At its peak in 1981, Continental Illinois National Bank and Trust was the sixth largest U.S. bank and the biggest domestic commercial and industrial lender, with more than $40 billion in assets. But after Continental became embroiled in the savings and loan crisis of the 1980s, the ultimate resolution was a bailout by the U.S. government. Some would call it nationalizing the bank, and it took seven years until the company was back in the private sector.
Here’s how it went down:
Early 1982: Troubles surface at Continental with the closing of Penn Square Bank in Oklahoma City. Continental was the largest participant in oil and gas loans at Penn Square and suffered huge losses on those loans mainly because of poor due diligence.
Q2 1982: Continental reports a $1.3 billion loss in non-performing loans and other assets. Analysts downgrade the stock. Shares fall 62% from its peak the year before. Rating agencies downgrade the bank’s credit and debt ratings.
1983: Two major shareholders sell all their stock.
1984: Foreign and domestic depositors start to withdraw their money in droves, beginning a run on the bank.
May 17, 1984: The FDIC deems Continental too big to fail and offers interim financial assistance, including a guarantee of zero losses for depositors and general creditors and continued service. Several U.S. banks also chip in to help. The FDIC takes a big ownership position in the bank, changes management and appoints a new chairman and CEO.
Sept. 26, 1984: The bank’s conditions don’t improve that much. The FDIC decides to give Continental permanent financial assistance, now a total of $4.5 billion. Now the FDIC takes on a “bad bank” approach, taking bad debt from the bank in exchange for equity. Through this, the federal government ends up owning roughly 80% of the bank’s shares, effectively nationalizing the bank.
1991: For seven years the FDIC sells off bits and pieces of its equity stake, and by 1991 Continental is returned to the private sector.
1994: Bank of America (Stock Quote: BAC) buys the bank and its $22 billion in assets for $2 billion. According to the FDIC, Continental fully repaid the government. The total cost to the FDIC was zero. The cost to Continental was $1.1 billion, which ultimately ended up being only 3% of its total assets at the time.
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