Shaken to the Bottom Line

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Banks and Big Steel. It takes a lot of turmoil to shake these once sturdy pillars of U.S. business. But in the past few years, plenty of trouble has come along to torment some of the most rock-solid names in each of those industries. Economic upheavals ranging from the oil-price slump to the glut of imported steel have forced giant banking and steel corporations to make dramatic adjustments to survive. Unfortunately, not all of them are going to make it. That became painfully clear last week, when the strains of economic change finally caught up with several companies and produced a chilling succession of financial calamities. The shocks came one right after another, starting on Monday, when the First National Bank & Trust of Oklahoma City (assets: $1.6 billion) collapsed from the weight of bad energy loans. It was the second-largest bank failure in U.S. history (after the 1974 fall of the New York-based Franklin National Bank) and a likely portent of another round of financial trauma in the oil patch. Just two days later, BankAmerica (assets: $117 billion), the No. 2 banking company in the U.S. after Citicorp, announced a second-quarter loss of $640 million, the second-biggest on record for a financial institution. That brought the troubled bank's total deficits in the past 15 months to $914 million and raised questions about its ability to survive as an independent institution. But the week's most stunning news came the very next day. Dallas-based LTV, the No. 2 U.S. steelmaker and a major defense contractor, filed for Chapter 11 bankruptcy to keep creditors at bay while it tries to make a financial comeback. In terms of its revenues, which reached $8.2 billion last year, LTV is the largest U.S. company ever to declare bankruptcy.

Though largely unrelated in their specific causes, the disasters last week were all accelerated by the 60% drop in the price of oil since the beginning of the year. By causing energy loans to go sour and depressing the whole Southwest, cheap oil pushed the Oklahoma City bank over the brink and aggravated BankAmerica's huge losses. The petroleum slide helped drag down LTV too, because the company is a major supplier of oil-drilling and pumping gear, which almost no one wants to buy right now. Last week the number of oil rigs operating in the U.S. reached a postwar record low of 663, compared with a peak of 4,530 at the end of 1981.

LTV, a go-go conglomerate in the 1960s, has been in an agonizing decline since 1981, the last year it made a profit. Now desperately short of cash after losing more than $1.5 billion, the company chose bankruptcy because it saw no prospect for a fast turnaround in the U.S. steel industry's epic slump. The company will operate in Chapter 11 for an estimated 1 1/2 to four years, shielded from creditors to whom it owes more than $4 billion, while it tries to overhaul its steel operations. Declared Chairman Raymond Hay: "We are fully confident that we will emerge from Chapter 11 as a strong, viable company." Indeed, bankruptcy in recent years has become much less final than it sounds. Last year the Wickes retailing and building-supply company and Continental Air both emerged from Chapter 11 in robust condition.