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This Day In Market History: Long Term Capital Management Loses $533M

Each day, Benzinga takes a look back at a notable market-related moment that occurred on this date. What Happened? On this day in 1998, Long Term Capital Management lost $533 million on Russian bonds. Where The Market Was: The Dow Jones Industrial Average clos

Benzinga · 08/21/2020 10:56

Each day, Benzinga takes a look back at a notable market-related moment that occurred on this date.

What Happened? On this day in 1998, Long Term Capital Management lost $533 million on Russian bonds.

Where The Market Was: The Dow Jones Industrial Average closed at 8,533.65 and the S&P 500 traded at 1,081.24.

What Else Was Going On In The World? In 1998, Exxon and Mobil merged to form the world’s largest petroleum company, Exxon Mobil Corporation (NYSE:XOM). The U.S. introduced new $20 bills with features to combat counterfeiters. The average monthly rent was $619.

Long Term Capital Management's Downfall: LTCM was founded in 1993 by former Salomon Brothers bond trader John Meriwether.

Meriwether started LTCM with about $1 billion in assets under management and focused his efforts on arbitrage trading in the bond market. LTCM also focused on interest rate swaps, a strategy that involves trading one series of future interest rate payments for another, such as swapping fixed-rate interest payments for floating rate payments or vice versa.

By 1998, LTCM had grown its assets to around $5 billion, but the financial crisis in Russia would soon trigger its collapse. Due to the company’s extreme leverage, LTCM was unable to unload its massive positions when the value of the ruble tanked. On Aug. 21, 1998, LTCM suffered more than $500 million in losses in a single day.

About a month later, LTCM would file for bankruptcy.