Largest Bankruptcies in History – E24

They sparked a financial crisis and have been the subject of a number of lawsuits: Here are some of the largest bankruptcies in history.

On Monday, it was all over for Chinese real estate giant Evergrande.

The company's debt is more than NOK 3,000 billion according to CNBC The most indebted real estate developer in the world.

– If someone has been on their deathbed, in this case since December 2021, it will not be a shock to the family when the death finally occurs, investment director Pall Ringholm at the Health Institutions Pension Fund told E24 in connection with the bankruptcy. He has followed the company closely for a long time.

One might argue that the real estate giant's slow suffocation was among the world's largest bankruptcies.

It is difficult to determine which bankruptcies are the largest in world history, as there are different ways to describe the size of the bankruptcy case.

However, there are a number of bankruptcies that can certainly be called “major.”

Lehman Brothers

Early on Monday morning, September 15, 2008, US investment bank Lehman Brothers, which has about 26,200 employees, announced a takeover bid.

The bank bet big on the market to lend to American customers with questionable loans, so-called “subprime loans.” When the housing market collapsed and fewer people were able to pay their mortgages, the value of these securities declined.

– It may have been the economic downturn that led to the collapse of Lehman Brothers, says Robert Ness, investment director at Nordea Investment Management.

The bank's stock price fell, but worse: no one wanted to lend the bank money anymore.

When the bankruptcy petition was filed, the bank had $613 billion in debt.

The bankruptcy had massive ripple effects around the world. It is considered by many to be the causative factor of the financial crisis that struck the world in the fall of 2008 and beyond.

– Evergrande's bankruptcy is unlikely to have serious consequences. Knut A says: Magnussen, chief economist at DNB Bank: China is not an integral part of the global financial market, while the United States is the core of the global market.

Lehman influenced a number of other players in the financial sector, both in the United States and globally.

It only took a few weeks before the next big bank collapsed.

Washington Mutual

Shortly thereafter, in September 2008, it was “the largest savings bank in the United States,” Washington Mutual Bank, that ran into big trouble.

The authorities revoked the bank's license after customers withdrew NOK 90 billion from the bank within a few months. At this point, the bank was already bankrupt.

the bank He had assets Worth $307 billion when it went bankrupt.

It is usual for major bankruptcies within the financial sector to have the greatest negative impacts on economies. DNB's Magnussen says this sector is special because many of the companies are closely linked.

The collapse of the major banks in 2008 occurred at the beginning of what is now known as the financial crisis.

Silicon Valley Bank

The third largest banking collapse in US history occurred last year. Then it was Silicon Valley Bank (SVB) that collapsed.

Silicon Valley Bank was one of the first banks to fail and was taken over by the government when the banking crisis spread in March 2023. The bank focused on startups in Silicon Valley.

SVB ran into problems after customers withdrew money from the bank faster than it could control.

High interest rates were the backdrop to the collapse. SVB Bank also made an investment mistake by betting that interest rates would stay low, and in 2021 – when the tech boom was at its strongest – it placed an influx of deposits into the bond market.

The bank's collapse did not lead to a major international banking crisis. The reason is that the US Banking Supervision Commission chose to acquire the bank, then sell it to more solid banks, says Nordea's Ness.

– In some cases, they had to provide guarantees, but this was a solution that avoided creating negative effects. The Lehman Brothers case may have taught supervisory authorities that this was the best way to solve such problems, Magnussen says.

SVB was the 17th largest bank in the United States, with some of the biggest names in the US technology industry on its client list.

The oil fund will lead a class action lawsuit against the bank in the wake of the bankruptcy.

-We manage funds on behalf of the Norwegian people. “I see it as our duty to take legal action to maximize the amount we can recover after the collapse of SVB and to respond to unacceptable market behavior,” Nikolai Tangen, oil fund manager, said in a statement. message Regarding the announcement of the lawsuit.

Terra Securities

Here at home, the bankruptcy of Terra Securities is often cited as the largest bankruptcy in Norwegian history.

The bankruptcy occurred after what later became known as the Terra scandal. Several energy municipalities in Nordland have invested hundreds of millions of kroner in complex fund products in the USA.

The investments were originally presented as risk-free, but as the financial crisis escalated in the United States, the value of these investments declined significantly. Municipalities were then asked to pay huge guarantee sums.

Terra Securities has received notice that it will lose its licenses as a result of this scandal. Terra-Gruppen has filed for bankruptcy and the trustee said there are claims for a total of NOK 804 million against the property, including NOK 772 million from the municipalities affected.

The case had consequences that lasted for many years in court cases in both the USA and Norway.

In June 2019, 12 years after the investment scandal, a deadline was set for the case. Many of the affected municipalities entered into a settlement with the insurance company AIG.

Mayor Harald Lie said in Hattfjelldal municipality after the settlement that the municipalities succeeded in recovering approximately 1 billion kroner out of 1.4 billion collectively invested in various savings products.

Parmalat

Elsewhere in Europe, Italian food and dairy giant Parmalat has been highlighted as one of the biggest bankruptcies and scandals in history.

In December 2003, a €3.9 billion loan was late. The company had no opportunity to pay.

Subsequent investigations revealed that the accounts had been falsified for years to hide huge debts. They had a huge gap in their accounts of 14 billion euros.

After two major legal investigations in Milan and Parma respectively, as well as numerous legal proceedings, the company underwent a major restructuring. The company was finally listed on the Milan Stock Exchange back in 2005.

The founder and CEO of the company, Callisto Tanzi, was sentenced to 10 years in prison for fraud related to the collapse of the dairy group.

A few years later, he received another conviction for “fraudulent bankruptcy.” He was sentenced to 18 years in prison. He served the majority of the sentences under house arrest before his death in 2022.