Drexel Papers Show $25 Million Owed to Calif. Pension Plan
Wall Street started picking up the pieces today in the wake of Drexel Burnham Lambert Group Inc.’s filing for bankruptcy protection. Court papers revealed today that the state of California retirement system is owed $25 million as one of the larger creditors.
Drexel was expected to lay off at least 3,500 of its 5,300 employees in the most dramatic Wall Street downscaling to date.
Employees scrambled to look for jobs in an industry that has been shrinking steadily since the October, 1987, stock market crash.
Guards inspected boxes of personal belongings as employees left the downtown headquarters Tuesday 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 will get paid Thursday 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 President Frederick Joseph filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code late Tuesday in federal bankruptcy court in Manhattan.
“DBL Group currently faces a liquidity crisis and does not have the financial resources to weather this storm without court protection,” Drexel Chief Executive Frederick H. Joseph said in bankruptcy court papers obtained today.
Joseph blamed the firm’s demise largely on “a downturn in the financial markets.” He said a slump in the market for commercial paper--short-term IOUs issued to raise cash--contracted in 1989 and Drexel was forced to repay $575 million without selling new paper to replenish the supply.
“The burden of meeting these obligations effectively wiped out DBL Group’s liquidity, rendering it incapable of meeting other obligations as they matured,” Joseph said in the papers.
In its petition for bankruptcy court reorganization, the firm listed liabilities exceeding $3 billion and assets exceeding $3.6 billion.
The largest creditor listed is Taiyo Mutual Life of Tokyo, owed $69.7 million. It is followed by Home Capital Services Inc., New York, $42.7 million; Banque Indosuez, Paris, $30.5 million; Sumitomo Life Insurance Com., Tokyo, and the state of California’s retirement system, $25 million. Fourteen of the top 20 creditors are foreign-owned companies.
The filing affects only the parent company, not the securities subsidiary. Broker-dealers are ineligible for Chapter 11 reorganization under federal bankruptcy law.
