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Quote of the Day
“You were able to turn what would have been the largest and most consequential bank failure in history into a medium-sized, below-the-fold news story. I don’t think markets appreciate the size of the bullet that was dodged, although everyone will understand it when history is written.”
-Federal Reserve Chairman Ben Bernanke in a letter to FDIC Chairwoman Sheila Blair, after her negotiating a deal for Citigroup to save Wachovia Bank on this day in 2008.
September 28th – This Day in Stock Market History
September 28th, 2008 – Wachovia Bank is Seized by the FDIC
FDIC chairwoman Sheila Blair calls Wachovia CEO Bob Steel to tell him that the FDIC would be seizing the company. It would have been the largest bank failure in US history, more than twice the size of Washington Mutual which failed 2 days before.
A “soft run” had occurred on Wachovia Bank Friday September 26th when depositors withdrew more than $5 billion in assets from the bank in a single day. It was unlikely that Wachovia would be able to stay in business as business resumed the next day.
But several other regulators, led by Tim Geithner, felt that was a mistake to seize Wachovia, and the actions would send the markets further into a panic. Geithner and others urged Blair to find another solution that included the private sector stepping in. Later that night, the FDIC would broker a deal with Citi group to acquire most of the bank’s banking operations for $1 a share.
However, this deal would not go through either, as Wells Fargo would launch a competing bid October 3rd.
Here is how the Associated Press covered the story:
September 28, 1918, The Start of the largest bond sale in American history
President Wilson had given the speech the night before at the Metropolitan Opera House, and the selling started the next morning.
The Fourth Liberty Loan subscription opened on Saturday, September 28, 1918 and ran to October 19. It raised roughly $6 billion at 4¼ percent, the largest of the five war loans, from a country whose entire federal budget had been under $750 million four years earlier.
What made the Liberty Loans structurally new was not the size but the distribution. Treasury Secretary William Gibbs McAdoo built a retail machine using payroll deductions, war-savings stamps sold in schoolrooms, four-minute speeches in cinemas, bond booths on street corners, and county quotas published in local papers with the names of those who had not subscribed.
Tens of millions of Americans who had never owned a security of any kind owned a federal bond by the end of 1918. The Philadelphia Liberty Loan parade of September 28, 1918 put roughly 200,000 people shoulder to shoulder on Broad Street while influenza was already circulating in the city, and is now studied as one of the most consequential super-spreader events in American public-health history.
The financial aftermath is the part the patriotic histories skip. The war ended on November 11, six weeks after the books opened. Then came the 1919 inflation and the 1920–21 deflation shock, and a long bond paying 4¼ percent behaved exactly as duration says it must: Liberty bonds spent much of 1919 and 1920 trading below par, and a generation of first-time investors discovered that a security can be a patriotic obligation and a poor holding at the same time.
September 28, 2000 — Apple warning issued after the close
At 4:30 in the afternoon on Thursday, September 28, 2000, with the market shut, Apple Computer issued a press release titled “Apple to Report Lower than Expected Fourth Quarter Earnings.” Revenue would come in between $1.85 and $1.90 billion and earnings around $110 million rather than the roughly $165 million analysts expected.
Chief financial officer Fred Anderson named three causes: September sales below plan across every geography, an education season that did not materialize, and slow adoption of the Power Mac G4 Cube. Steve Jobs called it a speedbump and pointed at Mac OS X, which was still a year from shipping.
The next session Apple fell 51.9 percent, from about $53.50 to about $25.75, wiping out roughly half the company’s market capitalization in a day.
The context is what makes it more than a bad quarter. The Nasdaq had peaked on March 10, 2000 and was already down about a quarter; what September 28 established was that the unwind had stopped being a story about companies with no earnings and had reached companies with real products, real cash, and a real installed base. Apple had roughly $4 billion in cash and no debt on the day it fell by half. Over the following two years the stock traded below $8 on a pre-split basis and at moments approached the value of the cash on its balance sheet, which is the market pricing a going concern at close to liquidation. The shareholder who bought on the afternoon of the warning and did nothing for twenty-six years — through three stock splits, the iPod, the iPhone, and a market capitalization that crossed a trillion dollars — did considerably better than the shareholder who was right about the quarter.
Best September 28th in Dow Jones Industrial Average History
1932 – Up 2.84%, 2.03 points
Worst September 28th in Dow Jones Industrial Average History
1931 – Down 2.77%, 2.97 points.
Read of the Day
Tim Geither details the story of Wachovia’s failure, along with all the other harrowing events of the 2008 financial crisis in his memoir Stress Test: Reflections on Financial Crises
