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GM's First Big Buy and a Dubious Financial Record

On this day in economic and business history...

General Motors (NYSE: GM  ) is well-known for its diverse stable of brands. Few of these have been developed in-house, as GM's early history is riddled with acquisitions. GM's first major acquisition, which brought Cadillac into the fold, took place only a year after incorporation, on July 29, 1909. The original purchase price of approximately $6 million would be equal to $150 million today and is significantly lower than Cadillac's annual sales in the United States alone -- at the low end of $30,000 per vehicle (most Cadillacs are far costlier), sales of that marquee would have tallied at least $4.2 billion 102 years after the purchase.

Cadillac quickly took a leading role in GM's growth, as its flagship Chevrolet brand wasn't added to the stable for another nine years. The introduction of the electrical self-starter in Cadillacs beginning with the 1912 model year was a huge leap forward in automobile safety, and this new technology soon became the industry standard. A decade later, GM was building 20,000 Cadillacs a year. The Cadillac marquee helped GM gain long-term placement on the Dow Jones Industrial Average (DJINDICES: ^DJI  ) in 1925, a decade after its first brief Cadillac-driven placement (it lasted only a year and a half) made GM the first automaker to ever earn a place on the index.

Cadillac produced its millionth vehicle at the end of 1949. The '60s became Cadillac's decade, as annual sales climbed past 200,000 units by 1968. Even today, Cadillac is an integral part of GM's growth strategy. The marquee has become the tip of GM's spear in its Chinese beachhead, and sales of 100,000 per year are expected by 2016, approaching GM's 140,000 annual Cadillac sales in the U.S.

Financial implosion, savings and loan style
When First Republic Bank of Dallas, Texas failed on July 29, 1988 , during the opening saga of the savings and loan crisis, it set two dubious records: It had more assets than any other failed FDIC-insured bank in American history, and it also became the costliest individual failure for American taxpayers. Both records would stand for two decades.

First Republic had been the 14th-largest bank in the country, with more than 160 branches scattered throughout Texas. Formed in the desperate merger of RepublicBank and InterFirst a year earlier, this new Southwestern banking leader had been created as a way to stave off a failure that was eventually made inevitable by deteriorating real-estate values and a weakening regional economy. It had $33.4 billion in assets at the time of its failure, but weak real-estate prices, combined with a reluctance to write off non-performing loans, meant that the true value of First Republic's assets was somewhat lower.

During the first quarter of 1988, widening fears of insolvency among the bank's depositors led to nearly $2 billion in outflows, forcing the bank to borrow $2.6 billion from the Dallas Fed to stay operational. Shortly thereafter, the bank received another $1 billion in short-term loans as part of a March assistance plan. Following First Republic's failure, the FDIC sold its assets to the North Carolina National Bank, which became NationsBank in 1991. The FDIC's estimated total cost of $3.9 billion for the failed bailouts became the costliest resolution in history to that time. Despite later downward revisions to a total loss of $3 billion, it would remain the largest loss for taxpayers until the collapse of IndyMac Bank in 2008 set a new record of $8 billion in lost FDIC funds.

NationsBank, which acquired First Republic's assets, went on to become Bank of America (NYSE: BAC  ) in 1998 when it acquired San Francisco's BankAmerica. BankAmerica, interestingly enough, had bought the assets of the largest failed bank in American history prior to the financial crisis: Continental Illinois National Bank and Trust, which held approximately $40 billion in assets when it was seized by federal regulators in 1984 to prevent a bank run.

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9/29/2016 4:35 PM
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