Musings on the 25th Anniversary of the Great Stock Crash
Twenty-five years ago – the stock crash of Oct 19, 1987, the senior team of troubled consumer electronics firm Curtis Mathes was in the main conference room of its headquarters office. Getting a major chewing out by our bankers, Jack Koslow and Gretchen Ford Smith of Texas American Bank, known locally as “TAB”. Curtis Mathes was in serious financial difficulty and in violation of several loan covenants. This was greatly exacerbated by TAB’s problems. TAB was the long-standing premier bank based in Ft. Worth.
Banks and Savings & Loans in TX were failing. At one point TX was home to many of the U.S. largest banks. But the sudden collapse in the price of oil had bankrupted numerous oil and gas companies, with their defaults erasing decades accumulated equity in the big Houston banks. Dallas banks experienced a fair amount of that, but would likely have survived but for two other businesses. The defense industry was suffering from government spending cutbacks – with defense a big Dallas and Ft. Worth industry, but the fatal injuries stemmed from a long, relentless drop in real estate values – both commercial and residential. While residential hurt the S&L’s worse, traditional banks had their share, and a big portion more. One –time giant banks Republic, Texas Commerce, Mercantile and First National, all eventually succumbed and were taken over by other national banks.
TAB avoided most of the oil and gas problems, but was waist deep in residential real estate as the principle lender to multiple large real estate developers. As TAB booked loan losses, its capital shrunk. There are regulatory limits to how much exposure a bank can have to any one lender. We at Curtis Mathes came to understand – although I don’t know that it was ever confirmed – that TAB’s exposure to Curtis Mathes exceeded their regulatory limit.
Jack and Gretchen were, to put it mildly, most emphatic about the need for us to pay down or off their loan. They didn’t care how it happened, whether by raising new capital, selling the company or whatever, just so that it happened and happened quickly.
As a reminder, this was before cell phones. There were car phones: costing over $1,000 and requiring a base receiver to be installed in the trunk of one’s vehicle about the size of a small suitcase, and a phone unit that took over the center console.
As the meeting progressed, our secretaries were increasingly interrupting the meeting with messages for Jack and Gretchen, who occasionally stopped haranguing us to call their office. Finally they announced that they had to return to Ft. Worth – the market was off 300 points and TAB’s CEO had called an emergency meeting. That was the first that anyone of us knew about the market drop. We all scurried around to call our brokers and find out what we could.
As the day progressed, I called several Wall St buddies, most of whom were in shock. One of my friends was seriously depressed; her networth was in the market, and in a margin account, and her entire position had been sold at a giant loss to cover margin. That happened in innumerable investors.
This past Friday, on the anniversary, as the market experienced a noticeable drop, I did exactly what I did 25 years ago: nothing. And Monday I’ll do exactly what I did 25 years ago: look for bargains.