A large number of companies borrow heavily or take shortcuts to drive short-term profits and revenue growth. But sometimes their risky moves backfire, leading to the collapse of the entire corporation. Almost all of the billion-dollar bankruptcies in the US history had at least one of the following characteristics: massive debts, shady management, or risks that went unnoticed or were deliberately overlooked. Here we take a look at the top 10 largest corporate bankruptcies in the US history.
The ranking below is based on the total assets of the respective company before it declared bankruptcy. The largest corporations that went bankrupt belong to different industries such as utilities, automobiles, telecom, investment banking, and others. All of them wanted to grow rapidly at any cost.
10- Chrysler (2009), $39.3 billion in assets pre-bankruptcy
The 2008 financial crisis hit Chrysler hard as people stopped buying expensive vehicles. Its sales tumbled 30% in 2008 compared to the previous year. Chrysler was the first US automaker to fall due to the 2008 crisis. The $4 billion government bailout was not enough to rescue it. It filed for bankruptcy in April 2009. The US government later forced it to merge with Italian automaker Fiat. It received a total of $12.5 billion in federal bailouts.
9- MF Global (2011), $41 billion
Not happy with making small money in the brokerage business, MF Global CEO and former New Jersey Governor Jon Corzine started trading extremely risky, high-yield debts issued by struggling European economies such as Italy, Greece, Spain, and Portugal in the midst of the Eurozone Debt Crisis. MF Global structured its trades such that it could make short-term profits. When things didn’t work out as planned, the company started using its customers’ brokerage assets – of course, illegally – to cover its own losses from trades. Eventually, MF Global declared bankruptcy in August 2011.
8- Conseco (2002), $61 billion
Conseco was an insurance and financial holding company. Its aggressive acquisition strategies went horribly wrong as it took massive debts on its books. Since its inception in 1982, it had acquired 44 insurance firms before it went bankrupt in 2002. Things took an ugly turn when it purchased consumer lending firm Green Tree Financial for $7.6 billion in 1998. Immediately after the acquisition, Conseco had to infuse more cash into Green Tree Financial, whose financial condition kept deteriorating due to declining interest rates and weakening credit standards.
7- Enron (2001), $66 billion
Enron was one of the biggest corporate frauds in the US history. At one point, Enron was the largest seller of natural gas in the country. The company’s top management was pursuing aggressive growth at all costs. It started using fraudulent accounting practices to show more revenues and profits, at least on paper. It created Special Purpose Entities (SPEs) to hide its liabilities.
Enron was forced to declare bankruptcy after company insiders exposed the accounting fraud. Thousands of people lost their jobs overnight, their pensions vanished. Its top executives including the CEO, COO, and CFO were convicted of fraud, insider trading, and conspiracy. Enron’s bankruptcy also drove its accounting firm Arthur Anderson to extinction.
6- Pacific Gas & Electric (2019), $71 billion
Pacific Gas & Electric is the only company in this list to have declared bankruptcy twice within a span of 20 years. The first time, it filed for Chapter 11 bankruptcy in 2001 when it was buried under a pile of massive debts. The state of California tried to bail it out, and the company emerged out of bankruptcy in 2004.
Pacific Gas & Electric filed for Chapter 11 bankruptcy again in January 2019 in response to the financial liabilities arising from the massive wildfires in California in 2017 and 2018. The company has admitted that its equipment might have caused the Camp Fire in November last year. The fire has caused damages worth up to $10 billion. The Camp fire began on November 8, 2018 in Butte County and burned through 153,336 acres of land. It is estimated to have destroyed close to 19,000 homes and claimed 89 lives.
5- CIT Group (2009), $71 billion
CIT Group was a financial services firm that offered commercial and consumer financing. It invested heavily in the subprime mortgages at the peak of the US housing bubble. The company filed for bankruptcy in January 2009 and had received about $2.3 billion in federal bailouts. It emerged from one of the largest corporate bankruptcies within weeks of filing for it.
4- General Motors (2009), $82 billion
One of the world’s largest automakers filed for bankruptcy in June 2009. The then-CEO of General Motors Fritz Henderson said at the time that the bankruptcy filing could force the company to move out of Detroit. The automaker received $68.2 billion in federal bailouts. Poor automobile sales coupled with massive pension obligations are what drove GM to bankruptcy. Its bankruptcy ended up costing the US taxpayers close to $9 billion. When the company came out of bankruptcy, the US government held more than 60% shares of the restructured General Motors. The government has since sold its stake.
3- WorldCom (2002), $104 billion
Before its bankruptcy, WorldCom was the second largest telecom carrier in the United States. WorldCom is one of the largest corporate bankruptcies in the US history, all because its top management was pulling off a massive accounting scandal. The company was growing rapidly by acquiring smaller operators, fueling the purchases by borrowing more money. At one point, it had proposed to merge with Sprint in a $115 billion deal. Its CEO Bernard Ebbers was sentenced to 25 years in prison.
2- Washington Mutual (2008), $328 billion
In 2003, Washington Mutual CEO Kerry Killinger proclaimed that in five years, Washington Mutual would do to the savings and loan holding industry what Walmart had done to the retail business. But five years later, Washington Mutual ended up filing for bankruptcy due to its extensive exposure to subprime mortgages. Much of its retail operations are now owned by JPMorgan Chase.
1- Lehman Brothers (2008), $691 billion
Lehman Brothers is by far the largest corporate bankruptcy in the US history. The investment bank filed for bankruptcy on September 15, 2008 amid the subprime mortgage crisis. The 158-year-old investment bank’s failure has been the subject of a number of movies. Following its bankruptcy filing, Barclays purchased its North American investment banking and trading operations. Nomura Holdings acquired its Asia-Pacific operations, as well as its investment banking assets in Europe.