The year 2012 featured several very high-profile financial failures, some of which were simply about massive underperforming IPO’s in the face of high hopes, a change in the commercial landscape of the country, and continued signs of the slow pace of economic recovery.
#3 The Facebook IPO
Facebook going public was seen in recent years as a golden investment opportunity that could not possibly fail. With a user base of over one billion people and a level of brand recognition in which seemingly every business and organization, no matter how large or small, must integrate with it, it was not surprising how highly anticipated the social media giant’s IPO would turn out to be. Business Insider has a detailed story of how there was a gross mismatch between information available to institutional investors vs. small investors which contributed to the overvalued initial $38 per share that quickly deteriorated.
#2 The Hostess Shutdown
The collapse of iconic confection maker Hostess is both a lesson in debt and a lesson in labor negotiations working out badly for both parties. Hostess had already gone through bankruptcy. With its massive scale and huge delivery fleet it had been unable to maintain a decent profit margin in recent decades. It found itself $670 million in debt by 2009, or two-thirds of its total asset value. With a product that known for its affordability, even steady sales could not cover the rising operating and financing costs. With a large unionized workforce, and the inability to meet their demands, coupled with a strike triggered due to the company’s large executive compensation even in the face of bankruptcy, the situation was fatal for the company.
#1 Bank Failures
This could actually be seen as a success rather than the number one failure of the year since last year 92 banks failed. The number this year, to date as we approach the end, is 51. The total assets are over $12 billion and the FDIC loss is over $2.5 billion. Though the rate has thankfully slowed, it should be taken into account that the number of failures prior to 2007 was generally in the single digits.
2012 had its share of financial hardships. Let’s hope 2013 proves different.