Drexel Burnham Lambert history

A major securities dealer and underwriter in the 1980s, best known for introducing, underwriting, and trading high-yield, or junk, bonds. The activities of the firm centered around Michael Milken, who developed the market during the 1970s as a means of providing capital for companies with less than investment-grade credit ratings.

Drexel Burnham was the product of the merger of two smaller Wall Street securities houses. Burnham & Co. was founded by I. W. Burnham in 1935, while Drexel & Co. was older, dating back to the 19th century. Before the Glass-Steagall Act was passed in 1933, Drexel was an affiliate of J. P. Morgan & Co. but was separated from the bank after the act became law. Burnham and Drexel merged in 1971, but a continuing shortage of capital forced another merger with broker William D. Witter & Co. in 1976. Banque Brussels Lambert, a shareholder in Witter, became an owner in the merged entity, and the firm became known as Drexel Burnham Lambert.

Drexel became known for underwriting and selling high-yield, or junk, bonds in the 1970s due to the presence of Michael Milken, a young bond trader hired from business school by the original Drexel & Co. By 1980, the firm emerged as the sole leader in junk bonds on Wall Street. By the mid-1980s, the firm stood among the top five Wall Street underwriters, mainly because of its continued success. The firm also sponsored the famous Predator’s Balls, lavish parties given at a Hollywood hotel to promote investment in high-yield bonds.

Drexel Burnham became active in MERGERS and acquisitions because of its junk bond expertise but also ran into regulatory problems as a result. Because of the firm’s involvement in the insider trading scandal of the 1980s, Milken and several associates from outside the firm were charged with securities violations and sent to prison. Throughout its short history, Drexel Burnham was never a publicly traded corporation but one that was privately held by both shareholders and some employees. The firm settled charges against it by the Securities and Exchange Commission (SEC), but the $600- million fine imposed wiped out its capital base. The firm was forced to file for BANKRUPTCY in 1990. It reorganized several years later under a different name but remained a small Wall Street house. Its failure remains the largest failure in modern investment banking history and the only one to be caused by the direct actions of the SEC

See also DREXEL, ANTHONY J.; INVESTMENT BANKING.

Further reading

Bruck, Connie. The Predators’ Ball: The Inside Story of Drexel Burnham and the Rise of the Junk Bond Raiders. New York: Penguin Books, 1989.
Ehrlich, Judith Ramsey, and Barry J. Rehfeld. The New Crowd: The Changing of the Jewish Guard on Wall Street. New York: Harper Perennial, 1989.