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Crisis and creation

National disasters of the last 25 years — like stock market crashes, the S&L crisis and terrorist attacks — have left an indelible impression on New Jersey's business climate, but also key have been the blockbuster mergers, IPOs and projects that have shaped the landscape as we know it. NJBIZ looks back at some of the top stories of the last quarter-century. Written by Beth Fitzgerald.

STOCK MARKET CRASH

On Oct. 19, 1987, the Dow Jones Industrial Average fell 508 points, or 22.6 percent — the largest one-day percentage decline in the index's history. It took almost two years for the DJIA to regain its Aug. 25, 1987, high of 2,722. Investors in New Jersey and elsewhere lost their money — and their confidence — in the stock market during the crash, which analysts blamed in part on computerized stock trading programs that sold stocks as prices fell. The crash became the starting point for debates over the risks and benefits of computerized stock trading, a debate that today is focused on the issue of high-frequency computer stock trading. An echo of 1987 was heard in the May 6, 2010, "flash crash," when the DJIA fell nearly 1,000 points, then bounced back within a few minutes.

SQUIBB MERGER

In 1989, Princeton-based Squibb was acquired by Bristol-Myers, of New York, in a $12 billion deal that created Bristol-Myers Squibb, at the time the world's second-largest drug company. Founded in 1858, Squibb was one of New Jersey's oldest drug companies and a charter member of a drug-discovery fraternity that included Merck, Hoffmann-LaRoche, Schering-Plough, Ciba-Geigy and Johnson & Johnson, establishing New Jersey's reputation as "the nation's medicine chest." A study released that year estimated R&D spending by New Jersey pharmaceutical firms was $1.35 billion in 1987, up 48 percent from 1984.

CITY FEDERAL FAILURE

City Federal Savings failed in 1989 and was seized by government banking regulators, serving as a bellwether of the saving and loan crisis. The 100-year-old City Federal had amassed nearly $1 billion in bad loans. There would be several major S&L failures in New Jersey, including the 135-year-old Howard Savings Bank in 1992; both City Federal and the Howard became part of First Fidelity Bank. Bank regulators blamed the S&L industry's problems on its aggressive financing of what turned out to be excessive overbuilding of real estate during the 1980s.

RECESSION OF 1989

The office space building boom of the 1980s — as of 1989, 80 percent of the state's office inventory had been built during that decade — turned into an office glut as corporations downsized in response to the forces of globalization, deregulation and heightened competition. The Wall Street financial industry retrenched in an aftershock to the 1987 crash, with a bearish spillover impact on the finance jobs that had been migrating across the river to New Jersey. The state would lose nearly 260,000 jobs before the recession ended in 1992, and it would take until 1997 for the state to cover all the jobs lost.

MUTUAL BENEFIT COLLAPSE

Mutual Benefit Life Insurance Co. collapsed in 1991 in the largest life insurance failure in the United States. The Newark company was seized by the state, which then oversaw a seven-year rehabilitation to repay billions of dollars owed to more than 1 million customers, many of them insurance policyholders, annuity customers and pension plan members. The nation's 18th-largest life insurer had invested heavily in commercial real estate, then fell victim to the 1980s real estate slump. Lucrative compensation deals that Mutual Benefit gave some of its agents contributed to the failure, as did excessively large stakes in the construction of a couple of luxury Florida condos and some leveraged corporate buyouts.

SPORTS BETTING BAN

Congress passed the Bradley Act in 1992, prohibiting state-sponsored betting on professional and amateur sports. The law was named after its chief sponsor, Bill Bradley, the Democratic U.S. senator from New Jersey who entered politics after playing professional basketball for the New York Knicks. The law gave New Jersey a window until Jan. 1, 1994, to legalize sports wagering, but the Legislature did not take action. Recent years have seen a strong pushback by New Jersey officials against the Bradley Act, led by state Sen. Ray Lesniak. New Jersey voters overwhelmingly approved a nonbinding sports betting referendum in 2011, and earlier this year, Gov. Chris Christie signed a state law legalizing sports betting in New Jersey.

Wagering on horse racing has remained legal in the state, but the Bradley Act put the brakes on hopes of betting on pro sports. That may change under efforts that began just a couple years ago. – GETTY IMAGES
Wagering on horse racing has remained legal in the state, but the Bradley Act put the brakes on hopes of betting on pro sports. That may change under efforts that began just a couple years ago. – GETTY IMAGES

PORITZ APPOINTMENT

Deborah Poritz was named to the New Jersey Supreme Court as chief justice by Gov. Christie Whitman in 1996; her tenure was marked by rulings that would rankle business owners. In 1998, the court ruled the state must provide preschool to 3- and 4-year-olds in the state's poorest school districts. In 2000, Poritz wrote the opinion in the court's 6-0 ruling that the Whitman administration wasn't ensuring that high-quality preschool programs were being provided under this mandate. The state now spends more than $600 million a year on preschool for some 40,000 low-income children. In 2002, over the objections of Doug Forrester, the Republican candidate for U.S. Senate, Poritz penned the court's unanimous opinion that allowed Frank Lautenberg to be the Democrats' substitute Senate candidate after Robert Torricelli withdrew from the race.

BANK ACQUISITIONS

First Fidelity Bank, of Newark, was acquired by First Union of Charlotte, N.C. (now Wells Fargo), in 1996, marking a watershed event in the trend of out-of-state banks acquiring New Jersey banks. Today, nearly half the bank deposits in New Jersey are held by banks with out-of-state headquarters. New Jersey was swept into a nationwide bank consolidation movement as Congress gradually eliminated restrictions on interstate banking, finally removing all barriers to interstate bank mergers in 1997. Years of mergers among New Jersey banks had created a handful of large institutions that eventually were purchased by out-of-state banks eager to expand into New Jersey, drawn here by the state's high concentration of wealthy residents and prosperous midsize companies.

CENDANT ACCOUNTING FRAUD

The Parsippany-based real estate and hotel franchising company uncovered a massive accounting fraud in 1998, in which executives at a company Cendant had acquired inflated revenues by $500 million over three years. At the time, it represented the largest accounting fraud in U.S. history. In the following year, the company agreed to pay a record $2.83 billion to settle a securities fraud lawsuit brought by a group of pension funds.

TERRORIST ATTACKS

The Sept. 11, 2001, terrorist attacks brought down the World Trade Center, taking the lives of nearly 3,000 people, including 674 New Jerseyans. The disaster reverberated through the New Jersey economy, which already had entered a recession, and raised fears that a major economic slump was on the way. But the impact on employment in New Jersey turned out to be less dire than feared. The downturn lasted only about five months, and when the recession ended in November 2001, the state had lost 15,000 jobs.

Onlookers flee as the Twin Towers collapse. The attacks spooked Wall Street to look at New Jersey as a safe haven for data centers, leading to a Garden State building boom in the years after the disaster. – GETTY IMAGES
Onlookers flee as the Twin Towers collapse. The attacks spooked Wall Street to look at New Jersey as a safe haven for data centers, leading to a Garden State building boom in the years after the disaster. – GETTY IMAGES

DATA CENTER DEVELOPMENT

If there was any bright spot for New Jersey following the Sept. 11 attack on Lower Manhattan, it was through the wide-scale development of computer data centers, driven by the need for more information technology security following the attack. Wall Street financial services firms migrated their data centers to New Jersey, which also houses the electronic stock trading technology powering the New York Stock Exchange and Nasdaq. By 2012, 3 million square feet of data center real estate had been built here.

PRUDENTIAL IPO

Newark-based Prudential Insurance Co. of America went public, sold stock and changed its name to Prudential Financial in 2001. The company raised $3.03 billion in the 10th-largest U.S. initial public offering. The IPO capped the turnaround of the company by former Chase executive Art Ryan, who became the first outsider to run Prudential in its 120-year history when he joined as CEO in 1994. Prudential had been a mutual insurance company, owned by its policyholders, and when it went public, the company gave stock to the 11 million policyholders who owned the company — a process that began three years before the IPO.

BORGATA OPENS

The $1.1 billion Borgata, the first new casino to be built in Atlantic City in 13 years, opened its doors in 2003. The arrival of Borgata sparked the city's other casinos to invest $1.8 billion in expansions and renovations. Critics said while the Borgata was a game-changer, it had taken Atlantic City too long to respond to the era of the "super casino" that hit Las Vegas in the early 1990s. What followed was the rise of competition to Atlantic City from Pennsylvania and other nearby gaming venues.

SOLAR DEVELOPMENT

In 2004, the state created the solar renewable energy certificate program, fueling a surge in solar installations. SRECs enable solar panel owners to earn credits for the power they generate. Electricity suppliers have to generate a portion of their power from renewable sources, and can meet that mandate by purchasing SRECs. That mandate helped drive up the price of credits, which are traded on the open market, to above $600 in 2011, before the price plummeted in 2012 as the supply of SRECs exceeded demand. In 2012, the state passed a law accelerating the shift to renewable power in an effort to stabilize the SREC market.

XANADU GROUNDBREAKING

The Mills Co. broke ground in 2004 on the $2 billion, 2.3 million-square-foot sports, retail and entertainment complex called Xanadu, set to open in the Meadowlands in 2007. Then Mills ran into financial trouble, and was replaced on the project by Los Angeles-based Colony Capital, while the still-vacant blue and orange structure became a familiar landmark for drivers passing the sports complex on Route 3 or the New Jersey Turnpike. In 2010, Triple Five, owner of the Mall of America, in Minneapolis, took over the project from Colony and changed the name to American Dream Meadowlands. Christie is backing the effort to get much of the project finished and open in time for the 2014 Super Bowl at MetLife Stadium.

LUCENT GOES BUST

Telecommunications equipment maker Lucent Technologies, a spinoff of AT&T, merged with French telecom Alcatel to form Alcatel-Lucent. Included in the 2006 deal was Lucent's Bell Laboratories, the former basic research arm of AT&T that had produced several Nobel Prizes. One of the hot new companies in the high-tech boom that ushered in the new millennium, Lucent came to symbolize the bursting of the high-tech bubble. The stock went public at $27 a share in 1996, traded as high as $84 in 1999, but had declined to less than $3 by the time of the stock swap with Alcatel.

SMOKING BAN

Offices, stores and restaurants fumed as New Jersey enacted the Smoke-Free Air Act in 2006, prohibiting smoking in most public places. The decision to exempt Atlantic City casinos from the law generated opposition from anti-smoking advocates, who continued to push for extending the law to casinos. In April 2012, the first completely smoke-free casino hotel opened in Atlantic City: the $2.4 billion Revel, with 1,800 hotel rooms and a 130,000-square-foot casino.

GOVERNMENT SHUTDOWN

The state government shut down for six days in July 2006 after the Legislature and Gov. Jon Corzine failed to reach a budget deal to close a $4.5 billion revenue gap. The shutdown temporarily idled thousands of workers and cost the state millions of dollars, and ended with a deal to raise the sales tax to 7 percent, from 6 percent, with a portion of the revenue to be dedicated to property tax relief. Whitman had lowered the sales tax to 6 percent in 1997. For the 2011 fiscal year, New Jersey collected $8.12 billion in sales taxes, $616.7 million of which was used to lower property taxes.

FOR-PROFIT HOSPITALS

Bayonne Hospital went bankrupt in 2007 and was acquired by for-profit hospital company Hudson Holdco LLC, which in 2011 acquired financially troubled Hoboken University Medical Center and in 2012 took over Jersey City's Christ Hospital after it filed for bankruptcy. The for-profit movement was controversial in Hudson County, with nonprofits warning that for-profit hospitals would be less inclined to care for the poor and uninsured, who would then overburden the nonprofits. Others argued that Hudson Holdco prevented the closure of three county hospitals, saving hundreds of jobs and maintaining the continuity of care. A bill to force more financial disclosure by for-profit hospitals passed the Legislature in June 2012, but was conditionally vetoed by Christie. Opponents of the disclosure bill said it would discourage for-profit companies from bringing new capital into the state, while supporters advocated increased transparency — especially with New Jersey taxpayers supporting hospitals through charity-care funding.

Hudson Holdco’s for-profit model has created a stir at a number of North Jersey hospitals. – FILE PHOTO
Hudson Holdco’s for-profit model has created a stir at a number of North Jersey hospitals. – FILE PHOTO

$1.5 BILLION INCENTIVE

Corzine in 2008 signed the Urban Transit Hub tax credit, a $1.5 billion, five-year program to stimulate real estate development around the train stations of New Jersey cities. New Brunswick used tax credits for new housing, office space and retail, including the Barnes & Noble/Rutgers University bookstore. Major awards have included $210.8 million to Prudential, to build a new office tower near its Newark headquarters; $81.9 million for Secaucus-based Goya's new headquarters in Jersey City; and $102.4 million for Panasonic, to move its headquarters from Secaucus to Newark. Critics say the program is too often used to reward companies already in New Jersey, while defenders say it retains employers that might otherwise have left the state.

LEHMAN BANKRUPTCY

Lehman Brothers filed for bankruptcy in 2008, accelerating a financial industry tailspin triggered by the collapse in the value of securities tied to subprime mortgages. To stave off the contagion from the spreading subprime crisis, Congress created the Troubled Asset Relief Program that loaned billions of dollars to banks across the country. The financial crisis severely harmed New Jersey: Many businesses had trouble getting commercial loans as lenders responded to the crisis by tightening underwriting requirements, and the decline in real estate values reduced the value of the collateral behind many commercial loans. At the same time, business owners and executives were coping with declines in the value of their homes, and in their stock portfolios: the Dow Jones Industrial Average declined from 14,164.53 on Oct. 9, 2007, to 6,443.27 on March 6, 2009, and had recovered nearly all the lost ground by late 2012.

BIG PHARMA MERGERS

2009 was the year of the pharmaceutical industry merger. Merck paid $41 billion for Kenilworth-based Schering-Plough, the first mega-merger in Merck's history; the firms had a combined New Jersey work force of 15,000. The merger made Merck the world's second-largest drugmaker after Pfizer — which acquired Madison-based Wyeth for $68 billion. Swiss drugmaker Hoffmann-LaRoche, with U.S. headquarters in Nutley, acquired South San Francisco, Calif.-based biotech Genentech for $46.8 billion, cutting about half its 3,000 employees in New Jersey as it moved major operations west.

SUPER BOWL BID

In 2010, New Jersey was chosen for the first cold weather Super Bowl, as the Giants and Jets won their bid to host the 2014 game at MetLife Stadium, in the Meadowlands. The economic impact on New York and New Jersey combined is estimated at about $500 million in tourism, construction and infrastructure spending, and organizers expect the Super Bowl to create thousands of jobs in the metropolitan area.

HEALTH CARE REFORM

The federal Patient Protection and Affordable Care Act of 2010 created an unprecedented "individual mandate" requiring Americans to either have health coverage by 2014 or pay a penalty, and provides taxpayer-funded subsidies to make coverage more affordable. The law, upheld by the Supreme Court in 2012, also mandates creation of state health benefit exchanges, online markets where individuals and businesses will buy coverage from health insurers. New Jersey has about 1.3 million uninsured residents, and estimates the act could get more than 400,000 of them covered. The law's impact is being felt in every corner of the New Jersey health care system, spurring efforts by health care providers to raise quality and lower costs, and driving the consolidations of hospitals and doctor practices into large, integrated systems that hope to operate more efficiently.

HURRICANE SANDY STRIKES

It was being called the most devastating storm in New Jersey's history, and that was before the October 2012 superstorm made landfall here. When it blew out of town, millions of New Jerseyans were left without power, coastal landmarks were demolished and homes were reduced to foundations or less. Haunting photos of the Seaside roller coaster swallowed by the ocean and the Mantoloking Bridge leading to a tidal bay that used to be a neighborhood persisted in days after the storm, which inflicted billions of dollars in damages in New Jersey and beyond.

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