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Drexel filing for Chapter 11 // Wall Street firm shutting down

NEW YORK - Drexel Burnham Lambert Inc., the once-dominant investment house that fueled many of the biggest corporate takeovers of the 1980s, began selling off its securities and its businesses Tuesday, marking the demise of a firm that seemed to symbolize an era on Wall Street. Drexel Burnam Lambert's securities business effectively collapsed Tuesday after the parent company defaulted on $100-million in loans and other Wall Street firms refused to do business with Drexel.

The directors of the firm's parent, Drexel Burnham Lambert Group Inc., on Tuesday night approved a filing for Chapter 11 bankruptcy protection. Drexel said it expected the filing to be made Tuesday night.

Chief executive Frederick Joseph earlier made the announcement to employees that the parent company would file for Chapter 11.

Under the plan being considered, the parent's filing would not include the investment firm or a subsidiary that deals in securities issued by the U.S. Treasury. But unlike companies in other industries that file for bankruptcy, Drexel is not expected to re-emerge as a going concern, the firm's executives and lawyers said.

More than most businesses, the survival of a securities firm, they explained, depends on the confidence of investors and other dealers;

without that confidence, the business unravels quickly.

"After it's all over, Drexel will be left with cash and a lot of laid-off employees," one executive at the firm said.

Accordingly, the investment house Tuesday started the tortuous process of closing down. Executives from a number of Wall Street firms visited Drexel, examining the securities holdings of Drexel for possible purchases.

Meanwhile, many of the firm's 5,000 employees began to get their resumes together in the hope of finding other jobs on Wall Street. job-placement firms reported a flood of calls from Drexel staff members.

Drexel was also besieged by calls throughout the day from worried suppliers, executives of the firm said. Indeed, they say, the car service that some executives use to go home refused to accept the firm's business, fearing it would not get paid.

The rapid collapse of the firm, which on Monday announced that it was seeking a merger partner because of a cash crunch, created fears among some Wall Street executives about the possible ripple effect on other firms.

They said that with Drexel liquidating its junk bond portfolio, the value of other firms' holdings in the securities could well collapse.

"If forced sales take place, there may be a capital erosion problem starting," one Wall Street executive said. "Drexel could end up taking some companies with it."

Wall Street was stunned by the rapid decline of Drexel, but some executives said it was simply the way of the finance world.

"This is the nature of the financial services business," said Jeffrey B. Lane, president of Primerica Holdings and former president of Shearson Lehman Hutton Inc. "You go into a steady decline, and then you fall off a cliff."