Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Zombies

What it is:

A zombie is a company that continues to operate even though its liabilities exceed its assets (in other words, it has a net worth of zero).

How it works (Example):

Let's say Bank XYZ has $1 billion in assets (loans it has made to customers) and $2 billion in liabilities (delinquent loans, interest payments due to customers, debt it may have borrowed, etc.). Bank XYZ could declare bankruptcy and default on its obligations at any time, but for now it is still alive.

Why it Matters:

Zombies are very risky investments because they could die at any time. However, some zombies might receive sudden financing, such as government bailouts or other money, which could prompt a turnaround that might make shareholders suddenly wealthy.