Many people find themselves wondering what the largest bankruptcies in history are. Though some may not realize it, bankruptcy is common in today’s world. In many cases, persons or companies go into bankruptcy with hopes of becoming new, better versions of themselves and gathering their resources to make that happen. Here we will discuss some of the largest bankruptcies.
1. Lehman Brothers
Lehman Brothers was a global investment bank headquartered in New York City, New York. Lehman Brothers were best known for its role in the financial crisis of 2008. It had approximately 6,800 employees, making it the fourth-largest investment bank in the world. Lehman Brothers have survived previous economic crises and periods of corporate decline. Lehman Brothers ‘ success was due in part to its unusual business model, which made it a hybrid of a commercial bank and investment bank. Lehman Brothers provide full-service brokerage, investment banking, and trading. Its other main business lines were asset management, private equity (investing in businesses), and treasury services. At the time of bankruptcy, Lehman Brothers employed approximately 3,500 employees in New York City alone.
2. Washington Mutual
Washington Mutual (WM) was once the most significant savings and loan association in the United States. It was based in Seattle, Washington, and had employed over 6,300 people at its peak. In 2008, due to poor management and an excess of bad debt, Washington Mutual was taken over by the government’s FDIC (Federal Deposit Insurance Corporation). The FDIC estimated that 1.3 million customers had been affected by this turn of events. At the time of bankruptcy, Washington Mutual had $307 billion in assets and 24,000 employees.
3. Worldcom Inc
Worldcom Inc was once the second largest long-distance provider in the United States and had about 48,000 employees at the time of bankruptcy. WorldCom used to be a subsidiary of MCI (a telecommunications company). The name “MCI Worldcom” was adopted when the two companies merged in 1998. As a result of this merger, many feared that one company would dominate the US telecommunications industry.WorldCom faced a large lawsuit for overstating its profits and hiding billions of dollars in debt. This ultimately led to its bankruptcy filing. MCI Worldcom emerged from bankruptcy in 2003 after paying back $7 billion to creditors.
4. General Motors
General Motors was America’s largest automobile maker. The company had employed over 1,000,000 members of the United Auto Workers Union and had built over 10 million vehicles. During the 1970s and 1980s, General Motors was forced to deal with several financial problems, such as costly labor contracts. This resulted in poor management decisions, such as falling sales and industrial relations. As a result of these poor management decisions and its subsequent decline, General Motors filed for bankruptcy in 2009. By that time, General Motors had approximately 63,000 employees.
5. CIT Group
CIT Group was a conglomerate of companies. It was headquartered in New York City and employed about 63,000 persons. CIT Group had agreed to take over R.H. Donnelley & Sons Company, another bankrupt company, for $1 billion, making the transaction the largest leveraged buyout since 2005. By 2009, CIT Group had been ranked 109 on the Fortune 500 list. It specializes in lending for small and medium businesses. CIT Group had once employed over 100,000 persons. At the time of bankruptcy, CIT Group had about 39,000 employees and $70 billion in assets (including R.H. Donnelley).
6. Pacific Gas and Electric Company (PG&E)
Pacific Gas and Electric Company (PG&E) is an energy provider based in California. PG&E had employed over 14,000 persons at the time of bankruptcy. At that point, it was the largest bankruptcy affecting one particular state. During PG&E’s bankruptcy proceedings, PG&E’s assets were transferred to a new corporation known as California PG&E Corporation. This allowed customers to continue receiving electricity without interruption.
Enron was a multinational conglomerate that was composed of many business units. At its peak, Enron employed over 23,000 persons. Enron had many businesses that included natural gas and energy trading, and it also had a customer-loyalty program called the Enron Corporation Network (ECN). Enron Corporation Network gave the company an advantage in customer acquisition by offering special discounts on telecommunications services. Enron Corporation Network used to transfer confidential information from third parties such as suppliers and customers to the company’s top management without their knowledge. Eventually, Enron Corporation Network was later found to be fraudulent, resulting in Enron’s bankruptcy. This left thousands of employees jobless and many customers without service.
Conseco was an American insurance company. It had grown from a small business into a multinational corporation that sold insurance, investments, banking services, and consumer health care products. At the time of bankruptcy, Conseco had over 277,000 employees and more than $25 billion in assets. The company’s claim of health insurance fraud by some employees led to its bankruptcy filing in 2001.
The initial problem faced by these large companies was excess debt, which led to a lack of capital, too much debt, and a loss of credibility for investors. Each of these companies faced a decline in sales from the market or a reduction in the company’s core business lines. In addition to poor management, these companies also faced challenges such as unfriendly regulatory agencies, poor government relations, and a harsh corporate culture that made it difficult for them to recover.