Powerhouse Drexel Brought To Its Knees
NEW YORK - The bankruptcy filing by the parent of Drexel Burnham Lambert Inc. could take years to sort out, but already there is little left of the firm whose junk-bond machine fueled the fast-buck, megamerger 1980s.
With most securities firms refusing to trade with Drexel and banks unwilling to lend money to stem its cash crisis, the one-time powerhouse began liquidating its huge bond portfolio even before its board authorized the bankruptcy filing.
Employees, meanwhile, scrambled to look for jobs in an industry that has been shrinking steadily since the October 1987 stock market crash.
Drexel Burnham Lambert Group Inc., parent of the securities company, filed for Chapter 11 protection from creditors late yesterday. Only four years earlier, riding the crest of a takeover boom, Drexel had posted record pre-tax profits of nearly $1 billion.
Guards inspected boxes of personal belongings as employees left the downtown headquarters last night. Resumes and phone calls from Drexel workers flooded other Wall Street firms.
While no formal layoffs were announced, employees considered their departure a foregone conclusion. Drexel brokers roamed the floor of the New York Stock Exchange openly soliciting jobs. Employees were told they would get paid tomorrow, but there were no guarantees after that.
``People were told the firm at some point is going to wind down,'' a Drexel executive said on condition of anonymity. ``You don't need to draw a picture.''
Drexel immediately began dismantling its securities operations yesterday, starting to liquidate billions of dollars worth of government bonds and mortgage-backed securities, tens of millions in junk bonds and other financial instruments.
Drexel also negotiated the transfer of customer brokerage accounts to Smith Barney, Harris Upham & Co.; withdrew as a market maker in 228 over-the-counter stocks; and put entire business units up for sale.
The downfall of Drexel, which was founded in 1838 in Philadelphia by a portrait painter named Francis Drexel, has been as startling as was its recent rise, mirroring the career of junk-bond genius Michael Milken.
Milken is credited with single-handedly creating and controlling the market for low-rated debt securities and using them to finance billions of dollars in hostile takeovers.
The high-flying firm made gargantuan profits in its heyday and paid its employees accordingly. Milken personally made more than $1 billion from 1983 to 1987.
Drexel's attitude was embodied by brash letters telling clients it was ``highly confident'' it could raise hundreds of millions of dollars during corporate takeover battles, and by its lavish annual junk-bond conference known as the ``Predators' Ball.''
But the luster began fading in 1986 when Drexel investment banker Dennis Levine was arrested on insider-trading charges. The investigation later snared arbitrager Ivan Boesky, Drexel, other employees and an investment firm with which it did business, Princeton-Newport Partners.
Drexel in late 1988 agreed to plead guilty to six felonies and pay $650 million in fines and penalties. Milken was indicted last year on 98 counts of fraud and racketeering and has since left the firm.
Some Wall Street professionals - not all of them Drexel backers - maintain the firm wrote its own epitaph when it settled with the government to forestall a possible racketeering indictment and agreed to let go of Milken, which left the $200 billion junk-bond market without a leader.
The junk market collapsed last fall as several big companies staggered under their debt burden.
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