michigan, which operates a variety of brands including Chevrolet, Buick, GMC and Cadillac. Previously, it also operated Saab, Hummer, Pontiac and Saturn, however, these were dissolved after GM filed for Chapter 11 bankruptcy in 2009, when GM reorganized and refocused its concept onto the core brands, on which it continues to operate.
CIT – $71 Billion
CIT is a global finance company that worked with financial products and advisory services, founded in 1908. The company does business with 80% of the Fortune 1000 and works with over a million small and medium businesses. In 2008, CIT Group became a bank holding company in order to qualify for, and ultimately receive $2.3 billion in Troubled Asset Relief Program (TARP) funds. It declared Chapter 11 bankruptcy on 1 November 2009, and with the consent of its bondholders proposed to quickly emerge from bankruptcy court proceedings.
Enron – $65 Billion
Enron was an American energy company based in Houston Texas, which was bankrupted by the Enron scandal and dissolved, along with the accounting firm that had been complicit in the financial scandal. Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. Several years later, when Jeffrey Skilling was hired, he developed a staff of executives that, through the use of accounting loopholes, special purpose entities, and poor financial reporting, were able to hide billions in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives not only misled Enron’s board of directors and audit committee on high-risk accounting practices, but also pressured Andersen to ignore the issues.
Shareholders lost nearly $11 billion when Enron’s stock price, which hit a high of US$90 per share in mid-2000, plummeted to less than $1 by the end of November 2001. The U.S. Securities and Exchange Commission (SEC) began an investigation, and rival Houston competitor Dynegy offered to purchase the company at a fire sale price. The deal fell through, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Enron’s $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until WorldCom’s bankruptcy the following year.
Conseco – $61 Billion
Conseco, formerly known as Security Life of Indiana, was a financial services organization based in Carmel, Indiana, which provided insurace and annuity products to a large number of customers. However, after a variety of failed projects and investments, Conseco entered Chapter 11 reorganization in 2002 and emerged in 2003 after eliminating Greentree financial, a subcompany it had purchased.
Chrysler – $39 Billion
Chrysler is another American automaker headquartered in Detroit, Michigan, which operates a variety of vehicle brands including Chrysler, Dodge, Ram, and Jeep. In 2009, Chrysler filed for Chapter 11 and planned to partner with Italian automaker, Fiat, and Chrysler sold off additional assets and operations.
Thornburg – $36 Billion
Thornburg Mortgage Inc., was an American publicly traded corporation headquartered in Santa Fe, New Mexico. Founded in 1993, the company is a real estate investment trust (REIT) that originates, acquires & manages mortgages, with a specific focus on jumbo and super jumbo adjustable rate mortgages. During the Financial crisis of 2007–2010 the company experienced financial difficulties related to the ongoing subprime mortgage crisis, and it filed for bankruptcy on April 1, 2009.
Pacific Gas and Electric – $36 Billion
The Pacific Gas and Electric Company is the utility that provides natural gas and electricity to most of the northern two-thirds of California, from Bakersfield almost to the Oregon border. It is a subsidiary of the PG&E Corporation.
With little generating capacity of its own, and unable to sell electricity to consumers for more than it could buy it on the open market, PG&E entered Chapter 11 bankruptcy April 6, 2001. The State of California bailed out the utility, the cost of which worsened an already bad state budget situation. This played an important part in the eventual recall of California Governor Gray Davis.
PG&E emerged from bankruptcy in April 2004, after distributing $10.2 billion to hundreds of creditors. Its 4.8 million electricity customers are expected to pay an average $1,300 to $1,700 each in above-market prices through 2012.