Econintersect: In the 21st century there have been some colossal corporate losses. In a 27 December 2012 story, Investopedia described five of the biggest of all time; all occurred from 2001 onward. The list (in the order given by Investopedia):
- AOL Time Warner (NYSE:AOL): $146 billion loss (2001-2002)
American International Group (NYSE:AIG): $100 billion loss (2008)
- General Motors (NYSE:GM): $71 billion loss (2007-2008)
- Fannie Mae and Freddie Mac: Uncertain, but could end up reaching close to $1 trillion (2007-on going)
- JDS Uniphase (NASDAQ:JDSU): $56 billion loss (2002-2005)
The loss for JDS Uniphase was actually larger, according to Bloomberg, who listed the total of all losses from 1997 through 2009 at $68 billion, 21% more than the Investopedia number. That amounted to 13 consecutive years of losses. But, in the age of unimaginable losses, does the difference between $56 billion and $68 billion really matter?
Before the age of the massive bubbles, first dot.com and then financial, back when a billion dollars really amounted to something, the records for corporate losses were set by IBM (NYSE:IBM). In the fourth quarter of 1992 IBM lost $5.6 billion, a new record for any corporation up to that date. They went on to break their own record in the second quarter of 1993, posting a loss of $8 billion. The total losses for IBM over the three years 1991-1993 came to $16 billion, which was a colossal corporate loss at the time.
To put in perspective how times have changed, we dismiss as not really important the difference of $12 billion between two reported losses for JDS Uniphase, a much smaller company than IBM. Twenty years ago a $16 billion loss for a company with revenues in excess of $60 billion at the time was an almost unimaginable reality. Just 10-15 years later, no one seems too concerned about a difference of $12 billion in the reports of accumulated losses for a company with revenues in the $1 billion to $2 billion range.
For IBM to have a comparable loss to the $12 billion discrepancy (if scaled to revenues), the loss would have been $360 billion. And to scale up to the total $68 billion, based on revenue IBM would have had to experience a loss of the order of $2 trillion. Fannie and Freddie couldn’t even get there.
Anyway, IBM recovered from the early 1990s with a spectacular price appreciation after shedding about 2/3 of their employees and a lot of commodity based businesses. The stock history tells quite a story.
The resurrection of IBM from the 1993 low is astounding, more than 2208% gain, including dividends. What isn’t clear on the chart above is what happened in the late 1980s and early 1990s to the stock. The following chart tells that story.
What seems so insignificant on the 50-year chart is now seen to be a decline for IBM of more than 76% between the high in 1987 and the low in 1993.
Editor’s note: I knew someone who mortgaged his house to the hilt in 1993 and bought $180,000 of IBM within 2% of the bottom. I have not kept in touch over the intervening years so I don’t know how long the stock was held. But if still held today it would be worth about $3.9 million and it would be delivering about $70,000 a year in dividend income. The individual asked for my opinion a month after the purchase had been made. I told him I thought it was a foolish (crazy) move for a man around 50 years of age who had been laid off from his engineering job. If I met him today I would be thinking: Crazy like a fox.
Could JDS Uniphase ever mount such a comeback? The following chart may be used as a reference in thinking about an answer.
One thing seems very obvious: JDSU has suffered a far bigger decline than did IBM. The fall from the 2000 high to the current price ($13.29) is nearly a 98.8% loss. The loss from the peak to the low 0f $8.63 in July was more than 99%. However, people can make money today with JDSU; The gain from the July low has been 55.8%. Over the same time period IBM is up 5.8%.
But, to match the IBM record from 1993 to 2012, JDSU has only just started and would have to climb another 1300% from today and reach a value in the mid-180s. And then someone who had held the stock from 2000 would only be down only about 82%.
Sources:
- 5 Of The Largest Corporate Annual Losses Of All Time (Ryan C. Fuhrmann, Investopedia, 27 December 2012)
- JDS Uniphase Snaps 14 Losing Years With Products Ranging From 3-D to Solar (Ryan Flinn, Bloomberg, 14 June 2011)
- IBM’s $5 Billion Loss Highest in American Corporate History (John Burgess, The Washington Post, 20 January 1993)
- I.B.M. Posts $5.46 Billion Loss for 4th Quarter; 1992’s Deficit Is Biggest in U.S. Business (Steve Lohr, The New York Times, 20 January 1993)
- $8 Billion Ibm Loss, More Cuts (James Coates, Chicago Tribune, 28 July 1993)
- IBM 1990s (IBM Website)
- IBM’s Decade of Transformation: Turnaround to Growth Lynda Applegate, Robert Austin, Elizabeth Collins, Harvard Business School, Washington.edu)
- Charts from Yahoo Finance
