Compared to much of the rest of the world, the United States had the most positive economic, business, and financial news in 2014. Developments abroad were less hopeful, with Europe and Japan backsliding into recession, China’s economic growth stagnating, Russia staggering under the weight of international sanctions for its meddling in Crimea and Ukraine, Argentina defaulting on its sovereign debt for the second time in 13 years, Venezuela brought to its knees by plummeting crude oil prices, regions of the Middle East ravaged by civil war and Islamic militants, and West Africa devastated (physically and economically) by the impact of Ebola.
Unlike in 2013, when the “fiscal cliff” loomed large and the U.S. government was shut down for 16 days in an all-out war over the implementation of the Affordable Care Act, lawmakers agreed not once, but twice, in 2014 to trillion-dollar-plus spending plans to finance the government. However, after the November midterm elections gave Republicans control of both Houses of Congress for the first time in eight years, it remains to be seen whether any degree of bipartisanship will be possible during the final years of the Obama presidency. Among other things, executive orders implementing unilateral action on immigration reform and the normalization of relations with Cuba, as well as a fundamental disagreement on energy policy, make cooperation among lawmakers unlikely.
Janet Yellen was sworn in as the first female Chair of the U.S. Federal Reserve in February 2014, with the avowed intention of keeping interest rates low until the U.S. unemployment rate retreated further from the level of 6.7 percent achieved at the end of 2013. Mission nearly accomplished—the unemployment rate closed out 2014 at 5.6 percent (the lowest since 2008)—after the strongest year of job growth since 1999, and the Fed officially ended the final round of its quantitative easing (“QE3”) bond-buying program, first implemented during the financial crisis at the end of October. Interest rates, however, are expected to remain at rock bottom at least during the first quarter of 2015.
Nearly every measure of U.S. economic growth was positive at the end of 2014. According to government data released on December 23, the U.S. economy grew at its fastest rate in more than a decade from July through September—the latest sign that the economic recovery is running full speed ahead. The U.S. Commerce Department reported in October that gross domestic product (“GDP”) growth hit an annualized rate of 5 percent in the third quarter, a rate of expansion not seen since 2003.
The U.S. budget deficit dropped to $483 billion at the end of September (the fiscal year, or “FY”) and stood at $488 billion at the end of the calendar year (“CY”) 2014, the lowest level in six years. As a percentage of GDP, the deficit fell to 2.8 percent, the lowest level since 2007. The deficit reached a record $1.4 trillion in 2009.
An accelerating U.S. economy trumped problems overseas to lift the U.S. stock market to new highs in 2014. The Standard & Poor’s (“S&P”) 500 Index closed out 2014 with a gain of 11.39 percent. The Dow Jones Industrial Average (which surged above 18,000 for the first time on December 23) closed up 7.52 percent for 2014, while the NASDAQ Composite Index ended up 13.4 percent. According to S&P Ratings Services, the 70-month run-up in U.S. markets beginning in early 2009 is the fourth-longest bull market since World War II. U.S. stocks were bolstered in 2014 by accelerating economic recovery, strong earnings growth, and the Fed’s decision to keep interest rates low even though it ended QE3. Low bond yields mean that companies can continue to borrow cheaply.
The year 2014 was one of the best for mergers and acquisitions since the financial crisis. Some 40,298 transactions—worth nearly $3.5 trillion—were announced worldwide in 2014, according to Thomson Reuters. It was the biggest year for such deals since 2007.
Among the most memorable business, economic, and financial sound bites of 2014 were “QE taper,” “bitcoin,” “polar vortex,” “Thomas Piketty,” “GM Switchgate,” “Detroit’s grand bargain,” “corporate tax inversions,” and “Cuba normalization.”
Business bankruptcy filings continued a downward trend in 2014. The Administrative Office of the U.S. Courts reported that business bankruptcy filings in FY 2014 totaled 28,319, down 19 percent from the 34,892 business filings in FY 2013. Chapter 11 filings totaled 7,658 in FY 2014, down 20 percent from 9,564 in FY 2013.
The data for bankruptcy filings in CY 2014 paint a similar portrait. According to Epiq Systems, total commercial bankruptcy filings during CY 2014 were 34,455, a 22 percent drop from the 44,083 filings during CY 2013. Chapter 11 business filings were 5,172 for 2014, compared to 6,598 for 2013. There were 21,211 chapter 7 commercial filings in 2014, compared to 27,662 for 2013. Fiftynine chapter 15 petitions were filed on behalf of foreign commercial debtors in CY 2014, compared to 82 in CY 2013 and 116 in CY 2012. Ten municipal debtors filed for chapter 9 protection in CY 2014, compared to nine in CY 2013 and 20 in CY 2012.
The number of bankruptcy filings by “public companies” (defined as companies with publicly traded stock or debt) in 2014 was 52, according to data provided by New Generation Research, Inc. (“NGR”). It was the smallest number of public bankruptcy filings since at least 1980 (and perhaps ever, according to NGR). There were 71 public-company filings in 2013, whereas 87 public companies filed for bankruptcy in 2012. At the height of the Great Recession, 138 public companies filed for bankruptcy in 2008 and 21 1 in 2009. The combined asset value of the 52 public companies that filed for bankruptcy in 2014 was $71.8 billion. For the third straight year, the health-care and medical sector claimed the largest number of bankruptcies, followed by oil and gas, retail, telecommunications, transportation, banking and finance, and electronics.
The year 2014 added 11 public-company names to the billiondollar bankruptcy club, compared to 10 in 2013. Counting private-company and municipal filings, the billion-dollar club gained 13 members in 2014.
The largest bankruptcy filing of 2014—Energy Future Holdings Corp., with $41 billion in assets—was the eighth-largest public filing of all time, based upon asset value.
Twelve public and private companies with assets greater than $1 billion exited from bankruptcy in 2014—including six of the 13 billion-dollar public and private companies that filed in 2014.
Continuing a trend begun in 2012, more of these companies reorganized than were liquidated or sold. Notable among them was chemical conglomerate W.R. Grace & Co., which emerged from chapter 11 on February 3, 2014, more than 12 years after filing for bankruptcy protection to deal with billions of dollars in asbestos liabilities.
The year 2014 saw the denouement of the largest bankruptcy filing by a U.S. city ever—Detroit—which obtained confirmation of a sweeping “grand bargain” chapter 9 plan of adjustment on November 7, 2014, that eliminates more than $7 billion in debt while rehabilitating crippled city services and leaving retiree pensions and health-care benefits largely intact.
Calls for U.S. bankruptcy reform figured prominently in 2014. On December 8, 2014, the American Bankruptcy Institute Commission to Study the Reform of Chapter 1 1 issued its long-awaited Final Report and Recommendations. The comprehensive overhaul proposals, which will be presented to Congress in 2015, include sweeping changes to the Bankruptcy Code that are deemed necessary as a consequence of, among other things, changes in the way businesses are financed and escalating administrative costs.
The Federal Deposit Insurance Corporation (the “FDIC”) shuttered 18 banks in 2014, compared to 24 in 2013. This represents the lowest number of bank failures since 2007. There were 157 bank failures in 2010 and 140 in 2009, during the height and immediate aftermath of the Great Recession.
The long-running dispute over payment of Argentina’s sovereign debt continued to play out in agonizing detail throughout 2014, with Argentina losing at all levels of the U.S. judicial system in its pitched battle with holdout bondholders from its 2005 and 2010 debt restructurings. After the U.S. Supreme Court refused to review lower court rulings prohibiting Argentina from making payments on restructured debt without also paying holdout bondholders, Argentina on July 30, 2014, defaulted on its sovereign debt for the second time in approximately 13 years. It did so again on October 30, 2014. The battle between Argentina and “vulture fund” holdouts prompted calls in the United Nations and elsewhere for international legislation to restrict “predatory lending practices” that make sovereign debt defaults more likely.