THE COLLAPSE OF 1ST-EXECUTIVE-CORPORATION JUNK BONDS, ADVERSE PUBLICITY, AND THE RUN ON THE BANK PHENOMENON

In April 1991, regulators seized the major subsidiaries of First Execu tive Corporation (FE), an insurer that invested heavily in junk bonds. During the junk bond market turmoil of 1989-1990, adverse publicity f ueled a bank run at FE, forcing a $4 billion portfolio liquidation bef ore the market rose 50-60% in 1991-1992. More traditional insurers did not receive commensurate press coverage, despite their substantial ex posure to real estate declines, which were roughly 2.5 times the junk bond decline. Seizure of FE's subsidiaries was defensible, although FE would have become solvent within a year, given average junk bond mark et appreciation.