The Collapse of First Executive Corporation: Junk Bonds, Adverse Publicity, and the 'Run on the Bank' Phenomenon

Posted: 14 Sep 1999

See all articles by Harry DeAngelo

Harry DeAngelo

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Linda DeAngelo

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Stuart C. Gilson

Harvard Business School - Finance Unit

Date Written: April 1994

Abstract

In April 1991, regulators seized the major subsidiaries of First Executive Corporation (FE), an insurer that invested heavily in junk bonds. During the junk bond market turmoil of 1989-1990, adverse publicity fueled a bank run at FE, forcing a $4 billion portfolio liquidation before the market rose 50-60 percent in 1991-1992. More traditional insurers did not receive commensurate press coverage, despite their substantial exposure to real estate declines, which were roughly 2.5 times the junk bond decline. Seizure of FE's subsidiaries was defensible, although FE would become solvent within a year, given average junk bond market appreciation.

JEL Classification: G21

Suggested Citation

DeAngelo, Harry and DeAngelo, Linda and Gilson, Stuart C., The Collapse of First Executive Corporation: Junk Bonds, Adverse Publicity, and the 'Run on the Bank' Phenomenon (April 1994). Available at SSRN: https://ssrn.com/abstract=5365

Harry DeAngelo (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-6541 (Phone)
213-740-6650 (Fax)

Linda DeAngelo

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-3868 (Phone)
213-740-6650 (Fax)

Stuart C. Gilson

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
(617) 495-6243 (Phone)
(617) 496-8443 (Fax)

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