Hunt brothers behind Silver Thursday lost over $1 billion

Hunt Brothers Silver ThursdayPhoto by sirqitous

Silver Thursday was an event that occurred in the United States in the silver commodity markets on Thursday, March 27, 1980, following the Hunt brothers’ attempt at cornering the silver market which led to a subsequent steep fall in silver prices and to major havoc on commodity and futures exchanges.

Nelson Bunker Hunt and William Herbert Hunt, the sons of Texas oil billionaire Haroldson Lafayette Hunt, Jr., had for some time been attempting to corner the market in silver. In 1979, the price for silver jumped from $6.08 per troy ounce ($0.195/g) on January 1, 1979 to a record high of $49.45 per troy ounce on January 18, 1980, which represents an increase of 713%.

The Hunt brothers were estimated to hold one third of the entire world supply of silver other than that held by governments. The situation for other prospective purchasers of silver was so dire that the jeweller Tiffany’s took out a full page ad in The New York Times, condemning the Hunt Brothers and stating “We think it is unconscionable for anyone to hoard several billion, yes billion, dollars’ worth of silver and thus drive the price up so high that others must pay artificially high prices for articles made of silver”.

But on January 7, 1980, in response to the Hunts’ accumulation, the exchange rules regarding leverage were changed, when COMEX adopted “Silver Rule 7” placing heavy restrictions on the purchase of commodities on margin. The Hunt brothers had borrowed to finance their purchases, and, as the price began to fall again, dropping over 50% in just four days, they were unable to meet their obligations, causing panic in the markets.

Silver Thursday

The Hunt brothers had invested heavily in futures contracts through several brokers, including the brokerage firm Bache Halsey Stuart Shields, later Prudential-Bache Securities and Prudential Securities. When the price of silver dropped below their minimum margin requirement, they were issued a margin call for $100 million. The Hunts were unable to meet the margin call, and, with the brothers facing a potential $1.7 billion loss, the ensuing panic was felt in the financial markets in general, as well as commodities and futures. Many government officials feared that if the Hunts were unable to meet their debts, some large Wall Street brokerage firms and banks might collapse.

To save the situation, a consortium of US banks provided a $1.1 billion line of credit to the Hunt brothers which allowed them to pay Bache which, in turn, survived the ordeal. The US Securities and Exchange Commission (SEC) later launched an investigation into the Hunt brothers, who had failed to disclose that they in fact held a 6.5% stake in Bache.

Aftermath

The Hunt borthers lost over $1 billion through this incident, but the family fortunes survived. They pledged most of their assets, including their stake in Placid Oil, as collateral for the rescue loan package they obtained. However, the value of their assets declined steadily during the 1980s, and their estimated net wealth declined from $5 billion in 1980 to less than $1 billion in 1988.

In 1988, the brothers were found responsible for civil charges of conspiracy to corner the market in silver. They were ordered to pay $134 million in compensation to a Peruvian mineral company that had lost money as a result of their actions. This forced the Hunt brothers to declare bankruptcy, in one of the biggest such filings in Texas history.

Photo by sirqitous

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