The Collapse of First Executive Corporation: Junk Bonds, Adverse Publicity, and the 'Run on the Bank' Phenomenon
Posted: 14 Sep 1999
Date Written: April 1994
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: Suggested Citation