Groupe AG's chairman said the Belgian insurer is prepared to give up some of its independence to a white knight if necessary to repel a raider. Amid heavy buying of shares in Belgium's largest insurer, Maurice Lippens also warned in an interview that a white knight, in buying out a raider, could leave speculators with big losses on their AG stock.Since the beginning of the year, the stock has nearly doubled, giving AG a market value of about 105 billion Belgian francs ($2.7 billion). The most likely white knight would be Societe Generale de Belgique S.A., which already owns 18% of AG and which itself is controlled by Cie.Financiere de Suez, the acquisitive French financial conglomerate.But Mr. Lippens said a rescue also could involve Asahi Mutual Life Insurance Co., which owns 5% of AG. AG is hardly alone in its anxiety.A rambunctious shake-up is quickly reshaping Europe's once-stately insurance business.Worried by European Community directives that will remove many of the barriers to cross-border insurance services, starting in mid-1990, insurers are rushing to find partners and preparing for price wars.In West Germany and the Netherlands, insurers are flirting with banks.In France, Suez and Axa-Midi Assurances S.A. both have been on the prowl for giant acquisitions; Suez last month acquired control of Groupe Victoire, the sixth-largest European insurance company, after a takeover battle with Cie.Industrielle. Mr. Lippens said the volume of shares changing hands has grown significantly since mid-September.But he estimated that a raider would have been able to amass no more than 4% of the shares in recent months. Aside from exploring plans for joint ventures or acquisitions, Mr. Lippens has called top managers of companies rumored as potential raiders -- among them, Axa-Midi, Union des Assurances de Paris and Suez, all based in France.They have all "very clearly stated that they have not acquired and are not acquiring shares of AG," he said. Any raider would find it hard to crack AG's battlements.A "syndicate" of shareholders holds just under 50% of AG, Mr. Lippens said, and members have agreed to give one another the right of first refusal should they sell any AG shares. Aside from Generale de Belgique and Asahi, the syndicate includes Antwerpsche Hypotheekkas, a Belgian savings bank, and various family interests. A Generale spokesman confirmed that the giant Belgian holding company would be willing to raise its stake in AG should a raider seek control.Asahi officials couldn't be reached for comment. Even without bid talk, this year's surge in prices for Brussels real estate has excited interest in AG.The company says those holdings constitute the third-biggest real-estate portfolio in Belgium.
With the dust settling from the failed coup attempt in Panama, one of the many lingering questions the Bush administration will ponder is this: Is the National Security Council staff big enough, and does it have enough clout, to do its job of coordinating foreign policy? President Bush's national security adviser, Lt. Gen. Brent Scowcroft, came into office in January intent on making the NSC staff leaner and more disciplined than it had been during the Reagan administration.Gen. Scowcroft was a member of the Tower Commission, which investigated the Iran-Contra affair.He was all too aware of how a large, inadequately supervised NSC staff had spun out of control and nearly wrecked President Reagan's second term. So, following both the style he pursued as President Ford's national security adviser and the recommendations of the Tower Commission, Gen. Scowcroft has pruned the NSC staff and tried to ensure that it sticks to its assigned tasks -- namely, gathering the views of the State Department, Pentagon and intelligence community; serving as an honest broker in distilling that information for the president and then making sure presidential decisions are carried out. The Tower Commission specifically said that the NSC staff should be "small" and warned against letting "energetic self-starters" like Lt. Col. Oliver North strike out on their own rather than leaving the day-to-day execution of policies to the State Department, Pentagon or Central Intelligence Agency. However, the Panama episode has raised questions about whether the NSC staff is sufficiently big, diverse and powerful to coordinate U.S. policy on tough issues.During the coup attempt and its aftermath, NSC staffers were "stretched very thin," says one senior administration official. "It's a very small shop." Gen. Scowcroft doesn't plan to increase the staff right now, but is weighing that possibility, the official adds.The NSC staff "doesn't have the horsepower that I believe is required to have an effective interagency process," says Frank Gaffney, a former Pentagon aide who now runs the Center for Security Policy, a conservative Washington think-tank. "The problem with this administration, I think, is that by design it has greatly diminished, both in a physical sense and in a procedural sense, the role of the NSC." The National Security Council itself was established in 1947 because policy makers sensed a need, in an increasingly complex world, for a formal system within the White House to make sure that communications flowed smoothly between the president and the State Department, Pentagon and intelligence agencies.By law, the council includes the president, vice president and secretaries of state and defense.In practice, the director of central intelligence and chairman of the Joint Chiefs of Staff also serve as unofficial members. But the size, shape and role of the NSC staff have been left for each president and his national security adviser to decide.That task is one of Washington's perennial problems.In the Bush White House, the size of the NSC's staff of professional officers is down to about 50 from about 70 in 1987, administration officials say. Administration officials insist that the size of the staff wasn't a problem during the Panama crisis.But one clear problem during the coup attempt was that the NSC staffer most experienced in Latin America, Everett Briggs, was gone.He had just resigned, at least in part because of a feud with Assistant Secretary of State Bernard Aronson over the administration's policy on Panama and support for Nicaragua's Contra rebels. The absence of Mr. Briggs underscored the possible inadequacy of the current NSC staff.Both Gen. Scowcroft and his deputy, Robert Gates, are experts in U.S.-Soviet affairs.Gen. Scowcroft is particularly well-versed in arms control, and Mr. Gates has spent years studying Soviet politics and society.Both have become confidants of President Bush. But neither has an extensive background in Latin America, the Middle East or Asia.In those areas, the role of NSC staffers under them therefore have become more important. Gen. Scowcroft knows as well as anyone that one of the biggest dangers he faces is that NSC staffers working in relative anonymity will take over policy-making and operational tasks that are best left to bigger and more experienced State Department and Pentagon bureaus.But just as every previous NSC adviser has, Gen. Scowcroft now will have to mull at what point the NSC staff becomes too lean and too restrained.
A former Sperry Corp. marketing executive, admitting his role in the Pentagon procurement scandal, pleaded guilty to bribery and conspiracy charges for helping funnel $400,000 to a midlevel Navy acquisition official during the early 1980s. Frank Lavelle, who at the time was the marketing director for Sperry in Clearwater, Fla., admitted participating in a scheme to bribe Garland Tomlin, the Navy official.Mr. Tomlin, who left the Navy in 1985, pleaded guilty earlier this year to related conspiracy, bribery and tax-evasion charges. The bribery scheme took place between 1982 and 1985, according to documents filed by prosecutors in connection with Mr. Lavelle's guilty plea in federal district court in Alexandria, Va.Sperry merged with Burroughs Corp. to become Unisys Corp. in late 1986. Court documents filed by prosecutors indicate Mr. Tomlin tried to steer to Sperry a multimillion dollar contract to computerize maintenance of certain Navy electronics equiment.Mr. Tomlin, among other things, illegally provided Mr. Lavelle with inside information and documents intended to give Sperry an unfair advantage in the competition, the documents said.Sperry ultimately was eliminated from the competition without receiving the work. Documents filed by prosecutors also indicate that Mr. Lavelle and his fellow conspirators requested and obtained "approval of the scheme" from more-senior Sperry officials "because the payment which {Mr.} Tomlin requested was so large." Charles Gardner, a former Unisys vice president, and James Neal, a former company consultant, have admitted participating in this and other bribery schemes.Unisys has said that all of the company officials who participated in improper activities have left the company. Mr. Lavelle faces a maximum of 20 years in jail and a $500,000 fine.
Bureaucrats may deserve their bad reputation, after all. Matthew Lesko, something of a professional defender of government, thought he had a sure-fire winner last summer when he offered $5,000 for the best "verifiable story of 250 words or less about how a government bureaucrat helped you." He sent out thousands of news releases from his Kensington, Md., office.He plugged the contest on Larry King's radio show, on Pat Sajak's television show and on the C-SPAN cable television network.He talked about it in every speech he made as he roamed the country promoting his books, which dispense handy how-to advice on using government information for fun and profit. Mr. Lesko figured he would be flooded with entries by now.After all, he says, "we've got like 15 million bureaucrats." And in addition to the $5,000, he has promised the winner a "My Favorite Bureaucrat" plaque and offered each of two runners-up $500. So far, though, Mr. Lesko has received only one entry.To make matters worse, the lone nomination came from another bureaucrat: A woman from the New York State Department of Taxation and Finance who nominated her boss. Mr. Lesko, who is making the rules as he goes, has determined that bureaucrats are eligible for nomination by other bureaucrats.But he says he would prefer to get nominations from rank-and-file folks. He admits that he hasn't had much luck generating free publicity for his contest.Newspapers, including this one, have generally ignored his news releases.Talk show hosts quickly change the topic. But Mr. Lesko's staff is beginning to wonder whether there isn't some larger phenomenon foiling the contest. "Is the government not helping anybody?" asks Toni Murray, an assistant to Mr. Lesko. Mr. Lesko himself isn't yet prepared to accept that explanation. "People hate to write," he says. "Maybe people don't believe I want to give this money away." Maybe Americans are just so annoyed with government that they aren't interested in admitting that bureaucrats come in handy once in a while.If he sponsored a contest on how a bureaucrat mishandled something, Mr. Lesko admits, "I'd get 5,000 entries." Now there's an idea.
Ford Motor Co. and Saab-Scania AB of Sweden broke off talks about a possible alliance after Ford officials concluded that the cost to modernize Saab's car operations would outweigh the likely return. With the collapse of the talks Friday, European analysts expect Ford to intensify its pursuit of British luxury car maker Jaguar PLC, which is scrambling to fend off a hostile Ford bid by negotiating a friendly alliance with Ford's archrival, General Motors Corp. Saab, meanwhile, is left to continue its search for an ally to shore up its sagging car business.Saab said last week it "has had and will continue to have contacts with other manufacturers." Among the possible suitors is Italy's Fiat S.p.A, analysts said last week. Ford and Saab officials declined to elaborate publicly on the announcement Friday that their negotiations failed to yield an agreement "that could make long-term business sense to both parties." Individuals close to the Ford side of the negotiations said late last week that the No. 2 U.S. auto maker lost interest as it became clear that the Swedish auto maker's automotive operations had little to offer in the way of image or technology.Ford originally had seen a Saab alliance as a way to expand its presence in the European and U.S. luxury car markets.In addition, Ford and Saab had discussed a possible link between their heavy truck operations. But the talks on a heavy truck alliance apparently didn't go far.Some European analysts speculated that officials of Saab's highly profitable Scania truck operation balked at surrendering any of their autonomy. Meanwhile, Ford officials became convinced they couldn't expect to recover the investment it would require to make Saab's cars competitive in the increasingly crowded luxury market. Saab's problems were underscored Friday when the company announced that its car division had a 1.2 billion kronor ($186.1 million) loss during the first eight months of this year, slightly worse than Saab-Scania had forecast in its first-half report last month.Overall, Saab-Scania's pretax profit during the first eight months of the year plunged 48.9% to 1 billion Swedish kronor ($155.1 million) from 1.96 billion kronor ($303.9 million) a year earlier. Industry analysts in Europe said the most likely suitor for Saab now is Fiat.Saab and Fiat have worked together in the past, in one case developing jointly a new auto chassis that became the foundation of Saab's 9000 model, Fiat's Croma and Lancia's Thema.Last month, Saab-Scania Chief Executive Georg Karnsund said his company has had talks with Fiat about a broader alliance.But the talks yielded "nothing so advanced that we needed to make a public announcement about it," he said. As for Ford, analysts expect the end of the Saab play will allow the U.S. auto maker to focus its resources on the intensifying struggle with GM for a stake in Jaguar. The failure of the Saab talks "makes it even more crucial for {Ford} to be victorious" in the Jaguar contest, said Stephen Reitman, European auto industry analyst at UBS-Phillips & Drew in London. Ford faces an uphill fight for Jaguar, however.Jaguar executives said last week they expect to have a friendly alliance with GM wrapped up by the end of the month.GM, meanwhile, is hosting a delegation of members of the British Parliament who are touring the auto maker's headquarter operations in Detroit.A GM spokesman said the visit isn't connected to the Jaguar situation. But Ford clearly views Jaguar as a prize worth fighting for, since the company's gilded brand image would give Ford a badly needed leg up in the high end of the luxury markets in both Europe and the U.S. Last week, Ford encountered a setback in its effort to broaden its U.S. luxury offerings when it was forced to abandon a four-year-old effort to market its German-built Scorpio sedan in the U.S. as a luxury import under the Merkur brand name. So despite the GM-Jaguar romance, analysts say Ford by last Friday had boosted its Jaguar holding to about 11% of the luxury auto maker's shares outstanding from 10.4% early last week.About 5.4 million Jaguar shares changed hands in active trading on London's stock exchange Friday, and Jaguar shares moved up 19 pence to 696 pence ($11).On the U.S. over-the-counter market, Jaguar's American depositary receipts rose 12.5 cents to $11.125. Joann S. Lublin contributed to this article.
President Bush wants the Pentagon to get special treatment in coping with the across-the-board spending cuts that took effect last week. Mr. Bush asked Congress to raise to $6 billion from $3 billion the amount of money Defense Secretary Dick Cheney may shift among the Pentagon's individual programs, projects and activities, allowing him to ease the pain that the Gramm-Rudman budget law was intended to inflict. If the request is approved by both the House and Senate, Mr. Cheney would need only permission from the White House Office of Management and Budget to move the money, according to Senate budget analysts. That would give the Pentagon flexibility that no other federal agency has. "It's simply a way of making the cuts less onerous for defense than they are for domestic programs," said Chairman James Sasser (D., Tenn.) of the Senate Budget Committee, who said he would oppose the request. "That isn't consistent with the kind of discipline that Gramm-Rudman is supposed to impose," he said. The president's request didn't indicate how Mr. Cheney would shift the money.A Pentagon official said the request was made to give the department "maximum flexibility" to deal with the cuts. Last week, Budget Director Richard Darman structured the $16.1 billion spending reduction, half of which must come from defense, to "impose a little bit more discipline" by applying cuts to each individual program, project or activity in the budget.That would give agencies "less ability . . . to fudge over things," he told reporters. Under the deficit-reduction law, 4.3% of the Pentagon's money and 5.3% of other agencies' money has been canceled.Lawmakers are expected to try to restore the funds once a pending deficit-cutting measure has been signed into law.
A bill that would permit the Securities and Exchange Commission to monitor the financial condition of securities firms' holding companies is facing tough opposition from some Wall Street firms, which argue that the legislation is unnecessary. The legislation and other issues related to the stock market will be the focus of hearings this week by the House Telecommunications and Finance Subcommittee and the Senate Securities Subcommittee. Richard Breeden, the new chairman of the SEC, hasn't taken a formal position on the bill, which would also require investors to disclose large trades and give the SEC additional authority during market emergencies.However, he recently told the Senate Banking Committee that he believes the agency should have explicit authority to monitor debt levels at holding companies and affiliates of broker-dealers, which are frequently used to issue bridge loans. The bridge loans are intended to provide temporary financing for acquisitions.Since such loans are often refinanced through the sale of high-risk, high-yield junk bonds, the recent woes of the junk-bond market have renewed concerns among regulators about the risks associated with Wall Street firms issuing bridge loans. But some Wall Street executives argue that such fears are unwarranted.In a July 6 letter to the Senate Securities Subcommittee, First Boston Corp. argued that the fact that no retail brokerage firm failed during the 1987 market crash demonstrates that current rules are adequate. First Boston, whose holding company, CS First Boston Group, is one of the larger issuers of bridge loans on Wall Street, said it is also concerned that once the SEC has the power to monitor holding companies, it will try to regulate their activities. "The proposal, while well-intended, I think can be dangerously misleading because the likely consequence would be to weaken, rather than strengthen the control the SEC has exercised for 50 years over the financial adequacy and viability of broker-dealers," Michael Raoul-Duval, managing director of First Boston, said in an interview. The bill would "divert scarce resources of the commission away from broker-dealers into areas which simply have no way of affecting broker-dealers," Mr. Raoul-Duval said. Sources in the industry and on Capitol Hill say a compromise that would placate the industry while addressing the SEC's concerns may be possible.An aide to the Senate Securities Subcommittee says some legislators support the concept of risk disclosure, but adds: "nobody is wedded to the language in the bill." Edward O'Brien, president of the Securities Industry Association, said that the securities-industry trade group opposes the bill as it is written but that it is "hopeful a compromise can be reached to achieve the SEC's goals." Mr. O'Brien will elaborate on the SIA's position in testimony before the House Telecommunications and Finance Subcommittee this week, a spokesman said.
This letter was inspired by David Asman's Sept. 25 editorial-page article about Fidel Castro, "Man in the Middle of Drug Trafficking." I've organized a series of exchanges, exhibitions and other continuing projects between Cuban and American artists.In any matters between us and the Cubans there can be no simplicity, consequently I've become familiar not only with Cuban art and artists, but also with Cuban bureaucrats and their counterparts in our own government.Despite levels of obstruction, incompetence and ensuing frustration of mythic proportion, these projects all remain, in my mind, valuable and well worth the effort.There is a simple reason for this: the Cuban people. Let me immediately put limits to whatever nostalgic notions that may intimate.Those "people" to whom I refer are not some heroic, indecipherable quantity; they are artists, critics, taxi drivers, grandmothers, even some employees of the Ministry of Culture, all of whom share a deep belief in the original principles of the Cuban Revolution, spelled out in terms such as equality among all members of the society, reverence for education and creative expression, universal rights to health and livelihood, housing, etc.In fact, the generation of painters growing into maturity right now works with such profoundly held humanist assumptions and such passionate commitment to moral and ethical principles that it makes Che Guevara's famous linkages of art, idealism and revolution seem modest.It is on behalf of these people, and out of my real respect for them, that I am responding to Mr. Asman's opinions of their country. The Ochoa trial in July, with its revelations of deeply rooted and widespread corruption, and the summary trial and execution, was extremely disturbing to everyone who has ever considered himself a friend of Cuba.However, unacceptable though those occurrences may have been, they still provide no excuse for wholesale departures from truth. Mr. Asman should make distinctions among Fidel, the army and the Cuban people.They are not interchangeable, since they are motivated to act based on their own circumstances.It is naivete to equate a government's policies with the will of the people (as we well know), and it is even worse folly to merge the clearly divergent agendas of Fidel and the military and the state bureaucracy.Mr. Asman is also annoyed that Mr. Castro has resisted collaboration with U.S. officials, even though by his own account that collaboration has been devised essentially as a mechanism for acts directly hostile to the Cuban regime, such as facilitating defections.I think it's a little disingenuous to be surprised that Fidel doesn't invite the U.S. State Department to violate the jurisdiction of the Cuban government over its own territory. We badly need to follow fact rather than the rhetoric of conventional wisdom.Without this basic level of attention to reality, our policies on Cuba will continue to be as counterproductive as they have for 30 years.From my own point of view, given the qualities of humanity, creativity and warm spirit in which the Cuban people excel, we deny ourselves access to things we hold dear, and which seem to run in such short supply these days.There is no rational justification for such behavior. Rachel Weiss Brookline, Mass.
Investors bailed out of New York City bonds in droves last week, driving prices lower and boosting yields. One bond trader estimated that more than $50 million of New York City general obligation bonds were put up for sale Friday alone.While that represents a small percentage of the city's public debt outstanding, Friday's selling followed a weeklong effort to unload the bonds by a broad spectrum of institutional and individual investors. "I've never seen so many {New York City} G.O.'s up for sale," said another trader. "Every broker has blocks of every size and maturity." Municipal bond analysts said the sell-off was triggered by concerns about the city's financial health, rumors of a $900 million bond offering coming soon, and political uncertainty. A spokesman for the city wouldn't confirm the size of the bond issue, but did say that a general obligation offering is in the works and should be priced sometime in the next two weeks, before the November mayoral election. (General obligation bonds are backed by the city's overall revenues and credit.) Although many investors were aware that a bond offering was being scheduled, many expected a much smaller amount of bonds to be sold.The fact that the city will issue such a large amount of debt was interpreted as a sign that New York's budgetary problems are more serious than had been expected.New York, one of the nation's largest issuers of tax-exempt bonds, sold $750 million of municipal bonds just a few weeks ago. There have been reports for months that the city's economy is weakening, as the October 1987 stock market crash continues to make itself felt.The recent sharp stock market decline exacerbated those concerns.Meanwhile, tax revenues are falling while the city's spending needs are expanding.Rumors persisted last week that New York's credit ratings -- single-A from Moody's Investors Service Inc. and single-A-minus from Standard & Poor's Corp. -- are at risk. The weakness in New York City bonds follows a warning from New York state Comptroller Edward Regan that the 1987 crash seriously weakened the city's economy.In a study, the comptroller said, "The city's glory days are over." Mr. Regan warned mayoral candidates "to be prepared for limited options and constraints on service increases to address the city's problems in the next few years, due to the now-evident weakening in the New York City economy." New York City's revised financial plan, due out later this month, is expected to include measures to balance the city's $27 billion budget.At present, analysts project a budget gap on the order of $500 million to $600 million for the fiscal year ending June 30, 1990, although the city's own budget analysts project a narrower deficit. Mark Page, New York's deputy director of finance, said that investors' concerns about the city's financial health are "unwarranted given our proven ability to manage ourselves." He charges the city's critics with spreading "unfounded emotional rhetoric." There are also questions about whether a new and inexperienced mayor can manage the city through what could become a financial crisis.The leading contender for the mayoral office, Democrat David Dinkins, has been criticized recently for the way he handled his personal financial affairs.And the controversy has led to uncertainty about the outcome of the election.Until last week, Mr. Dinkins was considered a shoo-in. "The market can adjust to good news or bad news, but uncertainty drives people wild," said Bernard B. Beal, chief executive of M.R. Beal & Co., a securities firm that specializes in the municipal market.Until last week, "Everyone felt certain they knew the outcome of the election.Now, there have been a number of questions raised." Last week, yields on long-term New York City general obligation bonds jumped half a percentage point.New York City's 6% bonds due 2018, for example, were quoted late Friday at a price to yield 7.80%, compared with 7.60% Thursday. As the yield on New York general obligation bonds rose, the Bond Buyer 20-bond general obligation index, the mostly widely followed gauge of the tax-exempt market, held steady at 7.19% in the week ended Oct. 19.
The Dallas Cowboys are looking at a long-yardage situation, struggling to pull ahead of the Atlanta Falcons.Up in his stadium box, their new and controversial owner, Jerral "Jerry" Jones, watches anxiously as the team bounds up to the scrimmage line. Mr. Jones takes heart.There in the center of the pack is quarterback Troy Aikman, the key to the Cowboys' comeback strategy.So key, in fact, that Mr. Jones signed him in April for $11.4 million over the next six years -- a record for a rookie. "He's a genuine Wheaties-box athlete," gushes Mr. Jones. With three minutes left on the clock, Mr. Aikman takes the snap, steps back and fires a 21-yard pass -- straight into the hands of an Atlanta defensive back.The crowd groans, Mr. Jones shakes his head, the Cowboys lose the game.A few days after that Sept. 17 game, Mr. Aikman broke a finger, sidelining him for weeks. Ah, the glamour of professional sports.For Mr. Jones, losing his quarterback temporarily was just the latest in a string of setbacks that has beset the Dallas Cowboys -- and, this year, much of the National Football League.Once fat and happy, the Cowboys now are losing games, fans and money.Last year, the team ended up $2 million in the red on $30 million in revenue.It has some of the highest costs in the league.Its attendance is off 23% from six years ago. At the very least, Mr. Jones, who cultivates the society circuit as eagerly as his bench, can take comfort in one fact: These days, he isn't alone.Nearly half the owners of the 28 National Football League teams are losing money, the result of flat attendance, aging stadiums and -- more than anything -- skyrocketing salaries for star players like Mr. Aikman. Last year, the top 12 players on each NFL team took home an average $536,000, a figure comparable to baseball and higher than in basketball.First-round draft picks have done even better: Average salaries and bonuses for them rose to $685,000 this year, up 44% from 1987. "It's a vicious circle," says Art Modell, owner of the Cleveland Browns. "One team pays so much and the other pays more.We just don't have that kind of income stream." All this is causing convulsions in professional football.Owners, largely complacent in the past, are now almost desperately looking for ways to lower costs and raise revenue -- embracing some revolutionary ideas in the process.Though not intentionally, the Cowboys' Mr. Jones has come to represent this new breed of owner. Shortly after buying 66% of the team from H.R. "Bum" Bright for $145 million, and mindful of the Cowboys' ragged bottom line, the 47-year-old Mr. Jones set about his own round of team cuts.First, he unceremoniously sacked Tom Landry, the legendary coach who took the Cowboys to five Super Bowls and 20 consecutive winning seasons.In Dallas, Mr. Landry has a standing just shy of sainthood.Anti-Jones sentiment flooded the local press: "A crude obnoxious hick," said one writer; "a real oink," said another; "Who in the hell does he think he is?" wrote a third. For Mr. Jones, it was just the beginning.He quickly cut the team's bloated administrative staff by half, shut down a Cowboys-owned dance academy and, in July, announced plans to sell Valley Ranch, the team's 30-acre practice camp and the most lavish training facility in the NFL. Mr. Jones calls the ranch "the Pentagon of Sportdom." It is a maze of halls that connects film rooms, elaborate spas and weight-training centers that testify to a richer, more free-spending era.He likes to tell the yarn of how he got lost on the expansive ranch during an early visit, took refuge in an office and called the front desk for help. "I said, `Somebody come get me.I'm at extension 29. '" With a new day dawning on the sport, Mr. Jones doesn't see a place for this sort of luxury. "It's just not cost efficient," he says.The place costs nearly $2 million a year to maintain.When he sells it, he says, the Cowboys will move to a more practical -- read affordable -- grass practice field near Texas Stadium. And as for Tom Landry, well, in Mr. Jones's mind, he had played out his winning years.After posting losing seasons in each of the last three years, the Cowboys needed a change, he says. Football has long been Mr. Jones's passion, both on and off the field.An Arkansas native, he started at guard on the undefeated 1964 University of Arkansas team that won a national championship.After college, he worked at his father's insurance company in Little Rock, and in 1966 led an aborted attempt to buy the San Diego Chargers.Years later, with cash from the sale of the insurance company, he founded Arkoma Production Corp., an oil and gas exploration company based in Little Rock. So it wasn't surprising that Mr. Jones returned to his Arkansas roots when he went looking for a replacement for Mr. Landry.He tapped Jimmy Johnson, a teammate on the 1964 University of Arkansas squad and the head coach at the University of Miami, where he led the Hurricanes to five winning seasons and a national championship in 1987.Whatever Mr. Johnson's talents, in the hearts and minds of many Dallas fans, he is no Tom Landry.Seven games (and, after a loss to the Kansas City Chiefs yesterday, seven losses) into the season, the "new" Cowboys aren't doing any better than the old.In fact, the last time they played this badly was in 1960, their opening season.Average attendance at their games, about 49,000 last year, continues flat. Mr. Jones is attacking the problem on several fronts.He continues to reshuffle the team, trading famed running back Herschel Walker to the Minnesota Vikings this month for a slew of players and future draft picks.To try to draw more fans, he has dropped end-zone ticket prices from $25 to $19.But the general trend, given rising costs in the league, has been to raise prices, and Mr. Jones is expected to eventually follow suit. "It's simple," says Lamar Hunt, who owns the Kansas City Chiefs and last year raised ticket prices by $2.40 to an average $17. "If we didn't increase prices, we'd be in the red." Mr. Jones has also beefed up his marketing staff to sell the 118 luxury suites topping Texas Stadium (his deal with Bum Bright included operating rights for the stadium).The suites are air-conditioned, have wet bars and plush seating, and offer a clear view of the field -- all for a sale price of $475,000 to $1 million, depending on their size and location.Mr. Jones has been taking prospective suite owners onto the field during practice to let them rub elbows with players, and promises those who actually buy one of the rooms an insider's look at the team's strategy before game time.The sales job seems to be paying off: When he bought the team, only six of the suites had been sold.Today, 30 have. Gate receipts are only the Cowboys' second largest source of cash.The biggest is the NFL's contract with national television for broadcast of the league's games.Last year, the Cowboys' share of that pie came to $17.6 million.The team additionally earns between $2 million and $4 million for local radio and television broadcast rights.Mr. Jones is currently trying to jack up the price for those local rights.He is also trying to get more stations in Mexico, where the Cowboys have a following, to pick up the games. Mr. Jones, whose twangy voice and folksy ways belie an intense businessman who works 16-hour days, is resigned to the hefty salaries he pays his players these days.He calls the contracts "critical to winning in the NFL" and has played his part in the bidding wars.Besides signing Mr. Aikman to a sizable contract, Mr. Jones has agreed to pay rookie quarterback Steve Walsh $4.1 million over the next four years. This wage inflation is bleeding the NFL dry, the owners contend.Soon, only large corporations will be able to afford to buy and run football teams, predicts John J. Veatch Jr., an investment banker with Salomon Brothers who handled the Cowboys sale.To tackle the problem, NFL owners have proposed setting a rookie wage scale to try to rein in salaries.Details of the plan, which would go into effect in 1993, are sketchy, but each player would apparently be paid a base salary keyed to his position and ability.Bonuses would be paid based on playing time and performance. The NFL Players Association, meanwhile, contends that athletes are paid a wage commensurate with their ability to draw fans, and that some owners are in financial trouble because of poor business management, not players' salaries. The owners are trying to boost profit in other ways, too.Many have launched promotions to attract new fans and are renegotiating dated stadium contracts.Most of the owners must pay up to 10% of gross ticket sales for leases on stadiums they say are either too small or too old.In Chicago, for example, size is the issue. "We have the worst lease in the NFL," contends Michael B. McCaskey, the president of the Chicago Bears and a grandson of George Halas, who founded the NFL's predecessor organization. "We're in a metro area with millions of Bear fans, and only a small number can be accommodated." When the lease expires in 1999, he says, "It's got to be changed." This year, the NFL also imposed an 80-player limit on teams going into training camp, down from 120, in a move meant to trim payroll costs.And the league is trying to get more for its three-year national network contract, which expires after this season.The current contract pays the NFL $1.4 billion.Owners say they expect the league to demand a 50% increase, despite the fact that televised football games have had lackluster ratings.An NFL spokesman also says the league will probably expand its offerings to cable TV companies like ESPN. The changes haven't come easy.Like the game of professional football, the NFL organization itself is in turmoil.The new breed of team owner, Mr. Jones included, has been fighting the NFL bureaucracy for a greater say in league affairs, and the battle has produced a form of organizational gridlock.In July, 11 NFL owners, almost all of them new, blocked an effort to install Jim Finks as a replacement for retiring league commissioner Pete Rozelle.Mr. Finks is perceived by some owners as a standard-bearer for the Old Guard.Earlier this month, another effort to choose a commissioner failed.The owners meet again tomorrow. For his part, Jerry Jones says he's in the business for the long haul, and his work style seems to support that.He puts in busy six-day weeks (excluding game days), and on one recent afternoon fielded questions, in the course of an hour, from a TV producer, his luxury-suite marketing manager, a disgruntled customer and a roomful of Arkansas reporters.To keep his schedule on track, he flies two personal secretaries in from Little Rock to augment his staff in Dallas. "When I made this investment, I made it on a lifetime basis," he explains. "I'm not here to make money by reselling the team later on.While the Cowboys may not be the best investment now, I don't accept they can't be in the future." Besides, to a large extent, Mr. Jones may already be getting what he wants out of the team, even though it keeps losing.Owning the Cowboys has bought him entree to a glitzy life that drilling for oil in Arkansas just didn't provide.There is the new private jet, the platoon of assistants, invitations to the best parties, and television appearances on shows such as "Prime Time Live." A few weeks ago, Mr. Jones even entertained Elizabeth Taylor in his private suite at Texas Stadium. "You're in the catbird seat every day in this job," he says.
Qintex Australia Ltd. encountered another setback Friday when its Los Angeles-based affiliate, Qintex Entertainment Inc., filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Qintex Entertainment also said David Evans, its president and chief executive, and Roger Kimmel, a director, both resigned.Neither could be reached for comment. Earlier this month, Qintex Australia's $1.5 billion agreement to acquire MGM/UA Communications Co. collapsed because of a dispute over a $50 million letter of credit the Australian operator of television stations and resorts was to have supplied as security in the transaction.Mr. Evans had been the de facto head of MGM/UA for months. Qintex Entertainment, a producer and distributor of television programs most noted for its co-production of the hit miniseries "Lonesome Dove," said it filed for Chapter 11 protection after Qintex Australia failed to provide it with $5.9 million owed to MCA Inc. in connection with the distribution of "The New Leave It to Beaver Show." Qintex Entertainment is 43% owned by Qintex Australia and said it relies on the Australian company for funding its working capital requirements. After the announcement of the bankruptcy filing, Qintex Entertainment stock sank $2.625 in over-the-counter trading to close at $1.50 on heavy volume of more than 1.4 million shares.The stock traded as high as $10 this past summer. Jonathan Lloyd, executive vice president and chief financial officer of Qintex Entertainment, said Qintex Entertainment was forced to file for protection to avoid going into default under its agreement with MCA.The $5.9 million payment was due Oct. 1 and the deadline for default was Oct. 19.Mr. Lloyd said if Qintex had defaulted it could have been required to repay $92 million in debt under its loan agreements.MCA on Friday said that as a result of Qintex's failure to make the required payment it was terminating the distribution agreement on "The New Leave It to Beaver" as well as other MCA properties. Qintex Australia was "saying as recently as last weekend that they would take care of the situation.They continued to represent that to the board," said Mr. Lloyd. "We were reassured they would stand behind the company." Mr. Lloyd said both Qintex Entertainment and Qintex Australia had attempted to secure a loan that would allow the company to make the $5.9 million payment but the request was turned down by an unidentified lender on Oct. 14.At that point, he said, Qintex Australia stated it would "endeavor to arrange" the financing. However a Qintex Australia spokesman said his firm had never "promised or guaranteed" to make the payment.In a prepared statement from Australia, the company also said that, following the breakdown of the MGM talks, it "had been re-evaluating its position as a significant shareholder and a substantial creditor of Qintex Entertainment" and had "resolved to minimize the degree of further loans to Qintex Entertainment in excess of that previously made." The Qintex Australia spokesman added that his company had opposed the Chapter 11 filing.He said the company believed Qintex Entertainment's financial problems could have been resolved by other means. The report of the bankruptcy filing stunned Hollywood executives and investors. "It's a shocker," said Joseph Di Lillo, chairman of Drake Capital Securities, a brokerage firm that has an investment in Qintex Entertainment.Qintex Australia was "going to pay more than $1 billion for MGM/UA and then they couldn't come up with the far smaller sum of $5.9 million." Qintex said Mr. Evans, the former president, resigned for "personal reasons" and that Mr. Kimmel, an attorney, resigned because his participation in evaluating the company's role in buying MGM/UA was no longer necessary.Mr. Kimmel was a director of the company and a predecessor firm since 1980. The announcement seemed to further damp prospects that talks between Qintex Australia and MGM/UA might be revived.It's understood that MGM/UA recently contacted Rupert Murdoch's News Corp., which made two failed bids for the movie studio, to see if the company was still interested.However, "we aren't currently doing anything.It isn't a current topic of conversation at the company," said Barry Diller, chairman and chief executive officer of the Fox Inc. unit of News Corp.
Japan's Finance Ministry strongly denied playing any role in the New York stock-price free fall. Makoto Utsumi, vice minister for international affairs, said the ministry didn't in any way suggest to Japanese banks that they stay out of the UAL Corp. leveraged buy-out.The ministry has never even suggested that Japanese banks be cautious about leveraged buy-outs in general, Mr. Utsumi said. "There are no facts {behind the assertions} that we sent any kind of signal," he declared in an interview. The comments were the ministry's first detailed public statement on the subject, and reflect the ministry's concern that foreigners will think Japan is using its tremendous financial power to control events in foreign markets.A number of accounts of the events leading to the 190 point drop in New York stock prices on Oct. 13 accused the ministry of pulling the plug on the UAL deal for one reason or another. Mr. Utsumi said the most the ministry had ever done was ask Japanese banks about "the status of their participation" in one previous U.S. leveraged buy-out.The ministry inquired about that deal -- which Mr. Utsumi declined to identify -- because the large presence of Japanese banks in the deal was "being strongly criticized in the U.S. Congress" and it was "necessary for us to grasp the situation." He said the inquiry wasn't made in a way that the banks could have interpreted as either encouraging or discouraging participation, and he added that none of the Japanese banks changed their posture on the deal as a result of the inquiry. Mr. Utsumi also said some Japanese banks were willing to participate in the UAL financing up to the very end, which would suggest at the very least that they weren't under orders to back out.In general, Mr. Utsumi said, Japanese banks are becoming more "independent" in their approach to overseas deals. "Each Japanese bank has its own judgment on the profits and risks in that {UAL} deal," he said. "They are becoming more independent.It's a sound phenomenon." Sanwa Bank Ltd. is one Japanese bank that decided not to participate in the first UAL proposal.A Sanwa Bank spokesman denied that the finance ministry played any part in the bank's decision. "We made our own decision," he said. Still, Mr. Utsumi may have a hard time convincing market analysts who have rightly or wrongly believed that the ministry played a role in orchestrating recent moves by Japanese banks.All week there has been much speculation in financial circles in Tokyo and abroad about the ministry's real position. Bank analysts say ministry officials have been growing increasingly concerned during the past few months about Japanese banks getting in over their heads. "The {ministry} thinks the banks don't know what they are doing, that they have very little idea how to cope with risk," said one foreign bank analyst who asked not to be identified. "The {ministry} wants to see the Japanese banks pull in their horns" on leveraged buy-outs, he added. Although some of the Japanese banks involved in the first proposed bid for UAL bowed out because they found the terms unattractive, observers here say they have a hard time believing that commercial considerations were the only reason.Japanese banks are under "political pressure" as well, the analyst said.Moreover, analysts point out that Japanese banks have a reputation for doing deals that aren't extremely profitable if they offer the chance to build market share, cement an important business relationship or curry favor with powerful bureaucrats. Clearly, some financial authorities are concerned about the Japanese banks role in leveraged buy-outs.At a news conference this week, Bank of Japan Gov. Satoshi Sumita cautioned banks to take a "prudent" stance regarding highly leveraged deals.Despite Mr. Sumita's statements, it is the Finance Ministry, not the central bank, that makes policy decisions. While recent events may cool some of the leveraged buy-out fever, Japanese banks aren't likely to walk away from the game.Despite the risks, the deals can be an attractive way for Japanese banks to increase their presence in the U.S. market, bank analysts say.Flush with cash at home, but with fewer customers to lend to, leading banks are eager to expand overseas.Jumping in on big deals is a high profile way to leapfrog the problem of not having a strong retail-banking network.
France's national tobacco company, known for making brown-tobacco cigarettes such as Gauloises and Gitanes, is branching out. Concerned by dipping demand for its traditional products, it is moving not only into blonde cigarettes, but also into electronic car-parking payment cards to be sold in neighborhood tobacco stores.Brown tobacco in France is a more pungent, stronger grade than the lighter grade, or blonde tobacco, used in so-called American-style cigarettes. "We aren't Philip Morris Cos.," says Bertrand de Galle, chairman of government-owned Societe Nationale d'Exploitation Industrielle des Tabacs & Allumettes S.A., known as Seita.He says that because Seita's profits are limited by government-controlled cigarette prices, he doesn't have the cash to diversify as heavily into food and drink as the U.S. concern has done. (Last year, for example, Seita's net profit soared 150% to 461.6 million French francs ($73.5 million) on sales of FFr27.68 billion-a 1.7% profit margin.) Instead, he said in an interview, he is looking for ways to exploit France's network of 39,000 tobacco agents, most of them cafes.While Seita doesn't own the French tabacs, its close alliance with them offers distribution possibilities. One proposal is to introduce a new payment system for parking in Paris.Instead of paying for parking by putting money in the existing machines, which deliver little paper receipts, drivers would be able to buy electronic cards in local tobacco shops.Once activated, the card would sit in the car's window, showing traffic wardens how much time the motorist could remain.When the motorist returned to his car he could turn the card off and, if it showed time remaining, save it for later.Seita is a partner in the project, which was developed by Matra SA using Japanese technology.Seita and Matra currently are negotiating with city officials for the right to begin service. And Seita is considering further diversification.It wanted to buy RJR Nabisco Inc. 's French cracker subsidiary, Belin, in hopes of selling its products in tobacco stores, but lost the bidding to food group BSN SA.It currently is considering bidding for Swedish Match Co.And it retains an interest in acquiring candies and other articles that might be sold in tobacco shops. It also is trying to shore up its tobacco business.Brown-tobacco cigarettes such as Gauloises now make up just 40% of the French tobacco market, half the level of about two decades ago.While Seita retains a manufacturing monopoly in France, it is being hurt by rising imports and from waning cigarette demand. So Seita has introduced blonde cigarettes under the Gauloises label, and intends to relaunch the unsuccessful Gitanes Blondes in new packaging, similar to the slide-packs used by brown-tobacco Gitanes.The aim, says Mr. de Galle, is to win market share from imported cigarettes, and to persuade smokers who are switching to blonde cigarettes to keep buying French.
When the Supreme Court upheld Missouri's abortion restrictions last July, the justices almost certainly didn't have drunk driving, trespassing and false imprisonment on their minds. But the 5-4 ruling may have had as much immediate impact on those activities -- especially trespassing -- as on abortion rights. The decision, Webster vs.Reproductive Health Services, illustrates how Supreme Court rulings often have a ripple effect, spreading into areas of law and policy that weren't part of the actual cases decided and that never were contemplated by the justices. In the Missouri case, unforeseen consequences may have arisen because the high court reinstated the preamble of the state's 1986 abortion law.The preamble says that human life begins at conception and that unborn children have rights protected by the Constitution. Last year, a federal appeals court in St. Louis said the preamble was unconstitutional, citing an earlier Supreme Court ruling that states can't justify stricter abortion curbs by changing the definition of when life begins.But the Supreme Court concluded that it was premature to rule on the constitutionality of the preamble because the definition of human life hadn't yet been used to restrict abortion services. The high court majority said it was up to the state courts for now to decide whether the definition has any bearing on other state laws.Already, local Missouri judges have relied on the restored preamble in two separate cases to throw out criminal trespass charges against anti-abortion demonstrators who blocked access to Reproductive Health Services, an abortion clinic in St. Louis. The protesters said their actions were justified by the desire to save the lives of unborn children.Under a 1981 Missouri law, persons accused of some crimes, including trespassing, may offer a defense that their actions were justified "as an emergency measure to avoid an imminent public or private injury." Relying on the preamble's statement that a fetus is an unborn child, the two St. Louis County Circuit Court judges in August accepted the justification that the abortion clinic protesters were trying to save lives. In another case, a protester, Ann O'Brien, was convicted of trespass before the Supreme Court's Webster ruling.Last week, when her appeal was argued before the Missouri Court of Appeals, her lawyer also relied on the preamble. "The effect of the Supreme Court Webster opinion is that it left room for grass to grow in the cracks of Roe vs.Wade, and I think this is one of the cracks," said Mark Belz, a St. Louis lawyer who represented Ms. O'Brien and the other St. Louis protesters.Roe vs.Wade was the Supreme Court's 1973 decision that recognized a woman's right to abortion. Mario Mandina, president of Kansas City Lawyers for Life, says that if abortion foes succeed in using the preamble to escape prosecution for trespass, "This will shut down abortion in Missouri.There's no risk to the protesters, and you can't keep an abortion clinic open if there are 3,000 people standing outside every day." That would be an ironic result of a case in which the Supreme Court expressly stopped short of overruling Roe vs.Wade. In two other cases, the possible consequences of the Supreme Court ruling appear even more unintended. In one, the lawyer for a 20-year-old resident of Columbia, Mo., who was charged with drunk driving, argued that his client should be treated as a 21-year-old adult because his actual age should be calculated from conception, not from birth.In Missouri, those caught drinking and driving between the ages of 16 and 21 may have their licenses revoked for one year, while those 21 or older suffer only a 30-day suspension.A Boone County judge rejected the motion, but Daniel Dodson, a Jefferson City lawyer, says he has appealed. And in a case filed in federal court in August, a lawyer is arguing that Missouri authorities are wrongfully imprisoning the fetus of a pregnant woman who is in jail for theft and forgery.
In terms of sheer brutality, the Somali regime of Siad Barre may rank as No. 1 in the world.The only reason that Somalia remains in obscurity is numbers: a sparsely populated wasteland of 8.5 million people spread out over an expanse nearly the size of Texas.The Barre dictatorship simply is limited in the amount of people it can torture and kill. Beheading small children, stabbing elderly people to death, raping and shooting women, and burying people alive are just a few of the grisly activities that the Somali armed forces have been engaged in over the past two years. Up to 500,000 Somalis have escaped to the relative safety of Marxist Ethiopia because of the behavior of President Barre's troops. In the port of Berbera, for example, hundreds of men of the rival Issak clan were rounded up in May 1988, imprisoned, and then taken out at night in groups of five to 50 men to be executed without any judicial process whatsoever.Guns were never used: Each man was stabbed to death with a large knife. The horrific details are only now emerging from a painstakingly documented report, based on hundreds of interviews with randomly selected refugees.The study was done by Robert Gersony, a consultant to the U.S. State Department who has years of experience in investigating human-rights abuses on both sides of the left-right ideological divide. What gives these events particular significance, however, is the fact that they are part of a wider drama affecting the strategic positions of both the U.S. and the Soviet Union on the horn of Africa.Not since the late 1970s has the horn been so up for grabs as it has suddenly become in just the past few weeks. Mr. Barre's rule is crumbling fast.Mutinies wrack his armed forces (really just an armed gang), which control less than half the country.Inflation is at record levels.Desperate, he has called in the Libyans to help fight the rebels of the Somali National Movement in the north, which is only one of several groups picking away at the regime in the capital of Mogadishu.Seventy years old and a self-declared "scientific socialist," President Barre has a power base, composed only of his minority Mareham clan, that according to observers is "narrowing." The U.S.'s interest in Somalia consists of a single runway at the port of Berbera, which U.S. military aircraft have the right to use for surveillance of the Gulf of Aden and the Indian Ocean.That strip of concrete is backed up by a few one-story, air-conditioned shacks where a handful of American nationals -- buttressed by imported food, cold soft drinks and back issues of Sports Illustrated -- maintain radio contact with the outside world.In the past two years, the desert behind them has become a land of mass executions and utter anarchy, where, due to Mr. Barre's brutality and ineptitude, nobody is any longer in control. As long as the rival Soviet-backed regime of Mengistu Haile Mariam held a total gridlock over neighboring Ethiopia, the U.S. was forced to accept that lonely Berbera runway as a distant No. 2 to the Soviets' array of airfields next door.But due to dramatic events on the battlefield over the past few days and weeks, those Soviet bases may soon be as endangered and as lonely as the American runway. On Sept. 7, I wrote on these pages about the killing and capturing of 10,000 Ethiopian soldiers by Eritrean and Tigrean guerrillas.Recently, in Wollo province in the center of Ethiopia, Tigrean forces have killed, wounded and captured an additional 20,000 government troops. (Think what these numbers mean -- considering the headline space devoted to hundreds of deaths in Lebanon, a small country of little strategic importance!) Tigrean armies are now 200 miles north of Addis Ababa, threatening the town of Dese, which would cut off Mr. Mengistu's capital from the port of Assab, through which all fuel and other supplies reach Addis Ababa.As a result, Mr. Mengistu has been forced to transfer thousands of troops from Eritrea just to hold the town, thereby risking the loss of even more territory in Eritrea only to keep the Tigreans at bay. Mr. Mengistu is in an increasingly weak position: Half his army is tied down defending the northern city of Asmara from the Eritreans.The weaker he gets, the more he turns toward the U.S. for help.While the Tigreans are communists, like the Eritreans they are among the most anti-Soviet guerrillas in the world, having suffered more than a decade of aerial bombardment by the Soviet-supplied Mengistu air force. What this all means in shorthand is that Soviet dominance in Ethiopia is collapsing as fast as President Barre's regime in Somalia is.The U.S., therefore, has a historic opportunity both to strike a blow for human rights in Somalia and to undo the superpower flip-flop of the late 1970s on the Horn of Africa. Back to Somalia: The State Department, to its credit, has already begun distancing itself from Mr. Barre, evinced by its decision to publish the Gersony report (which the press has ignored).What's more, the U.S. has suspended $2.5 million in military aid and $1 million in economic aid. But this is not enough.Because the U.S. is still perceived to be tied to Mr. Barre, when he goes the runway could go too.Considering how tenuous the security of that runway is anyway, the better option -- both morally and strategically -- would be for the Bush administration to blast the regime publicly, in terms clear enough for all influential Somalis to understand.It is a certainty that Mr. Barre's days are numbered.The U.S. should take care, however, that its own position in the country does not go down with him. Nobody is sure what will come next in Somalia or whom the successor might be.But as one expert tells me: "Whoever it is will have to work pretty damn hard to be worse than Barre." While the State Department positions itself for the post-Barre period in Somalia, it should continue to back former President Carter's well-intentioned role as a mediator between Mr. Mengistu and the Eritrean guerrillas in Ethiopia, while concomitantly opening up channels of communications with the Tigrean rebels through neighboring Sudan. Ethiopian politics are the most sophisticated, secretive and Byzantine in all of black Africa.Remember that it took Mr. Mengistu many months, in what became known as the "creeping coup," to topple Emperor Haile Selassie in 1974 and 1975.There is simply no way to engineer a succession covertly, as is sometimes possible elsewhere on the continent.But the U.S. has one great advantage: The Soviets are universally loathed throughout Ethiopia for what they did to the country this past decade -- famine and all. It's not just in Eastern Europe where the march of events is finally on the U.S. side, but on the horn of Africa as well.The only U.S. liability in the region is what remains of the link to Mr. Barre, and that should be cut fast. Mr. Kaplan, author of "Surrender or Starve: The Wars Behind the Famine" (Westview Press, 1988), lives in Lisbon.
OPEC's ability to produce more petroleum than it can sell is beginning to cast a shadow over world oil markets. Output from the Organization of Petroleum Exporting Countries is already at a high for the year and most member nations are running flat out.But industry and OPEC officials agree that a handful of members still have enough unused capacity to glut the market and cause an oil-price collapse a few months from now if OPEC doesn't soon adopt a new quota system to corral its chronic cheaters. As a result, the effort by some oil ministers to get OPEC to approve a new permanent production-sharing agreement next month is taking on increasing urgency.The organization is scheduled to meet in Vienna beginning Nov. 25. So far this year, rising demand for OPEC oil and production restraint by some members have kept prices firm despite rampant cheating by others.But that could change if demand for OPEC's oil softens seasonally early next year as some think may happen. OPEC is currently producing more than 22 million barrels a day, sharply above its nominal, self-imposed fourth-quarter ceiling of 20.5 million, according to OPEC and industry officials at an oil conference here sponsored by the Oil Daily and the International Herald Tribune.At that rate, a majority of OPEC's 13 members have reached their output limits, they said. But it is estimated that at least three million barrels a day -- and possibly as much as seven million barrels a day -- of spare capacity still exists within OPEC.Most is concentrated in five Persian Gulf countries, including his own, Issam Al-Chalabi, Iraq's oil minister, told the conference Friday.He puts OPEC's current capacity at 28 million to 29 million barrels a day. That's higher than some other estimates.Ali Khalifa Al-Sabah, Kuwait's oil minister, recently estimated OPEC capacity at 25 million barrels a day. Either way, the overhang is big enough to keep delicately balanced oil markets on edge.Even modest amounts of additional output by those with the huge extra capacity and reserves, such as Saudi Arabia and Iraq, could upset the market. The Iraqi oil minister and Saudi oil minister Hisham Nazer insisted in their comments to the conference that their countries would act responsibly to maintain a stable market. However, in interviews later, both ministers stressed that they expect future OPEC quotas to be based mainly on the production capacity and reserves of each member. Under that approach, countries with the most unused oil capacity would get bigger shares of any future increases in OPEC's production ceiling than they would under the current system. "If you are already producing at 95% or 100% of your capacity, what's the good to be told you can produce at 105% of capacity?" asked Mr. Al-Chalabi. At an inconclusive Geneva meeting late last month, OPEC's oil ministers halfheartedly approved another increase of one million barrels a day in their production ceiling.They doled it out using the existing formula, however, which meant that even those countries that couldn't produce more received higher official allotments.The main effect of the ceiling boost was to "legitimize" some of the overproduction already coming from the quota cheaters. Still, there was a breakthrough at Geneva.Previously, no OPEC member had been willing to accept a reduction in its percentage share of the group's total output target, or ceiling.But the concept of disproportionate quotas for those with unused capacity, advanced there in an Iranian proposal, was generally endorsed by the ministers. In the end politics got in the way.Libya accepted Iran's proposal only so long as it was promised production parity with Kuwait.And the United Arab Emirates, a chronic quota cheater, refused to give any guarantee it would change its ways. But the oil ministers continue to study the plan, and it will probably be the basis for discussion at next month's meeting. It's understood several compromises already have been worked into the plan.The ceiling would be lifted to 21.5 million barrels to provide Kuwait and the United Arab Emirates much higher official quotas while reducing percentage shares of some others.Libya's previous conditions are no longer considered a problem, although the United Arab Emirates is still an issue. Saudi Arabia, OPEC's kingpin, also has surfaced as a possible obstacle, some OPEC sources said.Insisting on a 24.5% share of any ceiling, Saudi officials have long pressed for the pro rata distribution of increases to all members.In Geneva, however, they supported Iran's proposal because it would have left the Saudi percentage of the OPEC total intact, and increased actual Saudi volume to nearly 5.3 million barrels daily from five million. Some of the proposed modifications since, however, call on Saudi Arabia to "give back" to the production-sharing pool a token 23,000 barrels.Though tiny, that's a reduction in its share.Mr. Nazer, the Saudi oil minister, reiterated here that the kingdom would insist on maintaining its percentage share of OPEC production under any quota revisions. "Under any circumstances, Saudi Arabia should get more" rather than less, Mr. Nazer said.
In a blow to France's Rafale jet fighter, the French navy for the first time publicly stated its desire to buy 15 McDonnell Douglas Corp. F-18 Hornets to defend its aircraft carriers. The statement is likely to sharpen the debate within France's military establishment over the Rafale, which is made by Avions Marcel Dassault-Breguet Aviation SA. In an interview in the navy's official weekly magazine Cols Bleus, the navy's second-in-command, Adm. Yves Goupil, said the navy still intends to buy 86 Rafales as scheduled in the late 1990s and early 21st century.The air force is to take at least 250 more. Adm. Goupil said the navy can't wait until 1998, when the naval Rafale becomes available, to replace its obsolete fleet of American-made Crusaders, used since the 1950s to protect carriers from attack.Rather than renovate the Crusaders, which Dassault is proposing to do for around 1.8 billion French francs ($286.6 million), Adm. Goupil said the navy wants to buy used F-18s from the U.S. Navy. Officially, the statement isn't an attack on the Rafale.Adm. Goupil said that when the F-18s wear out, the navy is prepared to take Rafales to replace them.But unofficially, senior navy officials sharply criticize the Rafale as an air force plane ill-suited to carrier use.Although they never said so publicly, they have made no secret of their preference for the F-18 on operational grounds. Adm. Goupil's comments are likely to inflame the broader dispute within the military establishment here over the role of Dassault.Although government-controlled, Dassault still is run by the founder's son, Chairman Serge Dassault, who has fiercely protected his company's independence.The Rafale project is the result of France's inability jointly to develop a plane with other countries, and French officials question whether the state can continue paying for expensive independent programs.So far, Mr. Dassault has resisted pressure to change. What brought the naval issue to a head is that the Crusaders are literally falling apart, without any immediate plan to replace them.Adm. Goupil, a former Crusader squadron leader, said that the last other country to use Crusaders, the Philippines, retired its last ones two years ago.A French Crusader crash a few months ago heightened pressure for new planes here. Adm. Goupil rejected Dassault's proposal to renovate the Crusaders, saying the cost was impossible to estimate.Even modernized, he said, the Crusaders represent an obsolete and dangerous protection for the aircraft carriers France has sent to meet such crises as the wars in Lebanon and the Persian Gulf. Defense Minister Jean-Pierre Chevenement told a meeting of the Anglo-American Press Association that the question of modernizing the Crusaders or buying used F18s is a "political" decision that he will make in due time.
For Cathay Pacific Airways, the smooth ride may be ending. The first signs of trouble came last month when the Hong Kong carrier, a subsidiary of Swire Pacific Ltd., posted a 5% drop in operating profit for the first six months and warned that margins will remain under pressure for the rest of the year. Securities analysts, many of whom scrapped their buy recommendations after seeing Cathay's interim figures, believe more jolts lie ahead.Fuel and personnel costs are rising, and tourism in and through Hong Kong remains clouded by China's turmoil since the June 4 killings in Beijing. In addition, delivery delays for the first two of as many as 28 Boeing 747-400s that the carrier has ordered have raised costs because personnel had been hired to man the planes.And tough competition in the air-freight market is cutting into an important sideline. There also is concern that once Hong Kong reverts to China's sovereignty in 1997, Cathay will be forced to play second fiddle to China's often-disparaged flag carrier, Civil Aviation Administration of China, or CAAC. "The sense is we would never be in a position again where everything works for us the way it did before," says Rod Eddington, Cathay's commercial director. Sarah Hall, an analyst at James Capel (Far East) Ltd., says there isn't much Cathay can do about rising costs for jet fuel, Hong Kong's tight labor market, or the strengthening of the local currency, which is pegged to the U.S. dollar.These factors are further complicated by the airline's push to transform itself from a regional carrier to an international one, Ms. Hall says. Ms. Hall expects Cathay's profit to grow around 13% annually this year and next.In 1988, it earned $2.82 billion Hong Kong (US$361.5 million) on revenue of HK$11.79 billion. Cathay is taking several steps to bolster business.One step is to beef up its fleet.In addition to aircraft from Boeing Co., Cathay announced earlier this year an order for as many as 20 Airbus A330-300s.The expansion, which could cost as much as US$5.7 billion over the next eight years, will expand the fleet to about 43 planes by 1991, up from 30 at the end of last year, according to Sun Hung Kai Securities Ltd. The fuel-efficient Airbus planes will be used largely to replace Cathay's aging fleet of Lockheed Tristars for regional flights, while the Boeing aircraft will be used on long-haul routes to Europe and North America. Cathay also is moving some of its labor-intensive data-processing operations outside Hong Kong.Fierce bidding for young employees in Hong Kong is pushing up Cathay's labor costs by 20% a year for low-level staff, while experienced, skilled employees are leaving the colony as part of the brain drain.Some jobs already have been moved to Australia, and there are plans to place others in Canada.David Bell, a spokesman for the airline, says the move is partly aimed at retaining existing staff who are leaving to secure foreign passports ahead of 1997. Cathay is working to promote Hong Kong as a destination worth visiting on its own merits, rather than just a stopover.Although the June 4 killings in Beijing have hurt its China flights, Cathay's other routes have retained high load factors.Mr. Eddington regards promoting Hong Kong as an important part of attracting visitors from Japan, South Korea and Taiwan, where the number of people looking to travel abroad has surged. There also has been speculation that Cathay will be among the major private-sector participants in the Hong Kong government's plans to build a new airport, with the carrier possibly investing in its own terminal.Cathay officials decline to comment on the speculation. Mr. Eddington sees alliances with other carriers -- particularly Cathay's recent link with AMR Corp. 's American Airlines -- as an important part of Cathay's strategy.But he emphasizes that Cathay hasn't any interest in swapping equity stakes with the U.S. carrier or with Lufthansa, the West German airline with which it has cooperated for about a decade.Analysts believe Cathay is approached for such swaps by other carriers on a regular basis, particularly as the popularity of share exchanges has grown among European carriers. "We think alliances are very important," Mr. Eddington says. "But we'd rather put funds into our own business rather than someone else's.I'm not sure cross-ownership would necessarily make things smoother." In a pattern it aims to copy in several key U.S. destinations, Cathay recently announced plans to serve San Francisco by flying into American Airlines' Los Angeles hub and routing continuing passengers onto a flight on the U.S. carrier. "We'll never have a big operation in the U.S., and they'll never have one as big as us in the Pacific," Mr. Eddington says. "But this way, American will coordinate good extensions to Boston, New York, Chicago and Dallas.We'll coordinate on this end to places like Bangkok, Singapore and Manila." Asian traffic, which currently accounts for 65% of Cathay's business, is expected to continue as the carrier's mainstay.Cathay has long stated its desire to double its weekly flights into China to 14, and it is applying to restart long-canceled flights into Vietnam.Further expansion into southern Europe is also possible, says Mr. Bell, the spokesman. While a large number of Hong Kong companies have reincorporated offshore ahead of 1997, such a move isn't an option for Cathay because it would jeopardize its landing rights in Hong Kong.And Mr. Eddington emphatically rules out a move to London: "Our lifeblood is Hong Kong traffic rights." He says the airline is putting its faith in the Sino-British agreement on Hong Kong's return to China.A special section dealing with aviation rights states that landing rights for Hong Kong's airlines, which include the smaller Hong Kong Dragon Airlines, will continue to be negotiated by Hong Kong's government.But critics fret that post-1997 officials ultimately will be responsible to Beijing. "My feeling is {Cathay doesn't} have a hope in the long run," says an analyst, who declines to be identified. "Cathay would love to keep going, but the general sense is they're going to have to do something." Mr. Eddington acknowledges that the carrier will have to evolve and adapt to local changes, but he feels that the Sino-British agreement is firm ground to build on for the foreseeable future. "We're confident that it protects our route structure," he says, "and our ability to grow and prosper."
Friday, October 20, 1989 The key U.S. and foreign annual interest rates below are a guide to general levels but don't always represent actual transactions. PRIME RATE: 10 1/2%.The base rate on corporate loans at large U.S. money center commercial banks. FEDERAL FUNDS: 8 3/4% high, 8 5/8% low, 8 11/16% near closing bid, 8 3/4% offered.Reserves traded among commercial banks for overnight use in amounts of $1 million or more.Source: Fulton Prebon (U.S.A.) Inc. DISCOUNT RATE: 7%.The charge on loans to depository institutions by the New York Federal Reserve Bank. CALL MONEY: 9 3/4% to 10%.The charge on loans to brokers on stock exchange collateral. COMMERCIAL PAPER placed directly by General Motors Acceptance Corp.: 8.50% 15 to 44 days; 8.25% 45 to 72 days; 8.375% 73 to 96 days; 8.125% 97 to 119 days; 8% 120 to 149 days; 7.875% 150 to 179 days; 7.50% 180 to 270 days. COMMERCIAL PAPER: High-grade unsecured notes sold through dealers by major corporations in multiples of $1,000: 8.55% 30 days; 8.45% 60 days; 8.40% 90 days. CERTIFICATES OF DEPOSIT: 8.05% one month; 8.02% two months; 8% three months; 7.98% six months; 7.95% one year.Average of top rates paid by major New York banks on primary new issues of negotiable C.D.s, usually on amounts of $1 million and more.The minimum unit is $100,000.Typical rates in the secondary market: 8.55% one month; 8.50% three months; 8.40% six months. BANKERS ACCEPTANCES: 8.45% 30 days; 8.33% 60 days; 8.32% 90 days; 8.15% 120 days; 8.06% 150 days; 7.96% 180 days.Negotiable, bank-backed business credit instruments typically financing an import order. LONDON LATE EURODOLLARS: 8 11/16% to 8 9/16% one month; 8 11/16% to 8 9/16% two months; 8 11/16% to 8 9/16% three months; 8 5/8% to 8 1/2% four months; 8 9/16% to 8 7/16% five months; 8 1/2% to 8 3/8% six months. LONDON INTERBANK OFFERED RATES (LIBOR): 8 3/4% one month; 8 11/16% three months; 8 9/16% six months; 8 1/2% one year.The average of interbank offered rates for dollar deposits in the London market based on quotations at five major banks. FOREIGN PRIME RATES: Canada 13.50%; Germany 8.50%; Japan 4.875%; Switzerland 8.50%; Britain 15%.These rate indications aren't directly comparable; lending practices vary widely by location. TREASURY BILLS: Results of the Monday, October 16, 1989, auction of short-term U.S. government bills, sold at a discount from face value in units of $10,000 to $1 million: 7.37% 13 weeks; 7.42% 26 weeks. FEDERAL HOME LOAN MORTGAGE CORP. (Freddie Mac): Posted yields on 30-year mortgage commitments for delivery within 30 days. 9.84%, standard conventional fixed-rate mortgages; 7.875%, 2% rate capped one-year adjustable rate mortgages.Source: Telerate Systems Inc. FEDERAL NATIONAL MORTGAGE ASSOCIATION (Fannie Mae): Posted yields on 30 year mortgage commitments for delivery within 30 days (priced at par) 9.78%, standard conventional fixed-rate mortgages; 8.75%, 6/2 rate capped one-year adjustable rate mortgages.Source: Telerate Systems Inc. MERRILL LYNCH READY ASSETS TRUST: 8.52%.Annualized average rate of return after expenses for the past 30 days; not a forecast of future returns.
In the hard-hit Marina neighborhood, life after the earthquake is often all too real, but sometimes surreal.Some scenes: -- Saturday morning, a resident was given 15 minutes to scurry into a sagging building and reclaim what she could of her life's possessions.Saturday night she dined in an emergency shelter on salmon steaks prepared by chefs from one of the city's four-star restaurants. -- Mayor Art Agnos stands in the glare of television lights trying to explain for the 20th time why the city is severely restricting access to badly damaged structures.A couple in fashionable spandex warm-up suits jogs by, headphones jauntily in place, weaving their way along a street of fractured and fallen houses.At a nearby corner, they swerve perilously close to a listing apartment house, oblivious to any danger.A policeman shakes his head in amazement as he steers them away. -- A young woman who has been out of town shows up at the Marina Middle School to learn that her apartment is on the condemned list.She is told she can't enter unless she is accompanied by an inspector.She bursts into tears and walks away.Nearby, five temporary residents of the school shelter sit on stools, having their necks and backs kneaded by volunteer masseuses. The Marina rescue center offered a very San Franciscan response to the disaster.In addition to free massages, there was free counseling, phone calls and a free shuttle bus to a health club, which offered up its showers, saunas and hot tubs.The cafeteria offered donated croissants and brie for breakfast, and for dinner, pasta salad and chocolate mousse torts along with the salmon. "This has been a 15-pound earthquake for me," said resident Joan O'Shea, who works in an acupuncturist's office.She and some friends are considering offering earthquake victims free yoga classes and "aroma therapy" -- massages with scented oils.She finds the response of Marina residents -- primarily yuppies and elderly people -- to the devastation of their homes "incredible.People have been very respectful of each other.I don't know if this would have happened somewhere else." Out on the streets, some residents of badly damaged buildings were allowed a 15-minute scavenger hunt through their possessions. "It's so weird to have to decide what's really important to you," said Barbara May.She went first for personal mementos.In post-earthquake parlance, her building is a "red." After being inspected, buildings with substantial damage were color-coded.Green allowed residents to re-enter; yellow allowed limited access; red allowed residents one last entry to gather everything they could within 15 minutes. Reds and yellows went about their business with a kind of measured grimness.Some frantically dumped belongings into pillowcases, others threw goods out windows.It didn't help that on Saturday, after three days of sunshine, it rained. "The guys are going for their skis, their stereos, their personal computers," said Frank Fitzgerald, who helped others empty their apartments. "The women wanted photo albums, a certain brooch, kind of sentimental things." He showed an unbroken, still-ticking pocket watch that he retrieved for one woman.It belonged to her grandfather. Some residents defied orders and returned to "red" buildings to retrieve goods.One building was upgraded to red status while people were taking things out, and a resident who wasn't allowed to go back inside called up the stairs to his girlfriend, telling her to keep sending things down to the lobby.A policewoman had to be called in to make her leave; the policewoman helped carry out one last load. Enforcement of restricted-entry rules was sporadic, residents said.One man trying to remove his car was told by officials to get out of his garage.When he sneaked back later to try again, a different policeman offered to help him get the car out. The Marina also has become the focal point of city efforts to reunite residents with any pets that may have fled or become lost during the earthquake.On lampposts along Fillmore Street, a major Marina artery, posters were offering a $100 reward for a cat lost during the quake. The San Francisco Society for the Prevention of Cruelty to Animals also has been providing medical care, food, water and foster homes for quake-displaced animals.The SPCA says it has received more than 100 requests for foster homes on behalf of dogs and cats, though some people have sought temporary homes for birds and fish. For example, one parakeet owner returning home found that her apartment, like many others in the Marina, didn't have heat. "She can stay there with no heat, but for a parakeet, that can be deadly," says Daralee Konowitch, animalcare services manager for the SPCA.A warm foster home has been found.
The neighborhood around Alexander Haagen Co. 's Vermont-Slauson Shopping Center in the Watts section of Los Angeles resembles the crime-ridden, deteriorating sections of many inner cities and certainly isn't the sort of area one would choose to visit.But turn into the shopping center's parking lot, and one could be in the safe, busy mall of a prosperous suburb.Only it is safer, and busier. Over the past year there have been only one burglary, three thefts of or from autos, no purse-snatchings, and one attempted robbery in the mall, which opened in late 1981.A shopping center of similar size in an affluent Los Angeles suburb would, per year, be expected to have eight burglaries, 70 thefts of or from autos, and four robberies.The Watts mall has annual sales of more than $350 per leasable square foot; the figure for a comparable suburban shopping center would be $200.Three other Haagen shopping centers in the Watts area are doing almost as well. A successful low-crime mall in a high-crime area violates the more typical inner-city pattern, in which commercial areas are taken over by unruly youth, gangs, and the criminal element, with an erosion of the customer base, development capital, and insurability.Major regional and national chain stores are replaced by mom-and-pop operations offering poorer-quality merchandise at higher prices.Along with the exodus of shopping opportunities is an exodus of the jobs that the major chains used to provide to community residents. Thus there is even more to the Vermont-Slauson Center than a good place to shop.This defensible commercial zone becomes, for the residents, a secure oasis in a barren urban landscape, evidence that community decay is not inevitable and that the gangs are not invincible.The center improves the community image to outsiders as well, and may help to arrest, or even reverse, the exodus of capital and investment. An additional benefit is the creation of jobs.This starts in the construction phase through the use of minority contractors and local workers.It continues through the life of the center; the Vermont-Slauson Center has created 500 permanent private-sector jobs at a one-time cost in public funds of only $2,500 per job.As many of these jobs are filled by local residents, who move from the welfare rolls to the tax rolls, the $2,500-per-job public investment should repay itself in a few years.And that is before consideration of increased state and local revenues from taxes and fees on sales, real estate, licenses and the like. Profits are also plowed back into the community; the non-profit Vermont-Slauson Economic Development Corp. receives 60% of the profits from the Vermont-Slauson Center and uses the money to provide moderate and low-cost housing in the community -- now running into the hundreds of units -- as well as commercial and industrial development projects. Bradford Crowe, director of the mayor's City Economic Development Office, says: "There is no question that Vermont-Slauson had a halo effect on the surrounding neighborhood.What had been a deteriorated area with nothing but wig shops and shoe shops is now experiencing a major upgrading in the housing and commercial stock, thanks to a continuously replenished source of revitalization capital that Vermont-Slauson yields." Another benefit is that substantial percentages of the proprietors in these centers are minority businessmen and women.In the Grand Boulevard Plaza developed by Matanky Realty Group in Chicago's Third Ward, opposite the Robert Taylor Homes, 29% of the stores to date have been leased to blacks and 14% to members of other minority groups.Children from the community will have worthier role models than the drug kingpins. So what's the catch?Primarily that putting one of these inner-city deals together takes time, patience, breadth of vision and negotiating skills that not all developers possess.Security costs are also quite high. One of these centers can involve years of negotiating with numerous public agencies, local political leaders, and citizen groups, and with prospective tenants and sources of financing.Suburban deals are not without their delays and complications -- inner-city deals just have more of them. Security at a typical Haagen inner-city center is impressive, but unobtrusive.The entire site is enclosed by a 6-to-8-foot-high ornamental iron fence with a small number of remote-controlled gates.Shrubs and flowers give it a pleasing and non-fortress-like appearance.Infrared motion detectors and closed-circuit TV cameras monitor the entire center; lighting levels are three to five times the industry standard.The security command post, camouflaged as second-story retail space, has its own "crow's nest" above the roofs of the other buildings, with a panoramic view of the entire center.Local law enforcement is present in a sub-station occupying space donated by the center.These features are also used in Matanky Realty Group's Grand Boulevard Plaza.Haagen has its own large security force of well-trained and well-paid personnel on round-the-clock duty at each center.Security is 60% to 70% of the common area charges of these centers, vs. an industry average of about 15%. These security costs are kept off-budget because the centers' site acquisition, construction, and financing costs were reduced by such programs as Urban Development Action Grants, Economic Development Administration Grants, Community Development Block Grants, tax-free Industrial Development Bonds, Enterprise Zone tax write-offs, city infrastructure grants, and tax increment financing. Many of these programs no longer exist, or have been severely cut back.However, since these centers appear to pay for themselves, there is nothing to prevent state and local governments from enacting legislation with similar provisions. Many states already have Enterprise Zones and legislation that combines tax incentives, loans, and grants to encourage investment in depressed areas with requirements for the hiring of the unemployed and minorities.These programs could be expanded to focus on funds for project planning, identifying sources of funds, and for acquiring a site and preparing it.Combatting crime and the fear of it in inner-city commercial areas should give Enterprise Zones more success than most have enjoyed to date. With many suburban areas basically overbuilt with shopping centers, inner-city areas may represent a major new untapped market for investment.New approaches to mall design and operation make it possible to tap these markets.If the risks and rewards are reasonable, developers will respond.Government officials who wonder how important it is for them to encourage development in high-risk areas should visit Vermont-Slauson and Grand Boulevard Plaza and decide for themselves.The answer will be obvious. Mr. Titus is a researcher at the Justice Department's National Institute of Justice. (See related story: "Small Merchants' Big Burdens" -- WSJ Oct. 23, 1989)
If growth regains its glamour among investors, a sluggish segment of the Nasdaq over-the-counter market could show some flash. Some stock pickers already are targeting the OTC market, where, they say, await plenty of small- and medium-sized growth stocks.Best of all, they add, these growth issues, unlike their big blue-chip cousins on the New York Stock Exchange, are languishing at depressed prices. Growth stocks will return to favor, some analysts and money managers think, because of the jitters caused by the market's steep slide on Oct. 13, and because of the current swell of disappointing earnings announcements.Against such a backdrop, companies with proven track records of earnings gains of 20% or so annually have extra appeal. "The market will have to look for a new theme now and that theme will be a return to growth," declares Mary Farrell, a PaineWebber analyst.Among her OTC picks are Oshkosh B'Gosh and A&W Brands.Like many OTC growth issues, they have market values -- as measured by stock price times shares outstanding -- of roughly $100 million to $500 million. Some like to specialize in growth companies whose shares haven't traded publicly very long.These are sometimes dubbed "emerging" growth companies, though they also have expanding-profit track records. While many growth stocks are small, not all small stocks have earnings-growth momentum.That's an important distinction because some analysts and brokers, who perennially predict that small stocks are about to outperform bigger issues, may use any spurt in growth issues to help them sell all small stocks. "You can find some good, quality companies over the counter," but investors should be selective, says John Palicka, chief portfolio manager at Midco Investors, a Newark, N.J., money management company with about $900 million invested in growth stocks of varying sizes.Mr. Palicka's picks from the OTC market include Legent, Mail Boxes Etc., and Payco American. The main argument for growth stocks is their usually superior performance in a slowing economy. "If the market refocuses on earnings, we should get better valuations of growth stocks," says L. Keith Mullins, a growth-stock analyst at Morgan Stanley.Eventually, he believes, investors will be willing to pay higher prices for companies with proven track records of earnings growth.In anticipation of that shift, he and other analysts are encouraging their clients to buy such issues now. Understandably, smaller growth stocks haven't been in favor recently.The average issue on Standard & Poor's 500-stock Index gained 35% last year, Ms. Farrell of PaineWebber says.Smaller-stock earnings, by comparison, rose between 15% and 20%. In addition, earnings growth took a back seat to cash flow, restructuring and takeover potential, and breakup value as the preferred stock-picking standards for much of the year.Also, the smaller growth stocks aren't widely traded, and so are harder to buy and sell quickly than blue chips. As a result, Morgan Stanley's Index of 40 Emerging Growth Stocks -- most of which are in the OTC market -- is up only 13% for the year, while the Dow Jones Industrial Average has leaped 24% and the S&P 500 has grown 25%.The Nasdaq Composite has gained 23% this year, but that's largely due to the 100 largest nonfinancial stocks, which have soared 30%. Some investors are skeptical of growth stocks because investing in them means ignoring that maxim found in the fine print of some investment advertisements -- that past performance isn't indicative of future results. "People are naturally suspicious of them," says Mr. Mullins of Morgan Stanley.Among his favorites in his firm's index are Legent, Silicon Graphics and Novell. However, more money managers are reassured that profit is regaining importance.Mark Schoeppner, portfolio manager at Pittsburgh-based Quaker Capital Management, says that in reaction to nervousness about debt-laden buy-out transactions, analysts and investors now appear to be "valuing stock based on future earnings as opposed to the amount of debt the company can support." Barney Hallingby, managing director of research at Hambrecht & Quist, also believes earnings growth is beginning to play a greater part in investors' buying decisions.On Friday, Hambrecht & Quist added St. Jude Medical to the list of 20 stocks it strongly recommends.The opinion is largely based on the company's earnings momentum, Mr. Hallingby says. St. Jude's market value on Nasdaq exceeds $1 billion, so it isn't a small stock.The medical devices maker's earnings rose nearly 35% in 1987 from 1986, and 75% in 1988.Kurt Kruger, who follows the stock for Hambrecht & Quist, anticipates that the company's net income will grow 51% to $2.15 a share this year.St. Jude finished up 1/4 to 44 1/2 on Friday. Friday's Market Activity The Nasdaq Composite Index eased 0.13 to 470.67.The composite finished up 0.7% from last Friday's close. It was a busy week for OTC stocks.Friday's volume totaled 158.2 million shares; the daily average for the week was a bustling 176.7 million. Valley National lost 1 3/8 to 17 1/8 on volume of 1.9 million shares.The company reported a big third-quarter loss on Thursday. Merchants Bank of New York lost 1 to 106 after reporting that its third-quarter net income fell to $1.62 a share from last year's $1.67 a share. Eliot Savings Bank lost 7/8 to 1 5/8 after reporting that it had a $4.8 million loss in the latest third quarter mostly because of loan-loss provisions.In the 1988 quarter, the bank earned $1.1 million. One bank stock was a winner.BanPonce jumped 4 1/2 to 47 3/4 after agreeing to be acquired by Banco Popular de Puerto Rico for $56.25 a share.Banco Popular, meanwhile, dropped 1 1/4 to 21 1/2. Sierra Tucson, an initial public offering, made the most active list.The company's shares began trading at 12 1/2, up from its initial offering price of 12, and closed at 13.Sierra Tucson operates an addiction treatment center. Among declining issues, a weak earnings outlook drove Groundwater Technology down 6 1/4 to 24.The company said results for its second quarter ended Oct. 28 could drop as much as 20% below the 30 cents a share reported in the year-earlier quarter. Medstone International plummeted 3 1/4 to 7 1/4.A Food and Drug Administration advisory panel has asked that Medstone perform more studies on its device to treat gallstones. Qintex Entertainment dropped 2 5/8 to 1 1/2 after seeking protection from creditor lawsuits under Chapter 11 of the federal Bankruptcy Code for itself and its two operating subsidiaries, Hal Roach Studios and Qintex Productions. Raymond Corp. lost 1 to 10 after it said late Thursday that it will take a $4.4 million charge in its third quarter for reserves to cover potential charges in connection with the closing and sale of a manufacturing plant.As a result, the company has suspended its quarterly dividend. McCaw Cellular Communications and its target, LIN Broadcasting, were active.LIN added 5/8 to 110 5/8 and McCaw lost 1/4 to 41.McCaw said it has secured commitments from three banks to help finance its $125-a-share bid for 22 million of Lin's shares.McCaw has called for a "fair auction" of LIN, which earlier entered a stock-swap merger pact with BellSouth. Following the release of the company's fourth-quarter earnings, Apple Computer dropped 3/4 to 48 on volume of more than 2.3 million shares.Apple earned $161.1 million, or $1.24 a share, in the quarter, including $48 million from the sale of its Adobe Systems stock.
For bankers and regulators, Arizona is looking more like Texas every day. On Friday, Los Angeles-based First Interstate Bancorp said it expects a net loss of $16 million for the third quarter of 1989 because of hemorrhaging at its First Interstate Bank of Arizona unit.First Interstate said the unit, bludgeoned by Arizona's worsening real-estate woes, will have a $174 million loss for the quarter.First Interstate took a huge $350 million provision for loan losses at the Arizona bank.It charged off an estimated $200 million of Arizona loans, leaving the unit with a reserve for future losses of $255 million, about 61% of its $416 million of troubled loans and repossessed real estate. First Interstate made the move under pressure from regulators.The action capped a spurt of grim Arizona banking news for the third quarter, and emphatically signaled that Arizona is challenging Texas's long reign as banking's busiest graveyard.Earlier last week, Valley National Corp., the state's largest locally owned banking company, reported a $72.2 million loss and suspended its dividend. Pinnacle West Capital Corp., which has been wrangling with regulators for months over what to do about Pinnacle's moribund Merabank thrift unit, suspended its dividend and reported a 91% plunge in third-quarter net income.Security Pacific Corp. said third-quarter credit losses surged a third to $109 million, mainly because of sour Arizona real-estate loans.New York-based Chase Manhattan Corp. took an $85 million Arizona-related charge. Furthermore, the regulatory maneuvering behind First Interstate's loss suggests regulators have concluded that lenders' reserves are far too low to absorb their future Arizona losses and are forcing bankers to do something about it.Examiners from the Office of the Comptroller of the Currency had been combing through First Interstate's real-estate portfolio since last month; they first recommended that First Interstate take a provision that was less than the eventual $350 million third-quarter hit.When First Interstate balked, arguing that the figure was too high, regulators responded by raising their recommendation to $350 million. "At that point, {First Interstate} decided it was the better part of valor not to negotiate further," said one industry official close to the talks.Thomas P. Marrie, chief financial officer, wouldn't comment about the details of the negotiations.He said the provision "wasn't forced upon us, but the regulators made it very clear what they thought was an appropriate number." The tough regulatory stance portends large future losses, especially at the state's thrifts.At least six of Arizona's 12 savings and loan institutions have either been taken over by the government's conservatorship program or are essentially insolvent; they are sitting on enormous unrecognized losses. For example, Western Savings & Loan Association, which is now in conservatorship, had tangible capital-assets minus liabilities -- of a negative $357.4 million at June 30.It had a $258.9 million loss in the second quarter.Yet it still held $916.3 million of repossessed real estate, for which it maintains no reserves whatsoever.It also had $479.7 million of past-due loans; its level of reserves against those wasn't immediately available, though it is believed to be small. The rapid deterioration of the Arizona thrifts only adds to the ever-swelling cost of the government's massive thrift bailout, officially estimated at about $166 billion.Together, the six government-controlled or essentially insolvent Arizona thrifts have tangible capital of a negative $1.5 billion, foreclosed property of $1.8 billion and pastdue loans of $1.63 billion. They have no reserves against the real estate, and their reserves against the loans are miniscule compared with the levels of reserves banks are moving to set up.The thrifts had a combined loss of $487.8 million in the second quarter.Other lenders have been recovering only 50 cents to 60 cents on the dollar on foreclosed Arizona property, if they can sell it at all. All this havoc is the result of one of the worst busts in Arizona's boom-and-bust history, compounded by some of the usual suspects in 1980s banking debacles: greed, fraud and plain bad banking.In the late 1970s and early 1980s, lenders and developers poured money into office buildings, condominiums and massive tracts of raw desert land, confident that Arizona's population would grow at annual rates of 4% to 6% for years to come.Now, annual population growth is running at about 2% a year, some desert tracts bought three years ago for $90,000 an acre are being sold at $25,000 an acre and Phoenix has a seven-year supply of unoccupied office space. "It's horrible to say, but it's unfortunate that earthquake wasn't in Phoenix -- it might have knocked out some of our empty buildings," said C.W. Jackson, a prominent Arizona businessman with interests in real estate, banking and many other businesses. Many Arizona real-estate experts think the worst may be yet to come.Ralph Shattuck, publisher of Foreclosure Update newsletter, said foreclosures have climbed to about 1,482 a month just in Maricopa County, where Phoenix is located.That's up from about 687 a month in 1985, and it's accelerating: So far this month, foreclosures are averaging about 85 a day. "It's frightening," Mr. Shattuck said. Moreover, Mr. Shattuck and others said residential real estate, which had remained fairly strong through most of the downturn, is beginning to comprise more and more of the foreclosures.And the generally frail condition of Arizona's lenders means there is little capital available in the state to shore up the economy and slow down the slide. "It's reasonable to say there is not a solvent S&L in the state and the amount of viable bank capital is very low," said Mr. Jackson. "We're going to see another big wave of failures and defaults between now and year-end. . . . The only thing a lot of these lenders can get out of their mouth now is: `Pay me in 60 days. '" First Interstate had a $214.4 million loss in 1988's third quarter, mainly from writedowns and reserves connected with its Texas operations.For the six months ended June 30, it reported net income of $234.3 million, or $4.83 a share, including $46 million from tax credits and accounting changes. The bank's Arizona unit holds about $6 billion of First Interstate's $50 billion of assets.Mr. Marrie said the bank expects Arizona real-estate prices, which plummeted 40% over the last year, to fall another 20% before stabilizing.Some in Arizona think that may be optimistic.First Interstate said its operations outside of Arizona "achieved results as expected for the quarter," but didn't specify the results. First Interstate stock closed at $57.625, down 25 cents, in composite trading Friday on the New York Stock Exchange.Since its unsuccessful bid for BankAmerica Corp. in 1986, the bank has undertaken a major restructuring in an effort to cut costs and boost performance, but many industry officials believe it may be ripe for a takeover bid, especially with interstate banking set to begin in California in 1991.Mr. Marrie said the problems in Arizona have only "increased our resolve to continue to make our restructuring even more effective." Separately, Standard & Poor's Corp. lowered its ratings on Valley National Corp. 's senior debt to double-B from double-B-plus, affecting about $300 million of long-term debt.S&P also lowered ratings on unsecured deposits and issues backed by a letter of credit from the bank holding company's principal unit, Valley National Bank of Arizona.The ratings service said the downgrades reflect the continued slide in the company's financial condition. A spokesman for Phoenix, Ariz.-based Valley National, said the concern will be able to withstand the current downturn in Arizona real estate.Commercial paper holders have reinvested their funds, he said, and consumer deposits have been up in the last few days.
Conner Peripherals Inc., which has a near-monopoly on a key part used in many portable computers, is on target to surpass Compaq Computer Corp. as the fastest-growing start-up manufacturing firm in U.S. business history. Conner dominates the market for hard-disk drives used to store data in laptop computers.It said yesterday that net income for its third quarter soared 72% to $11.8 million, or 28 cents a share, from $6.8 million, or 19 cents a share, in the year-ago period.Its revenue totaled $184.4 million, an increase of 172% from $67.8 million a year ago. For the nine months, the San Jose, Calif.-based company said net income jumped 84% to $26.9 million, or 69 cents a share, from $14.6 million, or 43 cents a share.Revenue nearly tripled to $479 million, from $160 million. Analysts expect Conner's earnings to reach roughly $40 million, or $1 to $1.05 a share, on sales of $650 million, for 1989, the company's third full year in business.That's a faster growth rate than reported by Compaq, which didn't post similar results until its fourth year, in 1986.But Compaq had achieved that level of sales faster than any previous manufacturing start-up. Conner's performance is closely tied to the burgeoning demand for battery-operated computers, the computer industry's fastest-growing segment.Since its inception, Conner has both benefited from and helped make possible the rapid spread of portable computers by selling storage devices that consume five to 10 times less electricity than drives used in desktop machines. Today, Conner controls an estimated 90% of the hard-disk drive market for laptop computers.The company supplies drives to Compaq and Zenith Data Systems, the top two U.S. manufacturers of laptops, and to Toshiba Corp., NEC Corp. and Sharp Corp., the leading Japanese laptop makers. "They've had this field to themselves for over a year now, and they've been greatly rewarded," said Bob Katsive, an analyst at Disk/Trend Inc., a market researcher in Los Altos, Calif. In the coming months, however, this is likely to change.Next month, Seagate Technology, which is the dominant supplier of hard-disk drives for personal computers, plans to introduce its first family of low-power drives for battery-operated computers. And the Japanese are likely to keep close on Conner's heels. "They are going to catch up," said David Claridge, an analyst with Hambrecht & Quist.Both Toshiba and NEC already produce hard-disk drives, and Sony also is studying the field, Mr. Claridge said. But Conner isn't standing still.Yesterday, the company introduced four products, three of which are aimed at a hot new class of computers called notebooks.Each of the three drives uses a mere 1.5 watts of power and one weighs just 5.5 ounces. "Most of our competitors are announcing products based on our (older) products," said Finis Conner, chief executive officer and founder of the firm that bears his name. "We continue to develop products faster than anyone else can." These new products could account for as much as 35% of the company's business in 1990, Mr. Conner estimated. "We're not afraid of obsoleting some of our old stuff to stay ahead of the competition," he said. Conner already is shipping its new drives.Last week, for instance, Compaq introduced its first notebook computer to rave reviews.Conner is supplying hard-disk drives for the machine, which weighs only six pounds and fits in a briefcase. From its inception, Conner has targeted the market for battery-operated machines, building hard-disk drives that are smaller and use far less power than those offered by competitors such as Seagate.The availability of these drives, in turn, boosted demand for laptop computers, whose usefulness had been limited because of lack of storage. Conner also makes hard-disk drives for desktop computers and is a major supplier to Compaq, which as of July owned 40% of Conner's stock.Sales to Compaq represented 26% of Conner's business in its third quarter, compared with 42% in the year-ago period.
Move over, pornographic phone services: A legal service with a "900" number has been launched in California. A Newport Beach law firm started the pay-as-you-go legal service, called Telelawyer, using MCI Communication Corp. 's toll-tele-phone service.Cane & Associates touts its $2-a-minute service as the "cheapest legal hour you'll ever find." Though the service is available only in California, Telelawyer founder Michael Cane says he plans to franchise it in other states.He says his aim is to reach people who are bedridden, have no access to transportation, can't find a lawyer to take their case or simply can't afford lawyers' consultation fees. Mr. Cane stresses that he isn't using the telephone to lure clients to his doorstep. "We will only deal with clients on the phone," he says. "We have no in-office business." Telelawyer is apparently the only telephone service that offers the telephone equivalent of an office visit.Local bar associations in some states have numbers that provide free tape-recorded messages explaining certain areas of the law.There also are "800" hotlines which refer people to lawyers, usually personal-injury specialists, for in-office consultation. When a caller reaches Telelawyer by dialing 900-TELELAW, a receptionist refers the call to one of six attorneys.In an effort to determine whether a caller has reason to sue, Cane lawyers review documents and perform research, if necessary, with the help of three law clerks and several support staffers.There is no charge for research -- only for time on the phone.If the matter requires further legal work or litigation, Mr. Cane says, his lawyers may refer the client to a law firm.But he says Cane & Associates doesn't receive referral fees. So far, says Mr. Cane, most calls have involved landlord-tenant problems, tax problems, divorce, and probate questions.The firm is getting about 50 calls a day, and the average call lasts about 15 minutes.Out of the $2 charge, the law firm pockets about $1.55. JURY CONVICTS congressman in connection with Wedtech Corp. scandal. A federal court jury in New York found U.S. Rep. Robert Garcia (D., N.Y.) and his wife, Jane Lee Garcia, guilty of extorting $76,000 from Wedtech in return for official acts by the congressman.The jury also convicted them of extortion in obtaining a $20,000, interest-free loan from a Wedtech officer.The jury found them guilty of conspiracy in obtaining the payments, some of which were disguised as fees for consulting services from Mrs. Garcia. Wedtech, which became embroiled in political-corruption cases that eventually led to its demise, formerly was a minority-owned South Bronx, N.Y., defense contractor.Edward J.M. Little, one of the assistant U.S. attorneys who prosecuted the case, said the Garcia trial "is the last of the Wedtech prosecutions." Mr. Little said more than 20 people have been convicted in the Wedtech cases, including former U.S. Rep. Mario Biaggi (D., N.Y.). Lawyers for the Garcias said they plan to appeal.Mr. Garcia, who represents New York's 18th congressional district, which includes the Bronx, said he hasn't decided whether he will resign. "In the next few weeks, I will be consulting with my political advisers and with the Democratic leaders about the best way of preserving the interests of my constituents," said Mr. Garcia, 56 years old.Mrs. Garcia, 49, formerly was a member of Mr. Garcia's congressional staff. The Garcias were cleared of four other felony counts, involving the receipt of bribes and gratuities. U.S. Judge Leonard B. Sand set the Garcias' sentencing for Jan. 5. FIVE SHEA & GOULD PARTNERS are leaving to form a new firm. The new firm, Hutton Ingram Yuzek Gainen Carroll & Bertolotti, will be based in New York.The five partners who resigned from Shea & Gould late last week are Tom Hutton, Sam Ingram, Dean Yuzek, Daniel Carroll and Ernest Bertolotti.They will be joined by Larry Gainen, who resigned from the firm of LePatner, Gainen & Block. Howard Rubenstein, a New York publicist who represents Shea & Gould, said, "Shea & Gould understands they're leaving because they wanted a different environment -- a smaller firm they would be principals of." Mr. Rubenstein said the five, who weren't on Shea & Gould's management committee, "are leaving on good terms." He said Shea & Gould held a number of discussions with the five partners during the past few weeks to get them to stay but that the five were firmly committed to running their own firm. Hutton Ingram will have a general corporate, securities, real-estate and litigation practice, and a substantial practice serving the professional-design community. DISCIPLINARY PROCEEDINGS against lawyers open to public in Illinois. While investigations into lawyer misconduct will remain secret, the public will be notified once a formal complaint is filed against an attorney.The actual disciplinary hearings will be public. In addition, Illinois attorneys will lose the right to sue clients who file malicious complaints against them.Non-lawyers will be added to the inquiry panels that look into allegations of misconduct. Illinois joins 36 other states that allow public participation in attorney-disciplinary proceedings and 32 states that open disciplinary hearings to the public, according to the American Bar Association. One vocal critic of the changes, Chicago lawyer Warren Lupel, says non-lawyers shouldn't be on the inquiry panels because they are unlikely to appreciate the nuances of attorney-client relationships.In addition, he says, publishing the names of lawyers who are facing charges unnecessarily subjects them to public derogation. Nevertheless, Mr. Lupel anticipates no legal action to reverse the Illinois Supreme Court's decision to institute the changes. "There's no constitutional right involved in the rule change," he says. "You don't have a right to practice.You only have a privilege to practice." DREXEL BURNHAM LAMBERT Inc. agreed to pay a $50,000 fine to Delaware, the 26th state to settle with Drexel in the wake of the firm's guilty plea to federal insider-trading charges.Drexel doesn't have a Delaware office, but the New York firm has been negotiating settlements that would allow it to operate freely nationwide despite its record as an admitted felon.The firm has said it expects to pay $11.5 million overall to settle with states.Drexel pleaded guilty in September to six felony counts of securities and mail fraud; it also made a $650 million civil settlement with the Securities and Exchange Commission.
Philip Morris Cos., whose Benson & Hedges cigarette brand has been losing market share, has asked at least one other agency to try its hand at creative work for the big account, which has been at Wells Rich Greene Inc. since 1966. Executives close to Philip Morris said that the tobacco and food giant has asked Backer Spielvogel Bates Worldwide Inc., a unit of Saatchi & Saatchi Co., and possibly others to work on creative ideas for the account.Several executives said another potential contender is WPP Group's Ogilvy & Mather agency, which works on some other Philip Morris products.Both Philip Morris and Backer Spielvogel declined to comment.A spokeswoman for Ogilvy & Mather said the agency doesn't comment on "idle speculation." Also mentioned as a contender was TBWA Advertising, but the company denied it was participating. The loss of the cigarette account would be a severe blow to Wells Rich.Benson & Hedges has been one of its most high-visibility campaigns, as well as one of its largest clients.The account billed almost $60 million last year, according to Leading National Advertisers.But Philip Morris has scaled back ad spending on the brand over the past year, industry executives said, and it now bills about $30 million to $40 million. Industry executives said Philip Morris had asked the other agencies to create campaigns in a bid to stop the brand's slipping market share.According to John Maxwell, an analyst at Wheat First Securities, Richmond, Va., Benson & Hedges has slipped from 4.7% of the cigarette market in 1985 to just 4.1% after the second quarter of this year.The brand is No. 7 overall in the cigarette business, Mr. Maxwell said.The slip has come despite high-profile ads created by Wells Rich, including one picturing a young man clad only in pajama bottoms interrupting a festive brunch.That ad generated so much publicity that a trade magazine launched a contest for its readers to guess who the guy was and what he was doing. Wells Rich first popularized the Benson & Hedges brand more than 20 years ago with ads portraying, among other things, an elevator door closing on a passenger's cigarette.The brand early on achieved an upscale appeal -- a trait that some analysts believe is partly responsible for its staid performance.Philip Morris, trying to revive the Benson & Hedges franchise, put the account up for review in 1986.Wells Rich Greene, however, in an effort directed by Mary Wells Lawrence, emerged the victor of the review and retained the business. Kenneth Olshan, Wells Rich's chairman, didn't return phone calls seeking comment. While Wells Rich recently picked up Hertz Corp. 's $25 million to $30 million account, it has lost a number of big accounts this year, including the $20 million to $25 million Cadbury-Schweppes Canada Dry and Sunkist accounts, the $18 million Procter & Gamble Co. Sure deodorant account and the $10 million Polo/Ralph Lauren business.Its victories include more than $30 million in Sheraton Corp. business and an assignment from Dun & Bradstreet worth $5 million to $10 million.
The following were among Friday's offerings and pricings in the U.S. and non-U.S. capital markets, with terms and syndicate manager, as compiled by Dow Jones Capital Markets Report: Chicago & North Western Acquisition Corp. -- $475 million of senior subordinated resettable debentures, due Oct. 15, 2001, priced at par to yield 14.75%.The coupon will be reset in one year at a rate that will give the issue a market value of 101.However, the maximum coupon rate on the issue when it is reset can only be 15.5%.Debenture holders will also receive the equivalent of 10% of the common stock of CNW Holdings.The equity kicker is not attached to the offering, but underwriters said it will be offered after a filing for 68,548 common shares of CNW Holdings is declared effective by the Securities & Exchange Commission.The issue is noncallable for five years and has a sinking fund starting in 2000 to retire 50% of the issue before maturity.Rated single-B-2 by Moody's Investors Service Inc. and single-B-minus by Standard & Poor's Corp., the issue will be sold through underwriters led by Donaldson Lufkin & Jenrette Securities Corp. Tokuyama Soda Co. (Japan) -- $200 million of Eurobonds due Nov. 9, 1993, with equity-purchase warrants, indicating a 4% coupon at par, via Nomura International Ltd.Each $5,000 bond carries one warrant, exercisable from Nov. 28, 1989, through Oct. 28, 1993, to buy company shares at an expected premium of 2 1/2% to the closing share price when terms are fixed Oct. 27.
This city is girding for gridlock today as hundreds of thousands of commuters avoid travel routes ravaged by last week's earthquake. Estimates of damage in the six-county San Francisco Bay area neared $5 billion, excluding the cost of repairing the region's transportation system. The Bay Bridge, the main artery into San Francisco from the east, will be closed for at least several weeks.Part of the bridge collapsed in the quake, which registered 6.9 on the Richter scale.The bridge normally carries 250,000 commuters a day.Also, most of the ramps connecting the city to its main link to the south, the 101 freeway, have been closed for repairs. The Bay Area Rapid Transit system, which runs subway trains beneath the bay, is braced for a doubling of its daily regular ridership to 300,000.BART has increased service to 24 hours a day in preparation for the onslaught. Most unusual will be water-borne commuters from the East Bay towns of Oakland and Berkeley.For the first time in 32 years, ferry service has been restored between the East Bay and San Francisco.The Red and White Fleet, which operates regular commuter ferry service to and from Marin County, and tourist tours of the bay, is offering East Bay commuters a chance to ride the waves for the price of $10 round-trip. That tariff is too stiff for some Financial District wage earners. "I'll stay with BART," said one secretary, swallowing her fears about using the transbay tube. Officials expect the Golden Gate Bridge to be swamped with an extra load of commuters, including East Bay residents making a long detour. "We're anticipating quite a traffic crunch," said one official.About 23,000 people typically travel over the Golden Gate Bridge during commute hours.About 130,000 vehicles cross during a 24-hour period. Meetings canceled by Apple Computer Inc. 's European sales force and by other groups raised the specter of empty hotel rooms and restaurants.It also raised hackles of the city's tourism boosters. "Other cities are calling {groups booked here for tours and conferences} and -- not to be crass -- stealing our booking list," said Scott Shafer, a spokesman for Mayor Art Agnos. City officials stuck by their estimate of $2 billion in damage to the quake-shocked city.The other five Bay area counties have increased their total damage estimates to $2.8 billion.All estimates exclude highway repair, which could exceed $1 billion. Among the expensive unknowns are stretches of elevated freeway in San Francisco that were closed because of quake-inflicted damage. The most worrisome stretch is 1.2 miles of waterfront highway known as the Embarcadero Freeway.Until it was closed Tuesday, it had provided the quickest series of exits for commuters from the Bay Bridge heading into the Financial District.Engineers say it will take at least eight months to repair the Embarcadero structure. As part of the quake recovery effort, the city Building Department has surveyed about 3,000 buildings, including all of the Financial District's high-rises. The preliminary conclusion from a survey of 200 downtown high-rises is that "we were incredibly lucky," said Lawrence Kornfield, San Francisco's chief building inspector.While many of these buildings sustained heavy damage, little of that involved major structural damage.City building codes require construction that can resist temblors. In England, Martin Leach, a spokesman for Lloyd's of London, said the insurance market hasn't yet been able to estimate the total potential claims from the disaster. "The extent of the claims won't be known for some time," Mr. Leach said. On Friday, during a visit to California to survey quake damage, President Bush promised to "meet the federal government's obligation" to assist relief efforts. California officials plan to ask Congress for $3 billion or more of federal aid, in the form of grants and low-interest loans.The state has a $1 billion reserve, and is expected to add $1 billion to that fund in the next year.Some of that money will be available for highway repair and special emergency aid, but members of the legislature are also mulling over a temporary state gasoline tax to raise money for earthquake relief.However, state initiatives restrict the ability of the legislature to raise such taxes unless the voters approve in a statewide referendum. G. Christian Hill and Ken Wells contributed to this article.
Bond Corp. Holdings Ltd. posted a loss for fiscal 1989 of 980.2 million Australian dollars (US$762.4 million), the largest in Australian corporate history. That loss compared with a year-earlier profit of A$273.5 million.In preliminary, unaudited results reported Friday, Bond Corp. also posted an operating loss of A$814.1 million for the year ended June 30, compared with operating profit of A$354.7 million a year earlier. Operating revenue rose 69% to A$8.48 billion from A$5.01 billion.But the net interest bill jumped 85% to A$686.7 million from A$371.1 million.Bond Corp. has interests in brewing, media and communications, natural resources and property. Much of Bond Corp. 's losses stemmed from one-time write-downs of the value of some of Bond Corp. 's assets and those of its units.The results included a A$453.4 million write-off of future income-tax benefits and a provision for a loss of A$149.5 million on the sale of a stake of about 20% in Lonrho PLC. However, Bond Corp. said the tax benefits remain available and might be used later. Earnings before interest and tax from brewing dived 50% to A$123.8 million from A$247.3 million.The company said the general financial performance of its U.S. brewing operations, G. Heileman Brewing Co., was "disappointing, and this has been reflected in the results." Bond Corp. 's shares closed Friday before news of the results at 28 Australian cents a share, up one Australian cent. The staggering losses cap a tumultuous year for Alan Bond and his flagship, Bond Corp. Only a year ago, the chairman of Bond Corp., who controls about 58% of the company, appeared to be building a war chest to attack some big companies.Now Bond Corp. has agreed to sell at least half its Australian brewing assets.It has sold billions of dollars of other assets and has more on the block. But in a TV interview Sunday Mr. Bond said, "We've taken a big loss.We've taken it on the chin.But we're out there and we're going to stay in business. Bond Corp. signaled it will focus on building its domestic and international media and communications businesses.It said it will look at opportunities in brewing, property and energy resources to the extent consistent with the dominant objective of manageable debt-to-assets ratios.The result "will ultimately be a very different group in size and structure," Bond Corp. directors said in a statement. Some analysts contend the total writeoffs should have been much greater, and Bond Corp. 's auditors cited a list of several assets and deals about which there is "uncertainty" regarding the current value and potential impact on the firm. Bond Corp. said the acknowledged losses mean net asset backing is in the red to the tune of 53 Australian cents a share, vs. positive asset backing of A$1.92 a share a year ago.Still, the directors said, "Having fully considered all aspects of the company's state of affairs and future cash flows, the directors confirm absolutely that the company is solvent." Indeed, in a note to the results, directors said if the "true worth" of some of the group's assets were taken into account instead of using book values, the negative net asset backing a share would turn into "a substantial positive" one.
Diversification pays. That's a fundamental lesson for investors, but its truth was demonstrated once again in the performance of mutual funds during and after the stock market's Friday-the-13th plunge. Stock funds, like the market as a whole, generally dropped more than 2% in the week through last Thursday, according to figures compiled by Lipper Analytical Services Inc.That reflects the huge drop a week ago Friday, last Monday's rebound and the dips and blips that followed. But several other types of funds shielded investors from the worst of the market's slide.Funds that invest internationally were the top-performing stock and fixed-income funds. "More than ever, people should realize they should have a diversified portfolio," said Jeremy Duffield, a senior vice president of Vanguard Group. "That means stocks, bonds, money market instruments and real estate." One week's performance shouldn't be the basis for any investment decision.But the latest mutual fund performance figures do show what can happen when the going gets rough. "You want to know how a fund did when the market got hammered," said Kurt Brouwer, an investment adviser with Brouwer & Janachowski in San Francisco. "It's like kicking the tires of a car . . . . What you want to know is when the road's rough, when there's snow and ice, how's this car going to perform?" General equity funds fell an average of 2.35% in the week ended Thursday, compared with a 2.32% slide for the Standard & Poor's 500-stock index.But Lipper Analytical's figures show that there were a number of ways investors could have cushioned themselves from the stock market's gyrations. Gold-oriented funds, for instance, which invest in companies that mine and process the precious metal, posted an average decline of 1.15%.Flexible portfolio funds, which allocate investments among stocks, bonds and money-market instruments and other investments, declined at about half the rate of stock funds -- an average drop of 1.27%, according to Lipper. Global allocation funds take the asset-allocation concept one step further by investing at least 25% of their portfolios outside the U.S.This gives them the added benefits of international diversification -- including a foreign-exchange boost during periods, like the past week, when the dollar declines against other major currencies.With all that going for them, global flexible portfolio funds declined only 1.07% in the week through last Thursday. But while the merits of diversification shine through when times are tough, there's also a price to pay: A diversified portfolio always underperforms an undiversified portfolio during those times when the investment in the undiversified portfolio is truly hot. And Friday the 13th notwithstanding, stocks have been this year's hot investment.Thus, even including the latest week, the average general stock fund has soared more than 24% so far this year, the Lipper Analytical figures show. By comparison, global asset allocation funds have turned in an average total return of about 19%, while domestic flexible portfolios are up about 17%.Fixed-income funds have returned 8.2%, while gold funds, which tend to be volatile, have risen just 4.55%, on average. "That's the problem with trying to hedge too much," said Mr. Brouwer. "You don't make any real money." Over the last 20 years, for example, Mr. Brouwer says, an investor putting $5,000 a year in the S&P 500 would have made nearly twice as much than if it were invested in Treasury bills. Some equity funds did better than others in the week that began on Friday the 13th.The $4 million Monetta Fund, for instance, was the seventh top performing fund for the week, with a 2.65% return.Its return so far this year has been a credible 21.71%. The fund's strategy is to sell when a stock appreciates 30% over its cost.By the time the market plummeted 10 days ago, Monetta was 55% in cash, said Robert Bacarella, president and portfolio manager.Last Monday, he started "buying the high-quality growth companies that people were throwing away at discount prices." Among Mr. Bacarella's picks: Oracle Systems, Reebok International Ltd. and Digital Microwave Corp.The fund's cash position is now about 22%, which Mr. Bacarella calls "still bearish." Among the big stock funds, Dreyfus Fund, with more than $2 billion in assets, had a decline of just 1.49% for the week and a return of 21.42% for the year.Howard Stein, chairman of Dreyfus Corp., said the fund was about half invested in government bonds on Oct. 13, and about 10% in cash. "In a downward market, bonds act better," he said. "We still think there's a lot of unsettlement in this market.We believe interest rates will continue to trend lower, and the economy will slow around the world." Many of the funds that did best in the last week are heavily invested overseas, giving them the benefit of foreign currency translations when the dollar is weak.From its high point on Thursday, Oct. 12, to where it traded late in New York a week later, the dollar fell 3.6% against the West German mark, 3.4% against the British pound and 2.1% against the Japanese yen. Three International Cash Portfolios funds, which invest almost exclusively in bonds and money-market instruments overseas, were among the four top-performing funds in the latest week.Because the funds' investments are denominated in foreign currencies, their value expressed in dollars goes up when those currencies rise against the dollar.But when the dollar rises against major foreign currencies, as it did for much of this year, the dollar value of these funds declines.All three funds posted negative returns for the year to date. Of the funds that fared the worst in the post-Oct. 13 week, two are heavily invested in airlines stocks, which led the market slide following problems with financing for the UAL Corp. buy-out plan.Reflecting airline takeover activity, however, both the Fidelity Select Air Transportation Portfolio and the National Aviation & Technology fund posted better-than-average returns for the the year to date: 30.09% for the Fidelity Air Transportation fund and a whopping 47.24% for National Aviation & Technology. The small drop in equity funds in general in the latest week may not necessarily be a good sign, said A. Michael Lipper, president of Lipper Analytical.Noting that equity funds are up nearly 60% from their post-crash low on Dec. 3, 1987, he said that what happened last week "may not be enough of an adjustment.There's either more to come or an extremely long period of dullness." But investors don't seem to think so.Several big mutual fund groups said last week that cash flows into stock funds were heavier than usual after heavy outflows on the 13th.Vanguard Group said it had a more than $50 million net inflow into its stock funds last week. "There certainly hasn't been a panic reaction," said Steven Norwitz, a vice president at T. Rowe Price Associates. "People showed some staying power and, in fact, interest in buying equities." Source: Lipper Analytical Services Inc. *Not counting dividends **With dividends reinvested Sources: Lipper Analytical Services Inc.; Standard & Poor's Corp.
The Bakersfield Supermarket went out of business last May.The reason was not high interest rates or labor costs.Nor was there a shortage of customers in the area, the residential Inwood section of northern Manhattan.The business closed when the owner was murdered by robbers. The owner was Israel Ortiz, a 29-year-old entrepreneur and father of two.In his first year of operating the store he bought for $220,000, Mr. Ortiz was robbed at least twice at gunpoint.The first time he was shot in the hand as he chased the robbers outside.The second time he identified two robbers, who were arrested and charged.Two weeks later -- perhaps in retaliation -- Mr. Ortiz was shot three times in the back, during what police classified as a third robbery attempt. That was his reward for working until 11 p.m. seven days a week to cover his $3,000 a month rent.For providing what his customers described as very personal and helpful service.For creating a focus for neighborhood life. Israel Ortiz is only one of the thousands of entrepreneurs and their employees who will be injured or killed by crime this year.The U.S. Bureau of Justice Statistics reports that almost 2% of all retail-sales workers suffer injuries from crime each year, almost twice the national average and about four times the rate for teachers, truck drivers, medical workers and door-to-door salespeople.Only a few other occupations have higher reported rates of criminal injury, such as police, bartenders and taxi drivers. Yet these figures show only the most visible part of the problem.Recent data from New York City provide more of the picture.While by no means the highest crime community in the country, New York is a prime example of a city where crime strangles small-business development.A survey of small businesses there was conducted this spring by Interface, a policy research organization.It gave 1,124 businesses a questionnaire and analyzed 353 responses.The survey found that over a three-year period 22% of the firms said employees or owners had been robbed on their way to or from work or while on the job.Seventeen percent reported their customers being robbed.Crime was the reason that 26% reported difficulty recruiting personnel and that 19% said they were considering moving. More than one-third of the responding businesses said they suffer from drug dealing and loitering near their premises.In Brooklyn and the Bronx, one out of four commercial firms is burglarized each year.Industrial neighborhoods fare even worse, with burglary rates twice the citywide average. Crime is clearly more deadly to small-scale entrepreneurship than to big businesses.Two decades ago, the Small Business Administration reported Yale Prof.Albert Reiss's landmark study of crime against 2,500 small businesses drawn from national IRS records.He found that monetary crime losses, as a proportion of gross receipts, were 37 times higher for small businesses than for large ones. The New York study's companies averaged 27 employees; their annual crime losses averaged about $15,000, with an additional $8,385 annual cost in security -- enough money to hire at least one more worker.The costs of crime may also be enough to destroy a struggling business. Whatever the monetary crime losses, they may not be nearly as important to entrepreneurs as the risk of personal injury.After repeated gun robberies, some entrepreneurs may give up a business out of fear for their lives.One Washington couple recently sold their liquor store after 34 years in business that included four robbery deaths and 16 robberies or burglaries on the premises. These findings illustrate the vicious cycle that National Institute of Justice Director James K. Stewart calls "crime causing poverty." Underclass neighborhoods offer relatively few employment opportunities, contributing to the poverty of local residents.Small neighborhood businesses could provide more jobs, if crime were not so harmful to creating and maintaining those businesses.This may help explain why small businesses create 65% of all jobs nationally, but only 22% of jobs in a crime-ridden city like New York. Bigger business can often better afford to minimize the cost of crime.The New York study found that the cost of security measures in firms with fewer than five employees was almost $1,000 per worker, compared with one-third that amount for firms with more than 10 employees. The shift of retailing to large shopping centers has created even greater economies of scale for providing low-crime business environments.Private security guards and moonlighting police can invoke the law of trespass to regulate access to these quasi-public places.Since 1984, in fact, revenues of the 10 largest guard companies, primarily serving such big businesses, have increased by almost 62%. Few small neighborhood businesses, however, can afford such protection, even in collaboration with other local merchants.In the neighborhoods with the highest crime rates, small business generally relies on the public police force for protection.This creates several problems.One is that there are not enough police to satisfy small businesses.The number one proposal for reducing crime in the New York survey was to put more police on foot or scooter patrol, suggested by more than two-thirds of the respondents.Only 22% supported private security patrols funded by the merchants themselves. A second problem is the persistent frustration of false alarms, which can make urban police less than enthusiastic about responding to calls from small businesses.Only half the New York small businesses surveyed, for their part, are satisfied with the police response they receive. Some cities, including New York, have experimented with special tax districts for commercial areas that provide additional patrols funded by local businesses.But this raises added cost barriers to urban entrepreneurship. Another solution cities might consider is giving special priority to police patrols of small-business areas.For cities losing business to suburban shopping centers, it may be a wise business investment to help keep those jobs and sales taxes within city limits.Increased patrolling of business zones makes sense because urban crime is heavily concentrated in such "hot spots" of pedestrian density.With National Institute of Justice support, the Minneapolis police and the Crime Control Institute are currently testing the effects of such a strategy, comparing its deterrence value with traditional random patrols. Small-business patrols would be an especially helpful gesture whenever a small-business person is scheduled to testify against a robbery suspect.While no guarantee, an increased police presence might even deter further attacks. It might even have saved the life, and business, of Israel Ortiz. Mr. Sherman is a professor of criminology at the University of Maryland and president of the Crime Control Institute in Washington, D.C. (See related story: "Commercial Oases in the Inner City" -- WSJ Oct. 23, 1989)
Sitting at the bar of the Four Seasons restaurant, architect William McDonough seems oblivious to the glamorous clientele and the elegant setting.He is ogling the curtains rippling above the ventilation ducts. "Look how much air is moving around!" he says. "The ventilation here is great!" You may be hearing more about the 38-year-old Mr. McDonough and his preoccupation with clean air.After years of relative obscurity, he is starting to attract notice for the ecological as well as the aesthetic quality of his architecture. Mr. McDonough believes that the well-being of the planet depends on such stratagems as opening windows to cut indoor air pollution, tacking down carpets instead of using toxic glues, and avoiding mahogany, which comes from endangered rain forests. He has put some of his aesthetic ideas into practice with his design of the four-star Quilted Giraffe restaurant -- "architecturally impeccable," Progressive Architecture magazine called it -- and his remodeling of Paul Stuart, the Madison Avenue clothing store.He has designed furniture and homes as well as commercial and office space.He is now designing a Broadway stage set for a show by the band Kid Creole and the Coconuts. What really stirs his muse, though, is aerobic architecture.Now the question is: Is Poland ready for it?Mr. McDonough is about to tackle his biggest clean-air challenge yet, the proposed Warsaw Trade Center in Poland, the first such center in Eastern Europe. The project has already acquired a certain New York cachet.Bloomingdale's plans to sell a foot-tall chocolate model of the center during the holidays.Some of the sales proceeds will go to the Design Industries Foundation for AIDS.A cake topped with a replica of the center will be auctioned at an AIDS benefit at Sotheby's in December. If Mr. McDonough's plans get executed, as much of the Polish center as possible will be made from aluminum, steel and glass recycled from Warsaw's abundant rubble.A 20-story mesh spire will stand atop 50 stories of commercial space.Solar-powered batteries will make the spire glow.The windows will open.The carpets won't be glued down, and walls will be coated with nontoxic finishes. To the extent that the $150 million budget will allow it, Mr. McDonough will rely on solid wood, rather than plywood or particle board, to limit the emission of formaldehyde. If Mr. McDonough has his way, the Poles will compensate for the trade center's emissions of carbon dioxide, a prime suspect in the global atmospheric warming many scientists fear.The Poles would plant a 10-square-mile forest somewhere in the country at a cost of $150,000, with the center's developer footing the bill. The news hasn't exactly moved others in Mr. McDonough's profession to become architectural Johnny Appleseeds.All architects want to be aware of the ecological consequences of their work, says John Burgee, whose New York firm is designing the redevelopment of Times Square, "but we can't all carry it to that extreme." Karen Nichols, senior associate at Michael Graves's architecture firm in Princeton, N.J., says: "We're really at the mercy of what the construction industry can and will do readily." Mr. McDonough responds: "I'm asking people to broaden their agendas." The son of a Seagram's executive who was stationed in many countries around the world, Mr. McDonough was born in Tokyo and attended 19 schools in places ranging from Hong Kong to Shaker Heights, Ohio, before entering Dartmouth College.He earned a master's degree in architecture from Yale. His interest in the natural environment dates from his youth.He and his father still spend time each summer fly-fishing for salmon in Iceland.Living in Hong Kong, he says, made him sensitive to the limits on food, power and water supplies.At his first school in the U.S. he was thought a little strange for shutting off open water taps and admonishing his schoolmates to take only brief showers. He and a Dartmouth roommate established a company that restored three hydroelectric power plants in Vermont.At Yale, he designed one of the first solarheated houses to be built in Ireland. Mr. McDonough's first professional project fully to reflect his environmental ardor was his 1986 design for the headquarters of the Environmental Defense Fund in New York.The offices took 10,000 square feet of a building with 14-foot ceilings and big, operable windows. Since the 1970s energy crisis, some efforts to conserve energy by sealing buildings have had an unintended side effect: high indoor pollution.To reduce it at the fund's building, workers rubbed beeswax instead of polyurethane on the floors in the executive director's office.Jute, rather than a synthetic material, lies under the tacked-down carpets, and the desks are of wood and granite instead of plastic. The budget was only $400,000. "Athens with Spartan means," Mr. McDonough says.The fund's lawyers work in an Athenian grove of potted trees.Economists and administrators sit along a "boulevard" with street lamps and ficus trees.In offices, triphosphorous bulbs simulate daylight.Offices with outside windows have inside windows, too, to let in more real daylight. "We proved a healthy office doesn't cost more," says Frederic Krupp, executive director of the fund. It "really looks beautiful and is very light," says Ann Hornaday, a free-lance writer who has visited the office for lunch meetings.But, she says, "I guess I didn't really notice the trees.Maybe they were hidden by all the people." Neither the Quilted Giraffe nor the Paul Stuart renovation reflects much of Mr. McDonough's environmental concern.The restaurant was conceived as a sparkling, crystalline "geode." It makes extensive use of stainless steel, silver and aluminum that sets off black granite table tops and a gray terrazzo with zinc-strip floors.To more than replace the wood from two English oaks used for paneling at Paul Stuart, however, Mr. McDonough and friends planted 1,000 acorns around the country. The ambitious Warsaw project still awaits approval by city officials.Its developer is a Polish American, Sasha Muniak.He had worked with Mr. McDonough on an earlier project and recruited him as architect for the trade center.The center will provide space for computer hardware and facsimile and other telecommunications equipment, not readily accessible in Poland now, for a growing number of Westerners doing business in Eastern Europe. Mr. McDonough thinks of the center as the "Eiffel Tower of Warsaw" and "a symbol of the resurgence of Poland." If any nation can use environmentally benign architecture, it is Poland.Jessica Mathews, vice president of World Resources Institute in Washington, D.C., says that perhaps a quarter of Poland's soil is too contaminated for safe farming because of air pollution.The pollution is also killing forests and destroying buildings that date back to the Middle Ages. The future of the forest remains uncertain.Mr. Muniak's company, Balag Ltd., has agreed to set aside the money to plant and maintain it, but discussions are still going on over where to place it and how to ensure that it will be maintained.After all, Mr. Muniak says, "in Poland there aren't too many people worried about the environment.They're more worried about bread on the table."
Doesn't anybody here want to win this mayor's race? As they stumble and bumble toward election day two weeks from tomorrow, both Democrat David Dinkins and Republican Rudolph Giuliani are in trouble. Mr. Dinkins, the Manhattan borough president, can afford more bumbling and stumbling because he holds a comfortable 20-point lead in most of the public-opinion polls.But, in the past 10 days, he has taken a series of body blows to his pride and his reputation that could adversely affect his ability to govern this tumultuous city should he become New York's first black mayor. Ordinarily, a clever opponent would find a way to capitalize on the other side's misfortunes.But Mr. Giuliani, a celebrated prosecutor, has had difficulty switching from his crime-busting, finger-pointing mode to a political stance that suggests he might know something about running this big, troubled city.And now, at the crucial moment, he's running out of money. This is the nation's biggest city and, traditionally, its mayor is the nation's best-known urban politician.Democrats hoped that Mr. Dinkins could become a highly visible national leader.Republicans figured that in Mr. Giuliani, the nation's best-known prosecutor, they had a chance for a huge upset in the heart of Democratic territory and that they would pick up a new political star. But it hasn't worked out that way. "Dinkins is a decent but sloppy guy," says David Garth, veteran campaign consultant here who has always worked for Mayor Edward Koch, defeated by Mr. Dinkins in the Sept. 12 Democratic primary. "The alternative -- Giuliani -- is ghastly." "I guess we'll reluctantly go ahead and do it, vote for Dinkins," says Richard Wade, a politically active professor who supported Richard Ravitch, an also-ran in the Democratic primary. "There's nothing on the other side." "We're picking up steam," insists Roger Ailes, Mr. Giuliani's media consultant, whose last big campaign helped put George Bush in the White House.He adds: "It just hasn't gotten down to the engine room yet." But the steam may never reach the engine room.For, just as Mr. Giuliani latches on to an issue that has Mr. Dinkins reeling, his campaign desperately needs cash to keep Mr. Ailes's commercials on the air beyond Wednesday or Thursday.To help out this week, the White House is dispatching chief of staff John Sununu and three Cabinet members -- HUD's Jack Kemp, Transportation's Samuel Skinner and Treasury's Nicholas Brady, according to Peter Powers, the Giuliani campaign manager. For Republicans who began this campaign with such high hopes, all of this is deeply frustrating.Historically, New York is almost always in trouble.But the trouble it faces now under Democratic rule seems bigger and more daunting than anything it has faced in the past.This year, the city faces a budget deficit that could become even bigger next year.And hardly surprising, many residents trying to cope with the city's other problems are constantly on edge, one ethnic group scrapping with another. "People weren't so happy in the 1930s," says Thomas Lessner, another local professor and the biographer of the legendary Fiorello LaGuardia, the city's fusion mayor who built a coalition Mr. Giuliani hopes to emulate. "But, at least, back then they didn't generally direct their anger at each other." The 62-year-old Mr. Dinkins, an ex-Marine, has served as the city clerk and as Manhattan borough president, a job with limited executive responsibilities ("I defy you to come up with one major accomplishment of David Dinkins," says Mr. Giuliani.) He defeated the contentious Mr. Koch in the Democratic primary partly because he seemed to offer hope he could heal the city's racial and ethnic wounds.His general-election campaign is almost Reagan-like, all muted pictures and comforting words.His theme is unity, decency, humanity, bringing New York together again. Both candidates are negotiating about holding debates, but Mr. Dinkins is widely seen as the major obstacle for scheduling them. The 45-year-old Mr. Giuliani has run a negative campaign to pick up votes leaning to Mr. Dinkins. "He's got to get Dinkins's negatives up," says Lee Miringoff, director of the Marist College Institute of Public Opinion. "But our polls show voters don't like the attack stuff.Why, even 20% of the Republican vote is going to Dinkins." "It's assault-weapons politics," says John Siegal, Mr. Dinkins's issues director, insisting there is a strong racist undertone to the Giuliani effort. For the Giuliani forces, it's a conundrum.On the one hand, Mr. Giuliani wants to cut into Mr. Dinkins's credibility.On the other, he seeks to convince voters he's the new Fiorello LaGuardia -- affable, good-natured and ready to lead New York out of the mess it's in. It hasn't helped that he's waffled on abortion and gay rights, sought the support of both the Liberal and Conservative parties (he won the Liberal endorsement) and that he turned to comedian Jackie Mason for help with Jewish voters.Mr. Mason left the campaign after telling reporters Mr. Dinkins is "a fancy 'shvartzer' with a moustache." Shvartzer is a derogatory Yiddish word for a black person. Mr. Dinkins concedes nothing in his ability to stumble and bumble.He can match Jackie Mason with his own Robert "Sonny" Carson, an angry street organizer who was convicted of kidnapping in 1974.The Dinkins campaign paid Mr. Carson close to $10,000 to get out the vote on primary-election day.Paper work on how it was spent is incomplete. Mr. Carson has been charged with being anti-Semitic.Asked about that the other day, he replied, "Anti-Semitic?I'm anti-white." More troubling for Mr. Dinkins is his record in personal accounting.It began in 1973, when he was being considered for deputy mayor, and a routine check unearthed the extraordinary fact that he hadn't paid his income tax for the previous four years. "I was always going to do it tomorrow," he explained at the time. And now he's busily trying to explain an arrangement in which he sold stock in Inner City Broadcasting Co., headed by his old friend and patron, Percy Sutton, to his son, David Dinkins Jr., for $58,000.He had valued the shares at more than $1 million two years earlier.He says he sold the stock to avoid conflict-of-interest problems in his role as a voting member of the city's Board of Estimate.He says his son hasn't paid for the shares. "It looks like serious tax evasion," says Mr. Ailes, the Giuliani media consultant. "It follows the same pattern as his tax returns.He waits to talk about it until after he gets caught." "He simply hasn't explained why something worth a million dollars ended up worth $58,000 two years later," says Mr. Powers, the Giuliani campaign manager. "It's ludicrous for him to suggest it's the difference between the 'breakup' value of the shares and their market value." So far though, no one -- not even former U.S. attorney Giuliani -- has been able to pinpoint just what law Mr. Dinkins has broken or just what tax he has evaded. "The crime goes to character," says Ron Maiorana, a consultant to the Giuliani campaign. "It's serious stuff.He evades and ducks.He's had a history of deception and this is the latest chapter." "It makes people think, maybe this guy isn't so squeaky clean after all," says Mr. Garth, Mayor Koch's media consultant. "The result may turn out to be a lot closer than people think."
Bullish bond market sentiment is on the rise again. As the government prepares to release the next batch of economic reports, the consensus among economists and money managers is that the news will be negative.And that, they say, will be good for bonds. "Recent data have indicated somewhat weaker economic activity," said Elliott Platt, director of economic research at Donaldson, Lufkin & Jenrette Securities.Mr. Platt is advising clients that "the near-term direction of bond prices is likely to remain upward." Analysts insist that even without help from a shaky stock market, which provided a temporary boost for bonds during the Oct. 13 stock market plunge, bond prices will start to climb on the prospects that the Federal Reserve will allow interest rates to move lower in the coming weeks. That would be comforting to fixed-income investors, many of whom were badly burned in the third quarter by incorrectly assuming that the Fed would ease.Investors rushed to buy bonds during the summer as prices soared on speculation that interest rates would continue to fall.But when it became clear that rates had stabilized and that the Fed's credit-easing policy was on hold, bond yields jumped and prices tumbled.Long-term bonds have performed erratically this year.For example, a group of long-term Treasury bonds tracked by Merrill Lynch & Co. produced a total return of 1% in the first quarter, 12.45% in the second quarter and -0.06% in the third quarter.Total return is price changes plus interest income. Now some investment analysts insist that the economic climate has turned cold and gloomy, and they are urging clients to buy bonds before the rally begins. Among other things, economists note that consumer spending is slowing, corporate profit margins are being squeezed, business confidence is slipping and construction and manufacturing industries are depressed.At the same time, last week's consumer price index showed that inflation is moderating. Add it all up and it means "that the Fed has a little leeway to ease its credit policy stance without the risk of rekindling inflation," said Norman Robertson, chief economist at Mellon Bank Corp., Pittsburgh. "I think we will see a federal funds rate of close to 8 1/2% in the next two weeks and 8% by year end." The federal funds rate, which banks charge each other on overnight loans, is considered an early signal of changes in the Fed's credit policy.Economists generally agree that the rate was lowered by the Fed from around 9%, where it had been since July, to about 8 3/4% in early October on the heels of a weak employment report.Although the rate briefly drifted even lower following the stock market sell-off that occurred Oct. 13, it ended Friday at about 8 11/16%. James Kochan, chief fixed-income strategist at Merrill Lynch, is touting shorter-term securities, which he says should benefit more quickly than longer-term bonds as interest rates fall. "Given our forecast for lower rates, purchases made now should prove quite rewarding before year end," he said. Mr. Kochan also likes long-term, investment-grade corporate bonds and long-term Treasurys.He says these bonds should appreciate in value as some investors, reacting to the recent turmoil in the stock and high-yield junk bond markets, seek safer securities. "If the {Tennessee Valley Authority} sale is any guide, there appears to be good demand for top-quality, long-term paper from both domestic and overseas accounts," he said. TVA, in its first public debt offering in 15 years, sold $4 billion of long-term and intermediate-term securities last week.Strong investor demand prompted the utility to boost the size of the issue from $3 billion.TVA, which operates one of the nation's largest electric power systems, is a corporation owned by the federal government. But persuading investors to buy bonds may be especially tough this week, when the U.S. government will auction more than $30 billion of new securities.Today, the Treasury Department will sell $15.6 billion of three-month and six-month bills at the regular weekly auction.Tomorrow, the Treasury will sell $10 billion of two-year notes. Resolution Funding Corp., known as Refcorp, a division of a new government agency created to bail out the nation's troubled savings and loan associations, will hold its first bond auction Wednesday, when it will sell $4.5 billion of 30-year bonds.All of this comes ahead of the government's big quarterly refunding of the federal debt, which takes place sometime in November. So far, investors haven't shown much appetite for Refcorp's initial bond offering. Roger Early, a portfolio manager at Federated Investors Corp., said that yields on the so-called bailout bonds aren't high enough to attract his attention. "Why should I bother with something that's an unknown for a very small pickup in yield?" he said. "I'm not going to jump on them the first day they come out." He seems to be typical of many professional money managers.When the size of the Refcorp offering was announced last week and when-issued trading activity began, the bailout bonds were yielding about 1/20 percentage point more than the Treasury's benchmark 30-year bond.On Friday, the yield was quoted at about 1/4 percentage point higher than the benchmark bond, an indication of weak demand. Some economists believe that yields on all Treasury securities may rise this week as the market struggles to absorb the new supply.But once the new securities are digested, they expect investors to focus on the weak economic data. "The supply is not a constraint to the market," said Samuel Kahan, chief financial economist at Kleinwort Benson Government Securities Inc. "If one thinks that rates are going down, you don't care how much supply is coming." Friday's Market Activity Most bond prices fell on concerns about this week's new supply and disappointment that stock prices didn't stage a sharp decline.Junk bond prices moved higher, however. In early trading, Treasury bonds were higher on expectations that a surge in buying among Japanese investors would continue.Also providing support to Treasurys was hope that the stock market might see declines because of the expiration of some stock-index futures and options on indexes and individual stocks.Those hopes were dashed when the stock market put in a relatively quiet performance. Treasury bonds ended with losses of as much as 1/4 point, or about $2.50 for each $1,000 face amount.The benchmark 30-year bond, which traded as high as 102 1/4 during the day, ended at 101 17/32.The yield on the benchmark bond rose slightly to 7.98% from 7.96%. In the corporate bond market, traders said the new-issue market for junk bonds is likely to pick up following Chicago & North Western Acquisition Corp. 's $475 million junk bond offering Friday. Today, for example, underwriters at Morgan Stanley & Co. said they expect to price a $150 million, 12-year senior subordinated debenture offering by Imo Industries Inc. Traders expect the issue to be priced to yield 12%.Shearson Lehman Hutton Inc. said that a $150 million senior subordinated discount debenture issue by R.P. Scherer Drugs is expected by the end of the month. However, despite the big new-issue calendar, many junk bond investors and analysts are skeptical the deals will get done. "There are about a dozen more deals coming," said Michael McNamara, director of fixed-income research at Kemper Financial Services Inc. "If they had this much trouble with Chicago & North Western, they are going to have an awful time with the rest." Last week, underwriters were forced to postpone three junk bond deals because of recent weakness in the market. And pressure by big investors forced Donaldson Lufkin & Jenrette Securities Corp. to sweeten Chicago & North Western's $475 million junk bond offering.After hours of negotiating that stretched late into Thursday night, underwriters priced the 12-year issue of resettable senior subordinated debentures at par to yield 14.75%, higher than the 14.5% that had been expected.The coupon on the issue will be reset in one year at a rate that will give the issue a market value of 101.However, the maximum coupon rate on the issue when it is reset is 15.50%.Debenture holders also will receive the equivalent of 10% of the common stock in Chicago & North Western's parent company. "The coupon was raised to induce some of the big players on the fence to come in," said a spokesman for Donaldson. "We put a price on the deal that the market required to get it done." The spokesman said the issue was sold out and met with strong interest abroad, particularly from Japanese investors. In the secondary, or resale, market, junk bonds closed 1/2 point higher, while investment-grade corporate bonds fell 1/8 to 1/4 point.
Winnebago Industries Inc., battered by a deepening slowdown in recreational vehicle industry sales, reported a widened fourth-quarter loss and slashed its dividend in half. The Forest City, Iowa, maker of motor homes said it had a loss of $11.3 million, or 46 cents a share, in the quarter ended Aug. 26.A year earlier, the company had a deficit of $1.5 million, or six cents a share. The cut in the dividend to 10 cents a share semiannually, from 20 cents, "would indicate to me they don't see the problems being fixed real quick," said Frank Rolfes, an analyst at Dain Bosworth Inc. in Minneapolis.Indeed, Winnebago said it started "several promotional programs" to spur retail sales in the fall and winter. The year was already shaping up as a difficult one for the recreational vehicle industry, which makes products such as motor homes, travel trailers, folding campers and van conversions.With the exception of van conversions, the industry has seen a decline from 1988's robust sales.But the rate of the decline snowballed in August, with unit sales to dealers for the month down 10.5% from a year earlier, according to the Recreation Vehicle Industry Association. At Winnebago, sales for the quarter fell 6% to $89.5 million from $95.4 million a year earlier.The company attributed the decline to consumers' concern over interest rates and gas prices -- two key expenses for RV buyers. "It's a large-ticket discretionary purchase," said Robert Curran, who follows the industry for Merrill Lynch & Co. "So when there's talk and concern about the economy, it's not unreasonable for a portion of the buying public to defer purchases." Mr. Curran expects industry RV sales for all of 1989 to fall about 5% from 1988, when sales of 427,300 units were the highest since 1978.And he said the weakness could continue in the first half of next year.But he said the industry has "a good decade ahead," particularly if aging baby boomers fulfill the industry's dreams by buying RVs. Winnebago was hit especially hard in the latest downturn because unit sales in its bread-and-butter motor home business tumbled 25% industrywide in August, and 10.4% in the first eight months of the year.The company said it also suffered in the quarter from incentive programs, losses from discontinuing a motor home line and costs of developing a new commercial vehicle, among other things. The news sent Winnebago stock falling 62.5 cents, to $5.25, in New York Stock Exchange composite trading-a 52-week low. The dividend cut will prove most costly for John K. Hanson, Winnebago's founder and chairman.Based on his control of about 45% of Winnebago's 24.7 million shares, his annual dividend income would be cut to about $2.2 million from $4.4 million. For the year, Winnebago had a loss of $4.7 million, or 19 cents a share, following profit of $2.7 million, or 11 cents a share, a year earlier.Sales rose 2% to $437.5 million from $430.3 million.
McCaw Cellular Communications Inc. said it obtained "firm" financing commitments from three major banks in regard to its offer for 50.3% of LIN Broadcasting Corp. Morgan Guaranty Trust, Toronto-Dominion Bank and Provident National Bank, an affiliate of PNC Financial Corp., jointly committed $1.2 billion of financing, subject to certain conditions, McCaw said. Further, McCaw said the banks expressed confidence that the balance of the $4.5 billion bank facility will be committed within the next several weeks by a syndicate of foreign and domestic banks.Morgan, Toronto-Dominion and Provident are leading that syndicate. McCaw is offering to buy 22 million shares of LIN for $125 each in cash, which would result in McCaw owning 50.3% of the cellular-phone and broadcasting concern.The offer is in limbo, however, because LIN has agreed to merge its cellular-phone businesses with BellSouth Corp. In national over-the-counter trading Friday, LIN shares rose 62.5 cents to close at $110.625. Beijing lawmakers have called for jails to be built to house prostitutes and for severe punishment, including the death sentence, for anyone who induces or coerces women into prostitution. The official Xinhua News Agency said the municipal government was discussing a draft bill to give the capital its first anti-prostitution statutes.It quoted Liu Changyi, deputy director of the Beijing Public Security Bureau, as saying that there were many more people involved in prostitution now than in 1985, when there were about 100 cases. Foreigners involved in prostitution will be punished according to the law, and those with sexually transmitted diseases will be expelled from the country, according to the regulations. The Communists nearly succeeded in eliminating prostitution after taking over in 1949, but the practice has returned in recent years with the country's increased exposure to the outside world. Japan agreed to enforce a decision by an international wildlife conference to ban all trade in ivory, a spokesman for the Ministry of International Trade and Industry said.Earlier, Japan had said it might file a reservation against the ivory ban decided by ballot at the 103-nation United Nations Conference on International Trade in Endangered Species in Switzerland last week.The Japanese use 40% of the world's ivory. Italy should close the Leaning Tower of Pisa because it's a danger to tourists, government-appointed experts said. "In some places the stonework is so damaged it shows signs of breaking off," scientists and technicians said in a report to Public Works Minister Giovanni Prandini.Each year, nearly a million people pay about $3 to make the spiral climb up 294 steps to the top of the 800-year-old marble tower. East Germany pledged to reduce alcohol consumption by boosting production of soft drinks and fruit juices.Trade and Supply Minister Gerhard Briksa said in a letter published in the youth daily Junge Welt that the rise in alcohol consumption in East Germany had been halted; but to reduce it further, he said, production and supply of other beverages, including fruit juices, should be stepped up.He added that shops will have to continue reducing their stocks of liquor and avoid displaying them too prominently in the window. Hong Kong has built a detention center for illegal immigrants from China because China has refused for the past two weeks to accept them back.The center, close to Hong Kong's border with China, will be ready today and will be able to house 1,000 inmates, Police Deputy Director Peter Wong said.The dispute started when China, angry that Hong Kong had allowed dissident swimmer Yang Yang to flee to the U.S., halted the usual daily transfer of illegal immigrants caught in this British colony, which reverts to Beijing's control in 1997. Sweating under the glare of newly installed television lights, British members of Parliament demanded a halt to the experimental televising of debates.A group of senior Conservative legislators, complaining the House of Commons was like a sauna, demanded that the experiment be stopped unless the intensity of the lights is reduced.One Conservative MP, David Wilshire, said: "I should have a wonderful suntan by Christmas." Debates are due to be broadcast nationally starting Nov. 21 in a six-month experiment. A majority of Japanese banks are said to be wary of making new loans to Mexico under the Brady plan because they're uncertain the Mexican economy will remain stable. Instead, many small and medium-sized banks, and some larger ones, are likely to take one of the other two options open to them under the plan, Japanese banking officials said.The plan, proposed by U.S. Secretary of State Nicholas Brady, calls for banks either to make new loans or to reduce the principle on existing loans or to cut the interest rate on those existing loans. The officials said that most Japanese banks prefer the losses they'd suffer in either of the latter options to the risk of new lending.But an official at a long-term credit bank explained that since some larger banks have already taken loss provisions for loans to other Third World nations, further write-offs could be viewed as intolerable. "They can't take the hit" to their earnings, he said. As a result, the official said, they may be forced into a no-win situation in which they make risky loans that they could have to write off later. A poll in male-dominated South Korea put Margaret Thatcher first on a list of most-respected foreign leaders.The British prime minister was the only woman singled out by respondents, who put Soviet President Mikhail Gorbachev in second place. . . . The Soviet newspaper Trud reported that Mickey Mouse will appear in a Russian-language comic book to be issued four times a year by Soviet publisher Fizkultura i Sport and Denmark's Gutenberghus Group.The comic book will cost about $2.
Ekco Group Inc., Nashua, N.H., expects to report that net income in the third quarter, ended Oct. 1, fell 50% to 60% from $2.1 million, or 11 cents a share, a year earlier. Robert Stein, president and chief executive officer, attributed the expected decline partly to the effects of a two-week strike last month at the company's Masillon, Ohio, bakeware facility.Softer-than-expected orders in early September also played a role, he said in an interview. But Mr. Stein said he is "reasonably confident" that earnings for the full year will exceed the $3.1 million, or 17 cents a share, in 1988.That would require fourth-quarter net of more than about 22 cents to 24 cents a share, assuming that Mr. Stein's third-quarter estimate proves accurate.In the year-earlier fourth quarter, the company had profit of $2.7 million, or 15 cents a share. Third-quarter revenue is expected to be $40 million to $45 million, up from $38.2 million a year earlier, according to Neil Gordon, treasurer.The year-earlier periods don't reflect results of the company's Woodstream Corp. unit, acquired last January, but include some Canadian operations that were sold at the end of 1988. August through October traditionally is the busiest season for the bakeware business, as many retailers use the goods as autumn promotional items.Mr. Stein said some retailers -- perhaps anxious about minimizing inventories -- appear to have held back on orders in September but have been ordering more heavily in October. Mr. Stein said Woodstream is "marginally profitable" but hasn't performed as well as expected.Woodstream's Victor-brand mousetraps and other pest-control products are "doing very well," and its plastic storage-case products "are poised for growth," he said.But the unit's third segment, wildlife traps, is suffering from a "depressed market," and Ekco is seeking to sell that segment, he said.Mr. Stein said he expects profit to be higher in 1990 than in 1989, reflecting a number of measures taken since the acquisition of Ekco Housewares in late 1987. (Prior to acquiring the housewares business, the company was known as Centronics Corp.; Centronics had been a maker of computer printers, but Mr. Stein and other officers decided to sell that business after Japanese competitors grabbed a dominant share of the market.) Mr. Stein said tighter operating controls have enabled Ekco to reduce inventory levels 25% to 30%; improve on-time delivery of orders to about 95% from around 70%; and to lower the number of labor hours required to produce a unit.By moving the design of new products in-house -- instead of contracting out the work -- the company also has been able to come up with designs that can be manufactured more efficiently, he said. In addition to those measures, the company spent heavily earlier this year to install displays at its customers' retail outlets -- a strategy that Mr. Stein said has helped bolster awareness of the company's brands. Ekco's housewares operation makes kitchen tools and gadgets, as well as bakeware, at factories in the U.S. and Canada.The main issue in the strike at the Ohio facility was health-care benefits, Mr. Stein said.The strike ended Oct. Ekco continues to seek further acquisitions in the consumer-products industry, Mr. Stein said.He indicated that Ekco may be interested in acquiring another company with revenue in the range of $75 million to $100 million, partly because mass merchandisers increasingly want to rely on larger, and fewer, suppliers.
After several years of booming business with China, foreign traders are bracing for the biggest slump in a decade. The imposition of austerity measures, starting last October, already had begun to pinch when the massacre in Tiananmen Square on June 4 and subsequent events tugged the belt far tighter.Foreign lending has been virtually suspended since then, choking liquidity and hobbling many projects.And Beijing has pulled back on domestic loans and subsidies, leaving many domestic buyers and export-oriented plants strapped for cash. Givaudan Far East Ltd., a Swiss concern that sells chemicals to shampoo and soap factories in China, typifies the problems.Last year's retrenchment dried up the working capital of Chinese factories.The company's sales flattened during 1989's first half. The June killings magnified the problems.In Canton, Givaudan's representative office received no orders in June.At first it attributed the slump to temporary business disruptions, but when no orders were logged in August and September, manager Donald Lai became convinced that business would be bad for many months. "Things have grown worse since June 4," Mr. Lai says.He predicts that sales will drop between 30% and 40% from last year's $3 million. The consumer-products and light-industrial sectors are bearing the brunt of China's austerity measures, and foreign companies such as Givaudan that deal with those industries are being hit the hardest.But in general, all foreign-trading companies are feeling the pinch. "The import pie will shrink," says John Kamm, first vice president of the American Chamber of Commerce in Hong Kong and a China trade specialist. "On the down side, sales could fall as much as 90% for some companies; on the upper side, sales will be flat." China's foreign trade has gone in cycles during the past decade.The last time that traders experienced a trough was during 1985-86, when Beijing imposed tough measures to curb imports and conserve foreign exchange.The current trough is expected to be much deeper, because Beijing has cut off domestic funds from factories for the first time to slow inflation.In addition, the suspension of loans and export credits from foreign governments and institutions following the June killings have been a big setback. "The freeze on new lending is dealing the single biggest blow to trading," says Raymond Wong, China manager for Mannesmann AG, a West German machinery-trading company. Import growth from the year-earlier months slowed to 16% in July and 7.1% in August, compared with an average growth rate of 26% in the first half.In the first eight months of 1989, imports grew 21%, to $38.32 billion, down slightly from a growth rate of 23% a year earlier. The picture for China's exports is just as bleak, mainly because of the domestic credit squeeze.Exports in the first eight months grew only 9%, to $31.48 billion, compared with a growth rate of 25% a year earlier, according to Chinese customs figures. The threat to China's balance of payments is further aggravated by the plunge in its foreign-exchange reserves, excluding gold holdings.The reserves dropped for the first time in recent years, to $14 billion in June from $19 billion in April. The trend has prompted Beijing to intensify efforts to curb imports.In recent weeks, China's leaders have recentralized trading in wool and scores of chemical products and commodities.The Ministry of Foreign Economic Relations and Trade set up a special bureau last month to monitor the issue of import and export licenses. Beijing's periodic clampdowns on imports have taught many trading companies that the best way to get through the drought is by helping China export.For example, Nissho Iwai Corp., one of the biggest Japanese trading houses, now buys almost twice as many goods from China as it sells to that country.Three years ago, the ratio was reversed. But the strategy isn't helping much this time. "Both sectors of imports and exports look just as bad," says Masahiko Kitamura, general manager of Nissho Iwai's Canton office.He expects the company's trading business to drop as much as 40% this year. For a short time after June 4, it appeared that the trade picture would remain fairly bright.Many foreign trading offices in Hong Kong were swamped with telexes and telephone calls from Chinese trade officials urging them not to sever ties.Even the Bank of China, which normally took weeks to process letters of credit, was settling the letters at record speed to dispel rumors about the bank's financial health. But when foreign traders tried to do business, they discovered that the eagerness of Chinese trade officials was just a smokescreen.The suspension of foreign loans has weakened the buying power of China's national trading companies, which are among the country's biggest importers. Business isn't any better on the provincial or municipal level, foreign traders say.Shanghai Investment & Trust Co., known as Sitco, is the city's main financier for trading business.Sitco had customarily tapped the Japanese bond market for funds, but it can't do that any longer.Foreign traders say the company is strapped for cash. "It has difficulties paying its foreign debts," says a Hong Kong executive who is familiar with Sitco's business. "How can it make available funds for purchases?" Foreign traders also say many of China's big infrastructural projects have been canceled or postponed because of the squeeze on domestic and foreign credit.Albert Lee, a veteran trader who specializes in machinery sales, estimates that as many as 70% of projects that had obtained approval to proceed have been canceled in recent months. "There are virtually no new projects, and that means no new business for us," he says. Even when new lending resumes, foreign exchange would still be tight because Beijing will likely try to rein in foreign borrowing, which has grown between 30% and 40% in the past few years.And foreign creditors are likely to be more cautious about extending new loans because China is nearing a peak repayment period as many loans start falling due in the next two to five years. Another reason for the intensity of the trade problems is that Beijing has extended the current clampdown on imports beyond the usual target of consumer products to include steel, chemical fertilizers and plastics.These have been among the country's leading imports, particularly last year when there were shortages that led many traders to buy heavily and pay dearly. But the shortages also spawned rampant speculation and spiraling prices.To stem speculation, Beijing imposed ceiling prices that went into effect earlier this year.Traders who had bought the goods at prices above the ceiling don't want to take a loss on resales and are holding onto their stock.The resulting stockpiling has depressed the market. But Beijing can't cut back on such essential imports as raw materials for too long without hampering the country's export business.Mr. Kamm, the China trade expert, estimates that as much as 50% of Guangdong's exports is made up of processed imported raw materials.
Oil Spill Case Shows Liability Fund Flaws AN UNRESOLVED two-year-old dispute stemming from an Alaskan oil spill has helped spur a drive for tougher federal laws to protect victims of such accidents. The class-action suit highlights shortcomings of the Trans-Alaska Pipeline Liability Fund, which gets its money from oil companies using the pipeline and compensates those harmed by oil spills. On July 2, 1987, the tanker S.S. Glacier Bay struck a rock and spilled almost 150,000 gallons of oil into the Cook Inlet.Commercial fishermen and fish processors filed suit in federal court in a claim that has ballooned to more than $104.8 million.Defendants include British Petroleum America; Trinidad Corp., the shipper; and the pipeline liability fund. The fund was created by the Trans-Alaska Pipeline Act, which provides that the owner or operator of a vessel involved in an oil spill must pay the first $14 million in damages.The fund is required to pay claims up to an additional $86 million. The fund's purpose is to provide quick and adequate relief.But the Glacier Bay case, the fund's first test, shows how easily the fund can be undermined.Trinidad Corp. is contesting liability.It claims the Coast Guard failed to chart the rock and refuses to pay damages.That means the fund isn't obligated to pay anything, at least so far. The Oil Pollution Act, scheduled to come up for a vote in Congress this fall, would provide that if claimants aren't paid within 90 days of a spill, the liability fund would compensate them and seek reimbursement from the owner or operator of the vessel, says a spokesman for Rep. George Miller (D., Calif.), a sponsor of the bill.The spokesman says the "glitch" in the statute is "the worst kind of Catch-22." Many Law School Grads Find Classes Never End RECENT LAW school graduates are starting jobs with law firms this fall -- and heading back to class. Bar associations and consultants are offering more programs to teach associates all they need to know about law but didn't learn in law school. "Law school teaches wonderful theory, but it doesn't teach the nuts and bolts of practical lawyering," says Aaron Weitz, head of a New York County Lawyers' Association committee that sponsors such a course. In the past, associates learned the basics from senior lawyers who acted as mentors.But these days, large firms hire as many as 30 new associates a year, and it's impossible to personally train everyone, says Joel Henning of Hildebrandt Inc., a consulting firm that runs training classes. The Hildebrandt course enables students to brush up on negotiation skills by role playing in simulated deals.Students also are taught to return clients' phone calls immediately and to treat the support staff with respect. Many law firms sponsor their own programs.At the Baltimore firm of Weinberg & Green, new corporate and banking associates are required to enroll in a 20-class course.Partners lecture on how to form corporations, draft agreements and defend clients against unwanted tender offers. Now, clients know that new associates have had some practical training before working on their cases, says James J. Hanks, a partner at the firm. Los Angeles Creates A Courthouse for Kids THE CHILDREN of Los Angeles will soon have their own $52 million courthouse. The building, which will handle child abuse, custody and foster care cases, will be "less formal, less threatening and just basically less grim than most courthouses," says Edmund Edelman, chairman of the Los Angeles County Board of Supervisors. Designs call for an L-shaped structure with a playground in the center.There will be recreation and movie rooms.Teens will be able to listen to music with headsets.Study halls, complete with reference materials, will be available.And there will be a nurse's station and rooms for children to meet with social workers. The building's 25 courtrooms will be smaller, says Charlene Saunders, a court administrator.The bench will be lower so the judge seems less intimidating, and walls will be painted in bright colors and covered with murals. Cases in Los Angeles County involving dependent children are usually heard in the Criminal Courts Building. "We need to get the kids away from the criminals into a less traumatic environment," says Mr. Edelman.About 45,000 children in Los Angeles County are under court supervision, Mr. Edelman says, and an average of 1,500 new children are added each month. The courthouse, to be built in Monterey Park, is expected to open in the spring of 1992. Law Firm Management Can Be Quite Rewarding IT PAYS to follow a management career path -- even at law firms. That's the conclusion of a recent study of large law firms conducted by Altman & Weil Inc., an Ardmore, Pa., law firm consultant.Its survey of 96 firms, each with 100 to 1,000 lawyers, shows that managing partners earned an average of $395,974 in compensation and cash benefits in the firms' 1988 fiscal years. Managing partners who responded to the survey typically spend over half their time supervising their firms' day-to-day operations and just a little more than a third of their time practicing law. Partners in the survey who devote most of their time to practicing law earned an average of about $217,000.
High-definition television promises to be the TV of tomorrow, so it is a natural multibillion-dollar market.Although major U.S. manufacturers have all but ceded the main segment of that future business to Japan, not everyone here is ready to give up. A handful of small U.S. companies are struggling to develop the technology to build the screens for the thin, high-quality televisions that are expected to hang on living room walls by the end of the 1990s.With only small help from the government, these start-up concerns are trying to compete with the Goliaths of the Japanese consumer electronics industry, which enjoy considerable backing from the Japanese government. Photonics Technology Inc. of Northwood, Ohio, aims to use a new form of plasma technology to put movie-quality images on a TV display that is 40 inches in diameter but only a few inches thick. Planar Systems Inc. of Beaverton, Ore., the largest of these firms, with $20 million in annual revenue, has similar plans.It already has had success in electroluminescence, another promising technology adaptable for high-definition television. Two other firms, Ovonic Imaging Systems Inc. of Troy, Mich., and Magnascreen Corp. of Pittsburgh are developing a variation of the flat-panel screens called active-matrix liquid crystal displays. The new technologies are intended to retire the cathode-ray tube, which accounts for most of the bulk of the conventional TV set.Replacing the cathode-ray tube with a large, thin screen is the key to the creation of a high-definition television, or HDTV, which is expected to become a $30 billion business world-wide within a decade.Large U.S. companies are interested in other segments of the HDTV business, such as signal-processing and broadcast equipment.But except for Zenith Electronics Corp. and International Business Machines Corp., which is collaborating with Toshiba on computer displays, they are poorly positioned to exploit advances in large panels.General Electric Co. recently sold off its interests in liquid-crystal displays to Thompson-CSF of France. "We found the market not developing as we thought it would," a GE spokesman says. The small U.S. firms are persisting because of their strong positions in patents, and because the prize is still there to be seized. "No one yet has shown the ability to manufacture these panels" at commercial costs, says Zvi Yaniv, the president of Ovonic Imaging.He says he thinks his company is just a few years from doing that. The Bush administration, hearing conflicting advice about what its role in HDTV should be, isn't doing much for now.The only material support it is extending to the struggling U.S. industry is $30 million in awards from the Pentagon's Defense Advanced Research Projects Agency.The DARPA funds are a pittance compared with what Japan and other prospective competitors are spending.The Commerce Department estimates that Japanese government and industry spending on HDTV research is already over $1 billion. "Unless it gets more help, the U.S. industry won't have a chance," says Peter Friedman, Photonics's executive vice president. Thus far, almost all of the basic technology relating to high-definition television has come from U.S. laboratories.But Peter Brody, Magnascreen's president, says Japanese companies are poised to snatch the technology and put it to commercial use, just as they did with earlier U.S. innovations in color television and video recording. In the 1970s, Mr. Brody helped develop the first display panels based on active-matrix liquid crystals at Westinghouse Electric Corp. 's research labs in Pittsburgh.The panels are like oversized semiconductors surfaced with a million or more picture elements, each contributing to the color and tone of a TV image. In 1979, however, Westinghouse abandoned the project along with its stake in advanced television.Mr. Brody left the company to find other backers.He has a claim to the right to commercialize the Westinghouse patents, but he contends that those patents are being infringed by a number of Japanese producers. "Most American investors have just given up," Mr. Brody says. "They aren't prepared to compete in an area where the Japanese want to enter." Many critics question the industry's need for federal support; the Pentagon justifies its help on national-security grounds. "We don't see a domestic source for some of our {HDTV} requirements, and that's a source of concern," says Michael Kelly, director of DARPA's defense manufacturing office.So DARPA is trying to keep the industry interested in developing large display panels by doling out research funds. HDTV already has some military applications, such as creating realistic flight simulations and transmitting information to combat commanders.The Navy is ordering displays for its Aegis cruisers and the Army wants smaller versions for its Abrams battle tanks. The Commerce Department also is trying to encourage HDTV because of the benefits that could spin off to the semiconductor and computer industries. "It isn't just yuppie television," argues Jack Clifford, director of the department's office of microelectronics and instrumentation. "The industry will create industrial products such as displays for work stations and medical diagnostic equipment before it acquires a mass consumer market." Although some HDTV advocates are calling for other forms of aid, such as antitrust relief for research consortia, the small firms simply would prefer more DARPA funds.Each claims to possess the right technology and wants just a bit more money to make it commercial. They also want U.S. trade policy to reflect the Pentagon and Commerce department's concern over their future.They all are strongly opposed to a petition from several Japanese TV manufacturers, including Matsushita, Hitachi, and Toshiba, to exempt portable color TVs with liquid-crystal displays from anti-dumping duties that the U.S. imposes on the larger Japanese color TVs. And they want the U.S. to help them sell overseas.Planar President James Hurd says he has to pay tariffs as high as 15% to sell his display panels in Japan and South Korea, while panels from those countries enter the U.S. duty-free. "This isn't a technology issue, but an attitude issue," he says. "We just haven't learned what it takes to compete."
The Office of Thrift Supervision banned B.J. Garman, a former director of the failed Vision Banc Savings Association of Kingsville, Texas, from working in any financial institution insured by the government. The office, a Treasury Department unit that is the successor to the Federal Home Loan Bank Board, said this was the first announcement of an enforcement action since this year's thrift-bailout legislation ordered that all such actions by federal banking regulators be made public. Generally, regulators haven't announced enforcement actions in the past.Indeed, the OTS said that before the law took effect Aug. 9, it banned another "key Vision Banc insider" from insured financial institutions.That individual wasn't identified. Vision Banc was placed in government conservatorship in March, and it operates under the control of the Resolution Trust Corp., the agency created to sell or liquidate insolvent thrifts. The OTS didn't say specifically why the action was taken against Ms. Garman.However, it said examiners found a variety of insider dealings at the thrift, including "extraordinary loan commissions" paid to a firm associated with Vision Banc officials, and loans diverted through borrowers back to the thrift officials. Ms. Garman couldn't be reached for comment.
Growth is good. At least, that's a theme emerging among many money managers who are anxious both to preserve the handsome stock-market gains they have already achieved this year and to catch the next wave of above-average performers.They are starting to buy growth stocks. Remember them?The upper echelon of this group were shares of the "nifty 50" companies whose profits of the 1960s and early 1970s grew steadily, if not spectacularly, through thick and thin.That sort of workhorse performance sounds made to order for a time when corporate profits overall have been weakening from the brisk increases of recent years.The current flood of third-quarter reports are producing many more negative surprises than positive ones. Those are unwelcome trends in a year that the Dow Jones Industrial Average has risen 23% so far, even with the 190.58-point plunge on Oct. 13; broader market measures are in the same neighborhood.The question for investors is, how to protect these returns and yet reach a little for additional gains.That's the path of reasoning leading to growth stocks. "I think it is a good theme for what looks to be an uncertain market," says Steven Einhorn, partner at Goldman Sachs. Growth stocks may be as big as Philip Morris or medium-sized such as Circuit City Stores, but their common characteristic is a history of increasing profits on the order of at least 15% to 20% a year, money managers say. "The period when growth stocks should be performing well is when their earnings are growing at a superior rate to the general level of corporate profits," says Stephen Boesel, president of T. Rowe Price's Growth and Income Fund. Growth stocks also are attractive in periods of market volatility, which many investors and analysts expect in the weeks ahead as everybody tries to discern where the economy is heading.This kind of jumpy uncertainty reminds John Calverley, senior economist for American Express Bank, of the 1969-72 period, when the industrial average rolled through huge ranges and investors flocked to the shares of companies with proven earnings records, which became known as the "nifty 50." And they will again, say money-manager proponents of the growth-stock theme.Cabanne Smith, president of a money management company bearing his name, predicts that investment companies using computers to identify companies with earnings "momentum" will climb on the growth-stock bandwagon as the overall corporate earnings outlook deteriorates further.He also thinks foreign investors, who are showing signs of more discriminate investing, will join the pursuit and pump up prices. "We're just seeing the beginning of a shift," Mr. Smith says.Mr. Smith recommends Cypress Semiconductor that is currently showing a robust 63% earnings growth rate. Ronald Sloan, executive vice president of Siebel Capital Management, likes Wellman Inc., a company that recycles plastic into synthetic fibers for carpeting.Mr. Sloan praises the company as recession resistant and notes that it has an annual earnings growth rate of 32% a year over the past five years.Wellman stock closed Friday at 39 3/8, up 1/8; Mr. Sloan thinks that in a year it could hit 60. Others preach the gospel of buying only blue-chip growth stocks.Carmine Grigoli, chief market strategist for First Boston, who still says, "We expect the Dow average {to be at} 3000 by mid-1990," nonetheless foresees a sluggish economy in the meantime.He recommends such blue-chip growth stalwarts as Philip Morris, PepsiCo, CPC International, Reebok International, and Limited Inc.All have a fiveyear earnings growth rate of more than 20% a year. Some money managers are pursuing growth stocks at the expense of those that rise and fall along with the economic cycle. "One of the stories of the fourth quarter is that we will get an unusual number of earnings disappointments from companies sensitive to the economy," says Mr. Boesel of T. Rowe Price. James Wright, chief investment officer for Banc One Asset Management, says, "We've been selling a disproportionate share of cyclical companies and buying a disproportionate share of high earnings stocks." He recently trimmed his portfolio of International Paper, Dow Chemical, Quantum Chemical, International Business Machines and Digital Equipment.He is putting money in Dress Barn, Circuit City Stores, Bruno's, and Rubbermaid. Big cyclical companies are using "all the tricks they can to stabilize earnings," says Mr. Sloan.He cites IBM, which reported a 30% earnings decline in the third quarter, and which last week announced a $1 billion buy-back of its shares. "What they are telling you is that they don't have the ability to generate higher returns internally," says Mr. Sloan. "When they are buying back stock at 10 times earnings, they are suggesting that the rate of return on competing internal projects is below" returns on the stock.IBM says it considers its shares a good investment. But not all strategists or money managers are ready to throw in the towel completely on cyclicals.Growth stocks may underperform cyclical stocks next year if the Federal Reserve begins to let interest rates drift sufficiently lower to boost the economy.Goldman Sachs's Mr. Einhorn, for one, subscribes to that scenario.He suggests investors think about buying cyclical shares in the weeks ahead, as well as growth issues. Friday's Market Activity Stock prices finished about unchanged Friday in quiet expiration trading. Traders anticipated a volatile session due to the October expiration of stock-index futures and options, and options on individual stocks.But there were fewer price swings than expected.Buy order imbalances on several big stocks were posted by the New York Stock Exchange.But block trading desks and money managers made a concerted effort to meet the imbalances with stock to sell, one trader said. As a result, the Dow Jones Industrial Average drifted in narrow ranges in the final hour of trading, and closed 5.94 higher to 2689.14.New York Stock Exchange volume was 164,830,000.Advancers on the Big Board lagged decliners 662 to 829. For the week, the industrial average gained 119.88 points, or 4.7%, the biggest weekly point advance ever and a better than 50% rebound from the 190.58 point loss the industrial average logged Oct. 13. Broader market averages were little changed in the latest session.Standard & Poor's 500-Stock Index gained 0.03 to 347.16, the Dow Jones Equity Market Index fell 0.02 to 325.50, and the New York Stock Exchange Composite Index fell 0.05 to 192.12. Most of last week's surge in the industrial average came on Monday, when the average rose 88.12 points as market players snapped up blue-chip issues and shunned the broad market. That contrast was reflected in the smaller weekly percentage gains recorded by the broader averages.The S&P 500 rose 4%, the Dow Jones Equity Market index gained 3.7% and the New York Stock Exchange composite index added 3.5%. The Dow Jones Transportation Average fell 32.71 to 1230.80 amid renewed weakness in the airline sector. UAL skidded 21 5/8 to 168 1/2 on 2.2 million shares.On the week, UAL was down nearly 40%.The latest drop followed a decision by British Airways, which had supported the $300-a-share buy-out offer for UAL from a labor-management group, not to participate in any revised bid.British Airways fell 1 to 31 7/8. While most other airline issues took their cue from UAL, USAir Group rose 1 3/4 to 43 1/4 on 1.5 million shares amid speculation about a possible takeover proposal from investor Marvin Davis.USA Today reported that Mr. Davis, who had pursued UAL before dropping his bid Wednesday, has acquired a stake of about 3% in USAir.Unocal fell 1 1/2 to 52 1/4 and Burlington Resources declined 7/8 to 45 5/8.At a meeting with analysts, British Petroleum officials dispelled speculation that the company may take over a U.S. oil company, according to Dow Jones Professional Investor Report.Both Unocal and Burlington had been seen as potential targets for a British Petroleum bid. Paper and forest-products stocks declined after Smith Barney, Harris Upham & Co. lowered investment ratings on a number of issues in the two sectors, based on a forecast that pulp prices will fall sharply.International Paper dropped 5/8 to 51, Georgia-Pacific fell 1 3/4 to 56 1/4, Stone Container tumbled 1 1/2 to 26 5/8, Great Northern Nekoosa went down 5/8 to 38 3/8 and Weyerhaeuser lost 7/8 to 28 1/8. Dun & Bradstreet dropped 3/4 to 51 1/8 on 1.9 million shares on uncertainty about the company's earnings prospects.Merrill Lynch cut its rating and 1990 earnings estimate Thursday, citing weakness in its credit-rating business. Lamson & Sessions, which posted sharply lower third-quarter earnings and forecast that results for the fourth quarter might be "near break-even," fell 1/2 to 9 1/4. Winnebago Industries slid 5/8 to 5 1/4.The company, which reported that its loss for the fiscal quarter ended Aug. 26 widened from a year earlier, cut its semiannual dividend in half in response to the earnings weakness. MassMutual Corporate Investors fell 3 to 29 after declaring a quarterly dividend of 70 cents a share, down from 95 cents a share.
The following U.S. Treasury, corporate and municipal offerings are tentatively scheduled for sale this week, according to Dow Jones Capital Markets Report: $15.6 billion three-month and six-month bills. $10 billion of two-year notes. Resolution Funding Corp. to sell $4.5 billion 30-year bonds. Aim Prime Rate Plus Fund Inc. -- 10 million common shares, via PaineWebber Inc. Allied Capital Corp. II -- 6,500,000 common shares, via Shearson Lehman Hutton Inc. American Cyanamid Co. -- 1,250,000 common shares, via Merrill Lynch Capital Markets. Associated Natural Gas Corp. -- 1,400,000 common shares, via Dillon Read & Co. B & H Crude Carriers Ltd. -- Four million common shares, via Salomon Brothers Inc. Baldwin Technology Co. -- 2,600,000 Class A shares, via Smith Barney, Harris Upham & Co. Blockbuster Entertainment Corp. -- $250 million (face amount) Liquid Yield Option Notes, via Merrill Lynch. Chemex Pharmaceuticals Inc. -- 1,200,000 units, via PaineWebber. Immune Response Corp. -- Three million common shares, via Merrill Lynch. Marsam Pharmaceuticals Inc. -- 1,300,000 common shares, via Smith Barney, Harris Upham. RMI Titanium Co. -- 15 million common shares, via Salomon Brothers Inc. Tidewater Inc. -- 4,631,400 common shares, via Salomon Brothers Inc. Massachusetts -- Approximately $230 million of general bonds, consolidated loan of 1989, Series D, via competitive bid. Montgomery County, Maryland -- $75 million of general consolidated public improvement bonds of 1989, Series B, via competitive bid. Trinity River Authority, Texas -- $134,750,000 of regional wastewater system improvement revenue bonds, Series 1989, via competitive bid. City and County of Honolulu, Hawaii -- $75 million of obligation bonds, 1989 Series B, due 1993-2009, via competitive bid. Beverly Hills -- $110 million of civic center project certificates of participation, Series 1989, via a Goldman, Sachs & Co. group. Broward County School District, Florida -- $185 million of school district general bonds, via a First Boston Corp. group. Connecticut Housing Finance Authority -- $132,620,000 of housing mortgage revenue (AMT and non-AMT) bonds, via a PaineWebber group. Maryland Stadium Authority -- $137,550,000 of sports facilities lease revenue Alternative Minimum Tax (AMT) bonds, Series 1989 D, via a Morgan Stanley & Co. group. Michigan -- $80 million of Michigan First general bonds, including $70 million of environmental protection project bonds and $10 million of recreation project bonds, via a Shearson Lehman Hutton group. West Virginia Parkways Economic Development and Tourism Authority -- $143 million of parkway revenue bonds, Series 1989, via a PaineWebber group.San Antonio, Texas -- $640 million of gas and electric revenue refunding bonds, via a First Boston group.
First, the somewhat affected idealism of the 1960s.Then, the all-too-sincere opportunism of the 1970s and 1980s.What now?To judge from novels that mirror the contemporary scene, we're back in the age of anxiety.Where '60s dropouts professed to scorn middle-class life and ambitious yuppies hoped to leave it far behind as they scaled the upper reaches of success, it now seems that so many people feel they're slipping between the cracks, that middle-class life is viewed with nostalgia or outright longing. Lisa Zeidner's third novel, "Limited Partnerships" (North Point Press, 256 pages, $18.95) is a stylish, funny and thoughtful look at the way love relationships are affected by the pressures of money, or, more specifically, the lack of it.Nora Worth and Malcolm DeWitt, 33 and 39 respectively, live together in a townhouse in a transitional Philadelphia neighborhood.Malcolm, a former film-maker turned architect, has just seen his first big chance at a lucrative commission turn to dust with the arrest of his shady, obnoxious client, a fly-by-night real estate developer.Nora, who still has artistic aspirations, knows she is lucky to be working as a food stylist, prepping pies, burgers, frosty cold drinks and other comestibles to look as appetizing as possible in front of the camera.After all, she reasons, "there were housewives with Nikons and degrees from cooking schools in France who would kill for her job." But Nora and Malcolm feel trapped.They seem to be having the "worst of both worlds: artistic work with none of art's integrity and no control over the finished product; self-employment without fun or profit." It's a downbeat, "thirtysomething" world, in which bright, still youngish people are engaged in a glossy version of day labor, doing free-lance, semi-professional work that brings little satisfaction or security but that they know they should be grateful to do.Uncertainty dogs every aspect of their lives.Malcolm faces bankruptcy and an IRS audit, but Nora finds an extra $30,000 in her bank account, suddenly increasing her available funds some fifteenfold.While she is wondering whether to live it up, and do something even more dramatic, say get married, her life is further complicated by the reappearance of an old flame, David, a film critic and actor who always seems to be just on the brink of stardom. In novels of an earlier vintage, David would have represented excitement and danger; Malcolm, placid, middle-class security.The irony in this novel is that neither man represents a "safe" middle-class haven: Nora's decision is between emotional excitement and emotional security, with no firm economic base anywhere.The characters confront a world in which it seems increasingly difficult to find a "middle way" between the extremes of success and failure, wealth and poverty. In making Malcolm and Nora such wonderfully representative specimens of their class and generation, Ms. Zeidner has somewhat neglected the task of making them distinctively individual characters.The humor of the story owes much to the fact that no hearts (even the characters' own) are likely to bleed for the plight of health-food eaters.But readers may well feel the pangs of recognition. In any case, the foundering middle classes aren't the only ones in trouble -- or whose troubles provide material for fiction. "Rascal Money" (Contemporary Books, 412 pages, $17.95), a novel by consultant and business analyst Joseph R. Garber, tells the story of an innovative, well-run, widely respected computer manufacturing company called PegaSys as it faces a hostile takeover attempt by AIW, a much smaller corporation that is so incompetently managed as to constitute a standing joke in the business world. Patrician, dynamic Scott Thatcher, founder and head of PegaSys, initially finds the takeover threat risible.But, as he and his skilled team soon discover, they're up against two factors they hadn't counted on: first, a business climate in which a failing company with few assets and many debts can borrow against the assets of the successful company it hopes to acquire in order to finance the takeover; second, that standing behind AIW is a sinister consortium of much bigger, shadier and shrewder foreign interests secretly providing the money and muscle for the deal. Mr. Garber manages to invest this tale of financial wars with the colorful characters and fast-paced action of a suspense novel.And like a spy or mystery story, this novel has strong elements of allegory, as the good and evil forces battle it out.Mr. Garber depicts these moral qualities with the broad brush strokes of a satire that occasionally descends to the realm of cliched caricatures.Standard-issue portraits of flaky Californians, snobbish homosexuals and Neanderthal union leaders undermine the force of the author's perceptions.Yet the heavy-handedness of the satire also can be effective in a book like this: If the head of AIW were not portrayed as an utterly contemptible, malicious dolt, we would not much care whether his schemes were defeated, and would not be so diverted in the process. Ms. Rubin is a free-lance writer based in Los Angeles.
The collapse of a $6.79 billion buy-out of United Airlines parent UAL Corp. has handed Wall Street's takeover stock speculators their worst loss ever on a single deal. Their $700 million-plus in estimated paper losses easily tops the $400 million in paper losses the takeover traders, known as arbitragers, suffered in 1982 when Gulf Oil Co. dropped a $4.8 billion offer for Cities Service Co. In the six trading days since the UAL labor-management buy-out group failed to get bank financing, culminating Friday with the withdrawal of its partner British Airways PLC, UAL stock has plummeted by 41% to 168 1/2 from 285 1/4. The arbs may recoup some of their paper losses if the UAL deal gets patched up again, as they did in 1982 when Occidental Petroleum Co. rescued them with a $4 billion takeover of Cities Service. In the meantime, the question faced by investors is: What is UAL stock worth? The short answer, on a fundamental basis, is that airline analysts say the stock is worth somewhere between $135 and $150 a share.That's based on a multiple of anywhere between 8.5 to 10 times UAL earnings, which are estimated to come in somewhere around $16 a share this year. Airline stocks typically sell at a discount of about one-third to the stock market's price-earnings ratio -- which is currently about 13 times earnings.That's because airline earnings, like those of auto makers, have been subject to the cyclical ups-and-downs of the economy. That analysis matches up with stock traders' reports that, despite the huge drop in the stock, UAL hasn't returned to the level at which it could attract buying by institutions solely on the basis of earnings. So anyone buying the stock now is betting on some special transaction such as a recapitalization or takeover, and must do so using some guesswork about the likelihood of such an event. One analyst, who asked not to be identified, said he believes that the UAL pilots and management can put together a bid "in the $225 area," but that it could take three to four months to close.At that level, and given the uncertainty, he believes UAL stock should trade closer to Other observers note that UAL's board, having accepted a bid of $300 a share, might hold out for a new bid much closer to the original level -- even if it means that the management goes back to running the company for a while and lets things return to normal.By that logic, the closing of a deal could be much further away than three to four months, even though the eventual price might be higher. Investment bankers following UAL agree that the strongest impetus for an eventual deal is that the pilots have been attempting a buy-out for more than two years, and aren't likely to stop, having come so close to success. The pilots have a strong financing tool in their willingness to cut their annual compensation by $200 million, and to commit $200 million from their retirement funds.On Friday, they also persuaded the UAL flight attendants to join them. However, investment bankers say that banks aren't likely to lend the almost $5 billion that would be necessary for a takeover even at a lower price without someone putting up a hefty wad of cash -- probably even greater than the 17% in cash put up by investors in the leveraged takeover of Northwest Airlines parent NWA Corp. in July. Banks want to see someone putting up real cash at risk, that is, subordinate to the bank debt in any deal.That way, they figure, someone else has an even stronger motivation to make sure the deal is going to work, because they would be losing their money before the banks lost theirs. Banks also want to be able to call someone on the telephone to fix a problem with a deal that goes bad -- preferably someone other than a union leader. That leaves the pilots still in need of cash totaling around $1 billion -- far more than either they or the flight attendants can lay their hands on from retirement funds alone. One obstacle to the pilots' finding such a huge amount of cash is their insistence on majority ownership.Investors such as Marvin Davis of Los Angeles who have sought airline ownership this year have insisted they, not the pilots, must have control. One way out of that dilemma could be a partial recapitalization in which the pilots would wind up sharing the value of their concessions with public shareholders.The pilots could borrow against the value of their concessions, using the proceeds to buy back stock from the public and give themselves the majority control they have been seeking. But it isn't clear that banks would lend sufficient money to deliver a big enough price to shareholders.The lack of any new cash probably would still leave the banks dissatisfied.In advising the UAL board on the various bids for the airline, starting with one for $240 a share from Mr. Davis, the investment bank of First Boston came up with a wide range of potential values for the company, depending on appraisal methods and assumptions. Using the the NWA takeover as a benchmark, First Boston on Sept. 14 estimated that UAL was worth $250 to $344 a share based on UAL's results for the 12 months ending last June 30, but only $235 to $266 based on a management estimate of results for 1989.First Boston's estimates had been higher before management supplied a 1989 projection. Using estimates of the company's future earnings under a variety of scenarios, First Boston estimated UAL's value at $248 to $287 a share if its future labor costs conform to Wall Street projections; $237 to $275 if the company reaches a settlement with pilots similar to one at NWA; $98 to $121 under an adverse labor settlement, and $229 to $270 under a pilot contract imposed by the company following a strike. And using liquidation value assuming the sale of all UAL assets, First Boston estimated the airline is worth $253 to $303 a share. Unfortunately, all those estimates came before airline industry fundamentals deteriorated during the past month.American Airlines parent AMR and USAir Group, both subject to takeover efforts themselves, have each warned of declining results. Some analysts don't expect a quick revival of any takeover by the pilots.The deal has, as one takeover expert puts it, "so many moving parts.I don't see anybody who's sophisticated getting his name associated with this mess until the moving parts stop moving." In addition to the need for another cash equity investor, the other moving parts include: the pilots themselves, who can scuttle rival deals by threatening to strike; the machinists union, the pilots' longtime rivals who helped scuttle the pilots' deal; and regulators in Washington, whose opposition to foreign airline investment helped throw the deal into doubt. In the meantime, the arbs are bleeding.Wall Street traders and analysts estimate that takeover stock traders own UAL stock and options equal to as many as 6.5 million shares, or about 30% of the total outstanding.Frank Gallagher, an analyst with Phoenix Capital Corp. in New York, estimates that the arbs paid an average of about $280 a share for their UAL positions.That would indicate that the arbs have paper losses on UAL alone totalling $725 million. UAL Corp. (NYSE; Symbol: UAL) Business: Airline Year ended Dec. 31, 1988: Sales: $8.98 billion Net income*: $599.9 million; or $20.20 a share Second quarter, June 30, 1989: Per-share earnings: $6.52 vs. $5.77 Average daily trading volume: 881,969 shares Common shares outstanding: 21.6 million *Continuing operations
Convex Computer Corp., continuing its rapid growth while other computer companies falter, reported an 87% increase in third-quarter net income from a year earlier and a 50% increase in revenue. Net was $3.1 million, or 16 cents a share, up from $1.6 million, or nine cents a share.Revenue was $41.2 million, up from $27.5 million. For the nine months, net was $7.7 million, or 41 cents a share, up 97% from $3.9 million, or 22 cents a share, a year earlier.Revenue was $111.9 million, up 50% from $74.8 million. Convex makes supercomputers that sell for up to $2 million and has an installed base of more than 550 systems and 340 customers world-wide.During the third quarter, it said, it won several significant contracts, including a five-year contract with the National Institutes of Health valued at an estimated $8 million. Earlier this month, Convex made a bid to outflank other supercomputer competitors like Digital Equipment Corp. and International Business Machines Corp. by adopting an open set of standards and introducing new hardware and software to link different systems.The new products allow customers to add Convex machines to established systems made by other manufacturers, which "opens up a phenomenal market for us," said Robert J. Paluck, Convex's chairman, president and chief executive. Convex also recently agreed to use Posix, a standard for the computer language called UNIX. Posix is one of three or four versions of UNIX, but it is increasingly required by the federal government as it tries to standardize its computer systems.Most other supercomputer manufacturers have yet to adopt the Posix standard, Mr. Paluck said, adding that they prefer to maintain proprietary systems that lock in customers. "They want a lobster trap -- once you get in, you can't get out," he said. "But the customer doesn't want that." Convex closed in over-the-counter trading on Friday at $15.375 a share, down 12.5 cents.
Troubled Saatchi & Saatchi Co. has attracted offers for some of its advertising units, with potential suitors including Interpublic Group, but has rejected them, people familiar with the company said. Industry executives said Interpublic approached Saatchi in August about buying its Campbell-Mithun-Esty unit, but was turned down by Chairman Maurice Saatchi.More recently, Interpublic inquired about one of Saatchi's smaller communications companies -- identified as the Rowland public relations firm by several industry executives -- but again was rebuffed, they said.Interpublic's chairman and chief executive officer, Philip Geier Jr., made the pitches in visits to Mr. Saatchi in London, the executives said. A Saatchi spokesman declined to comment about Interpublic.But the spokesman confirmed that Saatchi has received several inquiries from companies interested in acquiring its Campbell-Mithun and Rowland units.He added, "We have no intention of selling either business." Interpublic declined comment. The offers come as Saatchi is struggling through the most troubled period in its 19-year history.Takeover speculation has been rife, its consulting business is on the block, and its largest shareholder, Southeastern Asset Management, has said it's been approached by third parties regarding a possible restructuring.Analysts have continually lowered their earnings estimates for the company, and their outlook, at least for the short term, is bleak. In the midst of the current turmoil, Saatchi is attempting to shore up its ad businesses.It named a new chief executive officer, former IMS International head Robert Louis-Dreyfus.It rebuffed an offer by Carl Spielvogel, head of Saatchi's Backer Spielvogel Bates unit, to lead a management buy-out of all or part of Saatchi.And last week, people close to Saatchi said Maurice Saatchi and his brother, Charles, would lead a buy-out if a hostile bid emerged. But Saatchi's troubles have only whipped up interest among outsiders interested in picking off pieces of its ad businesses.While Saatchi's major agency networks -- Backer Spielvogel and Saatchi & Saatchi Advertising -- would be difficult for any ad firm to buy because of potential client conflicts, its smaller businesses are quite attractive. Campbell-Mithun-Esty, for example, has had big problems at its New York office, but offers strong offices in other areas of the country, including Minneapolis and Chicago.That would would make it appealing to a network such as Interpublic that already has a healthy New York presence. (While there would be some client conflicts, they wouldn't be nearly as onerous as with Saatchi's other agencies.) Campbell-Mithun also would be a sizable addition to an agency network: It has billings of about $850 million and blue-chip clients including General Mills, Jeep/Eagle and Dow Brands. Rowland, meanwhile, has expanded aggressively, and now ranks as the fifth-largest U.S. public relations firm, according to O'Dwyer's Directory of Public Relations Firms.It would be attractive to an agency such as Interpublic, one of the few big agency groups without an affiliated public relations firm of its own.Other Saatchi units include ad agency McCaffrey & McCall, which has the Mercedes account and which has been attempting to buy itself back; and Howard Marlboro, a sports and event marketing firm. Despite Saatchi's firm stand against selling its ad units, U.S. analysts believe the company may ultimately sell some of the smaller units.Mr. Louis-Dreyfus, in a recent interview, said he might sell "a marginal agency or office." Analysts believe he may ultimately dispose of some of the non-advertising businesses. Prudential's Final Four Prudential Insurance Co. of America said it selected four agencies to pitch its $60 million to $70 million account. In addition to Backer Spielvogel Bates, a Saatchi unit that has handled the account since 1970, the other agencies include Lowe Marschalk, a unit of the Lowe Group; Grey Advertising; and WPP Group's Scali, McCabe, Sloves agency.All agencies are New York-based. A spokesman for the insurance and financial services firm, based in Newark, N.J., said it hopes to make a decision within three to four months. Jamaica Fires Back The Jamaica Tourist Board, in the wake of Young & Rubicam's indictment on charges that it bribed Jamaican officials to win the account in 1981, released a scathing memo blaming the agency for the embarrassing incident. The memo attempts to remove the tourist board as far as possible from the agency, which pleaded innocent to the charges.Among other things, the memo contends that Young & Rubicam gave false assurances that the investigation wouldn't uncover any information that would "embarrass the government of Jamaica or the Jamaica Tourist Board." It also contends that Young & Rubicam never told the tourist board about its relationship with Ad Ventures, a Jamaican firm hired by the agency.The U.S. indictment charges Ad Ventures was a front used to funnel kickbacks to the then-minister of tourism. The memo also chastises the agency for the timing of its announcement Thursday that it would no longer handle the $5 million to $6 million account.The agency declined comment, but said it will continue work until a new agency is chosen. Ad Notes. . . . NEW ACCOUNT: American Suzuki Motor Corp., Brea, Calif., awarded its estimated $10 million to $30 million account to Asher/Gould, Los Angeles.Also participating in the finals was Los Angeles agency Hakuhodo Advertising America.American Suzuki's previous agency, Keye/Donna/Pearlstein, didn't participate. AYER TALKS: N W Ayer's president and chief executive officer, Jerry J. Siano, said the agency is holding "conversations" about acquiring Zwiren Collins Karo & Trusk, a midsized Chicago agency, but a deal isn't yet close to being completed. WHO'S NEWS: John Wells, 47, former president and chief executive of N W Ayer's Chicago office, was named management director and director of account services at WPP Group's J. Walter Thompson agency in Chicago. . . . Shelly Lazarus, 42, was named president and chief operating officer of Ogilvy & Mather Direct, the direct mail division of WPP Group's Ogilvy & Mather agency.
David Baltimore, who has just been named president of Rockefeller University, already knows what it's like to go through life with "Nobel laureate" appended to one's name.He is currently experiencing what it's like to have the phrase, "under investigation for scientific fraud," also attached to his name.The Nobel committee made the first addition; John Dingell's congressional committee created the second. Both of Dr. Baltimore's public faces have been on view the past few weeks while he was under consideration to succeed Joshua Lederberg as head of the prestigious Rockefeller research institution.It came to light that a substantial number of Rockefeller's faculty were upset over or even opposed to Dr. Baltimore's impending appointment. They were disturbed at what they regarded as Dr. Baltimore's confrontational attitude toward the Dingell committee, which held hearings on a dispute over the lab notebooks of a researcher who had co-authored a scientific paper with Dr. Baltimore.Readers of these columns ("The Science Police," May 15) will recall that Dr. Baltimore was merely the most well-known part of the Dingell committee's larger investigation, which touched MIT, Tufts, Duke, the National Institutes of Health and elsewhere.Rep. Dingell even managed to enlist the services of the Secret Service in his investigation of the Baltimore paper. Insofar as Mr. Dingell has a special interest in NIH and the institutions that receive its funding, the Rockefeller scientists were no doubt discomfited by Dr. Baltimore's unflattering public opinion of this congressional patron, whose behavior reminded Dr. Baltimore of the McCarthy era. This well may be the first time that the venerable Rockefeller University has brushed up publicly against the intimidations now common in American science.John Dingell demagogues a David Baltimore, animal-rights activists do $3.5 million of damage to labs at the U.Cal-Davis, Meryl Streep decries the horrors of chemistry on talk shows, Jeremy Rifkin files lawsuits in federal court to thwart biotech experiments, and Dutch-elm-disease researcher Gary Strobel's own colleagues at Montana State denounce him for "violating" EPA rules. Scientists are mistaken who still think that the anti-science movement in this country isn't their concern or that a David Baltimore could have somehow placated a John Dingell. (Mr.Dingell, by the way, has decreed another NIH investigation of the Baltimore paper, adding to several previous investigations.Something other than what most scientists would recognize as the truth is being sought here.) Fortunately, there are signs that increasing numbers of scientists understand the necessity of speaking out.David Hubel, a Nobel laureate at Harvard, has taken the lead in defending research with animals, as has Dr. Michael DeBakey.NASA defended itself vigorously and successfully against a Rifkin suit to block the Galileo launch. Scientists need to understand that while they tend to believe their work is primarly about establishing new knowledge or doing good, today it is also about power.In a media-linked world, scientists may earn wide praise and even Nobels for their work, but they also attract the attention of people who wish to gain control over the content, funding and goals of that work.When a David Baltimore -- or the next target -- decides it is better to stand up to these forces, his fellow scientists would do well to recognize what is fundamentally at stake, and offer their public support.
Ducks.If the White House spots one, it intends to fire a veto at it. Ducks are this season's word for new taxes, under OMB Director Richard Darman's formulation that "if it looks like a duck, walks like a duck and quacks like a duck, it's a duck." George Bush is quite clear: No new ducks. But what about all those non-duck ducks flapping over Washington?We see a whole flock of programs that will impose significant costs on the American economy in the form of burdensome regulation and higher liabilities.Federal child care (quack).The Clean Air bill (quack).The disabled-workers bill (quack, quack). The Bush White House is breeding non-duck ducks the same way the Nixon White House did: It hops on an issue that is unopposable -- cleaner air, better treatment of the disabled, better child care.It comes up with a toned-down version of a Democratic proposal.The bill gets signed into law and then the administration watches helplessly, wondering where all the "unexpected" costs came from. Consider, for instance, the very fat fowl known as federalized child care.The President came up with a good bill, but now may end up signing the awful bureaucratic creature hatched on Capitol Hill.It would create 38,000 local day-care commissions, answerable to the Department of Health and Human Services.They'd determine where parents could store their kids during the day, and they'd regulate the storage facilities.The initial costs are said to be in the $2 billion a year range, but that's only the beginning.New entitlements tend to grow, creating a rationale for new taxes.Quack. The administration claims that its Clean Air bill will cost businesses between $14 billion and $19 billion annually, but economist Michael Evans estimates that the costs for firms will actually be in the $60 billion a year range. The House bill also distorts economic efficiency in all sorts of perverse ways.For example, the administration proposal imposes extremely tough emissions standards on new power plants.So instead of building more efficient modern plants, utilities stick scrubbers on the old plants.The money spent on scrubbers is diverted from planned research on new, cleaner technology. The bill also imposes the California auto-emissions standards on all cars nationwide, as if a car registered in Big Sky, Montana, needed to be as clean as one driven in Los Angeles.Proponents of the nationwide standards say the cost for car buyers would be about $500 per car.Other analysts say that estimate is low.Quack. Nobody knows how many billions of dollars the Americans With Disabilities Act will cost, because nobody knows what the bill entails.It is an intentionally vague document that will create a wave of litigation.Judges will write the real bill as suits roll through the courts.Lawyers will benefit.Private companies, and ultimately their customers, will end up footing the huge bill. The effect of Nixon era non-duck ducks was an economy clogged up with regulations and distortions.All this was recognized and documented in the succeeding years by economists, some of whom worked in the Reagan administration to lift this burden from the American people, states and local governments. Running for President in 1980 and 1988, George Bush also persuasively diagnosed the economic stagnation of the 1970s.In fact, during last year's campaign, the entire nation constantly heard Mr. Bush tout his accomplishments as head of the Task Force on Regulatory Relief. "Government continues to inhibit the productivity of our citizenry and the international competitiveness of American business," the vice president declared when he was head of the task force. But with the impending passage of these new programs, Mr. Bush will surely be sending many people hurtling back into the regulatory thicket that he had helped cut back.By 1986, the number of federal regulators was down to about 103,000.Then it turned up, and by one estimate the number will be up to about 109,000 regulators by next year. Holding the dam on taxes is the most important task of the Bush presidency.We would have thought by now, though, that there was a significant core of people involved in government life who understood that direct taxation isn't the only way to slow down an economy.It is merely the most obvious.What is even more ironic is that all over the world nations are learning that well-intentioned public programs often backfire.But while they are unloading these burdens, the United States is close to creating three more big ones. The Bush administration ought to be setting aside some of its buckshot for the non-duck ducks.
Confidence in the pound is widely expected to take another sharp dive if trade figures for September, due for release tomorrow, fail to show a substantial improvement from July and August's near-record deficits. Chancellor of the Exchequer Nigel Lawson's restated commitment to a firm monetary policy has helped to prevent a freefall in sterling over the past week.But analysts reckon underlying support for sterling has been eroded by the chancellor's failure to announce any new policy measures in his Mansion House speech last Thursday. This has increased the risk of the government being forced to increase base rates to 16% from their current 15% level to defend the pound, economists and foreign exchange market analysts say. "The risks for sterling of a bad trade figure are very heavily on the down side," said Chris Dillow, senior U.K. economist at Nomura Research Institute. "If there is another bad trade number, there could be an awful lot of pressure," noted Simon Briscoe, U.K. economist for Midland Montagu, a unit of Midland Bank PLC. Forecasts for the trade figures range widely, but few economists expect the data to show a very marked improvement from the #2 billion ($3.2 billion) deficit in the current account reported for August.The August deficit and the #2.2 billion gap registered in July are topped only by the #2.3 billion deficit of October 1988. Sanjay Joshi, European economist at Baring Brothers & Co., said there is no sign that Britain's manufacturing industry is transforming itself to boost exports.At the same time, he remains fairly pessimistic about the outlook for imports, given continued high consumer and capital goods inflows.He reckons the current account deficit will narrow to only #1.8 billion in September.However, Mr. Dillow said he believes that a reduction in raw material stockbuilding by industry could lead to a sharp drop in imports.Combined with at least some rebound in exports after August's unexpected decline, the deficit could narrow to as little as #1.3 billion. Mr. Briscoe, who also forecasts a #1.3 billion current account gap, warns that even if the trade figures are bullish for sterling, the currency won't advance much because investors will want to see further evidence of the turnaround before adjusting positions. Nevertheless, he noted, "No one will want to go into the trade figures without a flat position" in the pound. Meanwhile, overall evidence on the economy remains fairly clouded.In his Mansion House speech, Mr. Lawson warned that a further slowdown can be expected as the impact of the last rise in interest rates earlier this month takes effect.U.K. base rates are at their highest level in eight years. But consumer expenditure data released Friday don't suggest that the U.K. economy is slowing that quickly.The figures show that spending rose 0.1% in the third quarter from the second quarter and was up 3.8% from a year ago.This compares with a 1.6% rise in the second from the first quarter and a 5.4% increase from the second quarter of 1988. Mr. Dillow said the data show the economy "is still quite strong," but suggestions that much of the spending went on services rather than consumer goods should reduce fears of more import rises. Certainly, the chancellor has made it clear that he is prepared to increase interest rates again if necessary to both ensure that a substantial slowdown does take place and that sterling doesn't decline further.Thursday, he reminded his audience that the government "cannot allow the necessary rigor of monetary policy to be undermined by exchange rate weakness." Analysts agree there is little holding sterling firm at the moment other than Mr. Lawson's promise that rates will be pushed higher if necessary.And, they warn, any further drop in the government's popularity could swiftly make this promise sound hollow. Sterling was already showing some signs of a lack of confidence in Mr. Lawson's promise Friday.In European trading it declined to $1.5890 and 2.9495 marks from $1.5940 and 2.9429 marks late Thursday. Economists suggested that if the pound falls much below 2.90 marks, the government will be forced to increase rates to 16%, both to halt any further decline and ensure that the balance of monetary policy remains unchanged. Friday's Market Activity The dollar posted gains in quiet trading as concerns about equities abated. Foreign exchange dealers said that the currency market has begun to distance itself from the volatile stock exchange, which has preoccupied the market since Oct. 13, when the Dow Jones Industrial Average plunged more than 190 points. Currency analysts predict that in the coming week the foreign exchange market will shift its focus back to economic fundamentals, keeping a close eye out for any signs of monetary easing by U.S. Federal Reserve. Late in the New York trading day, the dollar was quoted at 1.8578 marks, up from 1.8470 marks late Thursday in New York.The U.S. currency was also changing hands at 142.43 yen, up from 141.70 yen in New York late Thursday. In Tokyo on Monday, the U.S. currency opened for trading at 141.95 yen, up from Friday's Tokyo close of 141.35 yen. On the Commodity Exchange in New York, gold for current delivery settled at $367.30 an ounce, up 20 cents.Estimated volume was a light 2.4 million ounces. In early trading in Hong Kong Monday, gold was quoted at $366.50 an ounce.
Bob Stone stewed over a letter from his manager putting him on probation for insubordination.Mr. Stone thought the discipline was unfair; he believed that his manager wanted to get rid of him for personal reasons.Unable to persuade the manager to change his decision, he went to a "company court" for a hearing. At the scheduled time, Mr. Stone entered a conference room in a building near where he worked.After the three members of the court introduced themselves, the chairman of the panel said: "Go ahead and tell us what happened.We may ask questions as you go along, or we may wait until the end." No lawyers or tape recorders were present.The only extra people were a couple of personnel specialists, one of whom knew Mr. Stone's case intimately and would help fill in any facts needed to give the court the full picture. Over a cup of coffee, Mr. Stone told his story.He talked about 20 minutes.When he was through, the court members asked many questions, then the chairman said they would like to hear his manager's side and talk to witnesses.The chairman promised Mr. Stone a decision within two weeks. Bob Stone is a fictional name, but the incident described is real.It happened at Northrop Corp. in Los Angeles.The court is called the Management Appeals Committee, or just "MAC," and it is likely to hear a couple of dozen cases a year. Alter some details of this example and it could be taking place today at Federal Express in Memphis, the Defense and Underseas Systems divisions of Honeywell in Minneapolis, a General Electric plant in Columbia, Md., or a number of other companies.These firms are pioneers in a significant new trend in the corporate world: the rise of what I call corporate due process.Although corporate due process is practiced today in few companies -- perhaps 40 to 60 -- it is one of the fastest developing trends in industry.In the coming decade a majority of people-oriented companies are likely to adopt it. Corporate due process appeals to management for a variety of reasons.It reduces lawsuits from disgruntled employees and ex-employees, with all that means for reduced legal costs and better public relations.It helps to keep out unions.It increases employee commitment to the company, with all that means for efficiency and quality control.What must your management team do to establish corporate due process?Here are four key steps: 1.Make sure you have a strong personnel department.It must be able to handle most of the complaints that cannot be solved in the trenches by managers and their subordinates, else the company court or adjudicators will be inundated with cases.At Polaroid, the Personnel Policy Planning Committee may hear only about 20 cases a year; the rest of the many hundreds of complaints are resolved at earlier stages.At TWA, the System Board of Adjustment hears 50 to 75 cases a year, only a fraction of the complaints brought to personnel specialists.At Citicorp, the Problem Review Board may hear only 12 or so cases because of personnel's skill in complaint-resolution. In a typical year, up to 20% of the work force goes to personnel specialists with complaints of unfair treatment.In a large company that means many hundreds of complaints for personnel to handle. 2.Formally or informally, train all your managers and supervisors in the company's due-process approach.See that they know company personnel policy backwards and forwards, for it is the "law" governing company courts and adjudicators.Coach them in handling complaints so that they can resolve problems immediately.In case managers and personnel specialists are unsuccessful and subordinates take their complaints to a company court or adjudicator, teach managers to accept reversals as a fact of business life, for in a good due-process system they are bound to happen.In the 15 companies I studied, reversal rates range on the average from 20% to 40%. 3.Decide whether you want a panel system or a single adjudicator.A panel system like that in the Bob Stone example enjoys such advantages as high credibility and, for the panelists, mutual support.An adjudicator system -- that is, an investigator who acts first as a fact-finder and then switches hats and arbitrates the facts -- has such advantages as speed, flexibility and maximum privacy.International Business Machines and Bank of America are among the companies using the single-adjudicator approach. 4.Make your due-process system visible.It won't do any good for anybody unless employees know about it.Most managements hesitate to go all out in advertising their due-process systems for fear of encouraging cranks and chronic soreheads to file complaints.On the other hand, they make sure at a minimum that their systems are described in their employee handbooks and talked up by personnel specialists.Smith-Kline Beecham goes further and sometimes features its grievance procedure in closed-circuit TV programs. Naturally, one of the best ways to guarantee visibility for your due-process system is for top management to support it.At IBM, the company's Open Door system is sometimes the subject of memorandums from the chief executive.Federal Express goes further in this respect than any company I know of with both Frederick Smith and James Barksdale, chief executive and chief operating officer, respectively, sitting in on the Appeals Board almost every Tuesday to decide cases. Mr. Ewing is a consultant based in Winchester, Mass., and author of "Justice on the Job: Resolving Grievances in the Nonunion Workplace" (Harvard Business School Press, 1989).
Tokyo stocks closed higher in active trading Friday, marking the fourth consecutive daily gain since Monday's sharp fall. London shares closed moderately lower in thin trading. At Tokyo, the Nikkei index of 225 selected issues was up 112.16 points to 35486.38.The index advanced 266.66 points Thursday. In early trading in Tokyo Monday, the Nikkei index rose 101.98 points to 35588.36. Friday's volume on the First Section was estimated at one billion shares, up from 862 million Thursday. Winners outpaced losers, 572 to 368, while 181 issues remained unchanged. With investors relieved at the overnight gain in New York stocks, small-lot buying orders streamed into the market from early morning, making traders believe the market was back to normal. The Nikkei, which reached as high as 35611.38 right after the opening, surrendered part of its early advance toward the end of the day because of profit-taking. "Investors, especially dealers, don't want to hold a position over the weekend," a trader at Dai-ichi Securities said, adding, though, that the trading mood remained positive through the afternoon session. The Tokyo Stock Price Index (Topix) of all issues listed in the First Section, which gained 22.78 points Thursday, was up 14.06 points, or 0.53%, at 2679.72. The Second Section index, which rose 15.72 points Thursday, was up 11.88 points, or 0.32%, to close at 3717.46.Volume in the second section was estimated at 30 million shares, up from 28 million Thursday. In turmoil caused by the previous Friday's plunge in New York stocks, the Nikkei marked a sharp 647.33-point fall Monday.But the Nikkei fell an overall 1.8% in value that day compared with Wall Street's far sharper 6.9% drop on Oct. 13.The Tokyo market's resiliency helped participants to regain confidence gradually as they spent more time on analyzing factors that caused the Friday plunge and realized these problems were unique to New York stocks and not directly related to Tokyo.The Nikkei continued to gain for the rest of the week, adding 1017.69 points in four days -- more than erasing Monday's losses. But further major advances on the Nikkei aren't foreseen this week by market observers.Investors are still waiting to see how the U.S. government will decide on interest rates and how the dollar will be stabilized. Some high-priced issues made a comeback Friday. Pioneer surged 450 yen ($3.16) to 6,050 yen ($42.60).Kyocera advanced 80 yen to 5,440.Fanuc gained 100 to 7,580. Breweries attracted investors because of their land property holdings that could figure in development or other plans, traders said. Sapporo gained 80 to 1,920 and Kirin added 60 to 2,070. Housings, constructions and pharmaceuticals continued to be bought following Thursday's gains because of strong earnings outlooks. Daiwa House gained 50 to 2,660.Misawa Homes was up 20 at 2,960. Kajima advanced 40 to 2,120 and Ohbayashi added 50 to 1,730. Fujisawa added 80 to 2,010 and Mochida advanced 230 to 4,400. London share prices were influenced largely by declines on Wall Street and weakness in the British pound. The key Financial Times-Stock Exchange 100-share index ended 10.2 points lower at 2179.1, above its intraday low of 2176.9, but off the day's high of 2189.The index finished 2.4% under its close of 2233.9 the previous Friday, although it recouped some of the sharp losses staged early last week on the back of Wall Street's fall. London was weak throughout Friday's trading, however, on what dealers attributed to generally thin interest ahead of the weekend and this week's potentially important U.K. trade figures for September.The FT-SE 100 largely remained within an 11-point range establshed within the first hour of trading before it eased to an intraday low late in the session when a flurry of program selling pushed Wall Street lower. The FT 30-share index closed 11.0 points lower at 1761.0.Volume was extremely thin at 351.3 million shares, the lightest volume of the week and modestly under Thursday's 387.4 million shares. Dealers said the day's action was featureless outside some response to sterling's early weakness against the mark, and fears that Wall Street might open lower after its strong leap forward Thursday. They added that market-makers were largely sidelined after aggressively supporting the market Thursday in their quest to cover internal shortages of FT-SE 100 shares.Interest may remain limited into tomorrow's U.K. trade figures, which the market will be watching closely to see if there is any improvement after disappointing numbers in the previous two months.The key corporate news of the day was that British Airways decided to withdraw from a management-led bid for UAL Corp., the parent of United Airlines. British Airways rose initially after announcing its withdrawal from the UAL deal.Dealers said they viewed the initial #390-million ($622 million) outlay for a 15% stake in the airline as a bit much.Its shares slid in late dealings to close a penny per share lower at 197 pence. The airline was the most active FT-SE 100 at 8.2 million shares traded. The next most active top-tier stock was B.A.T Industries, the target of Sir James Goldsmith's #13.4 billion bid.The company gained shareholder approval Thursday to restructure in a bid to fend off the hostile takeover.Sir James said Thursday night that his plans for the takeover hadn't changed. B.A.T ended the day at 778, down 5, on turnover of 7.5 million shares.Dealers said it was hit by some profit-taking after gains since mid-week. In other active shares, Trusthouse Forte shed 10 to 294 on volume of 6.4 million shares after a Barclays De Zoete Wedd downgrading, while Hillsdown Holdings, a food products concern, was boosted 2 to 271 after it disclosed it would seek shareholder approval to begin share repurchases. Elsewhere in Europe, share prices closed higher in Stockholm, Brussels and Milan.Prices were lower in Frankfurt, Zurich, Paris and Amsterdam.South African gold stocks closed moderately lower. Share prices closed higher in Sydney, Taipei, Wellington, Manila, Hong Kong and Singapore and were lower in Seoul. Here are price trends on the world's major stock markets, as calculated by Morgan Stanley Capital International Perspective, Geneva.To make them directly comparable, each index is based on the close of 1969 equaling 100.The percentage change is since year-end.
East Rock Partners Limited Partnership said it proposed to acquire A.P. Green Industries Inc. for $40 a share. In an Oct. 19 letter to A.P. Green's board, East Rock said the offer is subject to the signing of a merger agreement by no later than Oct. 31. The letter, attached to a filing with the Securities and Exchange Commission, said the approval is also contingent upon obtaining satisfactory financing. An A.P. Green official declined to comment on the filing.The $40-a-share proposal values the company at about $106.6 million.A.P. Green currently has 2,664,098 shares outstanding.Its stock closed at $38, up $1.875, in national over-the-counter trading.The company is a Mexico, Mo., maker of refractory products. East Rock also said in the filing that it boosted its stake in A.P. Green to 8.7%.It now holds 233,000 A.P. Green common shares, including 30,000 shares bought last Thursday for $35.50 to $36.50 a share. New York-based John Kuhns and Robert MacDonald control East Rock Partners Inc., the sole general partner of East Rock Partners L.P.The sole limited partner of the partnership is Westwood Brick Lime Inc., an indirect subsidiary of Westwood Group Inc.Both Westwood Brick and Westwood Group are based in Boston.
The U.S. is required to notify foreign dictators if it knows of coup plans likely to endanger their lives, government officials said. The notification policy was part of a set of guidelines on handling coups outlined in a secret 1988 exchange of letters between the Reagan administration and the Senate Intelligence Committee. The existence of the guidelines has become known since President Bush disclosed them privately to seven Republican senators at a White House meeting last Monday.Officials familiar with the meeting said Mr. Bush cited the policy as an example of the sort of congressional requirements the administration contends contribute to the failure of such covert actions as this month's futile effort to oust Panamanian dictator Manuel Noriega. According to the officials, Mr. Bush even read to the senators selections from a highly classified letter from the committee to the White House discussing the guidelines.They said the president conceded the notification requirement didn't affect his decision to lend only minor support to this month's Panama coup effort.No notification was ever considered, officials said, apparently because the U.S. didn't think the coup plotters intended to kill Mr. Noriega, but merely sought to imprison him. What's more, both administration and congressional officials hint that the notification requirement is likely to be dropped from the guidelines on coup attempts that are being rewritten by the panel and the White House.The rewriting was launched at a meeting between Mr. Bush and intelligence committee leaders Oct. 12, a few days before the meeting at which the president complained about the rules. However, the disclosure of the guidelines, first reported last night by NBC News, is already being interpreted on Capitol Hill as an unfair effort to pressure Congress.It has reopened the bitter wrangling between the White House and Congress over who is responsible for the failure to oust Mr. Noriega and, more broadly, for difficulties in carrying out covert activities abroad. A statement issued by the office of the committee chairman, Sen. David Boren (D., Okla.), charged that the disclosure is part of a continuing effort to shift the criticism for the failure of the recent coup attempt in Panama.The statement added, "Someone has regrettably chosen to selectively summarize portions of highly classified correspondence between the two branches of government.Not only does this come close to a violation of law, it violates the trust we have all worked to develop." Sen. Boren said, "It's time to stop bickering and work together to develop a clear and appropriate policy to help the country in the future.I've invited the president to send his suggestions to the committee." Republican Sen. William Cohen of Maine, the panel's vice chairman, said of the disclosure that "a text torn out of context is a pretext, and it is unfair for those in the White House who are leaking to present the evidence in a selective fashion." Sen. Boren said the committee couldn't defend itself by making the documents public because that would violate classification rules. But the chairman and other committee members stressed that the notification guideline wasn't imposed on the White House by a meddling Congress.Instead, both congressional and administration officials agreed, it grew out of talks about coup-planning in Panama that were initiated by the administration in July 1988 and stretched into last October. The guideline wasn't a law, but a joint interpretation of how the U.S. might operate during foreign coups in light of the longstanding presidential order banning a U.S. role in assassinations.In fact, yesterday the administration and Congress were still differing on what had been agreed to.One administration official said notification was required even if the U.S. "gets wind" of somebody else's coup plans that seem likely to endanger a dictator's life.But a congressional source close to the panel said the rule only covered coup plans directly involving the U.S. Although the notification guideline wasn't carried out in this month's coup attempt, some administration officials argue that it may have led to hesitation and uncertainty on the part of U.S. intelligence and military operatives in Panama.One senior administration official called the guideline "outrageous" and said it could make U.S. operatives reluctant to even listen to coup plans for fear they may get into legal trouble. The issue came to a head last year, officials recalled, partly because the Reagan administration had sought unsuccessfully to win committee approval of funding for new Panama coup efforts.In addition, both administration and congressional officials said the need for guidelines on coups and assassinations was partly spurred by a White House desire to avoid nasty overseas surprises during the election campaign. Though the assassination ban is a White House order that Congress never voted on, the intelligence committees can exercise influence over its interpretation.Last week, Central Intelligence Agency Director William Webster publicly called on Congress to provide new interpretations of the assassination order that would permit the U.S. more freedom to act in coups. The administration has reacted to criticism that it mishandled the latest coup attempt by seeking to blame Congress for restrictions the White House said have hampered its freedom of action.However, last week Mr. Webster's two top CIA deputies said congressional curbs hadn't hampered the spy agency's role in the coup attempt in Panama. Nevertheless, the administration's criticisms appeared to have made some headway with Sens.Boren and Cohen after their Oct. 12 meeting with the president.The three men agreed to rewrite the guidelines, without changing the basic assassination ban, to clear up any ambiguities that may have hampered U.S. encouragement of coups against anti-American leaders. The new argument over the notification guideline, however, could sour any atmosphere of cooperation that existed. Gerald F. Seib contributed to this article.
Freight rates, declining for most of the decade because of competition spurred by deregulation, are bottoming out, turning upward and threatening to fuel inflation. Trucking, shipping and air-freight companies have announced rate increases, scheduled for this fall or early next year, reflecting higher costs and tightened demand for freight transport.Major shippers say they expect freight rates to rise at least as fast as inflation and maybe faster in the next few years.That's a big change from recent years when freight haulage was a bright spot for U.S. productivity, helping to restrain inflation and make U.S. industry more competitive abroad. "Demand has caught up with the supply of certain types of freight transportation, and rates are starting to move up" at a rate "close to or slightly more than the inflation rate," said Clifford Sayre, director of logistics at Du Pont Co. Shippers surveyed recently by Ohio State University said they expect their freight-transport, storage and distribution costs to rise about 4% this year.Only 10% of the 250 shippers polled expected their freight-transport costs to decrease, compared with 30% who had looked to freight transport to reduce costs in past years. "This is the first year since transportation deregulation in 1980 that we have had such a dramatic and broad-based upturn in perceived transportation rates," said Bernard LaLonde, a transportation logistics professor at Ohio State in Columbus. The deregulation of railroads and trucking companies that began in 1980 enabled shippers to bargain for transportation.Carriers could use their equipment more efficiently, leading to overcapacity they were eager to fill.Shippers cut about $35 billion from their annual, inter-city truck and rail costs, to about $150 billion, or about 6.4% of gross national product, down from 8% of GNP in 1981.But with much of the inefficiency squeezed out of the freight-transport system, rising costs are likely to be reflected directly in higher freight rates. "Shippers are saying `the party's over, '" said Mr. LaLonde. "Shippers won't be able to look for transportation-cost savings as they have for the last eight or nine years.Transport rates won't be an opportunity for offsetting cost increases in other segments of the economy." Robert Delaney, a consultant at Arthur D. Little Inc., Cambridge, Mass., said "We've gotten all the benefits of deregulation in freight-cost reductions.Now we are starting to see real freight-rate increases as carriers replace equipment, pay higher fuel costs and pay more for labor.You'll see carriers try to recoup some of the price cutting that occurred previously." Not everyone believes that the good times are over for shippers. "There's still a lot of pressure on rates in both rail and truck," said Gerard McCullough, lecturer in transportation at Massachusetts Institute of Technology.Less-than-truckload companies, which carry the freight of several shippers in each truck trailer, discounted away a 4.7% rate increase implemented last April.The carriers were competing fiercely for market share.Railroad-rate increases are likely to be restrained by weakening rail-traffic levels and keen competition for freight from trucks. An official at Consolidated Freightways Inc., a Menlo Park, Calif., less-than-truckload carrier, said rate discounting in that industry has begun to "stabilize." Consolidated Freightways plans to raise its rates 5.3% late this year or early next year, and at least two competitors have announced similar increases. Truckers are "trying to send signals that they need to stop the bloodletting, forget about market share and go for higher rates," said Michael Lloyd, an analyst at Salomon Bros.And "shippers are getting the feeling that they have played one trucker off against another as much as they can," he said. Air-freight carriers raised their rates for U.S. products going across the Pacific to Asia by about 20% earlier this month.And Japan Air Lines said it plans to boost its rates a further 25% over the next two years. Such rate increases "will increase the total cost of U.S. products and slow down the rate of increase of U.S. exports," said Richard Connors, a senior vice president of Yusen Air & Sea Service U.S.A. Inc., the U.S. air-freight-forwarding subsidiary of Nippon Yusen Kaisha of Japan. Ship companies carrying bulk commodities, such as oil, grain, coal and iron ore, have been able to increase their rates in the last couple of years.Some bulk shipping rates have increased "3% to 4% in the past few months," said Salomon's Mr. Lloyd. And ship lines carrying containers are also trying to raise their rates.Carriers boosted rates more than 10% in the North Atlantic between the U.S. and Europe last September, hoping to partly restore rates to earlier levels.Ship lines operating in the Pacific plan to raise rates on containers carrying U.S. exports to Asia about 10%, effective next April.
The government issues its first reading on third-quarter real gross national product this week in a report that is expected to disclose much tamer inflation. The consensus view on real GNP, the total value of the nation's output of goods and services adjusted for inflation, calls for a 2.3% gain, down from the second quarter's 2.5%, according to MMS International, a unit of McGraw-Hill Inc., New York.But inflation, as measured by the GNP deflator in Thursday's report, is expected to rise only 3.5%, down from 4.6% in the second quarter. "Inflation could be a real surprise," said Samuel D. Kahan, chief financial economist at Kleinwort Benson Government Securities Inc., in Chicago. "If that gets people excited, it could serve as an impetus to the fixed-income markets to lower their rates," he added. The week's other notable indicators include mid-October auto sales, September durable goods orders as well as September personal income, personal consumption and the saving rate.Most are expected to fall below previous-month levels. Many economists see even slower GNP growth for the remainder of the year, with some leaning more strongly toward a possible recession.In addition to softer production data, weaker housing starts and lower corporate profits currently in evidence, some analysts believe the two recent natural disasters -- Hurricane Hugo and the San Francisco earthquake -- will carry economic ramifications in the fourth quarter. The recent one-day, 190-point drop in the Dow Jones Industrial Average seems to be significant to economists mainly for its tacit comment on the poor quality of third-quarter profits now being reported. "The stock market is sick because profits are crumbling," says Michael K. Evans, president of Evans Economics Inc., Washington.The economy, he noted, moves the market, not vice versa.On the other hand, Mr. Evans expects the hurricane and the earthquake "to take a hunk out of fourth-quarter GNP." His estimate of 3.3% for third-quarter GNP is higher than the consensus largely because he believes current inventories aren't as low as official figures indicate.Demand, he believes, is being met from overhang rather than new production. By and large, economists believe the two natural catastrophes will limit economic damage to their regions.Edward J. Campbell, economist at Brown Brothers Harriman & Co., New York, noted that large increases in construction activity along with government and private relief efforts could offset loss of production in those areas. Gary Ciminero, economist at Fleet/Norstar Financial Group, Providence, R.I., expects the deflator to rise 3.7%, well below the second quarter's 4.6%, partly because of what he believes will be temporarily better price behavior.He expects real GNP growth of only 2.1% for the quarter, noting a wider trade deficit, slower capital and government spending and the lower inventory figures. Sung Won Sohn, chief economist at Norwest Corp., Minneapolis, holds that the recent stock-market volatility "increases the possibility of economic recession and reinforces the bad news" from recent trade deficit, employment and housing reports. The consensus calls for a 0.5% increase in September personal income and a 0.3% gain in consumption.In August, personal income rose 0.4% and personal consumption increased 0.9%. Charles Lieberman, managing director of financial markets reasearch at Manufacturers Hanover Securities Corp., New York, said Hurrican Hugo shaved 0.1% to 0.2% from personal-income growth, because of greatly diminished rental income from tourism. Durable goods orders for September, due out tomorrow, are expected to show a slip of 1%, compared with August's 3.9% increase.As usual, estimates on the fickle report are wide, running from a drop of 3.5% to a gain of 1.6%.
Apple Computer Inc. posted improved fiscal fourth-quarter profit due largely to a $48 million gain on the sale of its stock in Adobe Systems Inc. Excluding the gain, the company registered a modest 4.6% increase for the quarter ended Sept. 29 to $113 million, or 87 cents a share, from the year-earlier $107.9 million, or 84 cents a share.Proceeds of the Adobe sale brought net income in the quarter to $161.1 million, or $1.24 a share. Apple shares fell 75 cents in over-the-counter trading to close at $48 a share. Fiscal fourth-quarter sales grew about 18% to $1.38 billion from $1.17 billion a year earlier. Without the Adobe gain, Apple's full-year operating profit edged up 1.5% to $406 million, or $3.16 a share, from $400.3 million, or $3.08 a share.Including the Adobe gain, full-year net was $454 million, or $3.53 a share. Sales for the year rose nearly 30% to $5.28 billion from $4.07 billion a year earlier.John Sculley, chairman and chief executive officer, credited the Macintosh SE/30 and IIcx computers, introduced in the winter, for the brightened sales performance. Mr. Sculley also indicated that sagging margins, which dogged the company through most of 1989, began to turn up in the fourth quarter as chip prices eased. "Adverse pressure on gross margins . . . has subsided," Mr. Sculley said.Margins in the fiscal fourth quarter perked up, rising to 51% from 49.2% a year earlier.For all of fiscal 1989, however, the average gross margin was 49%, below the average 1988 gross margin of 51%. Lower component costs -- especially for DRAMs, or dynamic random access memory chips -- were cited for the easing of margin pressure on the company, a spokeswoman said. Looking ahead to 1990, Mr. Sculley predicted "another year of significant revenue growth," along with improved profitability, as the recovery in gross margins continues into 1990.
"Please submit your offers," says Felipe Bince Jr. He surveys the prospective investors gathered in the board room of the Philippine government's Asset Privatization Trust for the sale of a 36% interest in the country's largest paper mill.The agency expects the bids to be equivalent of more than $80 million. Not a peso is offered. Mr. Bince, the trust's associate executive trustee, declares the bidding a failure. "It's getting harder to sell," he mutters as he leaves the room. Indeed.Recently, the trust failed to auction off the paper mill, a bank, an office building and a small cotton-ginning plant.Of the four, only the bank and the plant drew bids -- one apiece. In October 1987, President Corazon Aquino vowed that her government would "get out of business" by selling all or part of the state's holdings in the many companies taken over by the government during the 20-year rule of Ferdinand Marcos.Two years later, Mrs. Aquino's promise remains largely unfulfilled. October is a critical month for the privatization program.Manila is offering several major assets for the first time and is trying to conclude sales already arranged.In addition, the government is scheduled to unveil plans for privatizing Philippine Airlines, the national carrier, an effort that lawyer and business columnist Rodolfo Romero calls "the bellwether of privatization." All told, there are assets on the line valued at up to $1.03 billion. The privatization program is designed to rid the government of hundreds of assets and to raise critically needed funds.Much of the money from the sales is earmarked for a multibillion-dollar agrarian-reform program.But efforts have been thwarted by official indifference, bureaucratic resistance, a legal system that operates at a snail's pace, political opposition and government misjudgments.Most recently, a lack of buyers has been added to the list. Rather than gathering momentum, the program is in danger of slowing even more as the government tackles several big assets.The axiom appears to be that the more valuable the asset, the harder the privatization process. "You just don't see a whole lot happening," says an international economist. To be sure, the program hasn't completely stalled.The Asset Privatization Trust, the agency chiefly responsible for selling government-held properties, has recorded sales of more than $500 million since it began functioning in December 1986.But its success has been largely in the sale of small, nonperforming companies, which are valued for their assets. Dealing with the sales this month could be particularly challenging because almost every problem that has hobbled the program in the past is popping up again.Ramon Garcia, the Asset Trust's executive trustee, admits to what he calls "temporary setbacks." In light of the poor results recently, he says, the agency is adopting an "attitude of flexibility." October's troubles began when the trust failed to sell a state-owned commercial bank, Associated Bank, for the minimum price of 671 million pesos ($31 million).At the end of the month, the agency again will offer the bank.But instead of a minimum price, only a target price will be established. Bankers say, however, that the government may have difficulty selling the institution even without a floor price.The bank has a negative net worth, they say. In addition, special bidding rules give the bank's former owner, Leonardo Ty, the right to match the highest bid.Mr. Ty lost control to the government in 1980 when a government bank made emergency loans to the cash-strapped institution.In 1983, the loans were converted into equity, giving Manila 98% of the bank, but with the understanding that Mr. Ty had repurchase rights.His ability to match any bid has scared off many potential buyers. Separately, the government will try again within a month to sell the 36% stake in Paper Industries Corp. of the Philippines, or Picop, as the paper mill is known.The price will depend on how much Picop shares fetch on the local stock market. But according to bankers and stock analysts who have studied the paper mill, price isn't the only consideration.As it stands now, the government would continue to hold 45% of Picop after the 36% stake is sold. (About 7.5% of Picop is publicly traded and other shareholders own the rest of the equity.) Potential buyers, mostly foreign companies, are reluctant to take a non-controlling stake in a company that, by the government's own reckoning, needs some $100 million in new capital for rehabilitation. The prospect of buying into a cash-hungry company without getting management control persuaded at least three foreign buyers, including a member of the Elders group of Australia, to pull out of the bidding, the bankers and analysts say. Mr. Garcia acknowledges the problem and says the Asset Trust will study why the bidding failed and what changes the agency may be able to offer.Under government regulations, however, foreign ownership of Picop's equity is limited to 40%. Even though the government would retain the 45% stake in Picop, critics have accused the trust of selling out to foreigners.A series of newspaper articles accused the trust of short-changing the government over the Picop sale.Mr. Garcia says he has been notified of congressional hearings on the Picop bidding and possible legislation covering the paper mill's sale, both prompted by the criticism of the agency. The question of control could further hinder long-delayed plans for the government to divest itself of Philippine Airlines, in which it has a 99% stake.The carrier has valuable trans-Pacific and Asian routes but it remains debt-laden and poorly managed.
Eagle Financial Corp. and Webster Financial Corp., two Connecticut savings bank-holding companies, agreed to merge in a tax-free stock transaction. The new holding company, Webster/Eagle Bancorp Inc., will have about $1.2 billion of assets and 19 banking offices in Connecticut.Tangible capital will be about $115 million.The merger is subject to regulatory clearance and a definitive agreement. In the merger, each share of Webster, based in Waterbury, will be converted into one share of the new company.Each share of Eagle, based in Bristol, will become 0.95 share of Webster/Eagle. In American Stock Exchange composite trading Friday, Eagle shares rose 12.5 cents to $11.In national over-the-counter trading, Webster shares fell 25 cents to $12.375. Webster has 3.5 million shares outstanding and Eagle 2.6 million.Their indicated market values thus are about $43.3 million and $28.6 million, respectively. Frank J. Pascale, chairman of Eagle, will be chairman of the new firm and James C. Smith, president and chief executive officer of Webster, will take those posts at Webster/Eagle. Harold W. Smith Sr., chairman of Webster, will become chairman emeritus and a director of the new company.Ralph T. Linsley, vice chairman of Eagle, will become vice chairman of Webster/Eagle.The board will be made up of seven directors of each holding company. In an interview, James Smith said the banks' "markets are contiguous and their business philosophies are similar and conservative." Nonperforming loans will make up only about 0.5% of the combined banks' total loans outstanding, he said. At June 30, Webster, which owns First Federal Savings & Loan Association of Waterbury, had assets of $699 million.Eagle, which controls Bristol Federal Savings Bank and First Federal Savings & Loan Association of Torrington, had assets of $469.6 million on that date.
Guillermo Ortiz's Sept. 15 Americas column, "Mexico's Been Bitten by the Privatization Bug," is a refreshingly clear statement of his government's commitment to privatization, and must be welcomed as such by all Americans who wish his country well.The Mexico-United States Institute is glad to see such a high official as Mexico's undersecretary of finance view his country's reforms "in the context of a larger, world-wide process" of profound change toward free-market economics, especially in the statist countries. Having said that, we must caution against an apparent tendency to overstate the case.It is not quite true, for example, that the Mexican government has "privatized" Mexicana de Aviacion, as Mr. Ortiz claims.In the same sentence he contradicts himself when he reports that the government still retains 40% of the total equity of the airline.How can a company be considered "privatized" if the state is so heavily represented in it? (True, the Mexican government has granted "control" over the airline to a new private consortium, but its propensity to take back what it gives is too well known to permit one to be sanguine.) Regrettably, too, Mr. Ortiz resorts to the familiar "numbers game" when he boasts that "fewer than 392 {state enterprises} currently remain in the public sector," down from the "1,155 public entities that existed in 1982." But the enterprises still in state hands include the biggest and most economically powerful ones in Mexico; indeed, they virtually constitute the economic infrastructure.I refer essentially to petroleum, electric power, banking and newsprint. Those enterprises, however, are not going to be privatized.They are officially considered "strategic," and their privatization is prohibited by the Mexican Constitution.In language that sidesteps the issue, Mr. Ortiz writes, "The divestiture of nonpriority and nonstrategic public enterprises is an essential element of President Carlos Salinas's plan to modernize Mexico's economy. . . ." Yet clearly, modernization must embrace its key industries before it can be said to have caught the "privatization bug." The bottom line, however, is not economic but political reform.A long succession of Mexican presidents arbitrarily nationalized whatever industry they took a fancy to, without having to answer to the public.To guarantee that Mexicana de Aviacion and other companies will really be privatized, Mexico needs a pluri-party political system that will ensure democracy and hence accountability. Daniel James President Mexico-United States Institute Washington
A labor-management group is preparing a revised buy-out bid for United Airlines parent UAL Corp. that would transfer majority ownership to employees while leaving some stock in public hands, according to people familiar with the group. The group has been discussing a proposal valued in a range of $225 to $240 a share, or $5.09 billion to $5.42 billion.But to avoid the risk of rejection, the group doesn't plan to submit the plan formally at a UAL board meeting today.Instead, the group is raising the proposal informally to try to test the board's reaction. People familiar with the company say the board isn't likely to give quick approval to any offer substantially below the $300-a-share, $6.79 billion buy-out bid that collapsed last week after banks wouldn't raise needed loans and after a key partner, British Airways PLC, dropped out. In composite trading Friday on the New York Stock Exchange, UAL closed at $168.50 a share, down $21.625. But the pilots union, which has been pushing for a takeover since 1987, appears to be pressing ahead with the revised bid to avoid further loss of momentum even though it hasn't found a partner to replace British Air. Although the bidding group hasn't had time to develop its latest idea fully or to discuss it with banks, it believes bank financing could be obtained.After the collapse of the last effort, the group doesn't plan to make any formal proposal without binding commitments from banks covering the entire amount to be borrowed. Under the type of transaction being discussed, the pilot-management group would borrow several billion dollars from banks that could then be used to finance a cash payment to current holders.Those current holders would also receive minority interests in the new company.For example, the group could offer $200 a share in cash plus stock valued at $30 a share.UAL currently has 22.6 million shares, fully diluted. The new structure would be similar to a recapitalization in which holders get a special dividend yet retain a controlling ownership interest.The difference is that current holders wouldn't retain majority ownership or control. The failed takeover would have given UAL employees 75% voting control of the nation's second-largest airline, with management getting 10% control and British Air 15%.It wasn't clear how the ownership would stack up under the new plan, but employees would keep more than 50%.Management's total could be reduced, and the public could get more than the 15% control that had been earmarked for British Air. One option the board is likely to consider today is some sort of cooling-off period.Although the pilots are expected to continue to pursue the bid, UAL Chairman Stephen Wolf may be asked to withdraw from the buy-out effort, at least temporarily, and to return to running the company full time. The board could eventually come under some pressure to sell the company because its members can be ousted by a majority shareholder vote, particularly since one-third of UAL stock is held by takeover stock speculators who favor a sale.The labor-management buy-out group plans to keep its offer on the table in an apparent attempt to maintain its bargaining position with the board. However, the only outsider who has emerged to lead such a shareholder vote, Los Angeles investor Marvin Davis, who triggered the buy-out with a $5.4 billion bid in early August, is hanging back -- apparently to avoid being blamed for contributing to the deal's collapse. Three top advisers to Mr. Davis visited New York late last week, at least in part to confer with executives at Citicorp.Mr. Davis had paid $6 million for Citicorp's backing of his last bid.But Citicorp has lost some credibility because it also led the unsuccessful effort to gain bank loans for the labor-management group. On Friday, British Air issued a statement saying it "does not intend to participate in any new deal for the acquisition of UAL in the foreseeable future." However, several people said that British Air might yet rejoin the bidding group and that the carrier made the statement to answer questions from British regulators about how it plans to use proceeds of a securities offering previously earmarked for the UAL buy-out. Also late last week, UAL flight attendants agreed to participate with the pilots in crafting a revised offer.But the machinists union, whose opposition helped scuttle the first buy-out bid, is likely to favor a recapitalization with a friendly third-party investor. One advantage the buy-out group intends to press with the board is that pilots have agreed to make $200 million in annual cost concessions to help finance a bid. Speculation has also arisen that the UAL executive most closely identified with the failure to gain bank financing, chief financial officer John Pope, may come under pressure to resign.However, people familiar with the buy-out group said Mr. Pope's departure would weaken the airline's management at a critical time. Despite the buy-out group's failure to obtain financing, UAL remains obligated to pay $26.7 million in investment banking and legal fees to the group's advisers, Lazard Freres & Co., Salomon Brothers Inc., and Paul Weiss Rifkind Wharton & Garrison.
Manhattan National Corp. said Michael A. Conway, president and chief executive officer, was elected chief executive of the holding company's two principal insurance subsidiaries. He succeeds Paul P. Aniskovich Jr., who resigned to pursue other business interests, the company said. Mr. Conway, 42 years old, was elected chairman, president and chief executive of Manhattan Life Insurance Co. and president and chief executive of Manhattan National Life Insurance Co. Harry Rossi, 69, chairman of the holding company, also remains chairman of Manhattan National Life Insurance Co. Mr. Conway was executive vice president and chief investment officer of Union Central Life Insurance Co., of Cincinnati, in 1987, when Union Central bought a 54% interest in Manhattan National Corp.He resigned as an officer of Central Life to accept the Manhattan National presidency.
A REVISED BID FOR UAL is being prepared by a labor-management group, sources said.The new proposal, which would transfer majority ownership of United Air's parent to employees and leave some stock in public hands, would be valued at $225 to $240 a share, or as much as $5.42 billion.But UAL's board isn't expected to give quick approval to any offer substantially below the $300-a-share bid that collapsed recently. Takeover stock speculators have incurred paper losses of over $700 million from the failed UAL offer, their worst loss ever on a single deal. Ford and Saab ended talks about a possible alliance after Ford concluded that the cost to modernize Saab's car operations would outweigh the likely return.The collapse Friday prompted speculation that Ford would intensify its pursuit of Jaguar, which is negotiating a defensive alliance with GM. Stock prices edged up in quiet trading Friday.The Dow Jones industrials rose 5.94, to 2689.14, making the gain for the week a record 119.88 points, or 4.7%.Most bond prices fell, but junk bonds and the dollar rose. New York City bonds were sold off by many investors last week amid political and economic uncertainty. More banks are being hurt by Arizona's worsening real-estate slump.First Interstate Bancorp of Los Angeles said Friday it expects a $16 million quarterly loss, citing property-loan losses at its Arizona unit. OPEC's ability to produce more oil than it can sell is starting to cast a shadow over world oil markets.OPEC officials worry that prices could collapse a few months from now if the group doesn't adopt new quotas. Saatchi & Saatchi has attracted offers for some of its advertising units but has rejected them, sources said.The proposals, from suitors including Interpublic Group, come as the London-based ad giant struggles through its most difficult period ever. Qintex Australia suffered another setback Friday when its Los Angeles-based affiliate filed for Chapter 11 protection.Qintex's $1.5 billion pact to buy MGM/UA collapsed recently. Kodak entered the high-definition television market by unveiling a device that can convert conventional film into high-definition video. A handful of small U.S. firms are refusing to cede the HDTV-screen market to Japanese manufacturers. Freight rates are bottoming out and starting to rebound.Trucking, shipping and air-freight firms are all planning rate increases, reflecting higher costs and tightened demand. Texaco has purchased an oil-producing company in Texas for $476.5 million.It is Texaco's first major acquisition since the legal battle with Pennzoil began over four years ago. Winnebago posted a widened quarterly loss and slashed its dividend in half, reflecting the deepening slowdown in recreational vehicle sales. Markets -- Stocks: Volume 164,830,000 shares.Dow Jones industrials 2689.14, up 5.94; transportation 1230.80, off 32.71; utilities 215.48, up 0.06. Bonds: Shearson Lehman Hutton Treasury index 3392.49, off Commodities: Dow Jones futures index 129.62, off 0.51; spot index 131.34, up 0.88. Dollar: 142.43 yen, up 0.73; 1.8578 marks, up 0.0108.
LEBANESE LAWMAKERS APPROVED a peace plan but Aoun rejected it. Lebanon's Parliament passed the power-sharing accord to end the country's 14-year-old conflict, but the Christian military leader wad the plan was "full of ambiguities." The Arab League-sponsored pact, drafted during three weeks of talks at the Saudi Arabian resort of Taif, includes Syrian proposals for at least a partial troop pullout from Lebanon, and guarantees an equal number of seats for Moslems and Christians in the Parliament. The rejection by Aoun, who has demanded a total and immediate pull-out of Damascus's 33,000 troops, puts the future of the agreement in doubt. NORTHERN CALIFORNIA BRACED for earthquake-related traffic jams. As rescuers pressed their efforts after finding a survivor in a collapsed freeway, the San Francisco Bay area girded for hundreds of thousands of commuters seeking to avoid routes ravaged by last Tuesday's tremor.In Oakland, officials said the 57-year-old longshoreman who spent four days entombed in rubble was in critical condition with slight improvement.Estimates of damage in the area, visited Friday by Bush, topped $5 billion. The baseball commissioner announced that the third game of the World Series between the Giants and the Athletics wouldn't resume until Friday. THE U.S. IS REQUIRED to notify foreign dictators of certain coup plans. Under guidelines included in an exchange of letters between the Reagan administration and the Senate Intelligence panel last year, the U.S. must inform foreign dictators of plans likely to endanger their lives.The existence of the policy became known after Bush disclosed it to seven GOP senators last week, citing the plan as an example of congressional requirements the administration contends contribute to the failure of covert actions, officials said. Bush conceded that the requirement didn't affect a decision to lend only minor support to this month's failed effort to oust Panama's Noriega, aides said. The shuttle Atlantis's crew prepared to return to Earth today several hours earlier than planned to avoid high winds forecast at the landing site at Edwards Air Force Base, Calif.The five astronauts, who stowed gear and tested the spacecraft's steering, said they were unconcerned about the touchy weather expected in the Mojave Desert. Commonwealth leaders issued a declaration giving South Africa six months to deliver on pledges to ease apartheid or face new reprisals.The 49-nation organization, meeting in Malaysia, called for tighter financial pressure immediately.Britain's Prime Minister Thatcher alone dissented. East Germany's leadership vowed swift action to ease travel to the West.Despite the pledge by the Communist rulers, tens of thousands of people across the country staged marches over the weekend to demand democratic freedoms.In Leipzig, more than 500 people met with local party officials to discuss internal changes. The Senate convicted federal Judge Alcee Hastings of Miami of eight impeachment articles, removing him from the bench.The chamber voted 69-26 Friday to convict the judge of perjury and bribery conspiracy.It marked the first time a U.S. official was impeached on charges of which a jury had acquitted him. Rep. Garcia and his wife were found guilty by a federal jury in New York of extorting $76,000 from Wedtech Corp. in return for official acts by the New York Democrat.The jury also convicted them of extortion in obtaining a $20,000 interest-free loan from an officer of the defunct defense contractor. Authorities in Honduras launched an investigation into the cause of Saturday's crash of a Honduran jetliner that killed 132 of the 146 people aboard.The Boeing 727, en route to Honduras from Costa Rica via Nicaragua, smashed into the hills outside Tegucigalpa as it approached the capital's airport in high winds and low clouds. The U.S. and Israel have been holding what an aide to Prime Minister Shamir called intense telephone negotiations in an effort to bridge differences over Mideast peace moves.The Labor Party, meanwhile, threatened to support a parliamentary motion to topple the coalition unless Shamir showed flexibility on Arab-Israeli talks. Nicaragua's Defense Ministry said a group of Contra rebels ambushed two trucks carrying troops in northern Nicaragua, killing 18 of the soldiers.The incident occurred Saturday night.The Sandinista government and the U.S.-backed insurgents agreed in March to suspend offensive operations, but there has been sporadic fighting. Scientists have isolated a molecule that may hold potential as a treatment for disruptions of the immune system, ranging from organ-transplant rejection, to allergies and asthma, Immunex Corp. said.The molecule is the mouse version of a protein called the interleukin-4 receptor, which directs the growth and function of white blood cells. Died: Alfred Hayes, 79, former president of the Federal Reserve Bank of New York, Saturday, in New Canaan, Conn.
In East Germany, where humor has long been the only way to express political criticism, they're not laughing about their new leader Egon Krenz.Mr. Krenz is such a contradictory figure that nobody has even come up with any good jokes about him. "You have to have clear feelings about someone before you can make jokes," says an East German mother of two who loves swapping political barbs with her friends. "With Krenz, we just don't know what to expect." Mr. Krenz doesn't seem to be the knee-jerk hardliner many initially thought he was when the 52-year-old Politburo member was selected last week to succeed Erich Honecker.But he doesn't appear to be ready to make broad changes either. According to East Germany's ADN news agency, Mr. Krenz spoke to Soviet leader Mikhail Gorbachev by telephone over the weekend and acknowledged East Germany could learn from Moscow's glasnost policies.Already last week, Mr. Krenz started overhauling East Germany's heavily censored and notoriously boring news media.On Thursday, a day after he took office, East German television broke into regular programming to launch a talk show in which viewers call in questions for a panel of officials to answer.The regular nightly news program and daily newspapers are also getting a visible injection of Soviet-style glasnost. "It was quite a shock," says a 43-year-old East German shopkeeper. "For the first time in my life, I wasn't sure whether I was listening to our news or West German television." Other changes, including easing restrictions on travel for East Germans, are expected.But whether such moves can win back the confidence of East Germans, who have taken to the streets by the thousands in recent weeks to demand democratic changes, depends largely on whether they feel they can trust Mr. Krenz. And that's a problem.Mr. Krenz is not only closely identified with his mentor, Mr. Honecker, but also blamed for ordering violent police action against protesters this month and for praising China for sending tanks against student demonstrators. "I hope he grows with the job," says Rainer Eppelmann, a Protestant pastor in East Berlin. "The most important thing is that he have a chance." Although Mr. Krenz is dedicated to East Germany's conservative vein of communism, there is much about his style that sets him apart from his party comrades.Unlike Mr. Honecker, who tended to lecture people about socialist values, Mr. Krenz enjoys asking questions. Indeed, one of his first actions as leader was to visit a gritty machine factory on the outskirts of Berlin and wander among the workers -- a la Gorbachev.He was later shown on television, fielding questions.At one point, he asked a worker whether he thought East Germans were fleeing the country because of restrictive travel policies.The worker's tart reply: "It's more than just travel.People have a sense the government is ignoring the real problems in our society." The exchange was all the more remarkable in that authorities released television footage to Western news agencies. This same tendency toward openness impressed a group of visiting U.S. congressmen this spring.Rather than trying to "lecture us," says one congressional aide who attended the two-hour meeting, Mr. Krenz "wanted to listen." Rep. Ronnie Flippo (D., Ala.), one of the members of the delegation, says he was particularly impressed by Mr. Krenz's ready admission that East Germany needed to change. "He's a very tough man, but one who's also open to arguments," adds an aide to West German Chancellor Helmut Kohl. But there's another side to Mr. Krenz.Born in a Baltic town in an area which is now part of Poland, he has dedicated his life to the party apparatus.He moved quickly through the ranks with the help of his patron, Mr. Honecker, and emerged as the heir apparent. Barbara Donovan, an expert on East Germany at Radio Free Europe in Munich, says Mr. Krenz may project a smooth image, but she doubts he's a true reformer.Even if he is, she adds, he appears to have only limited room for maneuver within the Communist Party's ruling Politburo. Against this background, the new East German leader must move quickly to shore up his government's standing.The sudden growth of the opposition movement, together with the steady outflow of citizens escaping through Poland and Hungary, has plunged the country into its deepest political crisis since an anti-Soviet workers' uprising in 1953. "He doesn't have any honeymoon period," says a Western diplomat based in East Berlin. "But if he's sharp and quick, he has a chance." The diplomat adds that Mr. Krenz has several things going for him.The East German economy is strong compared with other East bloc nations.And his relative youth could help him project a more vibrant image, contrasting with the perception of Mr. Honecker as an out-of-touch old man. For average East Germans, Mr. Krenz remains a puzzle. "Either he wasn't being real in the past, or he isn't being real right now," says a 30-year-old East German doctor. "Either way, I have a problem with how quickly he's changed." The doctor was among dozens of people milling through East Berlin's Gethsemane Church Saturday morning.The walls of the church are covered with leaflets, news clippings, and handwritten notes associated with the country's political opposition. "I have to come here to read the walls," says the doctor, "because it's information I still can't get through the newspapers." Meanwhile, East Germany's growing openness may even allow the state-controlled news media to display a muted sense of humor.Television last week carried a new report on East Berlin's main wallpaper factory and the need to boost production.East Germans remember a comment a few years ago by Kurt Hager, the government's top ideologist, that just because a neighbor hangs new wallpaper, there's no reason to change your own.His point was there is no reason for East Germany to copy Soviet-style changes. "It's hard to know whether it was intended to be funny," says the East Berlin shopkeeper, "But everyone I know laughed about it."
Dow Jones & Co. announced Wall Street Journal advertising rates for 1990. The rates, which take effect Jan. 2, include a 4% increase for national edition advertising.The Journal also will offer expanded volume and frequency discounts. The increase for national edition advertising is less than the inflation rate and compares with a 6.5% increase in 1989. "Newsprint and postage prices this year have not gone up," said Peter R. Kann, president of Dow Jones. "We have invested in improved editorial quality and expanded our quality audience without substantially increasing our costs.Fundamental fairness and a sense of responsibility lead us to share operating efficiencies with our customers." Advertising rates for the Eastern, Midwest, Western and Southwest editions will increase an average 5.5%, and rates for localized advertising editions will increase 7.5%.Rates for the Wall Street Journal Reports will remain unchanged.A one-time noncontract full-page advertisement in The Wall Street Journal national edition will cost $99,385. Advertising rates for The Wall Street Journal/Europe, published in Brussels and printed in the Netherlands and Switzerland, will increase 9%.Rates for The Asian Wall Street Journal, published and printed in Hong Kong and also printed in Singapore and Tokyo, will rise 8%.Rates for The Asian Wall Street Journal Weekly, published in New York for North American readers, will rise 6%. Dow Jones also publishes Barron's magazine, other periodicals and community newspapers and operates electronic business information services.It owns 67% of Telerate Inc., a leading supplier of computerized financial information on global markets.
The list of laboratories claiming to be producing inexplicable amounts of heat from "cold fusion" experiments is slowly growing. But the experiments continue to be plagued by lack of firm evidence that the extra heat is coming from the fusing of hydrogen atoms.New experiments at some of the big national laboratories are still unable to find hints of nuclear fusion reactions, leaving only the finding of tritium in a Texas experiment to support University of Utah chemists' claim of achieving hydrogen fusion at room temperatures. The latest developments in cold fusion research were presented in 24 reports delivered at the fall meeting here of the Electrochemical Society, the first scientific meeting in five months to hear formal reports on cold fusion experiments. The meeting offered stark evidence of a dramatic fall in scientific interest in cold fusion research.Of the 1,300 chemists registered for the society's weeklong meeting, fewer than 200 sat through the day and a half of cold fusion presentations at week's end.This was in contrast with the society's meeting last May, at the height of the controversy, when more than 1,500 scientists, along with scores of reporters and TV crews, crowded into a Los Angeles hotel ballroom for a tumultuous special night session on the subject. Neither of the two chemists whose Utah experiments triggered the cold fusion uproar, Martin Fleischmann and B. Stanley Pons, were at the meeting.But some members of an ad hoc expert committee set up by the Department of Energy to evaluate the cold fusion research were in the audience.The committee is to recommend at the end of the month whether DOE should support cold fusion research. Most of the two dozen scientists taking the podium reported results with new, more sophisticated variations of the seemingly simple electrolysis-of-water experiments described last March by Messrs.Fleischmann and Pons.The experiments involve encircling a thin rod of palladium metal with a wire of platinum and plunging the two electrodes into "heavy" water in which the hydrogen atoms are a doubly heavy form known as deuterium.When an electric current is applied to the palladium and platinum electrodes, the heavy water did begin to break up, or dissociate.Ordinarily the electrolysis, or breakup, of the water would consume almost all of the electrical energy.But Messrs.Fleischmann and Pons said their experiments also produced large amounts of heat.The heat energy plus the energy consumed by the breakup of the water molecules added to far more energy coming out of the apparatus than electrical energy going in, they reported.Because they also detected tritium and indications of nuclear radiation, they asserted that the "excess" heat energy must be coming from energy released by the nuclear fusion of deuterium atoms inside the palladium rod. As of last weekend, a dozen labs also have reported measuring "excess" heat from similar electrolytic experiments, although amounts of such heat vary widely.One of the seven reports presented here of excess heat production was given by Richard A. Oriani, professor of chemical engineering at the University of Minnesota. Mr. Oriani said his skepticism of the Utah claims was initially confirmed when his first experiments last spring failed to produce results.But he then borrowed a palladium rod from chemists at Texas A&M who said they were getting excess heat. "The results were fascinating," he said.On the fourth "run" with the borrowed rod, the experiment began producing excess heat.The experiment was stopped briefly to change an instrument.When it was restarted, heat output "really took off" and produced excess heat for several hours before dying down, he said. Typical of other experiments, Mr. Oriani said his experiment was "very erratic." It would go along doing nothing but dissociating the heavy water and then at totally unpredictable times, it would begin producing excess heat for as long as 10 or 11 hours before quieting down.The excess heat was 15% to 20% more than the energy involved in the electrolysis of water. Mr. Oriani said the heat bursts were too large and too long to be explained by the sudden release of energy that might have slowly accumulated during the experiments' quiescent times, as some scientists have suggested. "There is a reality to the excess energy," he said. Other scientists said they also were getting sporadic bursts of excess heat lasting several hours at a time.The bursts often occur, they said, after they "perturbed" the experiments by raising or lowering the amount of electric current being applied, or switching the current off and on.One chemist privately suggested this hinted that some "anomalous" chemical reactions might be producing the heat. One reason questions surround the heat experiments is that they involve unusually meticulous measurements.Typically, the input energy ranges from a third of a watt to one watt and the excess energy is measured in tenths of a watt.One exception is a continuing experiment at Stanford University where as much as 10 watts of energy are being put into the electrolytic cells.A cell filled with heavy water is producing 1.0 to 1.5 watts more heat than an identical electrolytic cell filled with ordinary water next to it, reported Turgut M. Gur, an associate of materials scientist Robert A. Huggins, head of the Stanford experimental team. One of the few hints the excess heat might be produced by fusion came from brief remarks by chemist John Bockris of Texas A&M University.Mr. Bockris previously reported getting bursts of excess heat and of detecting increasing amounts of tritium forming in the heavy water.He said that within the past few days, he's gotten evidence that there is a "weak correlation" between the time the heat bursts occur and the production of tritium.There isn't any way to continuously measure the amount of tritium in the heavy water, so it's been difficult to tell whether the tritium formation is related to the heat bursts or some other phenomenon. Increasingly careful attempts to measure neutrons, which would be strong evidence of fusion reactions, continue to be negative.Messrs.Fleischmann and Pons initially reported indirect evidence of neutrons being produced in their experiment but later conceded the measurements were questionable.Researchers at Sandia National Laboratories in Albuquerque, N.M., reported they went so far as to take a "cold fusion" experiment and three neutron detectors into a tunnel under 300 feet of granite to shield the detectors from cosmic rays.A number of times they detected neutrons in one, sometimes two, of the three detectors, but only once during 411 hours of the experiment did they detect a neutron burst in all three detectors -- and they think that was a spurious event. Shimson Gottesfeld of Los Alamos National Laboratory said researchers there detected a burst of neutrons from an early cold fusion experiment last April but decided not to announce it until they could confirm it.In subsequent experiments, one of two neutron detectors occasionally indicated a burst of neutrons but neutron bursts were never recorded in both detectors at the same time.They concluded the indications of neutrons stemmed from faults in the detectors rather than from the cold fusion experiment. At the Lawrence Berkeley Laboratory in California, new experiments indicated that the lithium added to the heavy water so it will conduct a current can produce previously unsuspected electrical effects on the surface of the palladium rod -- which Messrs.Fleischmann and Pons might have misinterpreted, reported Philip Ross from the California laboratory.
Nelson Bunker Hunt's attempted corner on silver a decade ago is still haunting the market in this metal. Silver, now trading around $5 an ounce, surged to an all-time peak of $50 an ounce in January 1980 from around $9 in mid-1979. "Mr.Hunt's attempt to squeeze the silver market 10 years ago is still indirectly to blame for today's market depression," says Lesley Edgar, managing director of Sharps Pixley Ltd., London bullion brokers.While some 100 million ounces of silver once held by Mr. Hunt and Middle Eastern associates aren't hanging over the market anymore, the price surge of 1979-80 precipitated an expansion of mine production and scrap recovery and encouraged silver consumers to economize on silver use, Mr. Edgar says. Photographic developers, for example, bought equipment to recover silver from spent photographs, negatives and processing solutions.Meanwhile, the photographic industry, which accounts for 44% of silver consumption, continues to look for substitutes.Japanese and U.S. photographic firms are beginning to produce electronic cameras and X-rays that don't require silver, dealers say. Silver's history of volatility is also discouraging investors, dealers say.Even in the present uncertain investment climate, investors are preferring "quality assets" such as Treasury bills and bonds to gold, silver and platinum, dealers say.Although prices rallied briefly following the tumble on world stock markets earlier this month and the related decline of the dollar, precious metals are out of favor for the moment because of high interest rates and a determination by industrial nations to curb inflation, dealers say. Silver, however is in a deeper slump than are gold and platinum. Some analysts contend that silver is cheap now that prices are languishing at levels last seen in the mid-1970s. "Bargain hunters believe that silver offers the best value amongst precious metals," says Frederick R. Demler, analyst at Drexel Burnham Lambert Inc. A further decline in prices will lead to mine production cuts in the U.S., he says.Scrap merchants are converting smaller quantities of metal into silver, while low prices are discouraging exports from India and the Soviet Union.Silver prices could also be boosted by strikes in leading producing nations Peru and Mexico, Mr. Demler says. Meanwhile, total fabrication demand for silver has risen six years in a row, he says.Japanese demand grew by 70% in the first half of this year and the nation plans an issue of a silver commemorative coin that will require 4.5 million ounces. Compared with huge annual surpluses of more than 100 million ounces in the first half of the 1980s, world silver supplies and consumption are now nearly in balance, Mr. Demler says. Despite intermittent rallies in the past few years, improvements in the supply-demand balance haven't managed to push silver prices into a higher range. "There's just too much silver around," says Tom Butler, an analyst at Samuel Montagu & Co., a London bullion house. A huge silver stockpile at exchanges, refiners, consuming industries and government warehouses of at least 617 million ounces is the market depressant, says Shearson Lehman Hutton Inc. in a report. This year alone, inventories at the Commodity Exchange of New York jumped "by a staggering 46 million to 221 million ounces" because of producer deliveries, de-stocking by fabricators and sales by disenchanted investors, says Rhona O'Connell, London-based precious metals analyst at Shearson Lehman Hutton. "Silver production is also in an inexorable upward trend," Ms. O'Connell says. Moreover, while Asian and Middle Eastern investors hoard gold and help underpin its price, silver doesn't have the same mystique, dealers say. Investors have gotten burned on silver so often that they are far more partial to gold, says Urs Seiler, senior vice president at Union Bank of Switzerland.Yet if gold prices improve, silver prices could rally sharply, he says.However, dealers caution that any increase would be $1 to $2 at most. Looking ahead to other commodity markets this week: Livestock and Meats Analysts expect the prices of live cattle futures contracts to rise in trading today in the wake of a government quarterly census that found fewer-than-expected cattle on feedlots. After the close of trading Friday, the Agriculture Department reported that feedlots in the 13 biggest ranch states held 8.06 million cattle on Oct. 1, down 6% from that date a year earlier. Most analysts had expected the government to report a 4% decline.Feedlots fatten young cattle for slaughter, so a decline signals a tightening supply of beef. The government reported that the number of young cattle placed on feedlots during the quarter dropped 5% compared with the year-earlier quarter.Many industry analysts had been projecting a 3% decline in placements for the quarter. In the 1988 quarter, many farmers were forced to sell their cattle to feedlot operators because the drought dried out the pasture on their ranches.The number of cattle moving onto feedlots in the recent quarter was also lower because fattening cattle is less profitable.A shortage of young cattle has made them more expensive for feedlot operators to buy. The Agriculture Department also said that the number of fattened cattle slaughtered in the quarter dropped by 5% from the 1988 quarter, which was in line with projections by analysts. Energy Friday's 44-cent-a-barrel price drop to $19.98 in the expiring November contract for West Texas Intermediate crude may well set the tone for trading this week in petroleum futures on the New York Mercantile Exchange.Most traders and analysts attributed the decline to technical factors associated with the contract's going off the board.Others said that the drop continued the downward correction that's been due in the petroleum pits and that such a trend could well continue in the next several trading sessions.Barring any petroleum-related news events, trading in the days ahead should further test recent projections by oil economists and other market watchers that strong fourth-quarter demand will keep prices firm. Copper Copper prices fell sharply Friday afternoon.For example, copper for December delivery settled 4.5 cents lower at $1.2345 a pound.Pressure came from several developments including the settlement of two long-term strikes.On Friday, one analyst said, rank-and-file workers ratified a new labor agreement ending a three-month strike at the Highland Valley mine in British Columbia. In Mexico, the analyst added, employees at the Cananea mine, who have been out of work since late August when the mine was declared bankrupt by the government, accepted a 35% cut in the 3,800-man work force.The mine is expected to return to production in about a week. On Friday, selling dominated the afternoon "curb" session in London, which takes place at noon EDT.The premium of cash copper to the three-month forward offerings narrowed, indicating weaker demand for cash copper. Long-term support for the December contract was believed to be at $1.25 a pound.A technical analyst said there were a number of stop-loss orders under that level that were touched off when the contract's price fell below it.That brought in considerable fund selling, which continued until the close of trading. "In general, it was a bearish close," said Ben Hanauer, a copper trader at Rudolph Wolff & Co., a major commodities trading and brokerage firm.But whether this price break has implications for this week, he said, "we will know more when the London Metal Exchange copper stock levels are released Monday morning." Another analyst said he expected LME inventories to be down by about 15,000 tons when the weekly report is issued. Bernard Savaiko, senior commodities analyst at PaineWebber Inc., said that when traders saw the market wasn't reacting positively to the forecasts of lower LME stocks, they perceived a bearish sign.He also noted that the Japanese, who had been buying at prices just above the $1.25 level, apparently pulled back from the market on Friday.Mr. Savaiko said he sees a possibility of the December contract dropping to $1.05 a pound.
Hewlett-Packard Co. will announce today a software program that allows computers in a network to speed up computing tasks by sending the tasks to each other. Called Task Broker, the program acts something like an auctioneer among a group of computers wired together.If a machine has a big computing task, Task Broker asks other computers in the network for "bids" on the job.It then determines which machine is free to do the task most quickly and sends the task to that machine. Hewlett-Packard claims that the software allows a network to run three times as many tasks as conventional networks and will run each task twice as fast. The new Hewlett-Packard program, said analyst John McCarthy at Forrester Research Inc., a computer-market research company, "is a key building block as people move to this new model of distributed processing." In today's computer networks, some machines often sit idle while others are overtaxed.With the Hewlett-Packard program, he said, "You get more bang for the buck you've spent on computers." The program, which will be shipped in January 1990, runs on the Unix operating system.Hewlett-Packard will charge $5,000 for a license covering 10 users.The program now works on all Hewlett-Packard and Apollo workstations and on computers made by Multiflow Computer Inc. of Branford, Conn.Hewlett-Packard said it will sell versions later next year that run on Sun Microsystems Inc. and Digital Equipment Corp. machines. The Task Broker differs from other programs that spread computing tasks around a network.A previously available program called Network Computing System, developed by Hewlett-Packard's Apollo division, for instance, takes a task and splits it up into parts, divvying up those parts to several computers in a network for simultaneous processing.But programs in individual computers must be revised in order to work with that system. Applications won't have to be rewritten to work with Task Broker, Hewlett-Packard said, and the user of a computer won't be able to tell that another machine is doing the work.The Task Broker "turns that network into -- as far as the user is concerned -- one giant computer," said Bill Kay, general manager of Hewlett-Packard's workstation group.
Price wars between the fast-food giants are starting to clobber the fast-food little guys: the franchisees. "When elephants start fighting, ants get killed," says Murray Riese, co-owner of National Restaurants, a New York franchisee for Pizza Hut, Roy Rogers and other chains. As hamburger and pizza outlets saturate one area after another, franchisers are struggling desperately for market share, slashing prices and stepping up costly promotions.The fight is putting a tight squeeze on profits of many, threatening to drive the smallest ones out of business and straining relations between the national fast-food chains and their franchisees. The chains "used to offer discounts during winter when business was slow, but in the last year or so, discounting has become a 12-month thing," says Donald Harty, president of Charisma Group Inc., a New York franchisee of Grand Metropolitan PLC's Burger King chain.Though Charisma's sales are up slightly this year, Mr. Harty says profits will be flat or lower. And Bill Konopnicki, a Safford, Ariz., licensee of McDonald's Corp. who is chairman of the company's National Operators Advisory Board, says some fast-food outlets "could be in serious trouble, based on the amount of discounting that seems to be going on." Until recently, the huge fast-food industry, with sales of about $60.1 billion last year, kept price-skirmishing to a minimum.But early this year, PepsiCo Inc. 's Taco Bell unit and Wendy's International Inc. slashed prices and stepped up promotions, says John Rohs, an analyst for Wertheim Schroder & Co.That brought a chain reaction in the industry. The situation was further aggravated early this month, when McDonald's set plans to heat up the discounting by offering coupons.It also decided to go national with pizza, which it has been test-marketing. Now, two-for-one deals on pizza are common; so are 99-cent specials on sandwiches normally priced twice as high.The discounting, say fast-food operators, occurs on a scale and with a frequency they haven't seen before.The result is that some franchisees are running hard just to stay even, laying off middle managers and working harder to make less. Joe Mack, a district manager for Cormack Enterprises Inc., a Burger King operator in Omaha, Neb., says discounting is so prevalent that "we have to serve 15% to 20% more customers" to keep sales level. "It's almost as if you're doing extra work to give away the food," he says. Alan D'Agosto, president of Panda's Inc., an operator of Arby's restaurants in Omaha, says: "All we're doing is keeping the customers coming, but we aren't increasing sales." With fast-food outlets on every corner, he, like many, doesn't think he has a choice in the price war: "Our customers say that they won't go into a fast-food store unless they get a coupon." If the battle continues much longer, many fast-food businesses will close or merge, predicts Vincent Morrissey, who owns a string of Kentucky Fried Chicken stores in the Midwest. "The industry is overbuilt," he says. "Fast-food franchisers have managed to squeeze in stores into every corner available." The National Restaurant Association says quick-service restaurant units in the U.S. rose 14% to 131,146 between 1983 and 1987, the last year for which figures are available.With the market so crowded, says a spokesman for Wendy's in Columbus, Ohio, "If you're doing well, you're doing well at someone else's expense." Simply put, there isn't enough business for every store to grow. According to Mr. Rohs, inflation-adjusted, same-store sales at company-owned Wendy's units in the U.S. have trailed year-earlier levels throughout 1989, except for August. "McDonald's has also been running negative all year," the analyst says. Spokesmen for Wendy's and McDonald's criticized Mr. Rohs's calculations.Jack Greenberg, executive vice president and chief financial officer of McDonald's, says the company doesn't compute, much less disclose, inflation-adjusted, same-store sales.He adds that short-term comparisons "can be very misleading because of differences in timing of marketing programs from year to year." Profit margins at company-owned McDonald's outlets in the U.S. "are holding up quite nicely," says Mr. Greenberg.Profits of franchisees haven't been higher since the mid-1970s, he adds. But Mr. Greenberg's sanguine outlook isn't matched by many fast-food industry observers.Smaller chains and single-store operators will be the first to fail, many in the industry predict.Big franchise groups "can ride out the storm a lot longer," says Mr. Harty, the Burger King operator in New York. The prolonged price pressures are driving a wedge between some franchisers and their franchisees.Mr. Morrissey, the Kentucky Fried Chicken franchisee, notes that most franchise owners must absorb increases in expenses without any cut in the royalties, or portion of sales, that they must pay franchisers. Franchisees can't be forced to go along with a franchiser's discounting.But once a franchisee agrees to a promotional program, the franchiser can demand full participation to the very end, says Lew Rudnick, a principal of Rudnick & Wolfe, a Chicago law firm with franchise industry clients.He says courts have held that antitrust considerations are outweighed in such cases by the need to protect consumers from deceptive marketing. In any case, many franchisees, in order to stay on good terms with franchisers, routinely go along with promotions.Says Mr. Riese of National Restaurants: "If you resisted on prices, maybe you would never get that telephone call about a new franchise."
And you thought the only reason to save your canceled checks was to prepare for an IRS audit. Reggie Jackson, the retired baseball star, has found another use for them.Mr. Jackson, who won the nickname "Mr.October" for his World Series exploits, is selling some of his canceled checks to autograph collectors through a dealer for as much as $500 each. Dealers say the budding trade in Mr. Jackson's canceled checks is unusual. "I don't know of any living ballplayer that's ever done it," says Jack Smalling, a dealer in Ames, Iowa, and a recognized expert in the field of baseball autographs. An initial batch of Mr. Jackson's checks was on sale at a baseball-card show held in San Francisco over Labor Day weekend.Mr. Jackson showed up at the affair to sign autographs for a fee as well. "For someone who has everything else -- Reggie's jersey, cap and cards -- his checks might be a nice addition," says William Vizas, owner of Bill's Sports Collectibles in Denver, who examined the checks at the San Francisco card show. For years, the canceled checks of a small number of well-known baseball players have been bought and sold.But these players were dead. "Maybe three years ago, there were a lot of {Ty} Cobbs in the hobby, and awhile back there were Babe Ruth checks," says Mr. Smalling. However, the thought of a living player selling his checks rubs some people the wrong way. "Maybe I'm a little stuffy, but I wouldn't sell them," sniffs Bob Machon, owner of Papa's Sports Cards in Menlo Park, Calif. "Who knows how much they'll be worth 100 years from now?" And Mr. Smalling doesn't believe they're worth all that much now. "I don't think the checks are worth $15 apiece," he says. Why Mr. Jackson, who couldn't be reached for comment, has made some of his checks available for sale isn't clear.He probably hasn't done it for the cash. "I would say he's definitely not in need of money," says Matt Merola, an agent of Mr. Jackson's based in New York. "He has good investments." And Mr. Jackson probably has opened new checking accounts, too.Or at least he should. "I assume those accounts are closed," says Mr. Smalling, referring to the accounts of the canceled checks. "I don't think he'd want to give out his current account numbers."
USX Corp. and its Japanese partner, Kobe Steel Ltd., agreed to form a joint venture to build a new plant to produce hot-dipped galvanized sheet products, mainly for the automotive market. Terms weren't disclosed for the plant, which will have annual capacity of 600,000 tons. The move by the nation's largest steelmaker follows a string of earlier announcements by other major steel companies.Bethlehem Steel Corp., LTV Corp. and Armco Inc. all have plans to build additional lines for such coated corrosion-resistant steel. The surge in production, analysts say, raises questions about capacity outpacing demand.They note that most of the new plants will come on line in 1992, when the current import trade restraint program ends, which could result in more imports. "There's too much capacity," contended Charles Bradford, an analyst with Merrill Lynch Capital Markets. "I don't think there's anyone not building one." He does add, however, that transplanted Japanese car makers are boosting the levels of U.S.-made steel in their autos, instead of relying heavily on imported steel.That trend could increase demand for hot-dipped galvanized sheet. The hot-dipped galvanized segment is one of the fastest-growing and most profitable segments of the steel market, coveted by all major integrated steelmakers wanting to maintain an edge over smaller minimills and reconstructed mills -- those spun off to employees. Indeed, USX said it expects the market for coated sheet steel to reach 12 million tons annually by 1992, compared with 10.2 million tons shipped in 1988.For the first eight months of 1989, analysts say shipments of hot-dipped galvanized steel increased about 8% from a year earlier, while overall steel shipments were up only 2.4%. USX and Kobe Steel hope to reach a definitive agreement establishing the 50-50 partnership by the end of the year, with construction tentatively slated for the spring of 1990 and production by 1992. USX already has six lines in existing plants producing hot-dipped galvanized steel, but this marks the first so-called greenfield plant for such production.Moreover, it will boost by 50% USX's current hot-dipped capacity of 1,275,000 tons. The company said it doesn't expect the new line's capacity to adversely affect the company's existing hot-dipped galvanizing lines. Steelmakers have also been adding capacity of so-called electrogalvanized steel, which is another way to make coated corrosion-resistant steel.One of the advantages of the hot-dipped process is that it allows the steel to be covered with a thicker coat of zinc more quickly.
ONCE YOU MAKE UP your mind about an investment, the rest is easy, right?You just call your broker and say "buy" or "sell." Dream on.There are all sorts of ways to give buy and sell instructions to a broker -- and just as many ways to get burned if you don't know what you're doing. So here's a rundown of the most common types of market orders permitted by the stock and commodity exchanges.Two things to keep in mind: Not all exchanges accept every type of order.And even when a specific order is acceptable to an exchange, a brokerage firm can refuse to enter it for a customer. Market Order: This is probably the most widely used order -- and the one most open to abuse by unscrupulous floor brokers, since it imposes no price restrictions.With a market order, an investor tells a broker to buy or sell "at the market." It's like saying, "get me in now" or "get me out now." For example, if wheat is being offered at $4.065 and bid at $4.060, a market order to buy would be filled at the higher price and a market order to sell at the lower price.A recent indictment alleges that some floor brokers at the two largest Chicago commodity exchanges used market orders to fill customers' orders at unfavorable prices by arranging trades with fellow brokers.Profits realized from these trades would then be shared by the conspiring brokers. Limit Order: Limit orders are used when investors want to restrict the amount they will receive or pay for an investment.Investors do this by specifying a minimum price at which the investment may be sold or the maximum price that may be paid for it.Suppose an investor wants to sell a stock, but not for less than $55.A limit order to sell could be entered at that price.One risk: Investors may regret the restriction if the stock reaches 54 and then falls. Unless the market goes at least one tick (the smallest price increment permitted) beyond the limit price, investors aren't assured of having their orders filled because there may not be sufficient trading volume to permit filling it at the specified price. Stop Order: Stop orders tell a floor broker to buy or sell an investment once the price reaches a certain level.Once the price reaches that level, a stop order turns into a market order, and the order is filled at whatever price the broker can get.Stop orders are sometimes called "stop-loss" orders because they are frequently used to protect profits or limit losses. While stop orders sound similar to limit orders, there is a difference: Sell stops must be entered at a price below the current market price and buy stops above.In contrast, sell limit orders must be placed above the market price and buy limit orders are placed below. The crash in October 1987 and last Friday's sell-off painfully taught some investors exactly what stop orders will and won't do.An investor who may have placed a stop-loss order at $90 under a stock that was trading at $100 a share on the Friday before the crash was stunned to discover that the order was filled at $75 when the stock opened at that price on Monday. Stop-Limit Order: Stop-limit orders turn into limit orders when an investment trades at the price specified in the order.Unlike stop orders -- which are filled at the market price when the stop price is hit -- stop-limit orders demand that the trades be made only at the specified price.If it can't be made at that price, it doesn't get filled. Investors who wish to be out of a position, without the risk of receiving a worse-than-expected price from a market order, may use this type of order to specify the price at which the order must be filled.But if the market moves quickly enough, it may be impossible for the broker to carry out the order because the investment has passed the specified price. Market-If-Touched Order: Market-if-touched orders are like stop orders in that they become market orders if a specified price is reached.However, unlike a buy-stop order, a buy market-if-touched order is entered at a price below the current price, while a sell market-if-touched order is entered at a price above it.As soon as the market trades at the specified price the floor broker will fill it at the best possible price. Fill-Or-Kill Order: The fill-or-kill order is one of several associated with the timing of trades.It instructs a broker to buy or sell an investment at the specified price or better.But if the investment can't be bought or sold immediately, the order is automatically canceled.Gregory Bessemer, who came in second in the stock division of the recently completed U.S. Trading Championship, says he uses fill-or-kill orders almost exclusively when trading options. "I like to use them to feel out the market," he says. "If they don't fill it immediately, then I can start over at a new price or try again with the same price." Not-Held Order: This is another timing order.It is a market order that allows floor brokers to take more time to buy or sell an investment, if they think they can get a better price by waiting.Not-held orders, which are also known as "disregard the tape" orders, are always done at the customer's risk. One-Cancels-The-Other Order: This is really two orders in one, generally for the same security or commodity, instructing floor brokers to fill whichever order they can first and then cancel the other order.In a fast-moving market, it prevents an investor from getting stuck with having made two trades on the same security. Specific-Time Order: This type of order couples many of the orders described above with instructions that the order must be carried out at or by a certain time. "On the close" can be added to many types of orders.For example, "market-on-close orders" must be filled during the last few minutes of trading for the day at a price that is within the official closing range of prices as determined by the exchange. "Stop-close-only orders" are stop orders that only become active during the closing minutes of trading. "Day orders" expire at the end of the day on which they are entered, "good-till-canceled orders" have no expiration date.Most brokers assume that all orders are day orders unless specified otherwise. On Oct. 19, 1987, some investors learned the consequences of entering "good-til-canceled limit orders" and then forgetting about them.They found they had bought stock from limit orders that they might have entered weeks or months earlier and had forgotten to cancel.It is always the responsibility of investors to keep track of the orders they have placed.Investors who change their mind about buying or selling after an order has been filled are, usually, stuck with the consequences. Mr. Angrist writes on the options and commodities markets for The Wall Street Journal.
IN SIZING UP the risks of stock-market investments, there's probably no starting place better than "beta." But investors better not ignore its limitations, either. Beta is a handy gauge that measures the volatility of a stock or stock mutual fund.For any given move in the overall market, it suggests how steeply that particular issue might rise or fall. Beta figures are widely available and easy to interpret.The beta of the broad market, typically defined as the Standard & Poor's 500-stock index, is always 1.0.So a stock with a beta of 0.5 is half as volatile, one at 1.5 is 50% more volatile, and so on. Cautious investors should generally go with stocks that have low betas.Go with high-beta stocks to get the biggest payoff from a bet on a bull market. Remember, though, that beta also has important limitations. "Beta is only part of the risk in a stock," says William F. Sharpe, the Stanford University emeritus professor who developed the measure. "There is risk that is not associated with market moves, and the beta doesn't tell you the magnitude of that." In particular, beta doesn't measure the company- and industry-specific risk associated with an individual stock.That "business" risk is very significant for an investor with only a few stocks, but it virtually disappears in a large and well-diversified portfolio. Beta is also a poor indicator of the risk in stock groups that march to their own drummer.In particular, the prices of gold and other precious-metals stocks shoot up and down, but the stocks tend to have low betas because their moves are not market-inspired. Concern that investors could misinterpret such readings led the American Association of Individual Investors to eliminate beta figures for precious-metals funds in the 1989 edition of its mutual-fund guide. "Our fear was people would look just at the beta {of a gold fund} and say here is an investment with very low risk," says John Markese, director of research for the Chicago-based group. "In reality it's very volatile, but the movements are not because of market movements."
When Rune Andersson set out to revive flagging Swedish conglomerate Trelleborg AB in the early 1980s, he spurned the advice of trendy management consultants. "All these consultants kept coming around telling us we should concentrate on high technology, electronics or biotechnology, and get out of mature basic industries," Mr. Andersson recalls.Yet under its 45-year-old president, Trelleborg moved aggressively into those unfashionable base industries -- first strengthening its existing rubber and plastics division, later adding mining as well as building and construction materials. It was a gutsy move for a little-known executive, fired after only two months as president of his previous company.But going against the grain has never bothered Mr. Andersson.Stroking his trademark white goatee during a recent interview, the diminutive Swede quips: "It turned out to be lucky for us.If the whole market thinks what you're doing is crazy you don't have much competition." Mr. Andersson is anxious to strengthen Trelleborg's balance sheet.Characteristically, he didn't waste much time getting started. On Tuesday, Trelleborg's directors announced plans to spin off two big divisions -- minerals processing, and building and distribution -- as separately quoted companies on Stockholm's Stock Exchange.At current market prices, the twin public offerings to be completed next year would add an estimated 2.5 billion Swedish kronor ($386 million) to Trelleborg's coffers, analysts say. The board had also been expected to approve a SKr1.5 billion international offering of new Trelleborg shares.But that share issue -- intended to make Trelleborg better known among international investors -- was postponed until market conditions stabilize, people familiar with the situation say. Trelleborg's internationally traded "Bfree" series stock plunged SKr29 ($4.48) to SKr205 ($31.65) in volatile trading Monday in Stockholm.Tuesday, the shares regained SKr20, closing at SKr225. Mr. Andersson says he is confident that taking parts of the company public will help erase the "conglomerate stigma" that has held down Trelleborg's share price.Trelleborg plans to remain the dominant shareholder with stakes of slightly less than 50% of both units. The spinoff should solve a problem for the parent.A family foundation set up by late founder Henry Dunker controls 59% of Trelleborg's voting shares outstanding.But the foundation bylaws require the entire Trelleborg stake to be sold in the open market if control drops below 50%. That possibility had crept closer as repeated new share offerings to finance Trelleborg's rapid growth steadily diluted the foundation's holding.That growth is the result of Mr. Andersson's shopping spree, during which he has bought and sold more than 100 companies during the past five years. Most of the new additions were barely profitable, if not outright loss makers.Applying prowess gained during earlier stints at appliance maker AB Electrolux, Mr. Andersson and a handful of loyal lieutenants aggressively stripped away dead wood -- and got quick results. The treatment turned Trelleborg into one of Scandinavia's biggest and fastest-growing industrial concerns.Between 1985 and 1988, sales multipled more than 10 times and pretax profit surged almost twelvefold. Many analysts expect Mr. Andersson, who owns 1.7% of the company, to be named Trelleborg's new chairman when Ernst Herslow steps down next year.But the promotion isn't likely to alter a management style Mr. Andersson describes as "being the driving force leading the troops, not managing by sitting back with a cigar waiting for people to bring me ideas." Last month, in his boldest move yet, Mr. Andersson and Trelleborg joined forces with Canada's Noranda Inc. in a joint $2 billion hostile takeover of another big Canadian mining concern, Falconbridge Ltd. Industry analysts suggest that the conquest of Falconbridge could vault Trelleborg from a regional Scandinavian success story to a world-class mining concern. "Trelleborg isn't in the same league yet as mining giants such as RTZ Corp. or Anglo-American Corp.," says Mike Kurtanjek, a mining analyst at James Capel & Co., London. "But we certainly like what we've seen so far." But Trelleborg still must clear some tough hurdles.Mr. Andersson acknowledges that the company's mining division "will be busy for a while digesting its recent expansion." Booming metals prices have fueled Trelleborg's recent profit surge, raising mining's share of pretax profit to 68% this year from a big loss two years earlier.But analysts caution an expected fall in metal prices next year could slow profit growth. Mining is likely to remain Trelleborg's main business.Analysts say its chances of success will likely hinge on how well Trelleborg manages to cooperate with Noranda in the Falconbridge venture. Noranda and Trelleborg each came close to winning Falconbridge alone before the successful joint bid.Some analysts say Noranda would prefer to break up Falconbridge, and that the Swedes -- relatively inexperienced in international mining operations -- could have problems holding their own with a much bigger partner like Noranda operating on its home turf. Mr. Andersson insists that Trelleborg and Noranda haven't discussed a Falconbridge break-up.Falconbridge, he says, will continue operating in its current form. "We'd be reluctant to accept 50-50 ownership in a manufacturing company.But such partnerships are common in mining, where there aren't problems or conflict of interest or risk of cheating by a partner," Trelleborg's president says. Perhaps more important, both companies share Mr. Andersson's belief in the coming renaissance of base industries. "If the 1980s were a decade of consumption, the '90s will be the investment decade," Mr. Andersson says. "The whole of Europe and the industrialized world is suffering from a breakdown in infrastructure investment," he says. "That's beginning to change.And investment is the key word for base metals, and most other businesses Trelleborg is in."
READY TO REVIEW the riskiness of your investment portfolio? First, a pop quiz.When you think of the words "risk" and "investment," what's the specific peril that comes to mind? Pencils down.If you're like most people, you said it's a holding that goes completely sour -- maybe a bond that defaults or a stock whose value disappears in a bankruptcy proceeding. "People tend to see risk primarily on that one dimension," says Timothy Kochis, national director of personal financial planning for accountants Deloitte, Haskins & Sells. But therein lies another aspect of investment risk: the hazard of shaping your portfolio to avoid one or more types of risk and being blind-sided by others. This is clearly not good news to all you people who sleep like babies every night, lulled by visions of your money sitting risk-free in six-month CDs.Risk wears many disguises, and investments that are low in one type of obvious risk can be distressingly high in other, less obvious kinds.U.S. Treasury bonds, for example, are supersafe when it comes to returning money at maturity.But their value as investments can be decimated by inflation, which erodes the purchasing power of bonds' fixed-dollar interest payments. Risk is also a function of time. When financial professionals measure risk mathematically, they usually focus on the volatility of short-term returns.Stocks are much riskier than Treasury bills, for example, because the range in performance from the best years to the worst is much wider.That is usually measured by the standard deviation, or divergence, of annual results from the average return over time. But investors who are preoccupied with short-term fluctuations may be paying too little attention to another big risk -- not generating enough money to meet long-term financial and life-style goals. For instance, some investors have sworn off stocks since the 1987 market crash; last Friday's debacle only reinforced those feelings.But the stock market, despite some stomach-churning declines, has far outperformed other securities over extended periods. By retreating to the apparent security of, say, money-market funds, investors may not be earning enough investment return to pay for a comfortable retirement. "That's the biggest risk of all -- the risk of not meeting your objectives," says Steven B. Enright, a New York financial planner with Seidman Financial Services. As a result, financial advisers say they take several steps when evaluating the riskiness of clients' portfolios. They estimate the return a person's current portfolio is likely to generate over time, along with a standard deviation that suggests how much the return will vary year by year.They try to figure out the long-term results the person needs to meet major goals.And they eyeball types of risk that are not easily quantified. The portfolios of two hypothetical families, one a couple at retirement age and another a two-income couple at age 45, illustrate several types of risk that investors need to consider.For instance, the insured municipal bonds that dominate the older couple's portfolio were probably selected in large part for their low repayment risk.But they expose the holders to a lot of inflation risk and interest-rate risk. The younger couple's stockholdings involve more risk than a diversified stock portfolio because the bulk of the money is in a single issue. Note that the younger couple's portfolio has a higher expected annual return, 10.1% vs. 8.8%, as calculated by Seidman Financial Services, which is the financial-planning affiliate of BDO Seidman.That largely reflects the heavy stockholdings. But one price paid for the higher expected return is greater short-term volatility, as reflected in the higher standard deviation that Seidman estimates for the younger couple's portfolio. (Here's how to interpret a standard deviation figure: Take the expected return and add one standard deviation to it.Then take the expected return and subtract one standard deviation.In two of three years, the actual result should fall within that range if all the assumptions were accurate.Then add and subtract two standard deviations to get a wider range.There's a 95% probability any year's result will fall in the range.) Of course, the greater volatility of the younger couple's portfolio doesn't necessarily mean those investments are riskier in terms of meeting the holders' long-term goals.Indeed, the older couple's portfolio could actually be riskier in that sense if the expected return won't generate enough dollars to meet their spending plans. "They may feel emotionally secure now because they are not heavily in the stock market," says John H. Cammack, a financial planner with Alexandra Armstrong Advisors Inc. in Washington. "But they may pay a price 10 or 20 years in the future." Ms. Slater reports on personal finance from The Wall Street Journal's New York bureau. When it comes to investing, trying to weigh risk and reward can seem like throwing darts blindfolded: Investors don't know the actual returns that securities will deliver, or the ups and downs that will occur along the way. Looking to the past can provide some clues.Over several decades, for instance, investors who put up with the stock market's gyrations earned returns far in excess of those on bonds and "cash" investments like Treasury bills. But while history can suggest what is reasonable to expect there's no guarantee that the past will repeat itself.For instance, some analysts believe bond returns and volatility have moved permanently closer to those of the stock market.And returns on cash investments may continue to exceed inflation by a wider margin than they did over the long-term past. Portfolio A: Retired couple, age 65; $400,000 portfolio. Portfolio B: Two-income couple, age 45; $150,000 portfolio. *Calculated by Seidman Financial Services
WHEN JAMES SCHWARTZ was just a lad his father gave him a piece of career advice. "He told me to choose an area where just by being mediocre I could be great," recalls Mr. Schwartz, now 40.He tried management consulting, traded in turquoise for a while, and even managed professional wrestlers.Now he has settled into a career that fits the bill -- financial planning. It should be noted that Mr. Schwartz, who operates out of Englewood, Colo., is a puckish sort who likes to give his colleagues the needle.But in this case the needle has a very sharp point.Though it's probably safe to assume that the majority of financial planners are honest and even reasonably competent, the fact remains that, as one wag puts it, "anybody who can fog a mirror" can call himself a financial planner. Planners now influence the investment of several hundred billion dollars, but in effect they operate in the dark.There is no effective regulation of planners, no accepted standard for admission into their ranks -- a dog got into one trade group -- no way to assess their performance, no way even to know how many of them there are (estimates range from 60,000 to 450,000).All anyone need do is hang up a shingle and start planning. So it should come as no shock that the profession, if that's what it is, has attracted a lot of people whose principal talents seem to be frittering away or flat-out stealing their clients' money.Alarmed, state and federal authorities are trying to devise ways to certify and regulate planners.Industry groups and reputable planners who are members of them want comprehensive standards, too; they're tired of seeing practitioners depicted collectively in the business press as dumber than chimpanzees and greedier than a herd of swine. But reform hasn't taken hold yet. "The industry is still pretty much in its Wild West days," says Scott Stapf, director of investor education for the North American Securities Administrators Association. An admittedly limited survey by NASAA, whose members are state securities-law regulators, found that between 1986 and 1988 "fraud and abuse" by financial planners cost 22,000 investors $400 million.The rogues' gallery of planners involved includes some convicted felons, a compulsive gambler or two, various businessmen who had planned their own previous ventures right into bankruptcy, and one man who scammed his wife's grandmother.What's more, the losses they and the others caused "are just what we are stumbling over," says Mr. Stapf, adding that the majority of misdeeds probably go undetected. So do just about all the losses that could be attributed to the sheer incompetence of unqualified planners.Nobody can estimate the toll, but John Gargan, a Tampa, Fla., planner and head of one trade group, the International Association of Registered Financial Planners, thinks the danger to investors from incompetence is "humongous," far greater than that from crookery.His group, like others, wants minimum standards applied to all who call themselves financial planners. Surveying all this, some people now think the best planner might be no planner at all.For most investors "the benefits just aren't worth the risks," says Barbara Roper, who follows financial-planning issues for the Consumer Federation of America, a consumer-advocacy organization based in Washington. She concedes that such a position is "unfair" to the thousands of conscientious and qualified people plying the trade, but as a consumer advocate she feels impelled to take it.She says her group used to give tips on selecting planners -- check educational and experience credentials, consult regulators and Better Business Bureaus -- but found that even some people who took these steps "were still getting ripped off." The bad news, however, hasn't been bad enough to kill the growing demand for financial planning.The Tax Reform Act of 1986, which eliminated many tax shelters peddled by planners, and the stock market crash the next year did cause a sharp slump in such demand, and many planners had to make an unplanned exit from the business.But membership in the International Association of Financial Planners (IAFP), the industry's biggest trade group, is still nearly triple what it was in 1980, and it's believed that the ranks of planners who don't belong to any group have soared as well. An estimated 10 million Americans are now using financial planners, and the pool of capital they influence is enormous.A survey of 54,000 of them conducted by the IAFP in April showed that these practitioners alone had controlled or guided the investment of $154 billion of their clients' money in the previous 12 months. The sheer number of planners makes the business extremely difficult, if not impossible, to regulate.Even the minority of them who must register with the Securities and Exchange Commission as "investment advisers" -- people who are in the business of counseling others on the buying and selling of securities specifically -- have been enough to swamp the agency's capacity.The SEC has only about 200 staffers assigned to keep tabs on investment advisers -- about the same as in 1980 -- even though the number of advisers has tripled to about 15,000 over the past decade.Currently, a registered investment adviser can expect an SEC audit only once every 12 years.A lot of bad things can happen in 12 years. "It doesn't take a rocket scientist to figure out our problem," says Kathryn McGrath, director of the SEC's division of investment management. So the SEC has proposed to Congress that much of the job of oversight be turned over to an industry-funded, self-regulatory organization patterned on the National Association of Securities Dealers, which operates in the brokerage business.Such an organization could, among other things, set minimum standards for competence, ethics and finances and punish those investment advisers who broke the rules. The proposal has set off a lively debate within an industry that was far from united to begin with.Mr. Schwartz, the puckish planner from Englewood, Colo., says that allowing the business to police itself would be "like putting Dracula in charge of the blood bank." Mr. Gargan, the Tampa planner who heads one trade group, favors simply assessing the industry and giving the money to the SEC to hire more staff. (Mr.Gargan's views are not greeted with wild enthusiasm over at the IAFP, the major industry organization.When the IAFP recently assembled other industry groups to discuss common standards that might be applied to planners, Mr. Gargan's group was excluded.That may be because Mr. Gargan, smarting at what he considered slurs on his membership standards made by the rival group, enrolled his dog, Beauregard, as a member of the IAFP. Then he sent the pooch's picture with the certificate of membership -- it was made out to "Boris `Bo' Regaard" -- to every newspaper he could think of.) The states have their own ideas about regulation and certification.NASAA, the organization of state securities regulators, is pushing for a model regulatory statute already adopted in eight states.It requires financial planners to register with states, pass competency tests and reveal to customers any conflicts of interest. The most common conflict involves compensation.NASAA estimates that nearly 90% of planners receive some or all of their income from sales commissions on securities, insurance and other financial products they recommend.The issue: Is the planner putting his clients into the best investments, or the ones that garner the biggest commissions? In 1986 the New York attorney general's office got an order from a state court in Albany shutting down First Meridian Corp., an Albany financial-planning firm that had invested $55 million on behalf of nearly 1,000 investors.In its notice of action, the attorney general said the company had promised to put clients into "balanced" investment portfolios; instead, the attorney general alleged, the company consistently shoved unwary customers into high-risk investments in paintings, coins and Florida condos.Those investments paid big commissions to First Meridian, payments investors were never told about, the attorney general alleged. Investors were further assured that only those with a minimun net worth would be accepted.In practice, the attorney general alleged in an affidavit, if an investor had access to cash "the chances of being turned down by First Meridian were about as probable as being rejected by the Book-of-the-Month Club." And, the attorney general added, First Meridian's president, Roger V. Sala, portrayed himself as a "financial expert" when his qualifications largely consisted of a high-school diploma, work as a real-estate and insurance salesman, and a stint as supervisor at a highway toll booth.First Meridian and its officials are currently under investigation for possible criminal wrongdoing, according to a spokeswoman for the attorney general. Harry Manion, Mr. Sala's attorney, says his client denies any wrongdoing and adds that the attorney general's contentions about First Meridian's business practices are incorrect.As for Mr. Sala's qualifications, "the snooty attorneys for the state of New York decided Mr. Sala wasn't qualified because he didn't have a Harvard degree," says Mr. Manion. Civil suits against planners by clients seeking recovery of funds are increasingly common.Two such actions, both filed earlier this year in Georgia state court in Atlanta, could be particularly embarrassing to the industry: both name J. Chandler Peterson, an Atlanta financial planner who is a founder and past chairman of the IAFP, as defendant. One suit, filed by more than three dozen investors, charges that Mr. Peterson misused much of the $9.7 million put into a limited partnership that he operated and promoted, spending some of it to pay his own legal bills and to invest in other companies in which he had an interest.Those companies, in turn, paid Mr. Peterson commissions and fees, the suit alleges. The other suit was filed by two men in a dispute over $100,000 investments each says he made with Mr. Peterson as part of an effort to purchase the Bank of Scottsdale in Scottsdale, Ariz.One plaintiff, a doctor, testified in an affidavit that he also gave Mr. Peterson $50,000 to join a sort of investment club which essentially gave the physician "the privilege of making additional investments" with Mr. Peterson. In affidavits, each plaintiff claims Mr. Peterson promised the bank purchase would be completed by the end of 1988 or the money returned.Mr. Peterson took the plaintiffs' and other investors' money to a meeting of the bank's directors. Wearing a business suit and western-style hat and boots, he opened up his briefcase and dumped $1 million in cash on a table in front of the directors, says Myron Diebel, the bank's president. "He said he wanted to show the color of his money," recalls Mr. Diebel. Bank officials, however, showed him the door, and the sale never came off.According to the suit, Mr. Peterson has yet to return the plaintiffs' investment.They want it back.Mr. Peterson declines to comment on specific allegations in the two suits, saying he prefers to save such responses for court.But he does say that all of his activities have been "entirely proper." On the suit by the limited partners, he says he is considering a defamation suit against the plaintiffs.The suit, he adds, "is almost in the nature of a vendetta by a handful of disgruntled people." Rearding the suit over the bank bid, Mr. Peterson says it is filled with "inflammatory language and half truths." He declines to go into specifics. Mr. Peterson says the suits against him are less a measure of his work than they are a "sign of the times" in which people generally are more prone to sue. "I don't know anybody in the industry who hasn't experienced litigation," he says. Mr. Peterson also says he doesn't consider himself a financial planner anymore.He now calls himself an "investment banker." In many scams or alleged scams involving planners, it's plain that only a modicum of common sense on the part of the investors would have kept them out of harm's way.Using it, wouldn't a proessional hesitate to pay tens of thousands of dollars just for a chance to invest witha planner? Other cases go to show that an old saw still applies: If it sounds too good to be true, it probably is.Certificates of deposit don't pay 23% a year, for example, but that didn't give pause to clients of one Alabama planner.Now they're losers and he's in jail in Mobile County.CDs yielding 40% are even more implausible -- especially when the issuing "bank" in the Marshall Islands is merely a mail drop watched over by a local gas-station operator -- but investors fell for that one too. And the Colorado planner who promised to make some of his clients millionaires on investments of as litle as $100?Never mind.You already know the answer. Mr. Emshwiller is a staff reporter in The Wall Street Journal's Los Angeles bureau.
THROUGHOUT THE 1980s, investors have been looking for creative alternatives to traditional modes of financial planning.Capital has been democratized, and people want in.Too often, however, small investors are left with the same stale solutions that appealed to previous generations of fiduciary strategists. Now a startling new approach is available to building your financial portfolio without undue risk, without extensive planning and without hurting your life style one bit! This is particularly good news for those who hate risk, who are incapable of doing extensive amounts of planning and who refuse to see their life styles hurt in any way.You know who you are. My revolutionary system is also useful for those who have tried customary forms of growing their currency cushion.Like all Americans seeking chronic prosperity, I do find it necessary to plunge certain funds into conservative monetary tools, if only to assuage my father-in-law, who believes in such things.So throughout the decade I have maintained my share of individual retirement accounts and CDs, and tinkered with stocks, bonds and mutual funds, as well as preserving my necessary position in the residential real-estate market.Return on this fine portfolio has been modest when it has not been negative. Figure 1 demonstrates the performance of those businesses I've invested in during this prosperous decade (see accompanying illustration -- WSJ Oct. 20, 1989).Oil-related properties suffered a huge decline until I divested myself of all such stocks in 1985, at which point the industry, while not lighting up any Christmas trees, began a slow recovery. Likewise, mutual funds remained relatively flat until I made what was, for me, a serious investment.By 1987, these properties were in a tailspin, causing my broker at Pru-Bache to remark that she'd "never seen anything like it." Concerned for her state of mind, I dropped them -- and the market instantly began its steady climb back to health.Perhaps most dramatic was the performance of the metropolitan New York real-estate market, which was booming until I entered it in late 1988, at which time it posted the first negative compound annual growth rate in years. Disgusted, I cast around for a different way to plan my asset distribution, and with hardly any heavy breathing the answer struck me: I was doing it already! We've all got money to spend, some of it clearly disposable since we keep disposing of it.Bank it?Not really! Sock it away in long-term instruments?Nonsense! Daily living is the best possible investment! Your priorities may be different, but here in Figure 2 is where I've chosen to build for the future: personal space; automotive pursuits; children's toys; gardening equipment, bulbs and shrubs; and finally, entertainment, perhaps the best investment of all.All have paid off for me in double-digit annual growth and continue to provide significant potential.At least, according to my calculations. Personal space (Figure 3) has grown 35% annually over the course of the decade, a performance that would compare positively with an investment in, say, synthetic-leather products for the interiors of cold-weather vehicles, which my cousin got into and sort of regrets to this day. The assortment of expensive children's toys that I have purchased wisely at a host of discount-toy brokerage firms (Figure 4) has increased handsomely in total asset value far beyond any personal investment except, perhaps, for my record collection, whose worth, I think it's safe to say, is incalculable. Continued investment in my 1984 subcompact has been part of my strategy (Figure 5), with present annual contributions now equaling more than 60% of the car's original value.According to my calculations, these outlays should have brought the value of my sedan to more than $22,000 on the open market (Figure 6), where I plan to offer it shortly. Expansion of my living space has produced an obvious need for maintenance and construction of suitable lawns, shrubs and bushes fitting to its suburban locale.I have thus committed sufficient personal outlay to ensure that my grounds and lodgings will never be short of greens and flowers.My initial stake in this blooming enterprise has grown tenfold, according to my conservative calculations. At the same time, my share in a wide variety of entertainment pursuits has given perhaps the most dramatic demonstration of the benefits of creative personal financial planning.Over the course of the decade, for instance, my return on investment in the area of poker alone (Figures 7A and 7B) has been most impressive, showing bodacious annual expansion with -- given the way my associates play -- no sign of abatement into the 1990s and beyond. With this personal strategy firmly in place, I look forward to years of fine life-style investments and increasing widespread leverage.My kids' college education looms as perhaps the greatest future opportunity for spending, although I'll probably have to cash in their toy portfolio to take advantage of it.But with every step I take, I'm building wealth.You can, too, if you, like me, refuse to bite the bullet.So go out there and eat that debt.You're right there in the mainstream of American business, building value on the back of insupportable expenditures.Henry Kravis, watch out! Mr. Schwartz is a business executive and writer in New York.
At the ritzy Fashion Island Shopping Center, the tanned and elegant ladies of this wealthy Southern California beach community disembark from their Mercedes-Benzes and BMWs for another day of exercising their credit cards. They root among the designer offerings at Neiman-Marcus and Bullocks Wilshire.They stroll through the marble-encased corridors of the Atrium Court.They graze at the Farmers Market, a combination gourmet food court and grocery store, while a pianist accompanies the noon fashion show with a selection of dreamy melodies. "The beautiful look of wool," croons the show's narrator, "slightly Victorian in its influence...." Meanwhile, in the squat office buildings that ring Fashion Island, the odds are good that someone is getting fleeced.Law-enforcement authorities say that at any given time, a host of fraudulent telemarketing operations mingle with the many legitimate businesses here. "They seem to like these industrial parks," says Kacy McClelland, a postal inspector who specializes in mail fraud. "We call them fraud farms." Welcome to that welter of contradictions known as Newport Beach.This city of more than 70,000 is known for sunshine, yachts and rich residents.It is also known as the fraud capital of the U.S., dubbed by investigators and the media as the "Cote de Fraud". How does a community famous for its high living end up as a haven for low-lifes?Clearly, the existence of the former lures the latter. The places renowned for breeding bunco, like the Miami neighborhood known as the "Maggot Mile" and Las Vegas's flashy strip of casinos, invariably offer fast cars, high rollers, glamorous women and lots of sunshine.You don't hear much about unusual concentrations of fraud in Green Bay or Buffalo.Con men hate snow. Newport Beach fits the scam artists' specifications perfectly.What more could a con man in search of the easy life ask for?Nothing seems hard here.The breezes are soft, the waves lap gently and the palm trees sway lazily.Nightlife is plentiful. Moreover, ostentation is appreciated.The median price of homes is $547,000; more than 9,000 vessels fill what the chamber of commerce calls the nation's largest pleasure-boat harbor. "Blondes, cocaine and Corvettes," mutters Mr. McClelland. "That's what they're after." The rich image of Newport Beach also helps lend the con artists' operation an air of respectability. "One reason they use Newport Beach is that it sounds swankier than most addresses," says David Katz, a U.S. attorney who, until recently, headed a multi-agency Southern California fraud task force. "Newport Beach is known in Rhode Island for having a lot of rich people." No wonder all kinds of big-time scams have flourished here, from phony tax-sheltered Bible sales to crooked car dealers to bogus penny-stock traders.But above all, this is the national headquarters for boiler-room operators, those slick-talking snake-oil salesmen who use the telephone to extract money from the gullible and the greedy and then vanish. Because only a fraction of them are ever prosecuted, nobody really knows how much money bogus telemarketing operators really harvest. "I've heard that there is $40 billion taken in nationwide by boiler rooms every year," Mr. McClelland says. "If that's true, Orange County has to be at least 10% of that." And most of the truly big scams in Orange County seem to originate in Newport Beach or one of the other well-heeled communities that surround this sliver-like city that hooks around a point of land on the California coast south of Los Angeles. In fact, sophisticated big-bucks boiler-room scams are known generically among law-enforcement types as "Newport Beach" operations.That contrasts with the penny-ante sales of things such as pen-and-pencil sets and office supplies that are known as "Hollywood" scams. Newport Beach telemarketers concentrate on precious metals and oil-leasing deals that typically cost thousands of dollars a shot.The investors range from elderly widows to affluent professionals. In one ingenious recent example of a Newport Beach boiler room, prospective investors in Capital Trust Inc. were allegedly told that their investment in precious metals was insured against losses "caused by employees due to dishonesty, destruction or disappearance," according to an indictment handed up by a federal grand jury in Los Angeles last month.Thus falsely reassured, investors sent $11.4 million to the Newport Beach company, most of which was diverted to unauthorized uses, the indictment charges. Douglas Jones, an attorney representing Richard O. Kelly Sr., the chairman and president of Capital Trust, says his client denies that there was any attempt to defraud investors. "There were some business deals that went bad," Mr. Jones says, "but no intent to defraud." Newport Beach operations differ from the Hollywood boiler rooms in style as well as in dollars.Traditionally, boiler rooms operate on the cheap, since few, if any, customers ever visit their offices.Indeed, the name derives from the tendency among telemarketing scammers to rent cheap basement space, near the boiler room. But, says Mr. Katz, the U.S. attorney, "the interesting thing about Newport Beach operations is that they give themselves the indulgence of beautiful offices, with plush furnishings.When we go there, it's quite different from these Hollywood places where the sandwiches are spread out on the table and the people are picking their noses." The Newport Beach operators also tend to indulge themselves privately.Investigators cite the case of Matthew Valentine, who is currently serving a six-year sentence at Lompoc Federal Prison for his role in Intech Investment Corp., which promised investors returns of as much as 625% on precious metals.Mr. Valentine, who pleaded guilty to five counts of fraud in federal court in Los Angeles, drove a leased Mercedes and lived in an expensive home on Lido Isle, an island in Newport's harbor, according to investigators.With the $3 million received from investors, he took frequent junkets with friends to exotic locales and leased an expensive BMW for his girlfriend, whom he met at the shop where he got his custom-tailored suits. "It's amazing the amount of money that goes up their nose, out to the dog track or to the tables in Las Vegas," Mr. Katz says. All this talk of boiler rooms and fraud is unnerving to the city's legitimate business element.Vincent M Ciavarella, regional manager of Property Management Systems, insists he doesn't know of any bogus telemarketers operating in the 1.6 million square feet of office space around Fashion Island that his company leases for Irvine Co., the owner and developer of the project.Mr. Ciavarella has rejected a few prospective tenants who provided "incomplete" financial information and acknowledges that illegitimate operators "are not easily detectable." (Investigators stress that building owners are victims, too, since boiler rooms often leave without paying rent.) Richard Luehrs, president of the Newport Harbor Area Chamber of Commerce, calls boiler rooms a "negative we wish we could get rid of." Actually, "we don't get much negative publicity about this," he insists, "except for the press who write about it." Mr. Lancaster is deputy chief of The Wall Street Journal's Dallas bureau.
YOU WENT to college and thought you got an education.Now you discover that you never learned the most important lesson: How to send your kids to college. True, when you went to college, there wasn't that much to learn.Stick some money in an interest-bearing account and watch it grow.Now, investment salesmen say it's time to take some risks if you want the kind of returns that will buy your toddler a ticket to Prestige U. in 18 years. In short, throw away the passbook and go for the glory. The reason is cost.Nothing in the annals of tuition readied parents for the 1980s.Tuitions at private colleges rose 154% in the 10 years ended in June of this year; that's twice the 77% increase in consumer prices for the same period. A year at Harvard now goes for $19,395.By 2007, when this year's newborns hit campus, a four-year Ivy League sheepskin will cost $300,000, give or take a few pizzas-with-everything at exam time.Stanford, MIT and other utmosts will cost no less. So what's a parent to do?Some investment advisers are suggesting, in effect, a bet on a start-up investment pool -- maybe even on margin.Others prefer deep-discount zero-coupon bonds.Still others say, Why not take a chance on a high-octane growth fund? "You're not going to make it in a 5% bank account," says James Riepe, director of mutual funds at T. Rowe Price.To get the necessary growth, adds Murray Ruffel, a marketing official at the Financial Programs mutual-fund group, "you need to go to the stock market." In other words, a little volatility never hurt. It never hurt anyone, that is, unless the growth funds don't grow when you need them to.Or the zero-coupon bonds turn out not to have been discounted deeply enough to pay your kid's tuition.That's the dilemma for today's parent.Although many experts are advising risk, no one has a good answer for you if the risk doesn't pay off. Help may be on the way.The antitrust division of the Justice Department is investigating the oddly similar tuition charges and increases among the top schools.Fear of the price police could help cool things off in the 1990s. And then there's always State U.But parents' craving for a top-rated education for their children is growing like their taste for fancy wheels and vintage wine. Belatedly aware of public concern, lawmakers and financial middlemen are working overtime to create and sell college savings and investment schemes. Their message, explicit or implicit, is that a good college will cost so much by whenever you want it that the tried and true won't do anymore.Forget about Treasury bills or a money-market fund. The latest wave of marketing is instructive.Several outfits -- including the Financial Programs, Franklin, and T. Rowe Price mutual-fund groups and the Edward D. Jones brokerage house -- are advertising "college planner" tables and charts that tell you how much you need to put aside regularly.The calculations generally rely on an after-tax rate of return of 8% annually -- a rate historically obtainable by the individual in only one place, the stock market. Most of the mailers are free, but Denver-based Financial Programs sells, for $15, a version customized to the age of the child and the college of choice.The figures are shocking.To build a nest egg that would pay for Stanford when a current first-grader reaches college age, parents would need to set aside $773.94 a month -- for 12 years.They can cut this to $691.09 a month if the investing keeps up through college.And they can further reduce the monthly amount if they start saving earlier -- when mother and child come home from the hospital. Plugging a cheaper college into the formulas still doesn't generate an installment most people can live with.Using a recent average private-school cost of about $12,500 a year, T. Rowe Price's planner prescribes $450 monthly if the plan begins when the child is six.Since the formula assumes an 8% before-tax return in a mutual fund, there would also be $16,500 in taxes to pay over the 12 years. Not everyone is so pessimistic. "People are basically peddling a lot of fear," says Arthur Hauptman, a consultant to the American Council on Education in Washington.He takes issue with projections that don't factor in students' own contribution, which reduces most parents' burden substantially. Still, he says, "it's no bad thing" if all the marketing prods people into putting aside a little more. "The situation you want to avoid is having somebody not save anything and hope they'll be able to do it out of current income," he says. "That's crazy." His advice: Don't panic.Parents, he says, should aim at whatever regular investment sum they can afford.Half the amount that the investment tables suggest might be a good goal, he adds.That way, parents will reduce borrowings and outlays from current income when the time comes to pay tuition. Mr. Hauptman reckons that the best investment choice is mutual funds because they are managed and over time have nearly kept up with the broad stock averages.He favors either an all-stock fund or a balanced fund that mixes both stocks and bonds. In their anxiety, however, parents and other student benefactors are flocking to new schemes.They have laid out about $1 billion for so-called baccalaureate zero-coupon municipal bonds -- so far offered by Connecticut, Illinois, Virginia and eight other states.And they have bought about $500 million in prepaid-tuition plans, offered in Michigan, Florida and Wyoming.The prepaid plans take payment today -- usually at current tuitions or at a slight discount -- for a promise that tuition will be covered tomorrow. The baccalaureate bonds -- tax-free, offered in small denominations and usually containing a provision that they won't be called before maturity -- seem to be tailor-made for college savers.Like other zeros, they pay all their interest at maturity, meaning that buyers can time things so that their bonds pay off just when Junior graduates from high school.Their compounding effect is also alluring.In June, Virginia sold bonds for $268.98 that will pay $1,000 in 2009. But Richard Anderson, head of the Forum for College Financing Alternatives, at Columbia University, a research group partly financed by the federal government, says zeros are particularly ill-suited.Their price falls further than that of other bonds when inflation and interest rates kick up.That won't matter if they are held to maturity, but if, for any reason, the parents need to sell them before then, there could be a severe loss of principal. Had zeros been available in 1972 and had parents bought a face amount equal to four years' tuition at the time, aiming for their children's 1988 enrollment, they would have been left with only enough to pay for two years, Mr. Anderson figures.Most other bonds, however, would probably not have fared much better. The prepaid plans may be a good bet, provided the guarantee of future tuition is secure.Issuing states generally limit the guarantees to in-state institutions, however, and buyers get refunds without much interest if the children don't attend the specified schools.Two private groups are seeking Securities and Exchange Commission approval for plans that could be more broadly transferable.Mr. Anderson wants the prestige colleges to sponsor such a plan. The issue here may be the soundness of the guarantee.Prepayments, much like mutual-fund purchases, are pooled for investment.Sponsors are naturally counting on their ability to keep ahead of tuition inflation with investment returns.But buyers are essentially betting on a start-up investment fund with no track record -- and some have been encouraged to borrow to do so. One problem is that the Internal Revenue Service has decided that the investment earnings and gains of the sponsors' funds are taxable.The colleges, as educational institutions, had hoped that wouldn't be the case. Based on historical rates of return, Mr. Anderson reckons a 100% stock portfolio, indexed to the market, would have kept up with tuition and taxes in the 20th century.But sponsors might not pick the stocks that will match the market.And they're leaning more toward fixed income, whose returns after tax have trailed tuition increases. "I'm not sure they're going to make it work," says Mr. Anderson. What happens if the sponsors don't have the cash to pay the tuitions?Florida and Wyoming have backed up their guarantees with the full faith and credit of the state governments, meaning that taxpayers will pick up any slack.Not so Michigan.Its plan is set up as an independent agency.The state says there's no worry -- investment returns, combined with fees and the gains from unused plans, will provide all the cash it needs. Mr. Putka covers education from The Wall Street Journal's Boston bureau. If you start saving for your child's eduction on Jan. 1, 1990, here's the monthly sum you will need to invest to pay for four years at Yale, Notre Dame and University of Minnesota.Figures assume a 7% annual rise in tuition, fees, room and board and an 8% annual investment return. Note: These figures are only for mandatory charges and don't include books, transportation etc. *For in-state students Source: PaineWebber Inc.
AMONG THE CATFISH farmers in the watery delta land of Humphreys County, Miss., Allen D. Tharp of Isola was one of the best known and most enterprising. He sold quarter-inch fingerlings to stock other farmers' ponds, and he bought back one-pound-or-so food-fish that he "live-hauled" to market along with his own whiskery crop.And he nearly always bought and sold for cash. Along the way, Mr. Tharp omitted a total of $1.5 million from his receipts reported on federal tax returns for three years.The returns landed in the hands of an Internal Revenue Service criminal investigator, Samuel James Baker.Mr. Baker interviewed or wrote to hundreds of catfish farmers, live-haulers and processors throughout the South before coming up with detailed estimates of purchases and sales, in pounds and dollars, by Mr. Tharp and others. Unknown to Mr. Tharp, he had fouled his net on a special IRS project to catch catfish farmers and haulers inclined to cheat on their taxes.Confronted with the evidence, Mr. Tharp pleaded guilty to one charge of filing a false return and was fined $5,000 and sentenced to 18 months in prison.He also owes a lot of back taxes, interest and civil fraud penalties. A lot of taxpayers out there aren't as paranoid as one might think.Federal and state tax enforcers develop many group targets for investigation, on the basis of occupation, high income, type of income, or some other characteristic that may signal an opportunity or tendency to hide income or exaggerate deductions. Many professions long have seemed to be targets because of the exotic or ludicrous efforts of some members to offset high income with fake losses from phony tax shelters: dentists who invested in dubiously dubbed foreign films or airline pilots who raised racehorses on their days off.Mail-order ministers have been squelched.Now, television and radio evangelists are under scrutiny. The IRS recently won part of its long-running battle with the Church of Scientology over exemptions when the U.S. Supreme Court held that members' payments to the church weren't deductible because the members received services in return. IRS statistics show that the more persistent hiders of income among sole proprietors of businesses include used-car dealers, entertainment producers, masons, roofers, and taxi owners.Small businesses in general account for almost 40% of unreported personal income, the IRS has said. Once such abuses become so pervasive, the IRS builds another factor into its secret computer formula for selecting returns for audit and doesn't need special projects for them.San Franciscans have a much higher incidence of audits than average because more of them score high under that formula, not because IRS agents envy their life styles. Many openings for mass cheating, such as questionable tax shelters and home offices, have gaped so broadly that Congress has passed stringent laws to close them.Deductions of charitable gifts of highly valued art now must be accompanied by appraisals.And laws requiring the reporting of more varieties of transactions have enabled the IRS to rely on computers to ferret out discrepancies with returns and to generate form-letter inquiries to taxpayers. Unreported alimony income can be spotted by computer because a payer of alimony (who gets a deduction) must report the former spouse's Social Security number.Passport applicants now must give Social Security numbers, enabling the IRS to see whether Americans living abroad are filing required U.S. returns. But while IRS computers focus routinely on target groups like these, the agency has assigned many agents to special projects that need more personal attention.In most cases, the IRS says, these projects are local or regional, rather than national, and arise because auditors in an area detect some pattern of abuse among, say, factory workers claiming that having a multitude of dependents frees them from tax withholding or yacht owners deducting losses from sideline charter businesses. The national office currently has 21 noncriminal audit projects, according to Marshall V. Washburn, deputy assistant commissioner for examination.Auditors involved in noncriminal projects can't send anyone to jail, but they can make life miserable in other ways -- for one, by imposing some of the 150 different civil penalties for negligence, failure to file a return, and the like. The targeted audit groups include direct sellers -- people who sell cosmetics, housewares and other items door to door or at home parties -- and employers who label workers as independent contractors instead of employees, to avoid the employer share of payroll taxes. Other projects look for offenders among waiters who get cash tips, people who engage in large cash transactions, and people whose returns show they sold a home for a profit without reinvesting the capital gain in another home by the end of the same year; the gain must be rolled over within two years to defer tax. And now that returns must show dependents' Social Security numbers, the IRS wants to see which dependents show up on more than one return -- and which dependents turn out to be deceased. Impetus for the direct-seller project came from a congressional hearing some years back.It prompted an IRS study that found many sellers were concealing income and treating large amounts of nondeductible travel and other personal expenses as business costs, Mr. Washburn says.The study provided criteria for singling out returns of "potentially noncompliant" taxpayers who report low income and large expenses from a part-time business. The Tax Court recently denied business deductions by Mr. and Mrs. Peter S. Rubin of Cherry Hill, N.J., who both were part-time distributors of Amway products in addition to their regular jobs as sales people in other fields.For 1984, they reported gross income of $1,647 from Amway sales, offset by expenses totaling $16,746 -- including car costs of $6,805 and travel and entertainment costs of $5,088.The Tax Court didn't believe that the Rubins, who earned $65,619 in their regular jobs, treated the sideline as a real business and derived "merely incidental elements of recreation and other personal pleasure and benefits" from it. The Direct Selling Association, a trade group, points out that its members, which include Amway Corp., cooperate with the IRS to distribute tax-compliance material to sales people and are helping to prepare a public-service television program on the subject. The independent-contractor project, which began in 1988, involves about 350 IRS agents.In the fiscal nine months ended June 30, reports Raymond P. Keenan, assistant commissioner for collection, they examined about 13,000 employers, assessed more than $67 million in delinquent employment taxes, and reclassified about 56,000 workers as employees instead of self-employed contractors. The number of misclassified workers may be in the millions, mostly paid by small firms.Many workers, especially professionals, want to remain independent to avoid tax withholding and to continue to deduct many expenses that employees can't.But many others, who want to qualify for employee benefits and unemployment compensation, become tipsters for the IRS, says Jerry Lackey, who manages the IRS project's force of nine agents in north and central Florida from Orlando.Firms that are paying employment taxes also provide leads to competitors that aren't, he says. In his area, Mr. Lackey continues, the miscreant employers most commonly are in construction -- doing framing, drywall, masonry and similar work.But a medical clinic with about 20 employees wrongly listed all of them -- including physicians and receptionists -- as independent contractors.The IRS assessed the clinic $350,000 in back payroll taxes.It assessed nearly $500,000 against a cruise-ship company that carried about 100 deckhands, cooks, bartenders, entertainers and other employees as self-employed independents. Revenue-short states also are becoming more aggressive pursuers of tax delinquents, and perhaps none tracks them down with more relish than does New York since it acquired an $80 million computer system in 1985.The state's tax enforcers have amassed data bases from other New York agencies that license or register professionals and businesses; from exchange agreements with the IRS, 24 other states, and two Canadian provinces, and even from phonebook Yellow Pages.Thus armed for massive matching of documents by computer, they single out high-income groups, looking primarily for people who haven't filed New York income-tax returns. The state has combed through records relating to architects, stockbrokers, lawyers in the New York City area, construction workers from out of the state, and homeowners who claim to be residents of other states -- especially Florida, which has no personal income tax.Soon to feel the glare of attention are lawyers elsewhere in the state, doctors, dentists, and accountants, says Frederick G. Hicks, director of the tax-department division that develops the computer-matching programs. The department has collected over $6.5 million from brokers so far and recommended more than 30 of them for criminal prosecution.In the early stage of checking people with incomes exceeding $500,000 who were filing nonresident returns, it squeezed $7.5 million out of a man who was posing as a Florida resident. "We think we can reclaim hundreds of millions of dollars just through the nonresident project," Mr. Hicks declares. Mr. Schmedel is editor of The Wall Street Journal's Tax Report column.
In finding "good news" in Berkeley's new freshman admissions plan ("The Privileged Class," editorial, Sept. 20), you're reading the headline but not the story. The plan indeed raises from 40% to 50% the number of freshmen applicants admitted strictly by academic criteria.But that doesn't mean "half of the students attending Berkeley" will be admitted this way.The plan is talking about applicants admitted, not students who enroll.Since the "yield" from this top slice of applicants is relatively low, boosting admits from 40% to 50% will boost registrants from about 31% to 38% of the class. In addition, perhaps 5% of registrants will come from a new category consisting of applicants whose academic credentials "narrowly missed" gaining them admission in the first category. But against that combined increase of 12% in students chosen by academic criteria, the plan eliminates a large category in which admissions now are based on grades, test scores and "supplemental points" for factors such as high-school curriculum, English-language proficiency and an essay.This category now accounts for about 19% of admits and 22% of registrants. The plan thus will decrease by 22%, for a net loss of 10%, the number of students admitted primarily by academic criteria. Who will take over these places?The plan creates a new category of students from "socioeconomically disadvantaged backgrounds," a concept not yet defined, and gives them about 10% of the class. One of the plan's authors has defended the "socioeconomic disadvantage" category as perhaps making more sense than the current affirmative-action preferences based on race.Perhaps it does.But the new category does not replace or reduce Berkeley's broad racial preferences.Nor will students from racial-minority groups who are admitted through the new category be counted against the affirmative-action "target" for their group. The plan thus places a large new affirmative-action program, based on "socioeconomic disadvantage," on top of the existing program based on race.The role of academic criteria in choosing Berkeley's freshmen can only decline as a result. Stephen R. Barnett Professor of Law University of California Berkeley, Calif.
FOR THOSE WHO DELIGHT in the misfortune of others, read on.This is a story about suckers. Most of us know a sucker.Many of us are suckers.But what we may not know is just what makes somebody a sucker.What makes people blurt out their credit-card numbers to a caller they've never heard of?Do they really believe that the number is just for verification and is simply a formality on the road to being a grand-prize winner?What makes a person buy an oil well from some stranger knocking on the screen door?Or an interest in a retirement community in Nevada that will knock your socks off, once it is built? Because in the end, these people always wind up asking themselves the same question: "How could I be so stupid?" There are, unfortunately, plenty of answers to that question -- and scam artists know all of them. "These people are very skilled at finding out what makes a person tick," says Kent Neal, chief of the economic-crime unit of the Broward County State Attorney's Office in Fort Lauderdale, Fla., a major haven for boiler rooms. "Once they size them up, then they know what buttons to push." John Blodgett agrees -- and he ought to know.He used to be a boiler-room salesman, peddling investments in oil and gas wells and rare coins. "There's a definite psychology of the sale and different personalities you pitch different ways," he says. The most obvious pitch, of course, is the lure of big returns. "We're all a little greedy.Everyone is vulnerable," says Charles Harper, associate regional administrator for the Securities and Exchange Commission in Miami. "These guys prey on human frailties." While the promises of big profits ought to set off warning bells, they often don't, in part because get-rich-quick tales have become embedded in American folklore. "The overnight success story is part of our culture, and our society puts an emphasis on it with lotteries and Ed McMahon making millionaires out of people," says Michael Cunningham, an associate professor of psychology at the University of Kentucky in Louisville. "Other people are making it overnight, and the rest who toil daily don't want to miss that opportunity when it seems to come along." Adds Spencer Barasch, branch chief for enforcement at the SEC in Fort Worth, Texas: "Why do people play the lottery when the odds are great against them?People are shooting for a dream." Clearly, though, scam artists have to be a bit more subtle than simply promising millions; the psychology of suckers isn't simply the psychology of the greedy.There's also, for instance, the need to be part of the in-crowd.So one popular ploy is to make a prospective investor feel like an insider, joining an exclusive group that is about to make a killing. Between 1978 and 1987, for instance, SH Oil in Winter Haven, Fla., sold interests in oil wells to a very select group of local residents, while turning away numerous other eager investors.The owner of the company, Stephen Smith, who has since pleaded guilty to state and federal fraud charges, confided to investors that he had a secret agreement with Amoco Oil Co. and said the location of his wells was confidential, according to a civil suit filed in a Florida state court by the Florida comptroller's office.Neither the Amoco agreement nor the wells existed, the suit alleged. Such schemes, says Tony Adamski, chief of the financial-crimes unit of the Federal Bureau of Investigation in Washington, D.C., appeal to investors' "desire to believe this is really true and that they are part of a chosen group being given this opportunity." At times, salesmen may embellish the inside information with "the notion that this is some slightly shady, slightly illegal investment the person is being included in," says Mr. Cunningham.In appealing to those with a bit of larceny in their hearts, the fraud artist can insist that a person keep an investment secret -- insulating himself from being discovered and keeping his victim from consulting with others. It also adds to the mystery of the venture.Mr. Blodgett, the boiler-room veteran, believes that for many investors, the get-rich-quick scams carry a longed-for element of excitement. "Once people got into it, I was allowing them to live a dream," he says.He phoned them with updates on the investment, such as "funny things that happened at the well that week," he says. "You gave them some excitement that they didn't have in their lives." (Mr.Blodgett, who was convicted in Florida state court of selling unregistered securities and in California state court of unlawful use of the telephone to defraud and deceive, is now on probation.He says he has quit the business and is back in school, majoring in psychology with aspirations to go into industrial psychology.) For some investors, it's the appearances that leave them deceived. "The trappings of success go a long way -- wearing the right clothes, doing the right things," says Paul Andreassen, an associate professor of psychology at Harvard.Conservative appearances make people think it's a conservative investment. "People honestly lose money on risky investments that they didn't realize were a crapshoot," he says. Paul Wenz, a Phoenix, Ariz., attorney, says a promise of unrealistic returns would have made him leery.But Mr. Wenz, who says he lost $43,000 in one precious-metals deal and $39,000 in another, says a salesman "used a business-venture approach" with him, sending investment literature, a contract limiting the firm's liability, and an insurance policy.When he visited the company's office, he says, it had "all the trappings of legitimacy." Still others are stung by a desire to do both well and good, says Douglas Watson, commanding officer of the Los Angeles Police Department's bunko-forgery division.Born-again Christians are the most visible targets of unscrupulous do-gooder investment pitches.But hardly the only ones: The scams promise -- among other things -- to help save the environment, feed starving families and prevent the disappearance of children. Psychologists say isolated people who don't discuss their investments with others are particularly at risk for fraud.Scam artists seek out such people -- or try to make sure that their victims isolate themselves.For instance, salesmen may counter a man's objection that he wants to discuss an investment with his wife by asking, "Who wears the pants in your family?" Or an investor who wants his accountant's advice may be told, "You seem like a guy who can make up his own mind." Often con artists will try to disarm their victims by emphasizing similarities between them.William Lynes, a retired engineer from Lockheed Corp., says he and his wife, Lily, warmed to the investment pitches of a penny-stock peddler from Stuart-James Co. in Atlanta after the broker told them he, too, had once worked with Lockheed. The Lyneses, of Powder Springs, Ga., have filed suit in Georgia state court against Stuart James, alleging fraud.They are awaiting an arbitration proceeding.They say the broker took them out for lunch frequently.He urged them to refer their friends, who also lost money. (Donald Trinen, an attorney for the penny-brokerage firm, denies the fraud allegations and says the Lyneses were fully apprised that they were pursuing a high-risk investment.) "It's not uncommon for these guys to send pictures of themselves or their families to ingratiate themselves to their clients," says Terree Bowers, chief of the major-frauds section of the U.S. attorney's office in Los Angeles. "We've seen cases where salesmen will affect the accent of the region of the country they are calling.Anything to make a sale." Experts say that whatever a person's particular weak point, timing is crucial.People may be particularly vulnerable to flim-flam pitches when they are in the midst of a major upheaval in their lives. "Sometimes when people are making big changes, retiring from their jobs, moving to a new area, they lose their bearings," says Maury Elvekrog, a licensed psychologist who is now an investment adviser and principal in Seger-Elvekrog Inc., a Birmingham, Mich., investment-counseling firm. "They may be susceptible to some song and dance if it hits them at the right time." They are obviously also more susceptible when they need money-retirees, for instance, trying to bolster their fixed income or parents fretting over how to pay for a child's college expenses. "These people aren't necessarily stupid or naive.Almost all of us in comparable circumstances might be victimized in some way," says Jerald Jellison, a psychology professor at the University of Southern California in Los Angeles. Nick Cortese thinks that's what happened to him.Mr. Cortese, a 33-year-old Delta Air Lines engineer, invested some $2,000 in penny stocks through a broker who promised quick returns. "We were saving up to buy a house, and my wife was pregnant," says Mr. Cortese. "It was just before the Christmas holidays, and I figured we could use some extra cash." The investment is worth about $130 today. "Maybe it was just a vulnerable time," says Mr. Cortese. "Maybe the next day or even an hour later, I wouldn't have done it." Ms. Brannigan is a staff reporter in The Wall Street Journal's Atlanta bureau.
FOX HUNTING HAS been defined as the unspeakable in pursuit of the inedible, but at least it's exercise.At least it has a little dash.Most of us have to spend our time on pursuits that afford neither, drab duties rather than pleasures.Like trying to buy life insurance, for instance, an endeavor notably lacking in dash.Call it the uninformed trudging after the incomprehensible. But sooner or later, most of us have to think about life insurance, just as we often have to think about having root-canal work.And my time has come. I'm 33, married, no children, and employed in writing stories like this one.In times past, life-insurance salesmen targeted heads of household, meaning men, but ours is a two-income family and accustomed to it.So if anything happened to me, I'd want to leave behind enough so that my 33-year-old husband would be able to pay off the mortgage and some other debts (though not, I admit, enough to put any potential second wife in the lap of luxury). Figuring that maybe $100,000 to $150,000 would do but having no idea of what kind of policy I wanted, I looked at the myriad products of a dozen companies -- and plunged into a jungle of gibberish. Over the past decade or two, while I was thinking about fox hunting, the insurance industry has spawned an incredible number of products, variations on products, and variations on the variations.Besides term life and whole life (the old standbys), we now have universal life, universal variable life, flexible adjustable universal life, policies with persistency bonuses, policies festooned with exotic riders, living benefit policies, and on and on.What to do? First, generalize.Shorn of all their riders, special provisions, and other bells and whistles, insurance policies can still be grouped under two broad categories: so-called pure insurance, which amasses no cash value in the policy and pays off only upon death, and permanent insurance, which provides not only a death benefit but also a cash value in the policy that can be used in various ways while the insured is still alive. If all you want is death-benefit coverage, pure insurance -- a term policy -- gives you maximum bang for your buck, within limits.It's much cheaper than permanent insurance bought at the same age. But "term" means just that; the policy is written for a specific time period only and must be renewed when it expires.It may also stipulate that the insured must pass another medical exam before renewal; if you flunk -- which means you need insurance more than ever -- you may not be able to buy it.Even if you're healthy and can renew, your premium will go up sharply because you're that much older.So term insurance may not be as cheap as it looks. There are all sorts of variations on term insurance: policies structured to pay off your mortgage debt, term riders tacked on to permanent insurance, and many others.One variation that appealed to me at first was the "Money Smart Term Life" policy offered by Amex Life Insurance Co., the American Express unit, to the parent company's credit-card holders.Upon examination, however, I wondered whether the plan made a lot of sense. Amex said it would charge me $576 a year for $100,000 of coverage -- and would pay me back all the premiums I put in if I canceled the policy after 10 years.Sounds great -- or does it? First, if I canceled, I'd have no more insurance, a not insignificant consideration.Second, the $5,760 I'd get back would be much diminished in purchasing power by 10 years of inflation; Amex, not I, would get the benefit of the investment income on my money, income that would have exceeded the inflation rate and thus given the company a real profit. Third and most important, Amex would charge me a far higher premium than other reputable companies would on a straight term policy for the same amount; I'd be paying so heavily just to have the option of getting my premiums back that I'd almost have to cancel to make the whole thing worthwhile.That would be all right with Amex, which could then lock in its investment profit, but it doesn't add up to a "smart money" move for me. Which goes to show that the First Law applies in insurance as in anything else: There is no free lunch, there is only marketing. And the Second Law, unique to insurance?If I die early, I win -- a hollow victory, since I can't enjoy it -- and if I live long, the insurer wins.Always. This is worth remembering when insurers and their salesmen try to sell you permanent insurance, the kind that amasses cash value.The word "death" cannot be escaped entirely by the industry, but salesmen dodge it wherever possible or cloak it in euphemisms, preferring to talk about "savings" and "investment" instead.The implication is that your permanent-insurance policy is really some kind of CD or mutual-fund account with an added feature. That is gilding the lily.The fact is that as a savings or investment vehicle, insurance generally runs a poor second to any direct investment you might make in the same things the insurance company is putting your money into.That's because you have to pay for the insurance portion of the policy and the effort required to sell and service the whole package.Again, no free lunch. This is reflected in a built-in mortality cost -- in effect, your share of the company's estimated liability in paying off beneficiaries of people who had the effrontery to die while under its protection.And in most cases, a huge hunk of your premium in the initial year or two of the the policy is, in effect, paying the salesman's commission as well; investment returns on most policies are actually negative for several years, largely because of this. So view permanent insurance for what it is -- a compromise between pure insurance and direct investment. The simplest, most traditional form of permanent insurance is the straight whole life policy.You pay a set premium for a set amount of coverage, the company invests that premium in a portfolio of its choosing, and your cash value and dividends grow over the years. One newer wrinkle, so called single-premium life (you pay for the whole policy at once), has been immensely popular in recent years for tax reasons; the insured could extract cash value in the form of policy "loans," and none of the proceeds were taxable even though they included gains on investment. Congress closed this loophole last year, or thought it did.However, Monarch Capital Corp. of Springfield, Mass., has developed a "combination plan" of annuity and insurance coverage that it says does not violate the new regulations and that allows policy loans without tax consequences.But the percentage of your cash reserve that you can borrow tax-free is very small. I'm not prepared in any case to put that much money into a policy immediately, so I look into the broad category called universal life.Hugely popular, it is far more flexible than straight whole life.I can adjust the amount of insurance I want against the amount going into investment; I can pay more or less than the so-called target premium in a given year; and I can even skip payments if my cash reserves are enough to cover the insurance portion of the policy. In looking at these and other policies, I learn to ask pointed questions about some of the assumptions built into "policy illustrations" -- the rows of numbers that show me the buildup of my cash values over the years.They commonly give two scenarios: One is based on interest rates that the company guarantees (usually 4% to 4.5%) and the other on the rate it is currently getting on investment, often 8.5% or more. Projecting the latter over several decades, I find my cash buildup is impressive -- but can any high interest rate prevail for that long?Not likely, I think.Also, some policy illustrations assume that mortality costs will decline or that I will get some sort of dividend bonus after the 10th year.These are not certain, either. Companies "aren't comfortable playing these games, but they realize they're under pressure to make their policies look good," says Timothy Pfiefer, an actuarial consultant at Tillinghast, a unit of Towers Perrin Co., the big New York consulting firm.Another factor to consider: Some of the companies currently earning very high yields are doing so through substantial investment in junk bonds, and you know how nervous the market has been about those lately. There are seemingly endless twists to universal life, and it pays to ask questions about all of them.At a back-yard barbecue, for example, a friend boasts that she'll only have to pay premiums on her John Hancock policy for seven years and that her death benefits will then be "guaranteed." I call her agent, David Dominici. Yes, he says, premiums on such variable-rate coverage can be structured to "vanish" after a certain period -- but usually only if interest rates stay high enough to generate sufficient cash to cover the annual cost of insurance protection.If interest rates plunge, the insurer may be knocking on my door, asking for steeper premium payments to maintain the same amount of protection.I don't like the sound of that. Some insurers have also started offering "persistency bonuses," such as extra dividends or a marginally higher interest yield, if the policy is maintained for 10 years.But Glenn Daily, a New York-based financial consultant, warns that many of these bonuses are "just fantasies," because most aren't guaranteed by the companies.And the feature is so new, he adds, that no insurer has yet established a track record for actually making such payments. So-called living-benefits provisions also merit a close inspection.Offered by insurers that include Security-Connecticut Life Insurance Co., Jackson National Life Insurance Co., and National Travelers Life Insurance Co., these policy riders let me tap a portion of my death benefits while I'm still alive.Some provisions would let me collect a percentage of the policy's face value to pay for long-term care such as nursing-home stays; others would allow payments for catastrophic illnesses and conditions such as cancer, heart attarcks, renal failure and kidney transplants. But the catastrophic events for which the policyholder can collect are narrowly defined, vary from policy to policy, and generally permit use of only a small fraction of the face amount of insurance.Also, financial planners advising on insurance say that to their knowledge there has not yet been a tax ruling exempting these advance payments from taxes.And considering the extra cost of such provisions, some figure that people interested in, say, paying for extended nursing-home care would be better off just buying a separate policy that provides it. I'm more favorably impressed by "no-load life," even though it turns out to be low-load life.Insureres selling these policies market them directly to the public or otherwise don't use commissioned salesmen; there is still a load -- annual administrative fees and initial "setup" charges -- but I figure that the lack of commission and of "surrender fees" for dropping the policy early still saves me a lot. I compared one universal policy for $130,000 face amount from such an insurer, American Life Insurance Corp. of Lincoln, Neb., with a similar offering from Equitable Life Assurance Society of the U.S., which operates through 11,000 commissioned salesmen.After one year I could walk away from the Ameritas policy with $792, but Id get only $14 from the Equitable.The difference is magnified by time, too.At age 65, when I'd stop paying premiums, the Ameritas offering would have a projected cash value $14,000 higher than the other, even though the Equitable's policy illustration assumed a fractionally higher interest rate. Did I buy it?Well, not yet.I'm thinking about using the $871 annual premium to finance a trip to Paris first.A person can do some heavy thinking about insurance there -- and shop for something more exciting while she's doing it.
Rorer Group Inc. will report that third-quarter profit rose more than 15% from a year earlier, though the gain is wholly due to asset sales, Robert Cawthorn, chairman, president and chief executive officer, said. His projection indicates profit in the latest quarter of more than $17.4 million, or 55 cents a share, compared with $15.2 million, or 48 cents a share, a year ago. Mr. Cawthorn said in an interview that sales will show an increase from a year ago of "somewhat less than 10%." Through the first six months of 1989, sales had grown about 12% from the year-earlier period. Growth of 10% would make sales for the latest quarter $269 million, compared with $244.6 million a year ago. Mr. Cawthorn said the profit growth in the latest quarter was due to the sale of two Rorer drugs.Asilone, an antacid, was sold to Boots PLC, London.Thrombinar, a drug used to stanch bleeding, was sold to Jones Medical Industries Inc., St. Louis.He said Rorer sold the drugs for "nice prices" and will record a combined, pretax gain on the sales of $20 million. As the gain from the sales indicates, operating profit was "significantly" below the year-earlier level, Mr. Cawthorn said.Rorer in July had projected lower third-quarter operating profit but higher profit for all of 1989.He said the company is still looking for "a strong fourth quarter in all areas -- sales, operating income and net income." Mr. Cawthorn attributed the decline in third-quarter operating profit to the stronger dollar, which reduces the value of overseas profit when it is translated into dollars; to accelerated buying of Rorer products in the second quarter because of a then-pending July 1 price increase, and to higher marketing expenses for Rorer's Maalox antacid, whose sales and market share in the U.S. had slipped in the first half of 1989.He said Rorer opted to sell Asilone and Thrombinar to raise revenue that would "kick start" its increased marketing efforts behind Maalox, still its top-selling product with about $215 million in world-wide sales in 1988. "We had underfunded Maalox for a year," he said, because the company was concentrating on research and development and promoting other drugs. He said Rorer will spend $15 million to $20 million more on Maalox advertising and promotion in the second half of 1989 than in the year-earlier period.A "big chunk" of that additional spending came in the third quarter, he said.
The Senate rejected a constitutional amendment that President Bush sought to protect the U.S. flag from desecration. The 51-48 roll call fell well short of the two-thirds majority needed to approve changes to the Constitution. The vote, in which 11 GOP lawmakers voted against Mr. Bush's position, was a victory for Democratic leaders, who opposed the amendment as an intrusion on the Bill of Rights. "We can support the American flag without changing the American Constitution," said Senate Majority Leader George Mitchell of Maine. In order to defuse pressure for an amendment, Mr. Mitchell and House Speaker Thomas Foley (D., Wash.) had arranged for lawmakers to pass a statute barring flag desecration before voting on the constitutional change.Mr. Bush said he would allow the bill to become law without his signature, because he said only a constitutional amendment can protect the flag adequately. In June, the Supreme Court threw out the conviction of a Texas man who set a flag afire during a 1984 demonstration, saying he was "engaging in political expression" that is protected by the First Amendment.
If you think you have stress-related problems on the job, there's good news and bad news.You're probably right, and you aren't alone. A new Gallup Poll study commissioned by the New York Business Group on Health, found that a full 25% of the work force at companies may suffer from anxiety disorders or a stress-related illness, with about 13% suffering from depression. The study surveyed a national group of medical directors, personnel managers and employee assistance program directors about their perceptions of these problems in their companies.It is one of a series of studies on health commissioned by the New York Business Group, a non-profit organization with about 300 members.The stress study was undertaken because problems related to stress "are much more prevalent than they seem," said Leon J. Warshaw, executive director of the business group. In presenting the study late last week, Dr. Warshaw estimated the cost of these types of disorders to business is substantial.Occupational disability related to anxiety, depression and stress costs about $8,000 a case in terms of worker's compensation.In terms of days lost on the job, the study estimated that each affected employee loses about 16 work days a year because of stress, anxiety or depression. He added that the cost for stress-related compensation claims is about twice the average for all injury claims. "We hope to sensitize employers" to recognize the problems so they can do something about them, Dr. Warshaw said.Early intervention into these types of problems can apparently save businesses long-term expense associated with hospitalization, which sometimes results when these problems go untreated for too long. Even the courts are beginning to recognize the link between jobs and stress-related disorders in compensation cases, according to a survey by the National Council on Compensation Insurance. But although 56% of the respondents in the study indicated that mental-health problems were fairly pervasive in the workplace, there is still a social stigma associated with people seeking help. The disorders, which 20 years ago struck middle-age and older people, "now strike people at the height of productivity," says Robert M.A. Hirschfeld, of the National Institute of Mental Health, who spoke at the presentation of the study's findings. The poll showed that company size had a bearing on a manager's view of the problem, with 65% of those in companies of more than 15,000 employees saying stress-related problems were "fairly pervasive" and 55% of those in companies with fewer than 4,000 employees agreeing. The poll also noted fear of a takeover as a stress-producing event in larger companies.More than eight in 10 respondents reported such a stress-provoking situation in their company.Mid-sized companies were most affected by talk of layoffs or plant closings. The study, which received funding from Upjohn Co., which makes several drugs to treat stress-related illnesses, also found 47% of the managers said stress, anxiety and depression contribute to decreased production.Alcohol and substance abuse as a result of stress-related problems was cited by 30% of those polled. Although Dr. Warshaw points out that stress and anxiety have their positive uses, "stress perceived to be threatening implies a component of fear and anxiety that may contribute to burnout." He also noted that various work environments, such as night work, have their own "stressors." "We all like stress, but there's a limit," says Paul D'Arcy, of Rohrer, Hibler & Replogle, a corporate psychology and management consulting firm.The problem, says Mr. D'Arcy, a psychologist, is that "it's very hard to get any hard measures on how stress affects job performance."
For Cheap Air Fares, Spend Christmas Aloft IT ISN'T TRUE that a 90-year old clergyman on a mission of mercy to a disaster area on Christmas Day can fly free.But his circumstances are among the few that can qualify for the handful of really cheap airline tickets remaining in America. In recent years, carriers have become much more picky about who can fly on the cheap.But there still are a few ways today's traveler can qualify under the airline's many restrictions. One of the best deals, though, may mean skipping Christmas dinner with the relatives.This week, many carriers are announcing cut-rate fares designed to get people to fly on some of the most hallowed -- and slowest -- days of the year, including Christmas. In recent years, the airlines had waited until the last moment to court Christmas season vacationers with bargain fares.That approach flopped: Last Christmas Day, a USAir Group Inc. DC-9 jetliner flew about seven passengers from Chicago to Pittsburgh. So this year, the airlines are getting a jump on holiday discounts.They are cutting ticket prices by as much as 70% from normal levels for travel to most U.S. locations on Dec. 24, 25, 29, 30 and 31, and Jan. 4, 5 and 6.The promotions -- dubbed everything from 'Tis the Season to be Jolly to Kringle fares -- put round-trip fares at $98, $148 and $198. "They're trying to keep planes flying on days they'd normally park them," says Roger Bard, president of Mr. Mitchell Travel Service in Burnsville, N.C. Expect, of course, sky-high prices on other dates near the holidays when the airlines know vacationers are eager to travel. Consider Adopting Your Spouse's Name IF CONTINENTAL Airlines has its way, couples like Marlo Thomas and Phil Donahue may find it a hassle to qualify for some new discounts. Continental, a Texas Air Corp. unit, recently unveiled a marketing program offering free companion tickets to business-class and first-class passengers on international flights.The Continental catch: Only immediate family members are allowed, and they must have the same last name as the buyer of the ticket or legal proof they're related. That irritates many women who haven't taken their husbands' last name. "What a bunch of nonsense," says Jessica Crosby, president of the New York chapter of the National Association of Women Business Owners. "This sets things way back." Continental's logic: It doesn't want business companions abusing the promotion by falsely claiming to be related. "We accommodate their choice of names by allowing them to demonstrate" family affiliation with legal documents, says Jim O'Donnell, a senior vice president. But gay rights advocates are angry, too.The Lambda Legal Defense and Education Fund of New York City has received complaints from homosexual couples whom the airline doesn't recognize as family. "It's certainly discrimination," says attorney Evan Wolfson, whose group forced Trans World Airlines this year to change a rule that allowed travelers to transfer frequent flier awards only to family members. Take Your Vacation In a Hurricane Area WHEN HURRICANE Hugo careened through the Caribbean and the Atlantic coast states, it downed electric and telephone lines, shot coconuts through cottage rooftops, shattered windows and uprooted thousands of lives.It also lowered some air fares. Since the hurricane, Midway Airlines Inc. and American Airlines, a unit of AMR Corp., trimmed their one-way fares to the Virgin Islands to $109 from prices that were at times double that before the storm.The fares are code-named Hugo, Compassion and Virgin Islands Aid. (Airlines aren't lowering fares to Northern California following this week's earthquake, but reservation agents can waive advance-purchase restrictions on discount fares for emergency trips.) Some hotels in the hurricane-stricken Caribbean promise money-back guarantees.In Myrtle Beach, S.C., the damaged Yachtsman Resort offers daily rates as low as $35, or as much as 22% below regular prices. Says Michele Hoffman, a clerk in the resort's front office: "We don't have the outdoor pool, the pool table, ping pong table, snack bar or VCR, but we still have the indoor pool and Jacuzzi." Just Wait Until You're a Bit Older SENIOR CITIZENS have long received cheap air fares.This year, the older someone is the bigger the discount. A senior citizen between 62 and 70 saves 70% off regular coach fare.Travelers up to age 99 get a percentage discount matching their age.And centenarians fly free in first class. Next month, Northwest Airlines says, a 108-year-old Lansing, Mich., woman is taking it up on the offer to fly with her 72-year-old son to Tampa, Fla.Last year when Northwest first offered the promotion, only six centenarians flew free. If All Else Fails. . . . THE NATION'S carriers also provide discounts to Red Cross workers, retired military personnel and medical students.There's even a special fare for clergy that doesn't require the usual stay over Saturday night.That way, they can be home in time for work Sunday.
As the sponsor of the "Older Americans Freedom to Work Act," which would repeal the Social Security earnings limit for people aged 65 and older, I applaud your strong endorsement to repeal this Depression-era fossil. For every dollar earned over $8,880, Social Security recipients lose 50 cents of their Social Security benefits; it's like a 50% marginal tax.But the compounded effects of "seniors only" taxes result in truly catastrophic marginal tax rates. Imagine a widow who wants to maintain her standard of living at the same level she had before she had to pay the catastrophic surtax.Although this widow earns only twice the minimum wage, largely due to the earnings limit, she would have to earn an additional $4,930 to offset her catastrophic surtax of $496. Eliminating the earnings limit would greatly help seniors and reduce the deficit.Repeal would generate more in new taxes than the government would lose in increased Social Security benefit payments. We now need support from the Democrats on the Rules Committee in order to include earnings-limit reform in the Reconciliation Bill. Since all four Republicans on the committee are co-sponsors of my bill, it is the Democrats who will be held fully accountable if an earnings test amendment is not allowed from the floor. The time is now to lift the burdensome Social Security earnings limit from the backs of our nation's seniors. Rep. J. Dennis Hastert (R., Ill.) Washington
When his Seventh Avenue fur business here was flying high 20 years ago, Jack Purnick had 25 workers and a large factory.Now his half-dozen employees work in an eighth-floor shop that he says is smaller than his old storage room.He also says he is losing money now.He blames imports. But just down Seventh Avenue, where about 75% of U.S. fur garments are made, Larry Rosen has acquired two retail outlets, broadened his fur-making line and expanded into leather.He credits imports. The difference lies in how the two entrepreneurial furriers reacted to the foreign competition and transformation of their industry over the past 10 years.One stuck to old-line business traditions, while the other embraced the change. "The small, good fur salon is not what it used to be," says Mr. Purnick, 75 years old. "We make the finest product in the world, and the Americans are being kicked around." Mr. Rosen, though, believes imports have reinvigorated the industry in which he has worked for most of his 57 years. "You've got some minds here that won't think progressively," he says. Import competition for U.S. furs has risen sharply since furriers started aggressively marketing "working-girl mink" and similar lower-priced imported furs in recent years.Merchants discovered a consumer largely ignored by higher-priced furriers: the younger woman -- even in her late 20s -- who never thought she could buy a mink.The new market helped boost U.S. fur sales to about $1.8 billion a year now, triple the level in the late 1970s.It also opened the door to furs made in South Korea, China, Hong Kong and other countries.Jindo Furs, a large South Korean maker, says it operates 35 retail outlets in the U.S. and plans to open 15 more by the end of next year.Mr. Purnick and other old-line furriers call many of the the imports unstylish and poorly made.High-end U.S. furriers say these imports haven't squeezed them.But low-priced and middle-priced furriers like Mr. Purnick, who once saturated the five-block Seventh Avenue fur district, say imports have cut their sales.A woman who once would have saved for two or three seasons to buy a U.S.-made mink can now get an imported mink right away for less than $2,000. Yet Mr. Rosen has turned the import phenomenon to his advantage.Early in the decade he saw that fur workers in many foreign countries were willing to work longer hours at lower wages than their American counterparts and were more open to innovation.In 1982, he started a factory in Greece.Two years later, he opened one in West Germany. He also noticed that foreign makers were introducing many variations on the traditional fur, and he decided to follow suit.By combining his strengths in innovation and quality control with the lower costs of production abroad, he says he has been able to produce high-quality goods at low cost.To maintain control over production and avoid overdependence on foreign sources, he says he still makes most of his furs in the U.S.But six years ago he also began importing from the Far East. Inspired by imports, Mr. Rosen now makes fur muffs, hats and flings.This year he produced a men's line and offers dyed furs in red, cherry red, violet, royal blue and forest green.He has leather jackets from Turkey that are lined with eel skin and topped off with raccoon-skin collars.From Asia, he has mink jackets with floral patterns made by using different colored furs.Next he will be testing pictured embroidery (called kalega) made in the Far East.He plans to attach the embroidery to the backs of mink coats and jackets.Besides adding to sales, leathers also attract retailers who may buy furs later, he adds. Other furriers have also benefited from leathers.Seymour Schreibman, the 65-year-old owner of Schreibman Raphael Furs Inc., treats the reverse side of a Persian lambskin to produce a reversible fur-and-leather garment.He says it accounts for 25% of total sales. Mr. Rosen is also pushing retail sales.This year he bought two stores, one in Brooklyn and one in Queens.Other furriers have also placed more weight on retailing. Golden Feldman Furs Inc. began retailing aggressively eight years ago, and now retail sales account for about 20% of gross income. In other moves, Mr. Rosen says he bought a truck three years ago to reach more retailers.Since then he has expanded his fleet and can now bring his furs to the front door of retailers as far away as the Midwest.Small retailers who can't afford to travel to his New York showroom have become fair game. Such moves have helped Mr. Rosen weather the industry slump of recent years.The industry enjoyed six prosperous years beginning in 1980, but since 1986 sales have languished at their $1.8 billion peak.Large furriers such as Antonovich Inc., Fur Vault Inc. and Evans Inc. all reported losses in their latest fiscal years.Aftereffects of the 1987 stock market crash head the list of reasons.In addition, competition has glutted the market with both skins and coats, driving prices down.The animal-rights movement hasn't helped sales.Warm winters over the past two years have trimmed demand, too, furriers complain. And those who didn't move some production overseas suffer labor shortages. "The intensive labor needed to manufacture furs {in the U.S.} is not as available as it was," says Mr. Schreibman, who is starting overseas production. But even those who have found a way to cope with the imports and the slump, fear that furs are losing part of their allure. "People are promoting furs in various ways and taking the glamour out of the fur business," says Stephen Sanders, divisional merchandise manager for Marshall Field's department store in Chicago. "You can't make a commodity out of a luxury," insists Mr. Purnick, the New York furrier.He contends that chasing consumers with low-priced imports will harm the industry in the long run by reducing the prestige of furs. But Mr. Rosen responds: "Whatever people want to buy, I'll sell.The name of the game is to move goods."
Four workers at GTE Corp. 's headquarters have been diagnosed as having hepatitis, and city health officials are investigating whether a cafeteria worker may have exposed hundreds of other GTE employees to the viral infection, company and city officials said. The four cases were all reported to GTE's medical director and state and local health authorities. GTE shut down its cafeteria Tuesday afternoon after testing determined that at least one cafeteria worker employed by GTE's private food vending contractor, ARA Services Inc., was suffering from a strain of the virus, officials said.More than 700 people work in the GTE building.The cafeteria remains closed. Dr. Andrew McBride, city health director, said his staff suspects the hepatitis, which can be highly contagious, was spread by the cafeteria worker with the virus. The exact strain of hepatitis that the cafeteria worker contracted hasn't been determined but should be known by the end of the week, Dr. McBride said. Hepatitis A, considered the least dangerous strain of the virus, has been confirmed in at least one GTE employee, company and city officials said. "From a public health point of view we're relieved because hepatitis A is rarely life-threatening," said Dr. Frank Provato, GTE's medical director. "It's a double-edged sword though, because it is also the most contagious kind of hepatitis." GTE officials began posting warning notices about the potential threat to exposure Wednesday morning at various places at the company, said GTE spokesman Thomas Mattausch. The company has begun offering shots of gamma globulin, which will diminish the flu-like symptoms of hepatitis A, in anyone who has contracted the disease, Mr. Mattausch said. "We're strongly recommending that anyone who has eaten in the cafeteria this month have the shot," Mr. Mattausch added, "and that means virtually everyone who works here."
In the wake of a slide in sterling, a tailspin in the stock market, and a string of problematic economic indicators, British Chancellor of the Exchequer Nigel Lawson promised gradual improvement in the U.K. economy. In a speech prepared for delivery to London's financial community, Mr. Lawson summed up current economic policy as a battle to wring inflation out of the British economy, using high interest rates as "the essential instrument" to carry out the campaign.Two weeks after boosting base rates to 15%, he pledged that "rates will have to remain high for some time to come." Mr. Lawson also made it clear that he would be watching exchange rates carefully.A sinking pound makes imports more expensive and increases businesses' expectations of future inflation, he argued.In an apparent warning to currency traders who have lately been selling the British currency, he stated that the exchange rates will have a "major role in the assessment of monetary conditions." In reaffirming the current monetary policy of using high interest rates to fight inflation and shore up the pound, Mr. Lawson dismissed other approaches to managing the economy.He said he monitors the money-supply figures, but doesn't give them paramount importance, as some private and government economists have suggested.Mr. Lawson also dismissed the possibility of imposing direct credit controls on Britain's financial system. Mr. Lawson's speech, delivered at the Lord Mayor of London's annual dinner at Mansion House, came on the heels of a grueling period for the U.K. economy.Two weeks ago, in a campaign to blunt inflation at home and arrest a world-wide plunge in the pound, he raised base rates a full percentage point to 15%.Despite the increase, the British currency slid below a perceived threshold of three marks early last week.It was quoted at 2.9428 marks in late New York trading Wednesday. Leading up to the speech was a drumroll of economic statistics suggesting that the British war on inflation will be more bruising than previously assumed.Unemployment in September dropped to 1,695,000, the lowest level since 1980.While lower joblessness is generally good news, the hefty drop last month indicates that the economy isn't slowing down as much as hoped -- despite a doubling of interest rates over the last 16 months. Meanwhile, average earnings in Britain were up 8.75% in August over the previous year. Another inflationary sign came in a surge in building-society lending to a record #10.2 billion ($16.22 billion) last month, a much higher level than economists had predicted. In a separate speech prepared for delivery at the dinner, Robin Leigh-Pemberton, Bank of England governor, conceded that "demand pressures were even more buoyant than had been appreciated" when the British economy was heating up last year.He added that "there's no quick-fix solution" to the economic woes, and said "tight monetary policy is the right approach." Discussing the recent slide in stock prices, the central bank governor stated that "the markets now appear to have steadied" after the "nasty jolt" of the 190.58-point plunge in the Dow Jones Industrial Average a week ago.Although the New York market plunge prompted a 70.5-point drop in the London Financial Times-Stock Exchange 100 Share Index, Mr. Leigh-Pemberton declared "that the experience owed nothing to the particular problems of the British economy." Specifically, he pointed out that compared with the U.S. market, the U.K. has far fewer highly leveraged junk-bond financings. Discussing future monetary arrangements, Mr. Lawson repeated the Thatcher government's commitment to join the exchange rate mechanism of the European Monetary System, but he didn't indicate when.
Ing.C. Olivetti & Co., claiming it has won the race in Europe to introduce computers based on a powerful new microprocessor chip, unveiled its CP486 computer yesterday. The product is the first from a European company based on Intel Corp. 's new 32-bit 486tm microprocessor, which works several times faster than previously available chips.Hewlett-Packard Co. became the first company world-wide to announce a product based on the chip earlier this month, but it won't start shipping the computers until early next year. An Olivetti spokesman said the company's factories are already beginning to produce the machine, and that it should be available in Europe by December. "What this means is that Europeans will have these machines in their offices before Americans do," the spokesman said. The new chip "is a very big step in computing, and it is important that Olivetti be one of the first out on the market with this product," said Patricia Meagher Davis, an analyst at James Capel & Co. in London.Executives at Olivetti, whose earnings have been steadily sliding over the past couple of years, have acknowledged that in the past they have lagged at getting new technology to market. Ms. Davis said the new machines could steal some sales away from Olivetti's own minicomputers, but would bring new sales among professionals such as engineers, stockbrokers and medical doctors.Although Olivetti's profits tumbled 40% in the first half of this year, she believes Olivetti's restructuring last fall and its introduction of new products will begin to bear fruit with an earnings rebound next year, especially if it can fulfill its promise to deliver the new machines by December. "We think the worst is over" in the European information-technology market, she said. Depending on the type of software and peripherals used, the machines can serve either as the main computer in a network of many terminals (a role usually filled by a minicomputer), as a technical workstation or as a very fast personal computer. "It's the missing link" in Olivetti's product line between small personal computers and higher-priced minicomputers, the Olivetti spokesman said.He added that Olivetti will continue making its LSX minicomputer line. The machines will cost around $16,250 on average in Europe.The Intel 486 chip can process 15 million instructions per second, or MIPS, while Intel's previous 386 chip could handle only 3 to 6 MIPS. Olivetti also plans to sell the CP486 computer in the U.S. starting next year through Olivetti USA and through its ISC/Bunker Ramo unit, which specializes in automating bank-branch networks.
Health-care companies should get healthier in the third quarter. Medical-supply houses are expected to report earnings increases of about 15% on average for the third quarter, despite sales increases of less than 10%, analysts say.To offset sluggish sales growth, companies have been cutting staff, mostly through attrition, and slowing the growth in research and development spending. Sales growth in the quarter was slowed by mounting pressure from groups of buyers, such as hospitals, to hold down prices.Suppliers were also hurt by the stronger U.S. dollar, which makes sales abroad more difficult.In some cases, competition has squeezed margins.Becton, Dickinson & Co., for example, faces stiff competition from a Japanese supplier in the important syringe market.The Franklin Lakes, N.J., company is expected to report sales growth of only 5% to 6%, but should still maintain earnings growth of 10%, says Jerry E. Fuller, an analyst with Duff & Phelps Inc. Among the first of the group to post results, Abbott Laboratories said third-quarter net income jumped 14% to $196 million, or 88 cents a share, from $172 million, or 76 cents a share, a year earlier.Sales for the company, based in Abbott Park, Ill., rose 8.3% to $1.31 billion from $1.21 billion. Baxter International Inc. yesterday reported net climbed 20% in the third period to $102 million, or 34 cents a share, from $85 million, or 28 cents a share, a year earlier.Sales for the Deerfield, Ill., company rose 5.8% to $1.81 billion from $1.71 billion. But not every company expects to report increased earnings.C.R. Bard Inc. yesterday said third-quarter net plunged 51% to $9.9 million, or 18 cents a share, from $20 million, or 35 cents a share, a year earlier.Sales fell 1.2% to $190.1 million from $192.5 million.The Murray Hill, N.J., company said full-year earnings may be off 33 cents a share because the company removed a catheter from the market.In 1988, the company earned $1.38 a share. The Food and Drug Administration had raised questions about the device's design.Some analysts add that third-party pressures to reduce health costs will continue to bedevil companies' bottom lines.Takeover speculation, which has been buoying stocks of supply houses, may also ease, says Peter Sidoti, an analyst with Drexel Burnham Lambert Inc. "As that wanes, you're going to see the stocks probably wane as well," he says. Hospitals companies, meanwhile, are reporting improved earnings. Bolstered by strong performances by its psychiatric hospitals, National Medical Enterprises Inc., Los Angeles, reported net income of $50 million, or 65 cents a share, for the first quarter ended Aug. 31, up from $41 million, or 56 cents a share, a year earlier.Humana Inc., Louisville, Ky., also reported favorable results, with net income of $66.7 million, or 66 cents, in the fourth quarter ended Aug. 31, up from $58.2 million, or 59 cents, a year earlier. Analysts say the handful of hospital companies that are still publicly traded are benefiting from several trends.Most important, hospital admission rates are stabilizing after several years of decline.Moreover, companies have sold off many of their smaller, less-profitable hospitals and have completed painful restructurings.Humana's revenues, for example, are being boosted by large increases in enrollments in the company's health maintenance organizations. Says Todd Richter, an analyst with Dean Witter Reynolds: "The shakeout in the publicly traded companies is over."
Digital Equipment Corp. reported a 32% decline in net income on a modest revenue gain in its fiscal first quarter, causing some analysts to predict weaker results ahead than they had expected. Although the second-largest computer maker had prepared Wall Street for a poor quarter, analysts said they were troubled by signs of flat U.S. orders and a slowdown in the rate of gain in foreign orders.The Maynard, Mass., company is in a transition in which it is trying to reduce its reliance on mid-range machines and establish a presence in workstations and mainframes. Net for the quarter ended Sept. 30 fell to $150.8 million, or $1.20 a share, from $223 million, or $1.71 a share, a year ago.Revenue rose 6.4% to $3.13 billion from $2.94 billion. Digital said a shift in its product mix toward low-end products and strong growth in workstation sales yielded lower gross margins.A spokesman also said margins for the company's service business narrowed somewhat because of heavy investments made in that sector. The lack of a strong product at the high end of Digital's line was a significant drag on sales.Digital hopes to address that with the debut of its first mainframe-class computers next Tuesday.The new line is aimed directly at International Business Machines Corp. "Until the new mainframe products kick in, there won't be a lot of revenue contribution at the high end, and that's hurt us," said Mark Steinkrauss, Digital's director of investor relations.He said unfavorable currency translations were also a factor in the quarter. DEC shares rose $1.375 to $89.75 apiece in consolidated New York Stock Exchange trading yesterday.But analysts said that against the backdrop of a nearly 40-point rise in the Dow Jones Industrial Average, that shouldn't necessarily be taken as a sign of great strength.Some cut their earnings estimates for the stock this year and predicted more efforts to control costs ahead. "I think the next few quarters will be difficult," said Steven Milunovich of First Boston. "Margins will remain under pressure, and when the new mainframe does ship, I'm not sure it will be a big winner." Mr. Milunovich said he was revising his estimate for DEC's current year from $8.20 a share to "well below $8," although he hasn't settled on a final number. One troubling aspect of DEC's results, analysts said, was its performance in Europe.DEC said its overseas business, which now accounts for more than half of sales, improved in the quarter.It even took the unusually frank step of telling analysts in a morning conference call that orders in Europe were up in "double digits" in foreign-currency terms. That gain probably translated into about 5% to 7% in dollar terms, well below recent quarters' gains of above 20%, reckons Jay Stevens of Dean Witter Reynolds. "That was a disappointment" and a sign of overall computer-market softness in Europe, Mr. Stevens said. Marc Schulman, with UBS Securities in New York, dropped his estimate of DEC's full-year net to $6.80 a share from $8.Although overall revenues were stronger, Mr. Schulman said, DEC "drew down its European backlog" and had flat world-wide orders overall. "The bottom line is that it's more hand to mouth than it has been before," he said. Mr. Schulman said he believes that the roll-out of DEC's new mainframe will "occur somewhat more leisurely" than many of his investment colleagues expect.He said current expectations are for an entry level machine to be shipped in December, with all of the more sophisticated versions out by June.For reasons he wouldn't elaborate on, he said he's sure that schedule won't be met, meaning less profit impact from the product for DEC in the next few quarters. John R. Wilke contributed to this article.
Colgate Palmolive Co. reported third-quarter net income rose 27%, bolstered by strong sales in its Latin American business and surprisingly healthy profits from U.S. operations. Colgate said net income for the quarter rose to $76.7 million, or $1.06 a share, on sales that increased 6% to $1.3 billion.In the year-earlier period, Colgate posted net income of $60.2 million, or 88 cents a share.Last year's results included earnings from discontinued operations of $13.1 million, or 19 cents a share. Reuben Mark, chairman and chief executive officer of Colgate, said earnings growth was fueled by strong sales in Latin America, the Far East and Europe.Results were also bolstered by "a very meaningful increase in operating profit at Colgate's U.S. business," he said. Operating profit at Colgate's U.S. household products and personal care businesses, which include such well-known brands as Colgate toothpaste and Fab laundry detergent, jumped more than 40%, the company said.Mr. Mark attributed the improvement to cost savings achieved by consolidating manufacturing operations, blending together two sales organizations and more carefully focusing the company's promotional activities. "We've done a lot to improve (U.S.) results and a lot more will be done," Mr. Mark said. "Improving profitability of U.S. operations is an extremely high priority in the company." Colgate's results were at the high end of the range of analysts' forecasts.The scope of the improvement in the U.S. business caught some analysts by surprise.The company's domestic business, especially its household products division, has performed poorly for years.Analysts say the earnings improvement came from cutting costs rather than increasing sales. For the nine months, net increased 14% to $217.5 million, or $3.09 a share.Sales rose 7% to $3.8 billion.The company earned $191.1 million, or $2.79 a share, in the year-earlier period.Colgate's 1988 net income included $40.1 million, or 59 cents a share, from discontinued operations.Colgate sold its hospital supply and home health care business last year. Separately, Colgate Wednesday finalized an agreement with MacroChem Corp., a tiny dental products and pharmaceutical concern based in Billerica, Mass., to market in the U.S. four of MacroChem's FDA-approved dental products.The products -- sealants and bonding materials used by dentists -- all contain fluoride that is released over time.The move is part of a drive to increase Colgate's business with dentists, a company spokeswoman said.Terms of the agreement weren't given.
It was the second anniversary of the 1987 crash, but this time it was different.Stocks rallied on good earnings reports and on data that showed less inflation than expected. Blue chips led the march up in heavy trading.The Dow Jones Industrial Average rose 39.55 points to 2683.20.The 30 industrials led the market higher from the opening bell as foreign buyers stepped in.By afternoon, the broader market joined the advance in full strength.Standard & Poor's 500-stock Index rose 5.37 to 347.13 and the Nasdaq composite index jumped 7.52 to 470.80.New York Stock Exchange volume swelled to 198,120,000 shares. The industrials were up about 60 points in the afternoon, but cautious investors took profits before the close. Traders said a variety of factors triggered the rally.The consumer price index rose 0.2% in September, while many economists were looking for a 0.4% increase.Stock-index arbitrage buy programs -- in which traders buy stock against offsetting positions in futures to lock in price differences -- helped the rally's momentum. The euphoria was such that investors responded to good earnings reports of companies such as American Express, while ignoring the disappointing profits of companies such as Caterpillar, analysts said. Stock-index arbitrage trading was a minor influence in yesterday's rally, traders said.Institutional buyers were the main force pushing blue chips higher. To the amazement of some traders, takeover stocks were climbing again.Hilton rose 2 7/8 to 100, for example.Last Friday, takeover traders spilled out of Hilton, knocking the stock down 21 1/2 to 85.Among other stocks involved in restructurings or rumored to be so: Holiday Corp. gained 1 7/8 to 73 and Honeywell rose 2 7/8 to 81 1/2. One floor trader noted in astonishment that nobody seemed to mind the news that British Airways isn't making a special effort to revive the UAL buy-out.The announcement of the buy-out's troubles triggered the market's nose dive a week ago. Takeover enthusiasm may have been renewed when an investor group disclosed yesterday that it had obtained all the financing required to complete its $1.6 billion leveraged buy-out of American Medical International. "That's put some oomph back into this market," said Peter VandenBerg, a vice president of equity trading at Shearson Lehman Hutton. But some traders thought there was less to the rally than met the eye. "There is no strength behind this rally," asserted Chung Lew, head trader at Kleinwort Benson North America. "It's traders squaring positions.It's not good; the market is setting up for another fall." Indeed, many traders said that uncertainty about today's monthly expiration of stocks-index futures and options, and options on individual stocks, prompted a lot of buying by speculative traders who were unwinding positions that were bets on declining stock prices. The number of outstanding contracts in the October Major Market Index jumped from 5,273 on Friday to 9,023 on Monday.The MMI is a 20-stock index that mimics the Dow Jones Industrial Average.Outstanding contracts are those that remain to be liquidated.By Wednesday, the outstanding October contracts amounted to 8,524, representing about $1.13 billion in stock, noted Donald Selkin, head of stock-index futures research at Prudential-Bache Securities, who expects a volatile expiration today. "There has been a tremendous increase" in MMI positions, Mr. Selkin said. Consumer stocks once again set the pace for blue-chip issues.Philip Morris added 1 1/8 to 44 1/2 in Big Board composite trading of 3.7 million shares, Coca-Cola Co. gained 2 3/8 to 70 3/8, Merck gained 1 3/8 to 77 3/8 and American Telephone & Telegraph advanced 7/8 to 43 3/8 on 2.5 million shares. American Medical jumped 1 7/8 to 23 5/8. IMA Acquisition, an investor group that includes First Boston and the Pritzker family of Chicago, said Chemical Bank had made arrangements for 23 other banks to provide $509 million in bank financing for the buy-out offer.Chemical and six other banks, along with First Boston, are providing the rest of the $1.6 billion. Elsewhere on the takeover front, Time Warner advanced 2 5/8 to 136 5/8 and Warner Communications tacked on 7/8 to 63 7/8.The Delaware Supreme Court affirmed a ruling that barred Chris-Craft Industries from voting its Warner preferred stock as a separate class in deciding on the companies' proposed merger. Paramount Communications climbed 1 1/4 to 58 1/2 and MCA rose 1 1/2 to 64; both media companies have long been mentioned as potential acquisition candidates.Among other actual and rumored targets, Woolworth rose 1 1/4 to 60 1/2, Upjohn went up 1 1/8 to 39 3/4, Armstrong World Industries gained 1 to 40 1/8 and Kollmorgen rose 3/4 to 13 7/8. In addition: -- Soo Line jumped 2 3/4 to 20 1/4, above the $19.50 a share that Canadian Pacific offered for the company in a takeover proposal. -- Xtra gained 1 1/8 to 27 1/8.Investor Robert M. Gintel, who owns a 4.7% stake in the company, said he plans a proxy fight for control of its board. -- Golden Nugget rose 2 to 28 1/4.Its board approved the repurchase of as many as three million common shares, or about 17% of its shares outstanding. Buying interest also resurfaced in the technology sector, including International Business Machines, whose board approved a $1 billion increase in its stock buy-back program.IBM rose 2 3/8 to 104 1/8 as 2.2 million shares changed hands. Compaq Computer soared 4 5/8 to 111 1/8 on 1.8 million shares in response to the company's announcement of plans to introduce several products next month.Digital Equipment gained 1 3/8 to 89 3/4 despite reporting earnings for the September quarter that were on the low end of expectations. Among other technology issues, Cray Research rose 1 5/8 to 37, Hewlett-Packard added 1 1/4 to 50 1/4, Tandem Computers rallied 1 1/8 to 25 3/4, Data General rose 3/4 to 14 1/2 and Motorola gained 2 3/8 to 59 1/4. On the other hand, Symbol Technologies dropped 1 1/4 to 18 1/2 after Shearson Lehman Hutton lowered its short-term investment rating on the stock and its 1989 earnings estimate, and Commodore International fell 7/8 to 8 after the company said it expects to post a loss for the September quarter. Insurance stocks continued to climb on expectations that premium rates will rise in the aftermath of the earthquake in the San Francisco area.American International Group climbed 4 to 106 5/8, General Re rose 3 1/8 to 89 5/8, Kemper added 2 1/2 to 48, AON went up 1 3/8 to 36 and Chubb rose 1 1/4 to 82 1/4. Stocks of major toy makers rallied in the wake of strong third-quarter earnings reports.Mattel added 1 1/4 to 19 5/8, Tonka firmed 1 to 18 1/2 and Lewis Galoob Toys rose 7/8 to 13 5/8 on the Big Board, while Hasbro gained 1 to 21 7/8 on the American Stock Exchange. Capital Cities-ABC surged 42 5/8 to 560.Kidder Peabody raised its investment rating on the stock and its earnings estimates for 1989 and 1990, based on optimism that the company's ABC television network will continue to fare well in the ratings. Dun & Bradstreet lost 1 7/8 to 51 7/8 on 1.8 million shares.Merrill Lynch lowered its short-term rating on the stock and its estimate of 1990 earnings, citing a sales slowdown in the company's credit-rating business. Pinnacle West Capital, which suspended its common-stock dividend indefinitely and reported a 91% decline in third-quarter earnings, fell 5/8 to 11 3/8. The Amex Market Value Index recorded its sharpest gain of the year by climbing 4.74 to 382.81.Volume totaled 14,580,000 shares. B.A.T Industries, the most active Amex issue, rose 3/8 to 12 3/8.The company received shareholder approval for its restructuring plan, designed to fend off a hostile takeover bid from a group headed by financier Sir James Goldsmith. Chambers Development Class A jumped 3 1/8 to 37 1/8 and Class B rose 2 5/8 to 37 1/4.The company said six officers are buying a total of $1.5 million of its stock. TRC Cos., the target of an investigation by the U.S. inspector general, dropped 2 to 10 3/4.The probe involves testing procedures used on certain government contracts by the company's Metatrace unit.
American Telephone & Telegraph Co. unveiled a sweetened pension and early-retirement program for management that it hopes will enable it to save $450 million in the next year.AT&T also said net income rose 19% in the third quarter. AT&T said its amended pension program will nearly double to 34,000 the number of managers eligible to retire with immediate pension payments.AT&T said that based on studies of other companies that have offered retirement plans, it expects about one-third of its eligible managers to retire under the new program. AT&T said third-quarter net income grew, despite stiff competition in all of the company's markets.Net income rose to $699 million, or 65 cents a share, from the year-earlier $587 million, or 55 cents a share.Revenue edged up to $8.9 billion from $8.81 billion. The latest period's net was reduced $102 million, or nine cents a share, for a change in depreciation method and concurrent changes in estimates of depreciable lives and net salvage for certain telecommunications equipment. The results roughly matched estimates of securities analysts, who were encouraged by AT&T increasing its operating margin to 13% from 11% a year ago, because of continued cost-cutting efforts.Sales of long-distance services, an extremely competitive market, rose 6.4%.But the growth was partly offset by lower equipment sales and rentals and price cuts on some products. Under the amended pension program, AT&T managers who have at least five years of service will have five years added to their age and length of service for pension purposes.Managers who retire Dec. 30 will have an additional 15% added to their monthly pension for as long as five years or age 65, whichever comes earlier. An AT&T spokeswoman said the company would likely replace about one-third of its managers who choose to retire with new employees.Analysts hailed the sweetened pension package, which they said had been the subject of rumors for several months. "This tells you AT&T is serious about continuing to manage their cost structure and is committed to 20%-a-year earnings growth," said Jack Grubman, an analyst with PaineWebber Inc. But other analysts expressed disappointment that the cost-cutting move won't result in even greater earnings growth. "This is a good move, but it only gets you to where people's expectations already are," in terms of earnings growth, said Joel D. Gross, an analyst with Donaldson, Lufkin & Jenrette.Mr. Gross said he had hoped that a cost savings of $450 million would result in even greater growth than the 20% annual earnings increase AT&T has told analysts it expects in the future. AT&T said the special retirement option will increase fourth-quarter expenses.But the company said the amount can't be determined until it knows how many managers opt to retire.AT&T said the expense increase will be largely offset by a gain from its previously announced plan to swap its holdings in Ing.C. Olivetti & Co. for shares in Cie.Industriali Riunite, an Italian holding company. For the nine months, AT&T said net income was $1.99 billion, or $1.85 a share, up 19% from $1.67 billion, or $1.56 a share.Revenue gained 3.1% to $26.81 billion from $26 billion. In composite trading yesterday on the New York Stock Exchange, AT&T shares closed at $43.375, up 87.5 cents.
When it comes to buying and selling shares, Westridge Capital Management Inc. takes a back seat to no one. Every dollar's worth of stock in the Los Angeles money manager's portfolio is traded seven or eight times a year, the firm estimates.That makes it the most active trader among all the nation's investment advisers, according to Securities and Exchange Commission filings. But wait a second.Westridge Capital is an index fund -- the type of stolid long-term investor whose goal is to be nothing more than average. Westridge Capital's frenetic trading reflects the changes sweeping through the previously sleepy world of indexing.Indexing for the most part has involved simply buying and then holding stocks in the correct mix to mirror a stock market barometer, such as Standard & Poor's 500-stock index, and match its performance. Institutional investors have poured $210 billion into stock and bond indexing as a cheap and easy form of investment management that promises to post average market returns.These big investors have flocked to indexing because relatively few "active" stock pickers have been able to consistently match the returns of the S&P 500 or other bellwethers, much less beat it. And the fees investors pay for indexing run a few pennies for each $100 of assets -- a fraction of the cost of active managers.That's because computers do most of the work, and low trading activity keeps a lid on commission costs. But today, indexing is moving from a passive investment strategy to an increasingly active one.Because index-fund managers are no longer satisfied with merely being average, they have developed "enhanced" indexing strategies that are intended to outperform the market as much as three percentage points. "Indexing has been the most single successful investment concept in the last decade, but the index money has been just sort of sitting there," says Seth M. Lynn, president of Axe Core Investors Inc., an indexer based in Tarrytown, N.Y. "Now the interest is in what else can I do with that money." Among the souped-up indexing strategies: Indexed portfolios can be built around thousands of stocks, or just a few dozen, rather than being restricted to the S&P 500 companies.They can ignore the S&P 500 stocks altogether and focus on particular types of stocks, such as smaller companies, those paying high dividends or companies in a particular industry, state or country. With today's computer-driven program trading techniques, index funds can trade back and forth between stock-index futures and the actual stocks making up indexes such as the S&P 500.Futures and options also make it possible to build "synthetic" index funds that don't actually own a single share of stock, but can produce returns that match or exceed the broad stock market. One reason for these hybrids is that indexing's rapid growth is slowing, particularly for those "plain vanilla" funds that mirror the S&P 500. "There isn't a boatload {of big investors} out there still waiting to get into indexing," says P. James Kartalia, vice president of ANB Investment Management Co., Chicago, which offers both indexing and active management services. (After tripling in size in the past five years, index funds now hold about 20% of the stock owned by pension funds.) A further problem is razor-thin profits.Plain-vanilla funds have become so commonplace that fees they can charge have plunged to almost nothing, and in some cases are just that.To land customers for their well-paying stock custodial business, big banks sometimes will throw in basic indexing services for free. "It's like getting a free toaster when you open an account," says Axe Core's Mr. Lynn. As a result, indexers have been looking for ways to give investors something more than the average for their money.And many have been successful, as in the case of the index fund operated by hyper-trader Westridge Capital. Westridge Capital has used enhanced indexing techniques to beat the S&P 500's returns by 2.5 to 3 percentage points over the past four years, with the same risk level as holding the S&P 500 stocks, according to James Carder, the firm's president. Strategies vary for Westridge Capital, which has $300 million under management.The firm sometimes buys S&P 500 futures when they are selling at a discount to the actual stocks, and will switch back and forth between stocks and stock-index futures to take advantages of any momentary price discrepencies. Mr. Carder also goes through periods when he buys stocks in conjunction with options to boost returns and protect against declines. And in some months, he buys stock-index futures and not stocks at all. "By their nature, our trades are very short-term and are going to create high turnover," Mr. Carder adds. "The more turnover, the better for our clients." Big indexer Bankers Trust Co. also uses futures in a strategy that on average has added one percentage point to its enhanced fund's returns.J. Thomas Allen, president of Pittsburgh-based Advanced Investment Management Inc., agrees it's a good idea to jump between the S&P 500 stocks and futures. "You're buying the S&P, and you always want to hold the cheapest form of it," he says. But some indexers make little or no use of futures, saying that these instruments present added risks for investors. "If the futures markets have a problem, then those products could have a problem," says John Zumbrunn, managing director of Prudential Insurance Co. of America's Investment Index Technologies Inc. unit. Prudential currently is seeking approval to offer a new fund offering a return equal to the S&P 500 index plus 5/100 of a percentage point.An added feature is that the slighty improved return would be guaranteed by Prudential. There are many other strategies to bolster the returns of index funds.They include: LIMITED RISK FUNDS: These guarantee protection against stock market declines while still passing along most gains.Here a fund may promise to pay back, say, $95 of every $100 invested for a year, even if the market goes much lower.The fund could invest $87 for one year in Treasury bills yielding 8% to return the guaranteed $95.That leaves $13, which could be used to buy S&P 500 options that will nearly match any gain in the S&P index. MANAGER REPLICATION FUNDS: Say a big investor is interested in growth stocks.Instead of hiring one of the many active managers specializing in growth stocks, indexers can design a portfolio around the same stocks; the portfolio will be maintained by computer, reducing both fees and, in theory, risk (because of the large number of stocks). "We see a lot of interest in those kind of things," says Frank Salerno, a vice president of Bankers Trust. "People comfortable with the passive approach are using them for other strategies." TILT FUNDS: This is an index fund with a bet.Instead of replicating the S&P 500 or some other index exactly, some stocks are overweighted or underweighted in the portfolio.One simple approach is to exclude S&P 500 companies considered bankruptcy candidates; this can avoid weak sisters, but also can hurt when a company like Chrysler Corp. rebounds.Another approach: An investor with $100 million might use $75 million to buy the S&P 500 index and spend the other $25 million on a favorite group of stocks. SPECIALIZED FUNDS: Indexes can be constructed to serve social goals, such as eliminating the stocks of companies doing business in South Africa.Other funds have been designed to concentrate on stocks in a geographic area in order to encourage local investment.Pennsylvania State Employees Retirement System, for example, has about $130 million invested in a fund of 244 companies that are either Pennsylvania-based or have 25% of their work forces in the state.
Short interest on the New York Stock Exchange declined for the second consecutive month, this time 4.2%, while the American Stock Exchange reported its third consecutive record month of short interest. The Big Board reported that short interest dropped to 523,920,214 shares as of Oct. 13 from 547,347,585 shares in mid-September.Amex short interest climbed 3% to 53,496,665 shares from 51,911,566 shares. For the year-earlier month, the Big Board reported 461,539,056 shares, indicating a 13.5% year-to-year rise, while the Amex reported 36,015,194 shares, a 48% leap. Amex short interest has been heading upward since mid-December, with increases in each month since then except at mid-July. Traders who sell short borrow stock and sell it, betting that the stock's price will decline and that they can buy the shares back later at a lower price for return to the lender. Short interest is the number of shares that haven't yet been purchased for return to lenders.Although a substantial short position reflects heavy speculation that a stock's price will decline, some investors consider an increase in short interest bullish because the borrowed shares eventually must be bought back. Fluctuation in short interest of certain stocks also may be caused partly by arbitraging.The figures occasionally include incomplete transactions in restricted stock. The level of negative sentiment measured by the Big Board short interest ratio slipped to 3.36 from last month's 3.38.The ratio is the number of trading days, at the exchange's average trading volume, that would be required to convert the total short interest position. Some analysts suggest, however, that the ratio has weakened in value as an indicator because options and other products can be used to hedge short positions. Varity Corp. led the Big Board list of largest short volumes with 12,822,563 shares.Varity has proposed to acquire K-H Corp., consisting of the auto parts division and some debt of Fruehauf Corp., for $577.3 million of cash and securities. Chemical Waste Management posted the biggest increase in short volume on the New York exchange, up 3,383,477 shares to 5,267,238.Bristol-Myers Squibb Co., the entity formed from the recent acquisition of Squibb Corp. by Bristol-Myers Co., logged the largest volume decline, 7,592,988 shares, to 12,017,724. Short interest in International Business Machines Corp. plunged to 1,425,035 shares from 2,387,226 shares a month earlier.Also closely watched is Exxon Corp., where short interest slid to 4,469,167 shares from 5,088,774. On a percentage basis, Germany Fund Inc. led the gainers, leaping to 67,972 shares from three shares. TransCanada PipeLines Ltd. led the percentage decliners, dropping to 59 shares from 183,467. The Amex short interest volume leader again was Texas Air Corp., rising to 3,820,634 shares from 3,363,949.Bolar Pharmaceutical Co. posted the largest volume increase, 552,302 shares, to 2,157,656.The company is under an investigation concerning procedures to gain Food and Drug Administration approval of generic drugs.Bolar has denied any wrongdoing. The largest volume drop -- down 445,645 shares to 141,903 -- came in shares represented by B.A.T Industries PLC's American depositary receipts.The company is facing a takeover proposal from the financier Sir James Goldsmith. First Iberian Fund led the percentage increases, rising to 73,100 shares from 184.Nelson Holdings International Ltd. dropped the most on a percentage basis, to 1,000 shares from 255,923. The adjacent tables show the Big Board and Amex issues in which a short interest position of at least 100,000 shares existed as of mid-October or in which there was a short position change of at least 50,000 shares since mid-September.
For Vietnamese, these are tricky, often treacherous, times.After years of hesitation, economic and political reform was embraced at the end of 1986, but ringing declarations have yet to be translated into much action. Vietnam is finding that turning a stagnant socialist order into a dynamic free market doesn't come easy.Here is how three Vietnamese are coping with change: The Tire King Nguyen Van Chan is living proof that old ways die hard. Mr. Chan used to be an oddity in Hanoi: a private entrepreneur.His business success made him an official target in pre-reform days.Mr. Chan, now 64 years old, invented a fountain pen he and his family produced from plastic waste.Later, he marketed glue.Both products were immensely popular.For his troubles, Mr. Chan was jailed three times between 1960 and 1974.Though his operation was registered and used only scrap, he was accused of conducting illegal business and possessing illegal materials.Once he was held for three months without being charged. Things were supposed to change when Vietnam's economic reforms gathered pace, and for awhile they did.After years of experimenting, Mr. Chan produced a heavy-duty bicycle tire that outlasted its state-produced rival.By 1982, he was selling thousands of tires.Newspapers published articles about him, and he was hailed as "the tire king." His efforts earned a gold medal at a national exhibition -- and attracted renewed attention from local authorities. District police in 1983 descended on his suburban home, which he and his large family used as both residence and factory, and demanded proof the house and equipment were his.He produced it. "That was the first time they lost and I won," he says.He was further questioned to determine if he was "a real working man or an exploiter." Says Mr. Chan: "When I showed it was from my own brain, they lost for the second time." But a few days later the police accused him of stealing electricity, acquiring rubber without permission and buying stolen property.Warned he was to be jailed again, he fled to the countryside.His family was given three hours to leave before the house and contents were confiscated.With only the clothes they were wearing, family members moved to a home owned by one of Mr. Chan's sons. After six months on the run, Mr. Chan learned the order for his arrest had been canceled.He rejoined his family in January 1984 and began the long struggle for justice, pressing everyone from Hanoi municipal officials to National Assembly deputies for restoration of his rights.He and his family kept afloat by repairing bicycles, selling fruit and doing odd jobs. Mr. Chan achieved a breakthrough in 1987 -- and became a minor celebrity again -- when his story was published in a weekly newspaper. In 1988, 18 months after the sixth congress formally endorsed family-run private enterprise, district authorities allowed Mr. Chan to resume work.By late last year he was invited back as "the tire king" to display his products at a national exhibition.National leaders stopped by his stand to commend his achievements. Mr. Chan now produces 1,000 bicycle and motorbike tires a month and 1,000 tins of tire-patching glue in the son's small house.Eighteen people pack the house's two rooms -- the Chans, four of their 10 children with spouses, and eight of 22 grandchildren.Most sleep on the floor. Come daybreak, eight family members and two other workers unroll a sheet of raw rubber that covers the floor of the house and spills out onto the street.The primitive operations also burst out the back door into a small courtyard, where an ancient press squeezes rubber solution into a flat strip and newly made tires are cooled in a bathtub filled with water. Mr. Chan talks optimistically of expanding, maybe even moving into the import-export field.First, however, he has unfinished business.When district authorities allowed him to resume manufacturing, they released only one of his machines.They didn't return the rubber stocks that represent his capital.Nor did they return his house and contents, which he values at about $44,000.He wants to recover more than just his property, though. "I want my dignity back," he says. The Editor Nguyen Ngoc seemed an obvious choice when the Vietnamese Writers Association was looking for a new editor to reform its weekly newspaper, Van Nghe. After the sixth congress, journalists seized the opportunity provided by the liberalization to probe previously taboo subjects.Mr. Ngoc, 57 years old, had solid reformist credentials: He had lost his official position in the association in he early 1980s because he questioned the intrusion of politics into literature.Appointed editor in chief in July 1987, Mr. Ngoc rapidly turned the staid Van Nghe into Vietnam's hottest paper. Circulation soared as the weekly went way beyond standard literary themes to cover Vietnamese society and its ills.Readers were electrified by the paper's audacity and appalled by the dark side of life it uncovered. One article recounted a decade-long struggle by a wounded soldier to prove, officially, he was alive.Another described how tax-collection officials in Thanh Hoa province one night stormed through homes and confiscated rice from starving villagers.The newspaper also ran a series of controversial short stories by Nguyen Huy Thiep, a former history teacher, who stirred debate over his interpretation of Vietnamese culture and took a thinly veiled swipe at writers who had blocked his entry into their official association. Van Nghe quickly made influential enemies. "Those who manage ideology and a large number of writers reacted badly" to the restyled paper, says Lai Nguyen An, a literary critic.After months of internal rumblings, Mr. Ngoc was fired last December.His dismissal triggered a furor among intellectuals that continues today. "Under Mr. Ngoc, Van Nghe protected the people instead of the government," says Nguyen Duy, a poet who is the paper's bureau chief for southern Vietnam. "The paper reflected the truth.For the leadership, that was too painful to bear." The `Billionaire' Nguyen Thi Thi is Vietnam's entrepreneur of the 1980s.Her challenge is to keep her fledgling empire on top in the 1990s. Mrs. Thi didn't wait for the reforms to get her start.She charged ahead of the government and the law to establish Hochiminh City Food Co. as the biggest rice dealer in the country.Her success, which included alleviating an urban food shortage in the early 1980s, helped persuade Hanoi to take the reform path.Her story is becoming part of local folklore. A lifelong revolutionary with little education who fought both the French and the U.S.-backed Saigon regime, she switched effortlessly to commerce after the war.Her instincts were capitalistic, despite her background.As she rode over regulations, only her friendship with party leaders, including Nguyen Van Linh, then Ho Chi Minh City party secretary, kept her out of jail. Following Mr. Linh's appointment as secretary-general of the party at the sixth congress, Mrs. Thi has become the darling of "doi moi", the Vietnamese version of perestroika.The authorities have steered foreign reporters to her office to see an example of "the new way of thinking." Foreign publications have responded with articles declaring her Vietnam's richest woman. "Some people call me the communist billionaire," she has told visitors. Actually, 67-year-old Mrs. Thi is about as poor as almost everyone else in this impoverished land.She has indeed turned Hochiminh City Food into a budding conglomerate, but the company itself remains state-owned.She manages it with the title of general-director. The heart of the business is the purchase of rice and other commodities, such as corn and coffee, from farmers in the south, paying with fertilizer, farm tools and other items.Last year, Hochiminh City Food says it bought two million metric tons of unhusked rice, more than 10% of the country's output. The company operates a fleet of trucks and boats to transport the commodities to its warehouses.A subsidiary company processes commodities into foods such as instant noodles that are sold with the rice through a vast retail network. In recent years, Mrs. Thi has started to diversify the company, taking a 20% stake in newly established, partly private Industrial and Commercial Bank, and setting up Saigon Petro, which owns and operates Vietnam's first oil refinery. Mrs. Thi says Hochiminh City Food last year increased pretax profit 60% to the equivalent of about $2.7 million on sales of $150 million.She expects both revenue and profit to gain this year. She is almost cavalier about the possibility Vietnam's reforms will create rivals on her home turf. "I don't mind the competition inside the country," she says. "I am only afraid that with Vietnam's poor-quality products we can't compete with neighboring countries."
Western Digital Corp. reported a net loss of $2.7 million, or nine cents a share, for its first quarter ended Sept. 30, citing factors as varied as hurricane damage, an advance in graphics technology and the strengthening dollar. In the year-ago period, the company earned $12.9 million, or 45 cents a share, on sales of $247 million.Sales for the just-ended period fell to about $225 million, the maker of computer parts said. Nonetheless, Chairman Roger W. Johnson said he expects the company to be profitable in the current quarter. "We are positioned to come through," he said, noting that the company's backlog was up from the previous quarter.In its second quarter last year, Western Digital earned $12.7 million, or 44 cents a share, on sales of $258.4 million. Mr. Johnson said Western Digital's plant in Puerto Rico was affected by Hurricane Hugo, losing three days' production because of the storm, which wrecked much of the Caribbean island's infrastructure.Although the plant itself wasn't damaged, Mr. Johnson said millions of dollars in first-quarter revenue were lost.The revenue will be regained in the current period, he added. There are no plans to initiate a common stock dividend, Mr. Johnson said, explaining that the board continues to believe shareholders are best served by reinvesting excess cash. Mr. Johnson said the first-quarter loss also heavily reflected a rapid change in graphics technology that left reseller channels with too many of the old computer graphics boards and too few new monitors compatible with the new graphics boards.Western Digital doesn't make the monitors. An accelerating move by personal computer manufacturers' to include advanced graphics capabilities as standard equipment further dampened reseller purchases of Western Digital's equipment. "The other areas of the business -- storage and microcomputers -- were very good," Mr. Johnson said.He said Western Digital has reacted swiftly to the movement to video graphics array, VGA, graphics technology from the old enhanced graphics adapter, EGA, which has a lower resolution standard, technology and now is one of the leading producers of these newer units.Other makers of video controller equipment also were caught in the EGA-VGA shift, he said, "but we were able to respond much more quickly." Still, Mr. Johnson said, "our stock is grossly undervalued." He said the company has cut operating expenses by about 10% over the last few quarters, while maintaining research and development at about 8% to 9% of sales. As part of its reorganization this week, Western Digital has divided its business into two segments -- storage products, including controllers and disk drives; and microcomputer products, which include graphics, communications and peripheral control chips. Graphics, communications and peripheral control chips were combined because, increasingly, multiple functions are being governed by a single chip. Storage, which includes computer controllers and 3.5-inch disk drives, represents nearly two-thirds of the company's business.Disk drives, which allow a computer to access its memory, generated 38% more revenue in the most recent period compared with the fiscal first quarter a year earlier. Computer parts are getting ever smaller, Mr. Johnson said, a shrinking that has propelled laptops into position as the fastest-growing segment of the computer business.As smaller and more powerful computers continue to be the focus of the industry, he said, Western Digital is strengthening development of laptop parts. Next year Western Digital plans to consolidate its operations from 11 buildings in Irvine into two buildings in the same citya new headquarters and, a block away, a modern $100 million silicon wafer fabrication plant.The plan will help the company in its existing joint manufacturing agreement with AT&T. About half of Western Digital's business is overseas, and Mr. Johnson expects that proportion to continue.Plans to dissolve many of the trade barriers within Europe in 1992 creates significant opportunities for the company, he said, particularly since Western Digital already manufactures there.Capitalizing on that presence, Western Digital is launching a major effort to develop the embryonic reseller market in Europe.
Your Oct. 12 editorial "Pitiful, Helpless Presidency?" correctly states that I was critical of the Bush administration's failure to have any plan in place to respond in a timely fashion to the opportunities to oust Manuel Noriega presented by the attempted military coup on Oct. 3. You are absolutely wrong, however, in opining that this position is some kind of "flip-flop," something newly arrived at as a result of reading the opinion polls.My position is one founded on both the facts and the law. Although you may have forgotten, public opinion about Gen. Noriega is where it is in large measure because of my investigation of his years of involvement in narcotics smuggling (and simultaneous work as a U.S. operative).The public made up its mind about Gen. Noriega largely as a result of the hearings I chaired in the Subcommittee on Terrorism and Narcotics of the Foreign Relations Committee on Feb. 8, 9, 10 and 11, 1988, and again on April 4, 1988.It was during those hearings that the nation first learned the breadth and depth of Gen. Noriega's criminality, and of his enduring relationships with a variety of U.S. government agencies. Those hearings also highlighted how Gen. Noriega was able to use his relationships with these agencies to delay U.S. action against him, and to exploit the administration's obsession with overthrowing the Sandinistas to protect his own drug-dealing.As former Ambassador to Costa Rica Francis J. McNeil testified before the subcommittee, the Reagan administration knew that Gen. Noriega was involved with narcotics, but made a decision in the summer of 1986 "to put Gen. Noriega on the shelf until Nicaragua was settled." As the report issued by the subcommittee concluded, "Our government did nothing regarding Gen. Noriega's drug business and substantial criminal involvement because the first priority was the Contra war.This decision resulted in at least some drugs entering the United States as a hidden cost of the war." Unfortunately, this problem continued even after Gen. Noriega's indictment.Throughout 1988 and this year, I and others in Congress have pressed the U.S. to develop a plan for pushing this "narcokleptocrat" out of Panama.Regrettably, two administrations in a row have been unwilling and unable to develop any plan, military or economic, for supporting the Panamanian people in their attempts to restore democracy. Sen. John Kerry (D., Mass.) Washington
American Express Co. posted a 21% increase in third quarter net income despite a sharp rise in reserves for Third World loans at its banking unit. Aided by a sharp gain in its travel business, American Express said net rose to $331.8 million, or 77 cents a share, from $273.9 million, or 64 cents a share. The year-earlier figures included $9.9 million, or three cents a share, in income from discontinued operations.Income from continuing operations was up 26%.Revenue rose 24% to $6.5 billion from $5.23 billion. The travel, investment services, insurance and banking concern added $110 million to reserves for credit losses at its American Express Bank unit, boosting the reserve to $507 million as of Sept. 30.The bank's Third World debt portfolio totals $560 million, down from $2.2 billion at the end of 1986.The bank charged off $53 million in loans during the quarter. At the American Express Travel Related Services Co. unit, net rose 17% to a record $240.8 million on a 19% revenue increase.The figures exclude businesses now organized as American Express Information Services Co. American Express card charge volume rose 12%.Travel sales rose 11%, led by gains in the U.S. At IDS Financial Services, the financial planning and mutual fund unit, net rose 19% to a record $47.6 million on a 33% revenue gain.Assets owned or managed rose 20% to $45 billion, and mutual fund sales rose 45% in the quarter to $923 million. American Express Bank earnings fell 50% to $21.3 million from $42.5 million despite a 29% revenue gain.The results include $106 million of tax benefits associated with previous years' Third World loan activity, compared with $15 million a year earlier. Profit rose 38% at American Express Information Services to $21.6 million.Shearson Lehman Hutton Holdings Inc., as previously reported, had net of $65.9 million, reversing a $3.5 million loss a year earlier; its latest results include a $37 million gain from the sale of an institutional money management business.American Express's share of Shearson's earnings was $41 million, after preferred stock dividends; it owns about 68% of Shearson's common. For the nine months, American Express said net rose 11% to $899.8 million, or $2.09 a share, from $807.5 million, or $1.89 a share.Revenue rose 24% to $18.73 billion from $15.09 billion.
Domestic lending for real estate and property development was the source of Bank Bumiputra Malaysia Bhd. 's most recent spate of financial troubles, the institution's executive chairman, Mohamed Basir Ismail, said. Speaking to reporters this week after Bank Bumiputra's shareholders approved a rescue plan, Tan Sri Basir said heavy lending to the property sector rocked the bank when property prices in Malaysia plummeted in 1984-85. He said the bank couldn't wait any longer for prices to recover and for borrowers to service their loans.So the bank's board decided to make 1.23 billion Malaysian dollars (US$457 million) in provisions for interest payments from loans previously recorded as revenue but never actually received by the bank, and to submit a bailout package to replenish the bank's paid-up capital. The predicament, he added, was similar to the Hong Kong 1982-83 property-price collapse, which exposed the involvement of Bank Bumiputra's former subsidiary in the colony in the largest banking scandal in Malaysia's history.The subsidiary, Bumiputra Malaysia Finance Ltd., was left with M$2.26 billion in bad loans made to Hong Kong property speculators. Both episodes wiped out Bank Bumiputra's shareholders' funds.Each time, the bank's 90% shareholder -- Petroliam Nasional Bhd., or Petronas, the national oil company -- has been called upon to rescue the institution.In five years, Petronas, which became the dominant shareholder in a 1984 rescue exercise, has spent about M$3.5 billion to prop up the troubled bank. Tan Sri Basir said the capital restructuring plan has been approved by Malaysia's Capital Issues Committee and central bank.Malaysia's High Court is expected to approve the plan. Once the plan is approved, Tan Sri Basir said, most of Bank Bumiputra's nonperforming loans will have been fully provided for and the bank will be on track to report a pretax profit of between M$160 million and M$170 million for the fiscal year ending March 31.For the previous financial year, the bank would have reported a pretax profit of M$168 million if it hadn't made provisions for the nonperforming loans, he said. Malaysia's Banking Secrecy Act prohibited the bank from identifying delinquent borrowers, said Tan Sri Basir.But public documents indicate 10% or more of the bank's provisions were made for foregone interest on a M$200 million loan to Malaysia's dominant political party, the United Malays National Organization, to build its convention and headquarters complex in Kuala Lumpur.The loan to UMNO was made in September 1983. "We lent a lot of money all over the place," said Tan Sri Basir, who refused to discuss the bank's outstanding loans to As well as the M$1.23 billion in provisions announced on Oct. 6, the restructuring package covers an additional M$450 million in provisions made in earlier years but never reflected in a reduction of the bank's paid-up capital.At the end of the exercise, the cash injection from Petronas will increase the bank's paid-up capital to M$1.15 billion after virtually being wiped out by the new provisions.
As the Hunt brothers' personal bankruptcy cases sputter into their second year, Minpeco S.A. has proposed a deal to settle its huge claim against the troubled Texas oil men.But the plan only threatens to heighten the tension and confusion already surrounding the cases that were filed in September 1988. The Peruvian mineral concern's $251 million claim stems from 1988 jury award in a case stemming from the brothers' alleged attempts to corner the 1979-80 silver market.Minpeco now says it is willing to settle for up to $65.7 million from each brother, although the actual amount would probably be much less. Although the proposal must be approved by federal Judge Harold C. Abramson, W. Herbert Hunt has agreed to the Peruvian mineral concern's proposal.Nelson Bunker Hunt is considering it, although his attorney says he won't do it if the proposal jeopardizes a tentative settlement he has reached with the Internal Revenue Service, which claims the brothers owe $1 billion in back taxes and is by far the biggest creditor in both cases. The tentative agreement between the IRS and Nelson Bunker Hunt is awaiting U.S. Justice Department approval.Under it, the former billionaire's assets would be liquidated with the IRS getting 80% of the proceeds and the rest being divided among other creditors, including Minpeco and Manufacturers Hanover Trust Co., which is seeking repayment of a $36 million loan. A similiar proposal has been made in the W. Herbert Hunt case although he and the IRS are at odds over the size of the non-dischargable debt he would have to pay to the government from future earnings. In both cases, Minpeco and Manufacturers Hanover have been fighting ferociously over their shares of the pie.With support from the IRS, Manufacturers Hanover has filed suit asking Judge Abramson to subordinate Minpeco's claim to those of Manufacturer Hanover and the IRS. Minpeco has threatened a "volcano" of litigation if the Manufacturers Hanover Corp. unit attempts to force such a plan through the court. Minpeco said it wouldn't pursue such litigation if its settlement plan in the W. Herbert Hunt case is approved by Judge Abramson, who will consider the proposal at a hearing next week. Minpeco attorney Thomas Gorman decribed the plan as one step toward an overall settlement of the W. Herbert Hunt case but Hugh Ray, attorney for Manufacturers Hanover, called it "silly" and said he would fight it in court. "The thing is so fluid right now that there's really no way to say what will happen," says Justice Department attorney Grover Hartt III, who represents the IRS in the case. "Developments like this are hard to predict."
Heidi Ehman might have stepped from a recruiting poster for young Republicans.White, 24 years old, a singer in her church choir, she symbolizes a generation that gave its heart and its vote to Ronald Reagan. "I felt kind of safe," she says. No longer.When the Supreme Court opened the door this year to new restrictions on abortion, Ms. Ehman opened her mind to Democratic politics.Then a political novice, she stepped into a whirl of "pro-choice" marches, house parties and fund-raisers.Now she leads a grassroots abortion-rights campaign in Passaic County for pro-choice Democratic gubernatorial candidate James Florio. "This is one where I cross party lines," she says, rejecting the anti-abortion stance of Rep. Florio's opponent, Reagan-Republican Rep. James Courter. "People my age thought it wasn't going to be an issue.Now it has -- especially for people my age." Polls bear out this warning, but after a decade of increased Republican influence here, the new politics of abortion have contributed to a world turned upside down for Mr. Courter.Unless he closes the gap, Republicans risk losing not only the governorship but also the assembly next month.Going into the 1990s, the GOP is paying a price for the same conservative social agenda that it used to torment Democrats in the past. This change comes less from a shift in public opinion, which hasn't changed much on abortion over the past decade, than in the boundaries of the debate.New Jersey's own highest court remains a liberal bulwark against major restrictions on abortion, but the U.S. Supreme Court ruling, Webster vs.Missouri, has engaged voters across the nation who had been insulated from the issue. Before July, pro-choice voters could safely make political decisions without focusing narrowly on abortion.Now, the threat of further restrictions adds a new dimension, bringing an upsurge in political activity by abortion-rights forces.A recent pro-choice rally in Trenton drew thousands, and in a major reversal, Congress is defying a presidential veto and demanding that Medicaid abortions be permitted in cases of rape and incest. "If Webster hadn't happened, you wouldn't be here," Linda Bowker tells a reporter in the Trenton office of the National Organization for Women. "We could have shouted from the rooftops about Courter . . . and no one would have heard us." New Jersey is a proving ground for this aggressive women's-rights movement this year.The infusion of activists can bring a clash of cultures.In Cherry Hill, the National Abortion Rights Action League, whose goal is to sign up 50,000 pro-choice voters, targets a union breakfast to build labor support for its cause.The league organizers seem more a fit with a convention next door of young aerobics instructors in leotards than the beefy union leaders; "I wish I could go work out," says a slim activist.A labor chief speaks sardonically of having to "man and woman" Election Day phones. No age group is more sensitive than younger voters, like Ms. Ehman.A year ago this fall, New Jersey voters under 30 favored George Bush by 56% to 39% over Michael Dukakis, according to a survey then by Rutgers University's Eagleton Institute.A matching Eagleton-Newark Star Ledger poll last month showed a complete reversal.Voters in the same age group backed Democrat Florio 55% to 29% over Republican Courter. Abortion alone can't explain this shift, but New Jersey is a model of how so personal an issue can become a baseline of sorts in judging a candidate.By a 2-to-1 ratio, voters appear more at ease with Mr. Florio's stance on abortion, and polls indicate his lead widens when the candidates are specifically linked to the issue. "The times are my times," says Mr. Florio.The Camden County congressman still carries himself with a trademark "I'm-coming-down-your-throat" intensity, but at a pause in Newark's Columbus Day parade recently, he was dancing with his wife in the middle of the avenue in the city's old Italian-American ward.After losing by fewer than 1,800 votes in the 1981 governor's race, he has prepared himself methodically for this moment, including deciding in recent years he could no longer support curbs on federal funding for Medicaid abortions. "If you're going to be consistent and say it is a constitutionally protected right," he asks, "how are you going to say an upscale woman who can drive to the hospital or clinic in a nice car has a constitutional right and someone who is not in great shape financially does not?" Mr. Courter, by comparison, seems a shadow of the confident hawk who defended Oliver North before national cameras at Iran-Contra hearings two years ago.Looking back, he says he erred by stating his "personal" opposition to abortion instead of assuring voters that he wouldn't impose his views on "policy" as governor.It is a distinction that satisfies neither side in the debate. "He doesn't know himself," Kathy Stanwick of the Abortion Rights League says of Mr. Courter's position.Even abortion opponents, however angry with Mr. Florio, can't hide their frustration with the Republican's ambivalence. "He doesn't want to lead the people," says Richard Traynor, president of New Jersey Right to Life. Moreover, by stepping outside the state's pro-choice tradition, Mr. Courter aggravates fears that he is too conservative as well on more pressing concerns such as auto insurance rates and the environment.He hurt himself further this summer by bringing homosexual issues into the debate; and by wavering on this issue and abortion, he has weakened his credibility in what is already a mean-spirited campaign on both sides. Elected to Congress in 1978, the 48-year-old Mr. Courter is part of a generation of young conservatives who were once very much in the lead of the rightward shift under Mr. Reagan.Like many of his colleagues, he didn't serve in Vietnam in the 1960s yet embraced a hawkish defense and foreign policy -- even voting against a 1984 resolution critical of the U.S. mining of Nicaraguan harbors. Jack Kemp and the writers Irving Kristol and George Gilder were influences, and Mr. Courter's own conservative credentials proved useful to the current New Jersey GOP governor, Thomas Kean, in the 1981 Republican primary here. The same partnership is now crucial to Mr. Courter's fortunes, but the abortion issue is only a reminder of the gap between his record and that of the more moderate, pro-choice Gov. Kean.While the Warren County congressman pursued an anti-government, anti-tax agenda in Washington, Gov. Kean was approving increased income and sales taxes at home and overseeing a near doubling in the size of New Jersey's budget in his eight years in office. Kean forces play down any differences with Mr. Courter, but this history makes it harder for the conservative to run against government.Mr. Courter's free-market plan to bring down auto insurance rates met criticism from Gov. Kean's own insurance commissioner.Mr. Courter is further hobbled by a record of votes opposed to government regulation on behalf of consumers. Fluent in Spanish from his days in the Peace Corps, Mr. Courter actively courts minority voters but seems oddly over his head.He is warm and polished before a Puerto Rican Congress in Asbury Park.Yet minutes after promising to appoint Hispanics to high posts in state government, he is unable to say whether he has ever employed any in his congressional office. "I don't think we do now," he says. "I think we did." Asked the same question after his appearance, Democrat Florio identifies a staff member by name and explains her whereabouts today.When he is presented with a poster celebrating the organization's 20th anniversary, he recognizes a photograph of one of the founders and recalls time spent together in Camden. Details and Camden are essential Florio.Elected to Congress as a "Watergate baby" in 1974, he ran for governor three years later.In the opinion of many, he hasn't stopped running since, even though he declined a rematch with Gov. Kean in 1985.His base in South Jersey and on the House Energy and Commerce Committee helped him sustain a network of political-action committees to preserve his edge.With limited budgets for television in a high-priced market, Mr. Florio's higher recognition than his rival is a major advantage. More than ever, his pro-consumer and pro-environment record is in sync with the state.Auto insurance rates are soaring.A toxic-waste-dump fire destroyed part of an interstate highway this summer.In Monmouth, an important swing area, Republican freeholders now run on a slogan promising to keep the county "clean and green." Mr. Florio savors this vindication, but at age 52, the congressman is also a product of his times and losses.He speaks for the death penalty as if reading from Exodus 21; to increase state revenue he focuses not on "taxes" but on "audits" to cut waste.Hard-hitting consultants match ads with Mr. Courter's team, and Mr. Florio retools himself as the lean, mean Democratic fighting machine of the 1990s.Appealing to a young audience, he scraps an old reference to Ozzie and Harriet and instead quotes the Grateful Dead.The lyric chosen -- "long strange night" -- may be an apt footnote to television spots by both candidates intended to portray each other as a liar. The Democratic lawmaker fits a pattern of younger reformers arising out of old machines, but his ties to Camden remain a sore point because of the county's past corruption.His campaign hierarchy is chosen from elsewhere in the state, and faced with criticism of a sweetheart bank investment, he has so far blunted the issue by donating the bulk of his profits to his alma mater, Trenton State College. Mr. Florio's forcefulness on the abortion issue after the Webster ruling divides some of his old constituency.Pasquale Pignatelli, an unlikely but enthusiastic pipe major in an Essex County Irish bagpipe band, speaks sadly of Mr. Florio. "I am a devout Catholic," says Mr. Pignatelli, a 40-year-old health officer. "I can't support him because of abortion." Bill Wames Sr., 72, is Catholic too, but unfazed by Mr. Florio's stand on abortion.A security guard at a cargo terminal, he wears a Sons of Italy jacket and cap celebrating "The US 1 Band." "I still think the woman has the right to do with her body as she pleases," he says. "If you want more opinions ask my wife.She has lots of opinions."
They didn't play the third game of the World Series on Tuesday night as scheduled, and they didn't play it on Wednesday or Thursday either.But you knew that, didn't you? They are supposed to play the game next Tuesday, in Candlestick Park here.The theory is that the stadium, damaged by Tuesday's earthquake, will be repaired by then, and that people will be able to get there.Like just about everything else, that remains to be seen.Aftershocks could intervene.But, at least, the law of averages should have swung to the favorable side. It may seem trivial to worry about the World Series amid the destruction to the Bay Area wrought by Tuesday's quake, but the name of this column is "On Sports," so I feel obliged to do so.You might be interested to know that baseball, not survival, appeared to be the first thought of most of the crowd of 60,000-odd that had gathered at Candlestick at 5:04 p.m. Tuesday, a half-hour before game time, when the quake struck.As soon as the tremor passed, many people spontaneously arose and cheered, as though it had been a novel kind of pre-game show. One fan, seated several rows in front of the open, upper-deck auxiliary press section where I was stationed, faced the assembled newsies and laughingly shouted, "We arranged that just for you guys!" I thought and, I'm sure, others did: "You shouldn't have bothered." I'd slept through my only previous brush with natural disaster, a tornado 15 or so summers ago near Traverse City, Mich., so I was unprepared for one reaction to such things: the urge to talk about them.Perhaps primed by the daily diet of radio and TV reporters thrusting microphones into people's faces and asking how they "feel" about one calamity or another, fellow reporters and civilians who spied my press credential were eager to chat. "It felt like I was on a station platform and a train went by," said one man, describing my own reaction.A women said she saw the park's light standards sway.A man said he saw the upper rim undulate.I saw neither. Dictates of good sense to the contrary not withstanding, the general inclination was to believe that the disturbance would be brief and that ball would be played. "I was near the top of the stadium, and saw a steel girder bow six feet from where I sat, but I stayed put for 10 or 15 minutes," confessed a friend. "I guess I thought, `This is the World Series and I'm not gonna wimp out!'" Here in the Global Village, though, folks do not stay uninformed for long.Electrical power was out in still-daylighted Candlestick Park, but battery-operated radios and television sets were plentiful.Within a few minutes, the true extent of the catastrophe was becoming clear.Its Richter Scale measurement was reported as 6.5, then 6.9, then 7.0.A section of the Bay Bridge had collapsed, as had a part of Interstate Highway 880 in Oakland.People had died. At 5:40 p.m., scheduled game time having passed, some fans chanted "Let's Play Ball." No longer innocent, they qualified as fools.The stadium was ordered evacuated soon afterward; the announcement, made over police bullhorns, cited the power outage, but it later was revealed that there also had been damage of the sort reported by my friend.Outside, I spotted two young men lugging blocks of concrete. "Pieces of Candlestick," they said. The crowd remained good natured, even bemused.TV reporters interviewed fans in the parking lots while, a few feet away, others watched the interviews on their portable TVs.The only frenzy I saw was commercial: Booths selling World Series commemorative stamps and dated postmarks were besieged by fledgling speculators who saw future profit in the items. The traffic jam out of the park was monumental.It took me a half-hour to move 10 feet from my parking spot in an outer lot to an aisle, and an additional hour to reach an inner roadway a half-block away.The six-mile trip to my airport hotel that had taken 20 minutes earlier in the day took more than three hours. At my hotel, the Westin, power was out, some interior plaster had broken loose and there had been water damage, but little else.With Garpian randomness, a hotel across the street, the Amfac, had been hit harder: A large sheet of its concrete facade and several window balconies were torn away. The Westin staff had, kindly, set out lighted candles in the ballroom, prepared a cold-cuts buffet and passed around pillows and blankets.I fell asleep on the lobby floor, next to a man wearing a Chicago Cubs jacket.I expected him to say, "I told you so," but he already was snoring. The journalistic consensus was that the earthquake made the World Series seem unimportant.My response was that sports rarely are important, only diverting, and the quake merely highlighted that fact. Should the rest of the Series be played at all?Sure.The quake and baseball weren't related, unlike the massacre of athletes that attended the 1972 Olympics.That heavily politicized event learned nothing from the horrifying experience, and seems doomed to repeat it. Two ironies intrude.This has been widely dubbed the BART Series, after the local subway line, and the Bay Bridge Series.Flags fly at half-staff for the death of Bart Giamatti, the late baseball commissioner, and now the Bay Bridge lies in ruins.A Series that was shaping up as the dullest since the one-sided Detroit-over-San Diego go of 1984 has become memorable in the least fortunate way.Still, its edge is lost.It now will be played mostly for the record, and should be wrapped up as quickly as possible, without "off" days. And I will never again complain about a rainout.
After watching interest in the sport plummet for years, the ski industry is trying to give itself a lift. Across the country, resorts are using everything from fireworks to classical-music concerts to attract new customers.Some have built health spas, business centers and shopping villages so visitors have more to do than ski.And this week, the industry's efforts will go national for the first time when it unveils a $7 million advertising campaign. Such efforts -- unheard of only a few years ago -- are the latest attempts to revive the sagging $1.76 billion U.S. ski industry.Since the start of the decade, lift-ticket sales have grown only 3% a year on average, compared with 16% annual growth rates in the '60s and '70s.Last season, lift-ticket sales fell for the first time in seven years.By some estimates, nearly a fourth of all U.S. ski areas have been forced to shut down since the early '80s. Competition and mounting insurance and equipment costs have been the undoing of many resorts.But another big problem has been the aging of baby boomers.Skiing, after all, has mainly been for the young and daring and many baby boomers have outgrown skiing or have too many family responsibilities to stick with the sport. In its new ad campaign, created by D'Arcy Masius Benton & Bowles Inc., Chicago, the ski industry is trying to change its image as a sport primarily for young white people.One 60-second TV spot features a diverse group of skiers gracefully gliding down sun-drenched slopes: senior citizens, minorities, families with children -- even a blind skier. "Ski school is great," cries out a tot, bundled in a snowsuit as he plows down a bunny slope. "You'll never know 'til you try," says a black skier. "We used to show some hot-dog skier in his twenties or thirties going over the edge of a cliff," says Kathe Dillmann, a spokeswoman for the United Ski Industries Association, the trade group sponsoring the campaign. Ski promotions have traditionally avoided the touchy issue of safety.But the new commercials deal with it indirectly by showing a woman smiling as she tries to get up from a fall. "We wanted to show it's okay if you fall," says Ms. Dillmann. "Most people think if you slip, you'll wind up in a body cast." The ad campaign represents an unusual spirit of cooperation among resorts and ski equipment makers; normally, they only run ads hyping their own products and facilities.But in these crunch times for the ski industry, some resorts, such as the Angel Fire, Red River and Taos ski areas in New Mexico, have even started shuttle-busing skiers to each other's slopes and next year plan to sell tickets good for all local lifts. Many resorts also are focusing more on the service side of their business.Since 40% of skiers are parents, many slopes are building nurseries, expanding ski schools and adding entertainment for kids.Vail, Colo., now has a playland that looks like an old mining town; kids can ski through and pan for fool's gold.For $15, they can enjoy their own nightly entertainment, with dinner, without mom and dad. A few years ago, parents usually had to hire a sitter or take turns skiing while one spouse stayed with the children. "Most parents who had to go through that never came back," says Michael Shannon, president of Vail Associates Inc., which owns and operates the Vail and nearby Beaver Creek resorts. To make skiing more convenient for time-strapped visitors, several resorts are buying or starting their own travel agencies.In one phone call, ski buffs can make hotel and restaurant reservations, buy lift tickets, rent ski equipment and sign up for lessons.And resorts are adding other amenities, such as pricey restaurants, health spas and vacation packages with a twist.During Winter Carnival week, for example, visitors at Sunday River in Maine can take a hot-air balloon ride. "People these days want something else to do besides ski and sit in the bar," says Don Borgeson, executive director of Angel Fire, N.M.'s Chamber of Commerce. The ski industry hopes to increase the number of skiers by 3.5 million to about 21.7 million in the next five years with its latest ads and promotions.But some think that's being overly optimistic. For one thing, it may be tough to attract people because skiing is still expensive: a lift ticket can cost up to $35 a day and equipment prices are rising.And most vacationers still prefer a warm climate for their winter excursions.An American Express Co. survey of its travel agents revealed that only 34% believe their clients will pick a trip this winter based on the availability of winter sports, as opposed to 69% who think that warm-weather sports will be the deciding factor. "Even if they could bring in that many new skiers, I don't know if {the industry} could handle that kind of an increase," says I. William Berry, editor and publisher of the Ski Industry Letter in Katonah, N.Y. "Most people will come on the weekend, the slopes will be overcrowded and then these {new skiers} won't come back."
Consumer prices rose a surprisingly moderate 0.2% in September, pushed up mostly by a jump in clothing costs, the Labor Department reported. Energy costs, which drove wholesale prices up sharply during the month, continued to decline at the retail level, pulling down transportation and helping to ease housing costs. The report was the brightest news the financial markets had seen since before the stock market plunged more than 190 points last Friday.The Dow Jones Industrial Average rallied on the news, closing 39.55 points higher at 2683.20.Bond prices also jumped as traders appeared to read the data as a sign that interest rates may fall. But many economists were not nearly as jubilant.The climb in wholesale energy prices is certain to push up retail energy prices in the next few months, they warned.They also said the dollar is leveling off after a rise this summer that helped to reduce the prices of imported goods. "I think inflation is going to pick up through the fall," said Joel Popkin, a specialist on inflation who runs an economic consulting firm here. "It has been in what I would describe as a lull for the past several months." "We've had whopping declines in consumer energy prices in each of the past three months, and at the wholesale level those are fully behind us now," said Jay Woodworth, chief domestic economist at Bankers Trust Co. in New York. Because wholesale energy prices shot up by a steep 6.5% last month, many analysts expected energy prices to rise at the consumer level too.As a result, many economists were expecting the consumer price index to increase significantly more than it did. But retail energy prices declined 0.9% in September.Though analysts say competition will probably hold down increases in retail energy prices, many expect some of the wholesale rise to be passed along to the consumer before the end of the year. Still, some analysts insisted that the worst of the inflation is behind. "It increasingly appears that 1987-88 was a temporary inflation blip and not the beginning of a cyclical inflation problem," argued Edward Yardeni, chief economist at Prudential-Bache Securities Inc. in New York. In both 1987 and 1988, consumer prices rose 4.4%.A run-up in world oil prices last winter sent consumer prices soaring at a 6.7% annual rate in the first five months of this year, but the subsequent decline in energy prices has pulled the annual rate back down to 4.4%. Mr. Yardeni predicted that world business competition will continue to restrain prices. "The bottom line is, it seems to me that the economic environment has become very, very competitve for a lot of businesses," he said. "Back in 1987-88, business was operating at fairly tight capacity, so businesses felt they could raise prices." Now, he said, a slowdown in economic activity has slackened demand. The mild inflation figures renewed investors' hopes that the Federal Reserve will ease its interest-rate stance.The steep climb in producer prices reported last Friday fostered pessimism about lower interest rates and contributed to the stock market's 6.9% plunge that day.In the past several days, however, the U.S.'s central bank has allowed a key interest rate to fall slightly to try to stabilize the markets.Analysts say Fed policy makers have been wary of relaxing credit too much because they were still uncertain about the level of inflation in the economy. Excluding the volatile categories of energy and food -- leaving what some economists call the core inflation rate -- consumer prices still rose only 0.2% in September.Transportation costs actually fell 0.5%, and housing costs gained only 0.1%.Apparel prices rocketed up 1.7%, but that was after three months of declines.Medical costs continued their steep ascent, rising 0.8% after four consecutive months of 0.7% increases. Car prices, another area that contributed to the steep rise in the wholesale index last month, still showed declines at the consumer level.They dropped 0.4% as dealers continued to offer rebates to attract customers. Food prices rose 0.2% for the second month in a row, far slower than the monthly rises earlier in the year. Separately, the Labor Department reported that average weekly earnings rose 0.3% in September, after adjusting for inflation, following a 0.7% decline in August. All the numbers are adjusted for seasonal fluctuations. Here are the seasonally adjusted changes in the components of the Labor Department's consumer price index for September. September consumer price indexes (1982-1984 equals 100), unadjusted for seasonal variation, together with the percentage increases from September 1988, were:
The disarray in the junk-bond market that began last month with a credit crunch at Campeau Corp. has offered commercial banks a golden opportunity to play a greater role in financing billion-dollar takeovers. But two big New York banks seem to have kicked those chances away, for the moment, with the embarrassing failure of Citicorp and Chase Manhattan Corp. to deliver $7.2 billion in bank financing for a leveraged buy-out of United Airlines parent UAL Corp. For more than a decade, banks have been pressing Congress and banking regulators for expanded powers to act like securities firms in playing Wall Street's lucrative takeover game, from giving mergers advice all the way to selling and trading high-yield junk bonds. Those expanded powers reached their zenith in July when Bankers Trust New York Corp. provided mergers advice, an equity investment and bank loans for the $3.65 billion leveraged buy-out of Northwest Airlines parent NWA Inc. One of the major selling points used by Los Angeles financier Alfred Checchi in getting the takeover approved was that the deal didn't include any junk bonds.That was seen as an advantage in lobbying airline employees and Washington regulators for approval of the contested takeover.All $3.35 billion in debt for the deal was supplied by banks. Charles Nathan, co-head of mergers and acquisitions at Salomon Brothers Inc., says it is natural for banks to try to expand beyond their bread-and-butter business of providing senior debt for buy-outs.But the UAL collapse, he says, "may tell you it's not going to work that easily." David Batchelder, a mergers adviser in La Jolla, Calif., who aided Los Angeles investor Marvin Davis on the bids which put both UAL and NWA in play as takeover candidates this year, says that banks have been "preparing to play a larger and larger role in acquisition financing." Mr. Batchelder says that in the past, banks would normally have loaned 65% of a total buy-out price, with the loans secured by the target company's assets.Another 20% of the borrowed funds would come from the sale to investors of junk bonds, which offer less security and typically carry higher yields than bank loans.Mr. Checchi's purchase of NWA, Mr. Batchelder notes, "was probably the most aggressive to date," with bank debt at 85% of the purchase price. But Mr. Batchelder says that Citicorp's "failure to deliver" on its promise to raise the UAL bank debt for a labor-management buy-out group "is very distressing to potential users of a `highly-confident' letter from commercial banks." His client, Mr. Davis, used just such a letter from Citicorp in pursuing UAL; Citicorp later agreed to work with a competing UAL buy-out group. Executives of Citicorp and Chase Manhattan declined to comment on either the UAL situation, or on the changing nature of banks' role in financing takeovers. In the wake of Campeau's problems, prices of junk bonds tumbled, throwing into doubt the ability of corporate acquirers to finance large takeovers with the help of junk bond sales. Mark Solow, senior managing director at Manufacturers Hanover Trust Co., says the falloff in junk bonds may yet open new business opportunities to banks in structuring takeovers.But he warns that banks will have "to have enough discipline" not to make loans that are too risky. In fact, Manufacturers Hanover said in its third-quarter earnings report that fees from syndicating loans to other banks dropped 48%, to $21 million. "We didn't take part in a lot of deals because their credit quality was poor," says a bank spokesman. James B. Lee, head of syndications and private placements at Chemical Banking Corp., said he believes banks can still make a credible offer of one-stop shopping for takeover finance.As evidence, he cites yesterday's arrangement for the final financing of a $3 billion bid for American Medical International Inc. in which Chemical served as both the lead bank and an equity investor. Beyond the current weakness in the junk bond market, banks have another advantage over investment banks in financing contested takeovers.Arthur Fleischer Jr., a takeover lawyer at Fried Frank Harris Shriver & Jacobson, notes that "a political and emotional bias" has developed against junk bonds. One hostile bidder who deliberately avoided using junk bonds was Paramount Communications Inc. in its initial offer to acquire Time Inc. for $10.7 billion, or $175 a share.A Paramount spokesman says that decision was based on the financial, not political, drawbacks of junk bonds. But some observers believe Paramount Chairman Martin Davis wanted to avoid the possible taint of being perceived as a corporate raider in his controversial bid for Time.In the end, Mr. Davis used junk bonds so that he could raise Paramount's bid to $200 a share.Some Monday-morning quarterbacks said the initial lower bid, without junk bonds, was a factor in his losing the company.Time eluded Paramount by acquiring Warner Communications Inc. The success of the NWA financing, and the failure of the UAL deal, also seem to highlight the important new role in takeover financing being played by Japanese banks. Japanese banks accounted for 50% of the NWA bank debt, according to a report by Transportation Secretary Samuel Skinner.But it was broad-scale rejection by Japanese banks that helped seal the fate of the attempt to buy UAL. Citicorp and Chase are attempting to put together a new, lower bid. Takanori Mizuno, chief economist of the Institute for Financial Affairs Inc., a Tokyo research center on finance and economics, says, "The junk bond market became very jittery, and there's a fear of a coming recession and the possible bankruptcy of LBO companies.These factors have combined to deter LBO lending by Japanese banks." provided solely by banks, not high-yield junk bonds
Inland Steel Industries Inc., battered by lower volume and higher costs, posted a 75% drop in third-quarter earnings. The nation's fourth-largest steelmaker earned $18.3 million, or 43 cents a share, compared with $61 million, or $1.70 a share, a year earlier, when the industry was enjoying peak demand and strong pricing.Sales fell to $981.2 million from $1.02 billion. The earnings also mark a significant drop from the second quarter's $45.3 million or $1.25 a share.Moreover, the earnings were well below analysts' expectations of about $1.16 a share. In composite trading on the New York Stock Exchange, Inland closed yesterday at $35.875 a share, down $1. The company attributed the earnings drop to lower volume related to seasonal demand and the soft consumer durable market, especially in the automotive sector.However, the company also lost orders because of prolonged labor talks in the second quarter.Third-quarter shipments slipped 7% from the year-ago period, and 17% from this year's second quarter. Profit of steel shipped for the company's steel segment slid to $26 a ton, from $66 a ton a year earlier and $57 a ton a quarter earlier. Analysts noted that the disappointing results don't reflect lower prices for steel products.Charles Bradford, an analyst with Merrill Lynch Capital Markets, said higher prices for galvanized and cold-rolled products offset lower prices for bar, hot-rolled and structural steel.Structural steel, which primarily serves the construction market, was especially hurt by a 15% price drop, Mr. Bradford said. The company said its integrated steel sector was also hurt by higher raw material, repair and maintenance, and labor costs.The increased labor costs became effective Aug. 1 under terms of the four-year labor agreement with the United Steelworkers union.Meanwhile, the company's service center segment, which saw operating profit drop to $11.5 million from $30.7 million a year ago, experienced much of the same demand and cost problems, as well as start-up costs associated with a coil processing facility in Chicago and an upgraded computer information system. Inland Chairman Frank W. Luerssen said the company's short-term outlook is "clouded by uncertainties in the economy and financial markets." However, he noted that steel mill bookings are up from early summer levels, and that he expects the company to improve its cost performance in the fourth quarter. In the first nine months, profit was $113 million, or $3.04 a share, on sales of $3.19 billion, compared with $204.5 million, or $5.76 a share, on sales of $3.03 billion, a year earlier.
The "seismic" activity of a financial market bears a resemblance to the seismic activity of the earth.When things are quiet (low volatility), the structures on which markets stand can be relatively inefficient and still perform their functions adequately.However, when powerful forces start shaking the market's structure, the more "earthquake-resistant" it is, the better its chance for survival. America's financial markets do not yet have all the required modern features required to make them fully "aftershock-resistant." Investors lack equal access to the markets' trading arena and its information. That structural lack is crucial because investors are the only source of market liquidity.And liquidity is what markets need to damp quakes and aftershocks.In today's markets, specialists (on the New York Stock Exchange) and "upstairs" market makers (in the over-the-counter market) are the only market participants allowed to play a direct role in the price-determination process.When they halt trading, all market liquidity is gone.And when any component of the market -- cash, futures or options -- loses liquidity, the price discovery system (the way prices are determined) becomes flawed or is lost entirely for a time. Last Friday the 13th (as well as two years ago this week) the markets became unlinked.When that happened, "seismic" tremors of fear -- much like the shock waves created by an earthquake -- coursed through the market and increased the market's volatility.Lack of important, needed information can cause fear.Fear is the father of panic.Panic frequently results in irrational behavior.And in financial markets, irrational behavior is sometimes translated into catastrophe. When market tremors start, it is crucial that as much information about transaction prices and the supply-demand curve (buy and sell orders at various prices) be made available to all, not just to market makers.Because of a lack of information and access, many investors -- including the very ones whose buying power could restore stability and damp volatility -- are forced to stand on the sidelines when they are most needed, because of their ignorance of important market information.To add aftershock-damping power to America's markets, a modern, electronic trading system should be implemented that permits equal access to the trading arena (and the information that would automatically accompany such access) by investors -- particularly institutional investors. Contrary to some opinions, the trading activities of specialists and other market makers do not provide liquidity to the market as a whole.What market makers provide is immediacy, a very valuable service.Liquidity is not a service.It is a market attribute -- the ability to absorb selling orders without causing significant price changes in the absence of news. Market makers buy what investors wish to sell; their business is reselling these unwanted positions as quickly as possible to other investors, and at a profit.As a result, while any one customer may purchase immediacy by selling to a market maker (which is micro-liquidity for the investor), the market as a whole remains in the same circumstances it was before the transaction: The unwanted position is still an unwanted position; only the identity of the seller has changed.In fact it can be argued that increasing capital commitments by market makers (a result of some post-1987 crash studies) also increases market volatility, since the more securities are held by market makers at any given time, the more selling pressure is overhanging the market. In an open electronic system, any investor wishing to pay for real-time access to the trading arena through a registered broker-dealer would be able to see the entire supply-demand curve (buy and sell orders at each price) entered by dealers and investors alike, and to enter and execute orders.Current quotations would reflect the combined financial judgment of all market participants -- not just those of intermediaries who become extremely risk-averse during times of crisis. Investors and professionals alike would compete on the level playing field Congress sought and called a "national market system" (not yet achieved) almost 15 years ago when it passed the Securities Reform Act of 1975. Last Friday's market gyrations did not result in severe "aftershocks." Were we smart or just lucky?I'm not certain.But I am sure we need to maximize our "earthquake" protection by making certain that our market structures let investors add their mighty shock-damping power to our nation's markets. Mr. Peake is chairman of his own consulting company in Englewood, N.J.
NOW YOU SEE IT, now you don't. The recession, that is.The economy's stutter steps leave investors wondering whether things are slowing down or speeding up.So often are government statistics revised that they seem to resemble a spinning weather vane. For the past seven years, investors have had the wind at their backs, in the form of a generally growing economy.Some may have forgotten -- and some younger ones may never have experienced -- what it's like to invest during a recession.Different tactics are called for, as losing money becomes easier and making money becomes tougher. For those investors who believe -- or fear -- that 1990 will be a recession year, many economists and money managers agree on steps that can be taken to lower the risks in a portfolio. In a nutshell, pros advise investors who expect a slowdown to hold fewer stocks than usual and to favor shares of big companies in "defensive" industries.A heavy dose of cash is prescribed, along with a heavier-than-usual allotment to bonds -- preferably government bonds. It's tempting to think these defensive steps can be delayed until a recession is clearly at hand.But that may not be possible, because recessions often take investors by surprise. "They always seem to come a bit later than you expect.When they do hit, they hit fast," says David A. Wyss, chief financial economist at the Data Resources division of McGraw-Hill Inc. Though he himself doesn't expect a recession soon, Mr. Wyss advises people who do that "the best thing to be in is long that is, 20-year to 30-year Treasury bonds." The reason is simple, Mr. Wyss says: "Interest rates almost always decline during recession." As surely as a seesaw tilts, falling interest rates force up the price of previously issued bonds.They are worth more because they pay higher interest than newly issued bonds do. That effect holds true for both short-term and long-term bonds.But short-term bonds can't rise too much, because everyone knows they will be redeemed at a preset price fairly soon.Long-term bonds, with many years left before maturity, swing more widely in price. But not just any bonds will do.Corporate bonds "are usually not a good bet in a recession," Mr. Wyss says.As times get tougher, investors fret about whether companies will have enough money to pay their debts.This hurts the price of corporate bonds.Also, he notes, "most corporate bonds are callable." That means that a corporation, after a specified amount of time has passed, can buy back its bonds by paying investors the face value (plus, in some cases, a sweetener).When interest rates have dropped, it makes sense for corporations to do just that; they then save on interest costs.But the investors are left stranded with money to reinvest at a time when interest rates are puny. If corporate bonds are bad in recessions, junk bonds are likely to be the worst of all.It's an "absolute necessity" to get out of junk bonds when a recession is in the offing, says Avner Arbel, professor of finance at Cornell University. "Such bonds are very sensitive to the downside, and this could be a disaster." Municipal bonds are generally a bit safer than corporate bonds in a recession, but not as safe as bonds issued by the federal government.During an economic slump, local tax revenues often go down, raising the risks associated with at least some municipals.And, like corporates, many municipal bonds are callable. But a few experts, going against the consensus, don't think bonds would help investors even if a recession is in the offing.One of these is Jeffrey L. Beach, director of research for Underwood Neuhaus & Co., a brokerage house in Houston, who thinks that "we're either in a recession or about to go into one." What's more, he thinks this could be a nastier recession than usual: "Once the downturn comes, it's going to be very hard to reverse." Investors, he advises, "should be cautious," holding fewer stocks than usual and also shunning bonds.Because he sees a "5% to 6% base rate of inflation in the economy," he doubts that interest rates will fall much any time soon. Instead, Mr. Beach says, investors "probably should be carrying a very high level of cash," by which he means such so-called cash equivalents as money-market funds and Treasury bills.Greg Confair, president of Sigma Financial Inc. in Allentown, Pa., also recommends that investors go heavily for cash.He isn't sure a recession is coming, but says the other likely alternative -- reignited inflation -- is just as bad. "This late in an expansion," the economy tends to veer off either into damaging inflation or into a recession, Mr. Confair says.The Federal Reserve Board's plan for a "soft landing," he says, requires the Fed to navigate "an ever-narrowing corridor." A soft landing isn't something that can be achieved once and for all, Mr. Confair adds.It has to be engineered over and over again, month after month.He believes that the task facing Fed Chairman Alan Greenspan is so difficult that it resembles "juggling a double-bladed ax and a buzz saw." And, in a sense, that's the kind of task individuals face in deciding what to do about stocks -- the mainstay of most serious investors' portfolios.It comes down to a question of whether to try to "time" the market. For people who can ride out market waves through good times and bad, stocks have been rewarding long-term investments.Most studies show that buy-and-hold investors historically have earned an annual return from stocks of 9% to 10%, including both dividends and price appreciation.That's well above what bonds or bank certificates have paid. Moreover, because no one knows for sure just when a recession is coming, some analysts think investors shouldn't even worry too much about timing. "Trying to time the economy is a mistake," says David Katz, chief investment officer of Value Matrix Management Inc. in New York.Mr. Katz notes that some economists have been predicting a recession for at least two years.Investors who listened, and lightened up on stocks, "have just hurt themselves," he says. Mr. Katz adds that people who jump in and out of the stock market need to be right about 70% of the time to beat a buy-and-hold strategy.Frequent trading runs up high commission costs.And the in-and-outer might miss the sudden spurts that account for much of the stock market's gains over time. Still, few investors are able to sit tight when they are convinced a recession is coming.After all, in all five recessions since 1960, stocks declined.According to Ned Davis, president of Ned Davis Research Inc. in Nokomis, Fla., the average drop in the Dow Jones Industrial Average was about 21%, and the decrease began an average of six months before a recession officially started. By the time a recession is "official" (two consecutive quarters of declining gross national product), much of the damage to stocks has already been done-and, in the typical case, the recession is already half over.About six months before a recession ends, stocks typically begin to rise again, as investors anticipate a recovery. The average recession lasts about a year.Unfortunately, though, recessions vary enough in length so that the average can't reliably be used to guide investors in timing stock sales or purchases. But whatever their advice about timing, none of these experts recommend jettisoning stocks entirely during a recession.For the portion of an investor's portfolio that stays in stocks, professionals have a number of suggestions.Mr. Katz advocates issues with low price-earnings ratios -- that is, low prices in relation to the company's earnings per share. "Low P-E" stocks, he says, vastly outperform others "during a recession or bear market." In good times, he says, they lag a bit, but overall they provide superior performance. Prof.Arbel urges investors to discard stocks in small companies.Small-company shares typically fall more than big-company stocks in a recession, he says.And in any case, he argues, stocks of small companies are "almost as overpriced as they were Sept. 30, 1987, just before the crash." For example, Mr. Arbel says, stocks of small companies are selling for about 19 times cash flow. (Cash flow, basically earnings plus depreciation, is one common gauge of a company's financial health.) That ratio is dangerously close to the ratio of 19.7 that prevailed before the 1987 stock-market crash, Mr. Arbel says.And it's way above the ratio (7.5 times cash flow) that bigger companies are selling for. Another major trick in making a portfolio recession-resistant is choosing stocks in "defensive" industries.Food, tobacco, drugs and utilities are the classic examples.Recession or not, people still eat, smoke, and take medicine when they're sick. George Putnam III, editor of Turnaround Letter in Boston, offers one final tip for recession-wary investors. "Keep some money available for opportunities," he says. "If the recession does hit, there will be some great investment opportunities just when things seem the blackest." Mr. Dorfman covers investing issues from The Wall Street Journal's New York bureau. Some industry groups consistently weather the storm better than others.The following shows the number of times these industries outperformed the Standard & Poor's 500-Stock Index during the first six months of the past seven recessions. Source: Merrill Lynch
Bond prices posted strong gains as investors went on a bargain hunt. But while the overall market improved, the new-issue junk-bond market continued to count casualties, even as junk-bond prices rose. Yesterday, Prudential-Bache Securities Inc. said it postponed a $220 million senior subordinated debenture offering by York International Corp. And Donaldson, Lufkin & Jenrette Securities Corp. scrambled to restructure and improve the potential returns on a $475 million debenture offering by Chicago & North Western Acquisition Corp. that was still being negotiated late last night. The issue by Chicago & North Western is one of the so-called good junk-bond offerings on the new-issue calendar.Some analysts said the restructuring of the railroad concern's issue shows how tough it is for underwriters to sell even the junk bonds of a company considered to be a relatively good credit risk. Since last week's junk-bond market debacle, many new issues of high-yield, high-risk corporate bonds have either been scaled back, delayed or dropped.On Wednesday, Drexel Burnham Lambert Inc. had to slash the size of Continental Airlines' junk-bond offering to $71 million from $150 million.Salomon Brothers Inc. has delayed Grand Union Co. 's $1.16 billion junk-bond offering while it restructures the transaction.Last week, the Grand Union offering was sweetened to include warrants that allow bondholders to acquire common stock.Prudential-Bache said the York issue was delayed because of market conditions. "Everything is going through firehoops right now, and {Chicago & North Western} is no exception," said Mariel Clemensen, vice president, high-yield research, at Citicorp. Portfolio managers say sweeteners like equity kickers and stricter protective covenants may increasingly be required to sell junk-bond deals. Dan Baldwin, managing director of high-yield investments at Chancellor Capital Management, said the Chicago & North Western offering was restructured in part because "several large insurance buyers right now are demanding equity as part of the package.If you're going to take the risk in this market, you want something extra." Mr. Baldwin likes the offering.But several mutual-fund managers, nervous about the deteriorating quality of their junk-bond portfolios and shy about buying new issues, said they're staying away from any junk security that isn't considered first rate for its class.While they consider the Chicago & North Western issue to be good, they don't view it as the best. To lure buyers to the Chicago & North Western bonds, portfolio managers said Donaldson Lufkin sweetened the transaction by offering the bonds with a resettable interest rate and a 10% equity kicker.The bonds are expected to have a 14 1/2% coupon rate.The equity arrangement apparently would allow bondholders to buy a total of 10% of the stock of CNW Corp., Chicago & North Western's parent company.Donaldson Lufkin declined to comment on the restructuring. According to some analysts familiar with the negotiations, the 10% of equity would come directly from Donaldson Lufkin and a fund affiliated with the investment bank Blackstone Group, which would reduce their CNW equity holdings by 5% each.That would leave the Blackstone fund with a 60% stake and Donaldson Lufkin with 15%. Despite the problems with new issues, high-yield bonds showed gains in the secondary, or resell, market.Junk bonds ended about one-half point higher with so-called high-quality issues from RJR Capital Holdings Corp. and Petrolane Gas Service Limited Partnership rising one point. In the Treasury market, the benchmark 30-year bond rose seven-eighths point, or $8.75 for each $1,000 face amount.The gain reflects fresh economic evidence that inflation is moderating while the economy slows.That raised hopes that interest rates will continue to move lower.The Labor Department reported that consumer prices rose just 0.2% last month, slightly lower than some economists had expected. But there were also rumors yesterday that several Japanese institutional investors were shifting their portfolios and buying long-term bonds while selling shorter-term Treasurys. Short-term Treasury securities ended narrowly mixed, with two-year notes posting slight declines while three-year notes were slightly higher. Yesterday, the Fed executed four-day matched sales, a technical trading operation designed to drain reserves from the banking system.The move was interpreted by some economists as a sign that the Fed doesn't want the federal funds rate to move any lower than the 8 3/4% at which it has been hovering around during the past week.The closely watched funds rate is what banks charge each other on overnight loans.It is considered an early signal of Fed credit policy changes. "The fact that they did four-day matched sales means they are not in a mood to ease aggressively.They are telling us that {8 3/4%} is as low as they want to see the fed funds rate," said Robert Chandross at Lloyds Bank PLC. Treasury Securities The benchmark 30-year bond was quoted late at a price of 101 25/32 to yield 7.955%, compared with 100 29/32 to yield 8.032% Wednesday.The latest 10-year notes were quoted late at 100 9/32 to yield 7.937%, compared with 99 26/32 to yield 8.007%. Short-term rates rose yesterday.The discount rate on three-month Treasury bills rose to 7.56% from 7.51% Wednesday, while the rate on six-month bills rose to 7.57% from 7.53%. Meanwhile, the Treasury sold $9.75 billion of 52-week bills yesterday.The average yield on the bills was 7.35%, down from 7.61% at the previous 52-week bill auction Sept. 21.Yesterday's yield was the lowest since 7.22% on July 27. Here are details of the auction: Rates are determined by the difference between the purchase price and face value.Thus, higher bidding narrows the investor's return while lower bidding widens it.The percentage rates are calculated on a 360-day year, while the coupon-equivalent yield is based on a 365-day year. Corporate Issues Junk bond price climbed yesterday despite skittishness in the new-issue market for high-yield securities. Dealers said junk bond issues on average were up by 1/4 to 1/2 point with so-called quality issues from RJR Capital Holdings Corp. and Petrolane Gas Service Limited Partnership posting one-point gains. Petrolane Gas Service's 13 1/4% debentures traded at 102, after trading around par earlier this week, and RJR's 13 1/2% subordinated debentures of 2001 were at 101 5/8 after trading at below par earlier this week. Investment-grade bonds were unchanged.Municipals Activity was brisk in the high-grade general obligation market, as a series of sell lists hit the Street and capped upward price movement in the sector. Traders estimated that more than $140 million of high-grade bonds was put up for sale via bid-wanted lists circulated by a handful of major brokers.There was speculation that the supply was coming from a commercial bank's portfolios. According to market participants, the bonds were met with decent bids, but the volume of paper left high grades in the 10-year and under maturity range unchanged to 0.05 percentage point higher in yield. Away from the general obligation sector, activity was modest.Long dollar bonds were flat to up 3/8 point. New Jersey Turnpike Authority's 7.20% issue of 2018 was up 3/8 at 98 3/8 bid to yield about 7.32%, down 0.03 percentage point. The debt of some California issuers pulled off lows reached after Tuesday's massive earthquake, although traders said market participants remained cautious. California expects to rely on federal emergency funds and its $1.06 billion in general fund reserves to meet the estimated $500 million to $1 billion in damages resulting from the quake, according to a state official. It's also unclear precisely how the state will rebuild its reserve, said Cindy Katz, assistant director of California's department of finance, although she noted that a bond offering for that purpose isn't anticipated. Meanwhile, new issuance was slow. The largest sale in the competitive arena was a $55.7 million issue of school financing bonds from the Virginia Public School Authority.A balance of $25.8 million remained in late order-taking, according to the lead manager. Mortgage-Backed Securities Mortgage securities generally ended 6/32 to 9/32 point higher, but lagged gains in the Treasury market because of a shift in the shape of the Treasury yield curve and rumored mortgage sales by thrifts. Premium Government National Mortgage Association securities with coupon rates of 13% and higher actually declined amid concerns about increased prepayments because of a plan being considered by Congress to speed the refinancing of government-subsidized mortgages. Ginnie Mae 13% securities were down about 1/4 at 109 30/32. If the refinancing plan clears Congress, there could be fairly heavy prepayments on the premium securities, hurting any investor paying much above par for them. In the current-coupon sector, a shift in the Treasury yield curve resulting from the better performance of long-dated issues over short-dated securities hurt major coupons because it will become more difficult to structure new derivative securities offerings.Ginnie Mae 9% securities ended at 98 6/32, up 9/32, and Federal Home Loan Mortgage Corp. 9% securities were at 97 10/32, up 6/32.The Ginnie Mae 9% issue was yielding 9.42% to a 12-year average life assumption, as the spread above the Treasury 10-year note widened 0.03 percentage point to 1.48. While Remic issuance may slow in the coming days because of the shift in the Treasury yield curve, underwriters continued to crank out new real estate mortgage investment conduits structured when the yield curve was more favorable. Two new Remics totaling $900 million were announced by Freddie Mac yesterday. Foreign Bonds British government bonds ended little changed as investors awaited an economic policy address last night by Chancellor of the Exchequer Nigel Lawson. The Treasury 11 3/4% bond due 2003/2007 was down 2/32 at 111 29/32 to yield 10.09%, while the 11 3/4% notes due 1991 were unchanged at 98 19/32 to yield 12.94%. In Japan, the bellwether No. 111 4.6% bond of 1998 ended off 0.03 at 95.72, to yield 5.32%, and in West Germany, the 7% benchmark issue due October 1999 ended 0.05 point lower at 99.85 to yield 7.02%.
THE PANHANDLER approaches, makes his pitch.It may be straightforward -- he wants money for food -- or incredibly convoluted; his sister is at this very moment near death in Hoboken, he has lost his wallet and has only $1.22 in change to put toward a bus ticket costing $3.83, and won't you give him the difference?No?Well, how about a loan, he'll take your name and address . . . Figuring that their money would more likely go toward a bottle of Night Train Express, most people have little trouble saying no to propositions like this.But healthy skepticism vanishes when they are solicited by an organized charity to help fight cancer, famine, child abuse, or what have you.Most see little reason to doubt that their cash will go toward these noble goals.But will it? In a distressing number of cases, no.In fact, the donors sometimes might be better off giving the money to the panhandler: at least he has no overhead, and he might even be telling the truth. Last year, more than $100 billion was donated to the nation's 400,000 charities.While the vast bulk of it was indeed spent by reputable organizations on the good works it was raised for, it's equally true that a sizable hunk was consumed in "expenses" claimed by other operators, including fraudulent expenses.In many cases the costs claimed were so high that only a dribble of cash was left for the purported beneficiaries. It's impossible to say exactly how much of the total charity intake is devoured by stratospheric fund-raising costs, high-living operators, and downright fraud.But the problem clearly is widespread and persistent.State law enforcers can barely keep up with charity scams, and reports from watchdog groups such as the Council of Better Business Bureaus are not encouraging. The Philanthropic Advisory Service of the BBB reviews hundreds of new charities every year, measuring them against minimum standards for accountability; for accuracy and honesty in solicitation; and for percentage of funds actually going to work for which the charity was supposedly established.The Service figures at least half of the money taken in should be spent on program.Roughly a third of the charities reviewed flunk the test. Which, it should be added, doesn't prevent the charities from raking in a lot of money anyway.Without a microscope and a subpoena, it's often hard to sort out worthwhile causes from ripoffs if all you've got to go on is the solicitation itself.On this basis, "there's no way the average person can know a good charity from a bad one," says David Ormstedt, an assistant attorney general in Connecticut. "A lot of donors just get taken." Including those, he contends, who put about $1 million into the kitty for the Connecticut Association of Concerned Veterans and the Vietnam Veterans Service Center.The state has sued these charities in state court, complaining that much of the money was grossly misspent; 82%, says Mr. Ormstedt, went to fund raisers and most of the rest to the people who ran the charities and to their relatives -- for fur coats, trips to Florida, Lucullan restaurant tabs.The telephone number for the charity in Shelton, Conn., has been disconnected, and the former officials couldn't be located. Running a charity does cost money, but reputable organizations manage to get the lion's share of donations out to where they are really needed.The Arthritis Foundation, the American Cancer Society and the United Way of America all say that they spend roughly 90% of their income on programs, not overhead.With some other charities, however, its the other way around. The fledgling National Children's Cancer Society, for example, took in $2.5 million last year to finance bone-marrow transplants for children.By the time it paid its expenses it only had $120,000 left -- not enough to treat even one child.The state of Illinois is suing the charity for fraud in Chicago, along with Telesystems Marketing Inc., its Houston-based fund raiser. Both deny wrongdoing.The charity admits spending a lot on fund raising, but says that was necessary to establish a donor base it can tap at much lower cost in years to come.Michael Burns, president of Telesystems, says his concern has only benefited from the publicity surrounding the case, noting that three other charities have signed on as clients because they were impressed with the amount he raised for National Children's.Meanwhile, a state court judge has allowed the charity to go on soliciting funds. Enforcers can't put charities out of business simply because they spend the lion's share of their income on fund raising.State laws previously used as a yardstick minimum percentages of income -- usually half -- that had to be spent on the program rather than overhead, but these have been overturned by the U.S. Supreme Court.It has ruled that such laws might work to stifle fund raising, which would amount to limiting the charities' first-amendment right to freedom of expression. This puts upon enforcers the burden of proving outright fraud or misrepresentation, and such actions have been brought against hundreds of charities recently.The attorney general's office in Connecticut alone has put seven of them out of business over the past couple of years, and the enforcement drive is continuing there and elsewhere. In making cases, the authorities frequently zero in on alleged misrepresentations made by the charities' fund raisers.Illinois, for instance, currently has under investigation 10 of the 30 companies drumming up funds for charities soliciting there. Enforcers pay special attention to operators using sweepstakes prizes as an additional inducement to give.Attorneys general in several states, including Illinois, are already suing Watson & Hughey Co., an Alexandria, Va.-based outfit that they say has used deceptive sweepstakes ads to solicit donations for the American Heart Disease Foundation and the Cancer Fund of America. According to the Illinois attorney general's suit, Watson & Hughey sent mailings indicating that recipients were guaranteed cash prizes, and could win up to an additional $1,000 on top of them, if they contributed as little as $7.But the total value of the prizes was only $5,000 and most "winners" will receive just 10 cents, according to the attorney general's office.The suit is still pending in Illinois state court.Watson & Hughey has denied the allegations in court; officials decline to comment further. While they can target some of the most obvious miscreants, enforcers concede that they are only scratching the surface.There are so many cunning ploys used by so many dubious operators, they say, that it is probably impossible to stop them all. One maneuver: the "public education" gambit.The solicitation material indicates that donations will go toward a campaign alerting and informing the public about some health or other issue.What it doesn't say is that the entire "campaign" may be the fund-raising letter itself. "All too often this will merely be a statement on the solicitation such as, `Don't smoke!' or `Wear suntan lotion, ' " says William Webster, attorney general of Missouri. "By putting these pithy statements on the solicitations, hundreds of thousands of dollars are claimed to have been spent on education to consumers when in fact this represents the costs of sending the newsletters." Mr. Webster cites a four-page mailing from the United Cancer Council that offers a chance to win $5,000 in gold bullion to those giving as little as $5 to cancer education. "A few boilerplate warnings about cancer appear but that's only two inches in all four pages.I think some people may believe they're helping fund a massive TV and print campaign, but we couldn't find that the charity does anything except write these letters," he says.Officials at the Washington D.C.-based charity didn't return repeated phone calls. Many fly-by-night charities ride the coattails of the biggest, best-known and most reputable ones by adopting names similar to theirs.The established charities are bothered by this but say they can do little about it. "We can't police the many organizations that have sprung up in the last few years using part of our name.Most of them don't last for long, but in the meantime all we can do is tell people they aren't connected with us," says a spokeswoman for the American Heart Association.And sometimes a reputable charity with a household name gets used and doesn't even know it.A couple in Rockford, Ill., raised $12,591 earlier this year using the name and logo of Mothers Against Drunk Driving, without permission from the group.MADD didn't learn of the fund raising until the couple sent it a check for $613, along with a letter saying that was the charity's "share." The Illinois Attorney General won a court order to prevent the couple from raising further funds without MADD's permission.The couple couldn't be reached for comment and apparently have left Rockford, law enforcement officials report.Denise McDonald, a spokeswoman for MADD, says, "It's scary, because anybody could do this."f Mr. Johnson is a staf reporter in The Wall Street Journal's Chicago bureau. Overhead costs at some of the largest charities, in millions of dollars Source: The NonProfit Times
British Airways PLC, a crucial participant in the proposed buy-out of UAL Corp., washed its hands of the current efforts to revive a bid for the parent of United Airlines. Specifically, the British carrier said it currently has no plans to participate in any new offer for UAL.In addition, British Air officially withdrew its support for the previous $300-a-share bid in a terse statement that said "the original deal is closed." Company officials said later that British Airways believes its involvement in the UAL buy-out ended last Friday when the buy-out group, which also includes UAL's management and pilot union, failed to obtain financing for the $6.79 billion transaction. The carrier stopped short of saying it wouldn't at some point reconsider participating in any new bid for UAL. However, company officials said they plan to take "no initiatives" to resurrect the transaction, and "aren't aware" of any restructured bid in the making. Collectively, the statements raised questions about whether a new bid for UAL will ever get off the ground.The transaction has had a series of setbacks since the financing problems became known last Friday, with no signs or statements from the buy-out group to indicate that any progress has taken place. However, in response to the British Air decision, United's pilot union vowed to continue efforts to revive the buy-out.Pilot union Chairman Frederick C. Dubinsky said advisers to UAL management and the union will begin meeting in New York today and will work through the weekend to devise a new proposal to present to UAL's board "at the earliest time possible." Pilot union advisers appeared confident that a new bid could go forward even without British Air's participation. UAL declined to comment on British Air's statement.UAL Chairman Stephen M. Wolf, who is leading the management end of the buy-out, hasn't provided investors with any assurances about the prospect of a new deal. In another setback yesterday, United's machinist union asked the Treasury Department to investigate whether certain aspects of the original buy-out proposal violated tax laws.In an effort to derail the buy-out, the union has already called for investigations by the Securities and Exchange Commission, Transportation Department and Labor Department. But there was one bright spot yesterday.The United flight-attendants union agreed to negotiations that could lead to the flight attendants contributing concessions to a revived bid in exchange for an ownership stake.The pilot union, the only one to support the buy-out thus far, said the flight attendants' decision "enforces our belief that an all-employee owned airline is practical and achievable." Still, without the assurance of British Airways' financial backing, it will be tougher for the buy-out group to convince already-reluctant banks to make loan commitments for a revised bid, especially since British Air's original investment represented 78% of the cash equity contribution for the bid. Under the previous plan, British Air would have received a 15% stake in UAL in exchange for a $750 million equity investment, with a 75% stake going to UAL employees and 10% to UAL management. British Air officials said the airline's chairman, Lord King, was concerned about news reports indicating that British Air might be willing to participate in a bid that included a lower purchase price and better investment terms for the British carrier. The previous reports were based on remarks by British Air's chief financial officer, Derek Stevens, who said any revised bid would have to include a lower purchase price to reflect the sharp drop in UAL's stock in the past week. UAL stock dropped $1.625 yesterday to $190.125 on volume of 923,500 shares in composite trading on the New York Stock Exchange. UAL declined to comment on British Air's statement. In an interview Wednesday with Dow Jones Professional Investor Report, Mr. Stevens said, "We're in no way committed to a deal going through at all.We're not rushing into anything.We don't want to be party to a second rejection." Indeed, British Air seemed to be distancing itself from the troubled transaction early in an effort to avoid any further embarrassment.The original transaction fell through on the same day British Air shareholders approved the plan at a special meeting after the British succeeded in arranging the financing for its equity contribution. The carrier also seemed eager to place blame on its American counterparts. "The {buy-out} consortium ceased to exist because our American partners were not capable of organizing the financing," a British Air spokesman said. British Airways may have begun to have second thoughts about the transaction after the Transportation Department forced Northwest's Airlines' new owners to restructure the equity contribution of KLM Royal Dutch Airlines in that carrier.Most of the department's statements since the Northwest transaction indicated it planned to curtail foreign ownership stakes in U.S. carriers. Even before British Air's announcement, pilot union leaders had been meeting in Chicago yesterday to consider their options.The leaders expressed support for trying to revive the bid following a briefing Wednesday by the union's advisers, Lazard Freres & Co. and Paul, Weiss, Rifkind Wharton & Garrison.They also unanimously re-elected Mr. Dubinsky, the union chairman who has led the pilots' 2 1/2-year fight to take control of the airline. UAL's advisers have indicated previously that it may take a while to come forward with a revised plan since they want to have firm bank commitments before launching a new bid.They have maintained that banks remain interested in financing the transaction.The buy-out fell through after Citicorp and Chase Manhattan Corp., the lead banks in the transaction, failed to obtain $7.2 billion in financing needed for the plan.
Senate Democrats favoring a cut in the capital-gains tax have decided, under pressure from their leaders, not to offer their own proposal, placing another obstacle in the path of President Bush's legislative priority. A core group of six or so Democratic senators has been working behind the scenes to develop a proposal to reduce the tax on the gain from the sale of assets.The plan was complete except for finishing touches, and there was talk that it would be unveiled as early as yesterday. But Senate Majority Leader George Mitchell (D., Maine), a vigorous opponent of the capital-gains tax cut, called the group to meet with him Wednesday night and again yesterday.Sen. Mitchell urged them to desist.Afterward, leaders of the dissident Democrats relented, and said they wouldn't offer their own proposal as they had planned. The decision is a setback for President Bush, who needs the support of Democrats to pass the tax cut through the Democratic-controlled Senate.Having a proposal sponsored by Democrats would have given the president an advantage.Having only a Republican measure makes the task harder. Still, Sen. Bob Packwood (R., Ore.), the lead sponsor of the Republican capital-gains amendment, predicted that the tax cut would be enacted this year.He said a clear majority of senators back the tax reduction and that ultimately there would be enough senators to overcome any procedural hurdle the Democratic leadership might erect. But Sen. Mitchell, buoyed by his victory among fellow Democrats, strongly disagreed.Mr. Mitchell has been predicting that the president's initiative would fail this year.Yesterday, in an interview, he added that the Democrats' decision "increases the likelihood that a capital-gains tax cut will not pass this year." Mr. Mitchell's first victory came last week, when the Senate passed a deficit-reduction bill that didn't contain a capital-gains provision.That vote made it unlikely that a capital-gains tax cut would be included in the final bill, now being drafted by House and Senate negotiators.The House version of the bill does include the tax cut. Now Republican leaders are concentrating on attaching a capital-gains amendment to some other bill, perhaps a measure raising the federal borrowing limit or a second tax bill that would follow on the heels of the deficit-reduction legislation.To help lay the groundwork for that fight, President Bush plans early next week to meet at the White House with some 20 Democratic senators who favor cutting the capital-gains tax or are undecided on the issue. The president apparently will have only one bill to push, Sen. Packwood's, and at least some of the dissident Democrats plan to support it. "I may want to offer additional amendments to improve it when the bill comes to the floor," said Sen. David Boren (D., Okla.), a leader of those Democrats. The Packwood plan, as expected, would allow individuals to exclude from income 5% of the gain from the sale of a capital asset held for more than one year.The exclusion would rise five percentage points for each year the asset was held, until it reached a maximum of 35% after seven years.The exclusion would apply to assets sold after Oct. 1.As an alternative, taxpayers could chose to reduce their gains by an inflation index. For corporations, the top tax rate on the sale of assets held for more than three years would be cut to 33% from the current top rate of 34%.That rate would gradually decline to as little as 29% for corporate assets held for 15 years. The Packwood plan also would include a proposal, designed by Sen. William Roth (R., Del.), that would create new tax benefits for individual retirement accounts.The Roth plan would create a new, non-deductible IRA from which money could be withdrawn tax-free not only for retirement, but also for the purchase of a first home, education expenses and medical expenses.Current IRAs could be rolled over into the new IRAs, but would be subject to tax though no penalty.
Westmoreland Coal Co., realizing benefits of a sustained effort to cut costs and boost productivity, reported sharply improved third-quarter results. The producer and marketer of low-sulfur coal said net income for the quarter was $5.9 million, or 71 cents a share, on revenue of $145.4 million.For the year-earlier period, the company reported a loss of $520,000 or six cents a share. In the latest nine months, the company earned $8.5 million, or $1.03 a share.Last year's net loss of $3,524,000 included a benefit of $1,640,000 from an accounting change.Revenue for the nine months rose to $449 million from $441.1 million. In an interview, Pemberton Hutchinson, president and chief executive, cited several reasons for the improvement: higher employee productivity and "good natural conditions" in the mines, as well as lower costs for materials, administrative overhead and debt interest. In the latest nine months, Mr. Hutchinson said, total coal sales rose to about 14.6 million tons from about 14.3 million tons a year earlier.In addition, long-term debt has been trimmed to about $72 million from $96 million since Jan. 1.He predicted the debt ratio will improve further in coming quarters. Westmoreland's strategy is to retain and expand its core business of mining and selling low-sulphur coal in the Appalachia region.The operating territory includes coal terminals on the Ohio River and in Newport News, Va.Westmoreland exports about a fourth of its coal tonnage, including a significant amount of metallurgical coal produced by others that is used by steelmakers overseas. For the past couple of years, Westmoreland has undertaken an aggressive streamlining of all aspects of its business.Marginal operations and assets have been sold.The size of the company's board has been reduced to eight directors from 13.About 140 salaried management jobs and hundreds of hourly wage positions have been eliminated.Even perks have been reduced.For example, the chief executive himself now pays 20% of the cost of his health benefits; the company used to pay 100%. "I think the ship is now righted, the bilges are pumped and we are on course," Mr. Hutchinson said of the restructuring program. "Much of what we set out to do is completed." But he cautioned that Westmoreland's third quarter is typically better than the fourth, so investors "shouldn't just multiply the third quarter by four" and assume the same rate of improvement can be sustained.One difference, he said, is that the fourth quarter has significantly fewer workdays because of holidays and the hunting season. "I don't want to give the impression that everybody can relax now," he said. "We have to keep working at improving our core business to stay efficient.It's a process that never really ends." Nevertheless, Mr. Hutchinson predicted that 1989 would be "solidly profitable" for Westmoreland and that 1990 would bring "more of the same." For all of 1988, the company reported an after-tax operating loss of $134,000 on revenue of $593.5 million.An accounting adjustment made net income $1.5 million, or 18 cents a share. In a move that complements the company's basic strategy, its Westmoreland Energy Inc. unit is developing four coal-fired cogeneration plants with a partner in Virginia.Some of the coal the plants buy will come from Westmoreland mines.Mr. Hutchinson predicted that the unit's contribution to company results in the 1990s "will be exciting." He said Westmoreland is looking at investment stakes in other cogeneration plants east of the Mississippi River. Westmoreland expects energy demand to grow annually in the 2.5% range in the early 1990s. "We see coal's piece of the action growing," Mr. Hutchinson said. "Coal prices, while not skyrocketing, will grow modestly in real terms, we think."
Chase Manhattan Corp., after trying unsuccessfully to sell its interest in its lower Manhattan operations building, has exercised its option to purchase the 50-story office tower. Chase had purchased an option to buy the building at One New York Plaza for an undisclosed sum from the late Sol Atlas as part of its original lease in 1970. The current transaction cost the bank approximately $140 million.Of that amount, $20 million was payment for the land underneath the building and the rest was for the building itself. The building houses about 4,500 Chase workers, most of whom will be moved to downtown Brooklyn after the bank's new back office center is completed in 1993.The move is part of Chase's strategy to consolidate its back offices under one roof.The headquarters is located a few blocks away at 1 Chase Manhattan Plaza. As part of its decision to leave the building, Chase tried to sell its interest, along with the Atlas estate's interest, shortly after the October 1987 stock market crash.Chase Senior Vice President George Scandalios said the bank decided to exercise its option after bids fell short of expectations.He said Chase and the Atlas estate were looking to sell the entire building for $400 million to $475 million, but didn't get an offer for more than $375 million. As the building's new owner, Chase will have its work cut out for it.Chase is vacating 1.1 million square feet of space, and Salomon Brothers Inc., whose headquarters is in the building, also plans to move shortly.In addition, another major building tenant, Thomson McKinnon Inc. 's Thomson McKinnon Securities, likely will vacate the premises as part of its liquidation. New York real estate brokerage Edward S. Gordon Co. will have the difficult task of finding new tenants.Even with its striking views of the New York harbor, the building is considered antiquated by modern office standards.And Chase will have to spend approximately $50 million to remove asbestos from the premises.
WALL STREET, SHAKE hands with George Orwell. The author of the futuristic novel "1984" invented a language called Newspeak that made it impossible to fully develop a heretical thought -- that is, anything negative about the policies and practices of the state.Wall Street hasn't gotten that far yet, but it has made a promising start. Its language -- call it Streetspeak -- is increasingly mellifluous, reassuring, and designed to make financial products and maneuvers appear better, safer or cheaper than they really are.When something undeniably nasty happens, a few euphemisms are deployed to simply make it disappear, much as a fresh grave may be covered by a blanket of flowers. For example, we'll bet you thought that the stock market crashed two years ago.Wrong.According to some of the grand panjandrums of the market, it never happened.In their lexicon the 508-point collapse in the Dow Jones Industrial Average on Oct. 19, 1987, was just a big blip.Trotting out a much-beloved Streetspeak term, New York Stock Exchange Chairman John Phelan recently declared that history would record the event as only "a major technical correction." (Another much-beloved saying, however, this one in plain English, holds that if something walks like a duck and quacks like a duck, it is a duck.On Oct. 29, 1929 -- a date historians stubbornly insist on associating with the dreaded C-word -- the DJ industrials fell 12.8%.In the "technical correction" of two years ago, they lost a whopping 22.6%.) Customers hear a lot of this stuff from people who try to sell them stock.These people used to be called brokers, but apparently this word either is not grandiose enough or carries too many negative connotations from the aforementioned technical correction, when terrified customers couldn't raise brokers on the phone.Either way, the word "broker" is clearly out of favor. Of the major New York-based securities firms, only Morgan Stanley & Co. still calls its salespeople brokers.At Merrill Lynch & Co. and Shearson Lehman Hutton Inc., they are "financial consultants." At Drexel Burnham Lambert Inc., Prudential Bache Securities, and Dean Witter Reynolds Inc., they are "account executives." At PaineWebber Inc., they are "investment executives." Such titles are designed to convey a sense of dignified, broad-scale competence and expertise in selling today's myriad financial products.It is a competence and expertise that some brokers themselves, overwhelmed by all the new things being dreamed up for them to peddle, don't feel. "Its almost product de jour," grouses one account executive at Dean Witter. The transmogrified brokers never let the C-word cross their lips, instead stressing such terms as "safe," "insured" and "guaranteed" -- even though these terms may be severely limited in their application to a particular new financial product.The names of some of these products don't suggest the risk involved in buying them, either. A case in point: "government-plus" bond funds.What could imply more safety than investing in government bonds?What could be better than getting a tad more income from them (the plus) than other people?Indeed, conservative investors, many of them elderly, have poured more than $50 billion into such funds, which promise fatter yields than ordinary Treasury bonds -- only to learn later that these funds use part of their money to dabble in high-risk bond options, a gambler's game. When a certain class of investment performs so poorly that its reputation is tarnished, look for Wall Street to give it a new moniker.This seems to be happening now to limited partnerships, many of which either have gone into the tank in recent years or have otherwise been grievous disappointments.They are still being sold, but more and more often as "direct investments" -- with all the same risks they had under the old label. In such cases, the game hasn't changed, only the name.In others a familiar old name still prevails, but the underlying game has changed.For example, "no load" mutual funds remain a favorite with investors because they don't carry a frontend sales commission.Getting out of them, however, may be a different story now. Traditional no-loads made their money by charging an annual management fee, usually a modest one; they imposed no other fees, and many still don't.In recent years, though, a passel of others flying the no-load flag have been imposing hefty charges -- all the way up to 6% -- when an investor sells his shares.Shouldn't they properly be called exit-load funds?The mutual-fund industry is debating the question, but don't expect a new name while the old one is working so well. And don't expect anyone to change the term "blue chip," either, even though some of the companies that still enjoy the title may be riskier investments than they were.American Telephone & Telegraph Co., for one, is still a favorite of widows, orphans and trust departments -- but shorn of its regional telephone units and exposed to competition on every side, it is a far different investment prospect than it was before divestiture. Also, blue chips in general have suffered much more short-term price volatility in recent years.Larry Biehl, a money manager in San Mateo, Calif., blames that on the advent of program trading, in which computers used by big institutional investors are programmed to buy and sell big blocks when certain market conditions prevail.Blue chips, he says, "are now being referred to as poker chips." Finally, even the time-honored strategy called "value investing" no longer means what it once did.Before the takeover mania of the '80s, it referred to rooting out through analysis undervalued stocks, especially those with shrewd management, sound fundamentals and decent prospects.Now, says Mr. Biehl, value investing often means "looking for downtrodden companies with terrible management that are in real trouble." To institutional investors or brokers, he adds, a company with value is a company at risk of being swallowed up. Ms. Bettner covers personal finance from The Wall Street Journal's Los Angeles bureau.
When Walter Yetnikoff, the president of Sony Corp. 's CBS Records, last month told producer Peter Guber that Sony was about to make a $3.4 billion bid for Columbia Pictures and needed someone to run the studio, Mr. Guber jumped at the chance. Within two days, he was on his way to New York and Tokyo to meet with top brass at Sony.And before the week was out, Sony had offered Mr. Guber and his partner, Jon Peters, the most lucrative employment contracts in the history of the movie business.Not only that, Sony also agreed to give them a stake in Columbia's future profits and buy their company, Guber Peters Entertainment Co., for $200 million, almost 40% more than the market value of the company. There was just one sticking point: The two had a prior commitment.Just seven months earlier, they had signed a five-year exclusive contract to make movies for Warner Bros. for which they had just produced the smash hit "Batman." But Mr. Guber figured that Warner Communications Inc. chairman Steven Ross, would empathize and let the producers go, knowing the Sony offer was "the culmination of a life's work." He figured wrong.Last week, following fruitless settlement talks, Warner, now merging with Time Inc., filed a $1 billion breach of contract suit in Los Angeles Superior Court against both Sony and Guber Peters.Sony promptly countersued, charging Warner with trying to sabotage its acquisitions and hurt its efforts to enter the U.S. movie business.The accusations of lying and duplicity are flying thick and fast on both sides: As one Sony executive puts it, "It's World War III." That two successful producers who aren't all that well known outside Hollywood could occasion such a clash of corporate titans suggests how desperate the quest for proven talent is in the movie business.And they are a very odd team in any case.Mr. Guber was raised in Boston and educated in New York.He is a lawyer with a string of academic degrees.Mr. Peters is a high-school dropout who came to fame as Barbra Streisand's hairdresser.Yet, they are far and away the most prolific producers in Hollywood.And despite their share of duds, they make movies that make money. That is a skill Sony badly needs -- and Warner is loath to lose. Although Columbia had a good summer with "Ghostbusters II" and "When Harry Met Sally," rivals such as Warner, Paramount Pictures, Walt Disney Co. and Universal Studios have been thrashing Columbia at the box office.After five years of management turmoil, with four different studio heads, Columbia sorely needs a stable, savvy team to restore its credibility and get it back in the business of making hits. Mr. Guber and Mr. Peters aren't universally loved in Hollywood but they are well connected.Their stock in trade as "executive producers" is sniffing out hot properties, locking them up and then getting big studios to bankroll and distribute them.Sometimes Mr. Guber and Mr. Peters do little more than grab the first draft of a screenplay for a "Flashdance," or buy rights to a best seller such as "The Color Purple." It falls to others to do the writing, directing and producing. With MGM/UA's "Rainman," for instance, Messrs.Guber and Peters had virtually nothing to do with day-to-day production, but their names still appear in big letters on the credits, and they are inevitably associated with its success.Sometimes, as with "Batman," the pair really do make the film.In that case, Guber Peters acquired the rights in 1979, nursed the movie through a dozen scripts, and were on the set in London for 11 months hovering over the most minute changes in casting and production. "They're the best production talent around," says Brian De Palma, beholden to Guber Peters for hiring him to direct the Warner movie of Tom Wolfe's novel "Bonfire of the Vanities." On that film, which is to start shooting in a few months, "they've been very much involved, hiring talent and discussing the development of the script.And when you're making a movie this big, you need all the help you can get," Mr. De Palma adds. "I wish they were around 24 hours a day." And some movies seem to have been hurt by their inattention.Warner executives blame Mr. Guber's and Mr. Peters's lack of involvement in "Caddyshack II" for casting and production problems and the film's ultimate dismal failure. "We've had a few bombs," admits Mr. Peters. "But by and large this company has only been profitable." He says his company's prowess at packaging and marketing "is why we'll be good at Columbia.We practically ran our own studio." Longtime Hollywood associates describe Mr. Guber as the intellectual powerhouse of the two, a man with a flair for deal-making and marketing. "Peter is a major piece of Hollywood manpower who has really earned his success," says Robert Bookman, an agent at Creative Artists Agency.Mark Johnson, the producer of "Rainman," chimes in: "He has a great ability to hire terrific people and delegate authority. . . . It's no accident that they've been able to develop such successful material." Mr. Peters, on the other hand, has fewer fans in Hollywood, and his detractors like to characterize him as something of a hot-tempered bully.He gets better reviews as a creative whiz, an enthusiast, an idea man.He also had to fight harder for credibility than his partner did.Barbra Streisand made him famous.He cut her hair.He lived with her.He came to produce her records and her movies -- "A Star Is Born" and "The Main Event." Thrice married but now single, Mr. Peters got plenty of ink last summer for an on-set romance with actress Kim Basinger during the making of "Batman." Mr. Guber, by contrast, has been married to one woman for more than 20 years.But for all their intellectual and stylistic differences, they make the perfect "good cop, bad cop" team, Hollywood associates say. "Peter is the bright, sympathetic guy when you're doing a deal," says one agent. "If there's a problem, Peter disappears, and all of a sudden Jon shows up." Mr. Guber and Mr. Peters rub many people in Hollywood the wrong way.Producers Don Simpson and Jerry Bruckheimer, who shepherded "Flashdance" through several scripts and ultimately produced the movie, bristle when Messrs.Guber and Peters take credit for the film.Says Mr. Simpson: "The script was unreadable.We reinvented it.We are the producers of that movie.They got a small piece of the net profits and a screen credit" as executive producers. When Roger Birnbaum, an executive who worked for Guber Peters in the early 1980s, left to take a job as head of production at the United Artists studio, they made him forfeit all credits and financial interest in the films he had helped develop, including "Rainman" and "Batman." Mr. Peters acknowledges that and says it's not unlike the situation he and Mr. Guber are in with Warner. "I was upset with Roger, I fumpered and schmumpered," says Mr. Peters. "But he wanted to pursue his own dream, and he went." Still, Mr. Birnbaum says his relationship with Guber Peters was "one of the most successful I've had in Hollywood." The two "have a wonderful chemistry -- Jon is very impulsive, and Peter is very compulsive," adds Mr. Birnbaum, who is now head of production at News Corp. 's 20th Century Fox Film Co. "Jon Peters will come barreling into a room, say he's got a great idea, and be gone.Peter will take the kernel of that idea and make it grow into something specific. . . ." Mr. Birnbaum recalls that Mr. Guber and Mr. Peters shifted into high gear a few years back upon learning that they had competition for the story of the murdered naturalist Dian Fossey, which became "Gorillas in the Mist." He says, "Within a few weeks, we made deals with the government of Rwanda and everyone who had ever met or talked to Dian Fossey.I think Peter even made some deals with the gorillas." Universal Studios was working on a competing film, but the studio and its producers ultimately agreed to co-produce the film with Guber Peters and Warner. More recently, Guber Peters beat out a dozen other producers, reportedly including Robert Redford and Ted Turner, for rights to the life story of Chico Mendes, the murdered Brazilian union leader who fought developers in the Amazon rain forest.Messrs.Guber and Peters assiduously courted the man's widow for months, showing her a tape of "Gorillas in the Mist" to impress her with the quality of their work.Money helped, too.Ultimately, they paid more than $1 million for the rights. (The sale caused a rift between the widow and some of her husband's followers.Some of the money will go to the Chico Mendes Foundation, but it isn't earmarked for groups trying to save the rain forest.) It's hardly astonishing (given the men's track record) that Sony wants Mr. Guber and Mr. Peters.But it is puzzling to some Hollywood executives that Sony rushed to hire them without clearing up the Warner situation first.Some note that Sony might have saved itself some trouble by just hiring Mr. Guber and letting Mr. Peters stay on to fulfill the Warner contract.But though "people in town may ask why Guber needs Peters, it's good to have a partner, and obviously the chemistry works," says Steven Tisch, a producer who once worked for Mr. Guber. "This business isn't about personalities at the end of the day -- its about whether the ink is red or black.In the case of Peter and Jon, the ink has been very, very black." Mr. Guber got his start in the movie business at Columbia two decades ago.Recruited from New York University's MBA program, he rose within two years to head of production, overseeing such films as "The Way We Were," "Taxi Driver," "Tommy" and "Shampoo." In 1976, he teamed up with record producer Neil Bogart in Casablanca Records and Filmworks -- later called Polygram Pictures -- where they produced such hits as as "The Deep," and "Midnight Express." In 1980, Mr. Guber got together with Mr. Peters, by then a successful producer in his own right, after the death of Mr. Bogart.While Guber Peters produced a number of hits for Warner and others, their record wasn't always so impressive.Among their clinkers were "The Legend of Billie Jean," "VisionQuest," "Clue" and "Clan of the Cave Bear." And the failures make it possible for Warner in its current lawsuit to paint the producers as ingrates.The studio says it stuck with them "even in the early years when the creative partnership was not particularly profitable for Warner." Mr. Guber replies that "this is a Goliath, this Time Warner, trying to chew up two fellows who have done only well for them for a long period of time." Mr. Guber and Mr. Peters maintain that executives at Warner have always known of their ambitions to run a major entertainment powerhouse, but that Warner never felt threatened until they linked up with Sony. "From the beginning, {they} knew we had a goal and a dream," says Mr. Guber.On a number of occasions, he adds, he tried to get Warner to buy Guber Peters outright. "They always listened, but they never acted," Mr. Guber says. In 1987, Mr. Guber and Mr. Peters contributed their company's assets in exchange for a 28% stake in Barris Entertainment, a small-fry TV production company controlled by Giant Industries Inc. Chairman Burt Sugarman.In July a year later, Warner agreed to release the producers from their old contract when Messrs.Guber, Peters and Sugarman made a $100 million offer to buy 25% of MGM/UA.Mr. Guber and Mr. Peters planned to run the nearly dormant MGM studio, and the two even tried to interest Warner Bros. ' President Terry Semel in becoming a partner after he advised them on the deal. But the MGM plan collapsed just two weeks later.Mr. Guber and Mr. Peters say they got a look at the books and balked at the price.Their relationship with Mr. Sugarman soured shortly thereafter.Last May, he sold his 24% stake in Barris to a passive Australian investor and Barris was renamed Guber Peters Entertainment Co. Meanwhile, Mr. Guber and Mr. Peters had agreed to extend their Warner agreement with the new five-year exclusive contract. The new deal was considered the most generous of its kind, both financially and in terms of creative freedom.But it paled by comparison to what Sony was to offer last month: the chance, at last, to run a major studio, about $50 million in deferred compensation, up to 10% of Columbia's future cash flow, 8% of the future appreciation of Columbia's market value, and annual salaries of $2.7 million for each.The producers' 28% share of publicly held Guber Peters would net them an additional $50 million.Sony also agreed to indemnify the producers against any liability to Warner. Sony is paying a hefty price for a company that had revenue of only $42 million last year.And earnings have been erratic.In the the latest quarter, thanks in part to "Batman," Guber Peters earned $5.8 million, or 50 cents a share, compared to a loss of $6.8 million, or 62 cents a share, in last year's quarter.Guber Peters stock, which traded as low as $6 a share last year, closed yesterday at $16.625. The two sides now are accusing each other of lying.Mr. Guber and Mr. Peters claim they have an oral agreement with Warner executives that allows them to terminate their contract should the opportunity to run a major studio arise.But in affidavits filed yesterday in the Los Angeles court, Mr. Ross, Warner Bros.Chairman Robert Daly and President Semel deny that such an oral agreement was ever made.Warner, in its court filings, calls it "a piece of fiction created for this litigation." Mr. Daly in his affidavit acknowledges that Warner agreed to release the producers last year to take over MGM but says that situation was altogether different.For one thing, according to Mr. Daly, the producers requested a release in advance.Moreover, the old contract was about to expire, and the lineup of Guber Peters pictures for Warner wasn't as strong as it is now.Warner itself was in negotiations with MGM over certain movie and other rights, and it was "in Warner's interest to accommodate MGM/UA, Guber and Peters by permitting them to become MGM executives," Mr. Daly said in his affidavit. Warner obviously doesn't think that it is in its own interests to let Mr. Guber and Mr. Peters go off to Columbia.At the very least, Mr. Ross clearly sees an opportunity to use the two men to get a pound of flesh from Sony.During settlement talks, for example, Warner demanded such things as cable TV rights to Columbia movies and Columbia's interest in the studio it jointly owns with Warner, according to executives involved in the talks.In any settlement, Warner is almost certain to demand rights to most of the 50 or so projects Mr. Guber and Mr. Peters have locked up for the next few years, notably sequels to "Batman." Mr. Guber and Mr. Peters refuse to concede that they may have made a tactical error in accepting the Sony offer before taking it up with Warner.And they say there are plenty of precedents in Hollywood for letting people out of contracts.The last time Columbia Pictures was looking for a studio chief, they note, Warner released producer David Puttnam from his contract, then took him back after he was subsequently fired by his bosses at Columbia.In his affidavit filed yesterday, Warner's Mr. Ross indicated he isn't buying any such argument: "If Sony succeeds here, no written contract in Hollywood will be worth the paper it's written on."
IF YOU FORCE financial planners to sum up their most important advice in a single sentence, it would probably be a one-word sentence: Diversify. Judging by a poll of Wall Street Journal readers conducted this summer by Erdos & Morgan Inc., serious investors have taken that advice to heart.Nearly 1,000 investors responded to the Journal's poll, providing an in-depth look at their portfolios. Those portfolios are remarkably diversified.By spreading their wealth among several investment alternatives, the respondents have protected themselves against squalls in any one area, be it stocks, bonds or real estate. For example, about 88% of Journal readers owned stock (down slightly from 91% in a similar poll last year).But only 17.5% said they had more than half their money in the stock market. Similarly, 57% of respondents own shares in a money-market mutual fund, and 33% own municipal bonds.But only 6% to 7% of the investors were committing more than half their funds to either of those alternatives. The poll, conducted Aug. 7-28, also provides a glimpse into the thinking of serious investors on a variety of other topics.It found them in a cautious, but not downbeat, mood. Of 1,500 people sent a questionnaire, 951 replied.The response rate, more than 63%, allows the results to be interpreted with a high degree of confidence.The results can't be extrapolated to all investors, though.Journal readers are relatively affluent, with a median household income of between $75,000 and $99,000.Nearly half of the respondents (47%) said their investment portfolio was worth $250,000 or more, and 17% said it was worth $1 million or more. The respondents were mildly optimistic about the economy and investment markets, but their collective judgments were a notch more sober than they were a year ago. For example, 12% of this year's respondents said they expect a recession within 12 months.Last year, only 8% were expecting a recession. An additional 56% of this year's respondents expect the economy to slow down during the next 12 months.Only 42% of last year's respondents anticipated slowing growth. Apparently, the respondents don't think that an economic slowdown would harm the major investment markets very much.A slim majority (51%) think stock prices will be higher in August 1990 than they were in August 1989. Their verdict on real estate is almost the same.Some 50% expect real estate in their local area to increase in value over the next 12 months. By contrast, only 32% expect an increase in the price of gold.Since gold tends to soar when inflation is high, that finding suggests that people believe inflation remains under control. Even though only 12% actually predicted a recession, many respondents were taking a better-safe-than sorry investment stance.Nearly a third said they have made some portfolio changes to anticipate a possible recession.For the most part, the changes were "slight." The two-thirds who haven't tried to make their portfolios more recession-resistant were split about evenly between investors who "don't believe in trying to predict the markets" (about 31%) and investors who "don't expect a recession" (about 15%) or are "unsure if and when a recession might come" (about 22%). A buy-and-hold approach to stocks continues to be the rule among respondents.Most own two to 10 stocks, and buy or sell no more than three times a year.Some 71% had bought some stock in the past year; only 57% had sold any. But the lurking shadow of 1987's stock-market crash still seems dark.About 33% considered another crash "likely," while about 63% said one is "unlikely." Those percentages hardly changed from the previous year's poll. And the respondents' commitment to the stock market remains somewhat lighter than usual.About 60% of them said they would "ordinarily" have at least 25% of their money in stocks.But as of August, only 50% actually had stock-market investments of that size. Most stock-market indexes were hitting all-time highs at around the time of the poll.But it appears that many Journal readers were taking that news as a sign to be cautious, rather than a signal to jump on the bandwagon. Mr. Dorfman covers investing issues from The Wall Street Journal's New York bureau.
THE SALES PITCH couldn't sound better.First, there's the name: "asset-backed securities." Better than all those offers you get to buy securities backed by nothing. And there's more.The assets backing the securities come from some of the country's biggest -- and most secure -- institutions.Most earn high ratings from credit agencies.Their yields are higher than those of U.S. Treasury issues.And the booming market has already attracted many of the nation's biggest institutional investors. Ready to jump?Well, think twice.The concept may be simple: Take a bunch of loans, tie them up in one neat package, and sell pieces of the package to investors.But the simplicity may be misleading. Skeptics say the slightly higher returns aren't enough to compensate for the extra risk.They warn that asset-backed securities are only as good as the assets and credit backing that support them -- and those are hard to evaluate.Moreover, the securities were introduced only about 4 1/2 years ago; the biggest unknown is how they will fare in a recession. "A lot of this stuff really is in untested waters," says Owen Carney, director of the investment securities division of the U.S. comptroller of the currency. "We don't know how this whole market will work in a serious economic downturn." Such concerns, however, haven't stopped asset-backed securities from becoming one of Wall Street's hottest new products.Since the spring of 1985, financial alchemists have transformed a wide variety of debt into these new securities. They have sold issues backed by car loans, boat loans and recreational-vehicle loans.They have offered bundles of homeequity loans, as well as packages of loans used to buy vacation time-shares.Last year, there was an issue of "death-backed bonds" -- securities backed by loans to life-insurance policyholders.Some predict there will be "Third World bonds," backed by loans to Brazil, Argentina and other debt-ridden nations.And the biggest volume this year has been on securities backed by credit-card receivables, sometimes known as "plastic bonds." "This is the heyday of debt," says James Grant, editor of Grant's Interest Rate Observer, a newsletter. "Before the sun sets on the '80s, it seems nothing will be left unhocked." The result is a $45 billion market, according to Securities Data Co.That includes more than $9.5 billion issued through August of this year, up sharply from $6.5 billion in the comparable 1988 period -- and more than in all of 1987. Most issues have been sold to professional money managers, pension funds, bank trust departments and other institutions.But wealthy individuals also have been jumping in, and lately brokers have been pushing smaller investors into the asset-backed market.The entry fee is affordable: Issues typically are sold in minimum denominations of $1,000. "We expect additional offerings" of asset-backed securities targeted toward individual investors, says Bill Addiss, a senior vice president at Shearson Lehman Hutton Inc. The process typically begins when an institution, such as Citibank or Sears, Roebuck & Co., takes a pool of credit-card or other receivables and sells them to a specially created trust.The trust then issues securities -- generally due in five years or less -- that are underwritten by Wall Street brokerage firms and offered to investors.Issues typically come with "credit enhancements," such as a bank letter of credit, and thus have received high credit ratings. Enthusiasts say the booming market has opened up a valuable new source of funds to issuers, while providing a valuable new investment for individuals and institutions.Asset-backed securities "are an attractive investment compared to bank certificates of deposit or other corporate bonds," says Craig J. Goldberg, managing director and head of the asset-backed securities group at Merrill Lynch Capital Markets. But skeptics question whether asset-backed bonds offer sufficient rewards to compensate for the extra risks. Consider a $500 million offering of 9% securities issued last spring and backed by Citibank credit-card receivables.The triple-A-rated issue offered a yield of only about 0.5 percentage point above four-year Treasury issues.On a $10,000 investment, that's a difference of only $50 a year. That kind of spread can be critical for money managers who buy bonds in large quantities and whose livelihood depends on outperforming the money manager across the street.But for individuals who buy much smaller amounts and care less about relative performance than in preserving what they have, that margin is meaningless. "If you're in the bond business playing the relative-performance derby, then even an extra 25 basis points (0.25 percentage point) becomes an important consideration on a career basis," says Mr. Grant. "But if you're an individual investing money and trying to get it back again, then that isn't of overwhelming importance." Moreover, the interest on asset-backed securities is fully taxable, while interest on Treasury issues is tax-free at the state and local level.That's why some investment managers, such as Alex Powers, a vice president of Chase Manhattan Bank's private banking division, don't recommend most asset-backed issues for individuals in high-tax states, such as New York or California. But Mr. Powers has purchased asset-backed issues for individuals with tax-deferred accounts, such as retirement plans.He points out that institutions buying asset-backed issues in large quantities can earn higher spreads over Treasurys than individuals buying smaller amounts. Another concern is liquidity, or how easily a security can be converted into cash.The secondary, or resale, market for asset-backed securities is relatively new and much less active than for Treasury issues.That could make it tricky for investors who need to sell their holdings quickly before the securities mature.That's particularly true, analysts say, for certain of the securities, such as those backed by time-share loans. "You could see massive gyrations here because it's such a thinly traded market," says Jonathan S. Paris, a vice president of European Investors Inc., a New York investment-management firm. In addition, an investor who wants to know the daily value of Treasury bonds, or corporate bonds traded on the New York Stock Exchange, can simply check newspaper listings.There aren't any such listings for asset-backed securities. Evaluating asset-backed securities poses another problem.Investors, for instance, may mistakenly assume that the bank or company that originally held the assets is guaranteeing the securities.It isn't. The front cover of the prospectus for the Citibank credit-card receivables offering points out in bold capital letters that the certificates represent an interest only in the specially created trust and "do not represent interests in or obligations of the banks, Citibank N.A., Citicorp or any affiliate thereof." In other words, if there's a problem, don't expect Citibank to come to the rescue.The prospectus also notes that the securities are not guaranteed by any government agency. That means investors have to focus on the quality of the debt that lies beneath the securities, as well as on the credit enhancement for the issue and the credit ratings the issue has received.That also isn't easy. Take the "credit enhancements," which typically include a bank letter of credit or insurance from a bond-insurance company.The letter of credit typically is not offered by the bank selling the assets to back the securities.Nor does it cover the entire portfolio. Details of credit enhancements vary widely from issue to issue.Still, they play a crucial role in winning top ratings for most asset-backed issues -- which in turn is why the yield above Treasurys is so slim.But skeptics ask why you should bother buying this stuff when you can get only slightly lower yields on government-guaranteed paper.When you buy an asset-backed issue, you take the risk that a bank or an insurer could run into unexpected difficulties.If a bank's credit rating was lowered because of, say, its loans to Third World nations, that could also affect the ratings, liquidity and prices of the asset-backed issues that the bank supports. Underwriters insist these issues are constructed to withstand extremely tough economic conditions.But despite the credit enhancements, despite the high ratings, some money managers still worry that a recession could wreak havoc on the underlying assets.At a time when Americans are leveraged to their eyeballs, asset-backed investors may be taking a heady gamble that consumers will be able to repay loans in hard times. At the very least, a recession would prompt investors to buy the highest-quality bonds they can find -- that is, Treasurys.That could widen the yield spread between Treasurys and asset-backed securities, as well as make it tougher to unload the latter. But it could be much worse.Some analysts are especially wary of credit-card issues.For one thing, credit-card loans are unsecured.In addition, they fear that banks have been overeager to issue cards to the public -- giving cards to too many big spenders who will default during a recession. "A day of reckoning is coming where we think the market will place a high premium on the highest-quality debt issues, and therefore we think the best debt investment is U.S. government bonds," says Craig Corcoran of Davis/Zweig Futures Inc., an investment advisory firm. What about triple-A-rated asset-backed issues? "Nope, we still say to stick with Treasurys," Mr. Corcoran replies.Ratings, he notes, "are subject to change." All this makes asset-backed securities seem too risky for many people.And it reminds Raymond F. DeVoe Jr., a market strategist at Legg Mason Wood Walker Inc., of what he calls "DeVoe's Unprovable but Highly Probable Theory No. 1: "More money has been lost reaching for yield than in all the stock speculations, scams and frauds of all time." Mr. Herman is a staff reporter in The Wall Street Journal's New York bureau. Volume of asset-backed securities issued annually *Principal amount **As of August 30 *Principal amount Source: Securities Data Co.
Electronic theft by foreign and industrial spies and disgruntled employees is costing U.S. companies billions and eroding their international competitive advantage. That was the message delivered by government and private security experts at an all-day conference on corporate electronic espionage. "Hostile and even friendly nations routinely steal information from U.S. companies and share it with their own companies," said Noel D. Matchett, a former staffer at the federal National Security Agency and now president of Information Security Inc., Silver Spring, Md. It "may well be" that theft of business data is "as serious a strategic threat to national security" as it is a threat to the survival of victimized U.S. firms, said Michelle Van Cleave, the White House's assistant director for National Security Affairs. The conference was jointly sponsored by the New York Institute of Technology School of Management and the Armed Forces Communications and Electronics Association, a joint industry-government trade group. Any secret can be pirated, the experts said, if it is transmitted over the air.Even rank amateurs can do it if they spend a few thousand dollars for a commercially available microwave receiver with amplifier and a VCR recorder.They need only position themselves near a company's satellite dish and wait. "You can have a dozen competitors stealing your secrets at the same time," Mr. Matchett said, adding: "It's a pretty good bet they won't get caught." The only way to catch an electronic thief, he said, is to set him up with erroneous information. Even though electronic espionage may cost U.S. firms billions of dollars a year, most aren't yet taking precautions, the experts said.By contrast, European firms will spend $150 million this year on electronic security, and are expected to spend $1 billion by 1992.Already many foreign firms, especially banks, have their own cryptographers, conference speakers reported.Still, encrypting corporate communications is only a partial remedy.One expert, whose job is so politically sensitive that he spoke on condition that he wouldn't be named or quoted, said the expected influx of East European refugees over the next few years will greatly increase the chances of computer-maintenance workers, for example, doubling as foreign spies. Moreover, he said, technology now exists for stealing corporate secrets after they've been "erased" from a computer's memory.He said that Oliver North of Iran-Contra notoriety thought he had erased his computer but that the information was later retrieved for congressional committees to read.No personal computer, not even the one on a chief executive's desk, is safe, this speaker noted. W. Mark Goode, president of Micronyx Inc., a Richardson, Texas, firm that makes computer-security products, provided a new definition for Mikhail Gorbachev's campaign for greater openness, known commonly as glasnost.Under Mr. Gorbachev, Mr. Goode said, the Soviets are openly stealing Western corporate communications.He cited the case of a Swiss oil trader who recently put out bids via telex for an oil tanker to pick up a cargo of crude in the Middle East.Among the responses the Swiss trader got was one from the Soviet national shipping company, which hadn't been invited to submit a bid.The Soviets' eavesdropping paid off, however, because they got the contract.
The University of Toronto stepped deeper into the contest for Connaught BioSciences Inc. by reaching an unusual agreement with Ciba-Geigy Ltd. and Chiron Corp. The University said the two companies agreed to spend 25 million Canadian dollars ($21.3 million) over 10 years on research at Canadian universities if they are successful in acquiring the vaccine maker.It said $10 million would go to the University of Toronto. Ciba-Geigy and Chiron have made a joint bid of C$866 million for Connaught, and Institut Merieux S.A. of France has made a rival bid of C$942 million.The University is seeking an injunction against the Merieux bid, arguing that Connaught's predecessor company agreed in 1972 that Connaught's ownership wouldn't be transferred to foreigners. The university implied that it would drop its opposition to foreign ownership if Ciba-Geigy and Chiron are successful with their lower bid.It said the new agreement would "replace" the old one that forms the basis of its suit against the Merieux takeover. "Notwithstanding foreign ownership of Connaught, this accord would enhance research and development in Canada," said James Keffer, the university's vice president of research. Ciba-Geigy is a Swiss pharmaceutical company and Chiron is based in Emeryville, Calif. In a statement, Jacques-Francois Martin, director general of Merieux, said the French company is still determined to acquire Connaught.While he didn't comment directly on the pact between Ciba-Geigy and the university, he said Merieux can transfer new products and technologies to Connaught more rapidly than other companies "not currently producing and marketing vaccines {who} can only promise this for some . . . years in the future." In national over-the-counter trading yesterday, Connaught closed at $28.625, up $1.25.
Microsoft and other software stocks surged, leading the Nasdaq composite index of over-the-counter stocks to its biggest advance of the year on breathtaking volume. Leading the pack, Microsoft soared 3 3/4, or 4%, to a record price of 84 1/4 on 1.2 million shares.On the other hand, Valley National tumbled 24% after reporting a sizable third-quarter loss. The Nasdaq composite leaped 7.52 points, or 1.6%, to 470.80.Its largest previous rise this year came Aug. 7, when it gained 4.31. The OTC market's largest stocks soared as well, as the Nasdaq 100 Index jumped 10.01, or 2%, to 463.06.The Nasdaq Financial Index rose 5.04, or 1.1%, to 460.33.By comparison, the Dow Jones Industrials and the New York Stock Exchange Composite each rose 1.5%. Volume totaled 173.5 million shares, 30% above this year's average daily turnover on Nasdaq. Among broader Nasdaq industry groups, the utility index gained 18.11 to 761.38.The transportation and insurance sectors each posted gains of 8.59, with the transports finishing at 486.74 and the insurers at 537.91.The Nasdaq industrial index climbed 8.17 to 458.52, and the "other finance" index, made up of commercial banks and real estate and brokerage firms, rose 3.97 to 545.96.The index of smaller banks improved 1.97. Of the 4,346 issues that changed hands, 1,435 rose and 629 fell.Jeremiah Mullins, head of OTC trading at Dean Witter Reynolds, said both institutional and retail investors were buying.But there was a dearth of sellers, traders said, so buyers had to bid prices up to entice them. "There's no pressure on OTC stocks at this point," said Mr. Mullins, who said some buyers are beginning to shop among smaller OTC issues. Microsoft's surge followed a report this week of substantially improved earnings for its first quarter, ended Sept. 30.The stock was trading at 69 just two weeks ago. Rick Sherlund, a Goldman Sachs analyst, has raised his earnings estimates for the company twice in the past two weeks, citing improved margins.After the earnings were announced, he raised his fiscal 1990 estimate to between $3.80 and $4 a share.Microsoft earned $3.03 a share in fiscal 1989. Among other software issues, Autodesk jumped 1 1/4 to 42, Lotus Development was unchanged at 32 1/2, Novell jumped 7/8 to 30 3/4, Ashton-Tate gained 1/4 to 10 5/8, and Oracle Systems rose 3/4 to 25 3/4. Caere, a new software issue, surged from its offering price of 12 to close at 16 1/8.The company also makes optical character recognition equipment.Caere was underwritten by Alex.Brown & Sons. Another recently offered Alex.Brown issue, Rally's, surged 3 1/8 to 23.The operator of fast-food restaurants, whose shares began trading last Friday, climbed 3 1/8 to 23 on 944,000 shares.Its 1.7 million-share offering was priced at 15. Valley National's slide of 5 3/4 points to 18 1/2 on 4.2 million shares followed its report late Wednesday of a $72.2 million third-quarter loss.In the 1988 quarter, the Phoenix, Ariz., commercial banking concern earned $18.7 million. Valley National said its $110 million provision for credit losses and $11 million provision for other real estate owned is related to weakness in the Arizona real estate market.Additionally, Moody's Investors Service said it downgraded Valley National's senior debt and confirmed the company's commercial paper rating of "not prime." A new issue, Exabyte, surged 2 1/8 from its initial offering price to close at 12 1/8.The offering was for about 2.8 million shares of the data storage equipment maker; more than 2.2 million shares changed hands after trading began. Dell Computer dropped 7/8 to 6.The company said earnings for the year ending Jan. 28, 1990, are expected to be 25 to 35 cents a share, compared with a previous estimate of 50 to 60 cents a share. Nutmeg Industries lost 1 3/4 to 14.Raymond James & Associates in St. Petersburg, Fla., lowered its third-quarter earnings estimate for the company, according to Dow Jones Professional Investor Report. A.P. Green Industries advanced 1 5/8 to 36 1/8.East Rock Partners, which has indicated it might make a bid for the company, said A.P. Green, a refractory products maker, told the partnership it isn't for sale.
Row 21 of Section 9 of the Upper Reserved at Candlestick Park is a lofty perch, only a few steps from the very top of the stands.From my orange seat, I looked over the first-base line and the new-mown ball field in the warm sun of the last few minutes before what was to have been the third game of the World Series. It was five in the afternoon, but that was Pacific time.Back in New York the work day was already over, so I didn't have to feel guilty.Even still, I did feel self-indulgent, and I couldn't help remembering my father's contempt for a rich medical colleague who would go to watch the Tigers on summer afternoons. This ballpark, the Stick, was not a classic baseball stadium -- too symmetrical, too much bald concrete.And it didn't have the crowded wild intimacy of Yankee Stadium.But I liked the easy friendliness of the people around me, liked it that they'd brought their children, found it charming that, true citizens of the state of the future, they had brought so many TVs and radios to stay in touch with electroreality at a live event. Maybe it was their peculiar sense of history.The broadcasters were, after all, documenting the game, ratifying its occurrence for millions outside the Stick.Why not watch or hear your experience historicized while you were living it? The day was saturated with the weight of its own impending history.Long lines of people waited to buy special souvenir World Series postcards with official postmarks.Thousands of us had paid $5 for the official souvenir book with its historical essays on Series trivia, its historical photographs of great moments in Series past, and its instructions, in English and Spanish, for filling in the scorecard.Pitcher=lanzador.Homerun=jonron. Players ran out on the field way below, and the stands began to reverberate.It must be a local custom, I thought, stamping feet to welcome the team.But then the noise turned into a roar.And no one was shouting.No one around me was saying anything.Because we all were busy riding a wave.Sixty thousand surfers atop a concrete wall, waiting for the wipeout. Only at the moment of maximum roll did I grasp what was going on.Then I remembered the quake of '71, which I experienced in Santa Barbara in a second-story motel room.When the swaying of the building woke me up, I reasoned that a) I was in Southern California; b) the bed was moving; c) it must be a Magic Fingers bed that had short-circuited.Then I noticed the overhead light was swaying on its cord and realized what had happened.What should I do?Get out of the possibly collapsing building to the parking lot.But the lot might split into crevasses, so I had better stand on my car, which probably was wider than the average crevasse.Fortunately, the quake was over before I managed to run out and stand naked on the hood. At the Stick, while the world shook, I thought of that morning and then it struck me that this time was different.If I survived, I would have achieved every journalist's highest wish.I was an eyewitness of the most newsworthy event on the planet at that moment.What was my angle?How would I file? All these thoughts raced through my head in the 15 seconds of the earthquake's actual duration.The rest is, of course, history.The Stick didn't fall.The real tragedies occurred elsewhere, as we soon found out.But for a few minutes there, relief abounded.A young mother found her boy, who had been out buying a hotdog.The wall behind me was slightly deformed, but the center had held.And most of us waited for a while for the game to start.Then we began to file out, to wait safely on terra firma for the opening pitch. It was during the quiet exodus down the pristine concrete ramps of the Stick that I really understood the point of all those Walkmen and Watchmen.The crowd moved in clumps, clumps magnetized around an electronic nucleus.In this way, while the Stick itself was blacked out, we kept up to date on events.Within 15 minutes of the quake itself, I was able to see pictures of the collapsed section of the Bay Bridge.Increasingly accurate estimates of the severity of the quake became available before I got to my car.And by then, expensive automobile sound systems were keeping the gridlocked parking lot by the bay informed about the fire causing the big black plume of smoke we saw on the northern horizon. Darkness fell.But the broadcasts continued through the blacked-out night, with pictures of the sandwiched highway ganglion in Oakland and firefighting in the Marina district.By then, our little sand village of cars had been linked with a global village of listeners and viewers. Everyone at the Stick that day had started out as a spectator and ended up as a participant.In fact, the entire population of the Bay Area had ended up with this dual role of actor and audience.The reporters were victims and some of the victims turned into unofficial reporters. The outstanding example of this was the motorist on the Bay Bridge who had the presence of mind to take out a video camera at the absolutely crucial moment and record the car in front as it fell into the gap in the roadway.The tape was on tv before the night was out.Marshall McLuhan, you should have been there at that hour.
China's slide toward recession is beginning to look like a free fall. In a report on China's foundering economy, the official State Statistical Bureau disclosed that industrial output last month rose 0.9% from a year earlier-the lowest growth rate in a decade for September.Retail sales are plummeting, while consumer prices still are rising. Chinese and foreign economists now predict prolonged stagflation: low growth and high inflation. "The economy is crashing hard," says an Asian economist in Beijing. "The slowdown is taking hold a lot more quickly and devastatingly than anyone had expected." A lengthy recession, if it materializes, would drain state coffers and create severe hardships for urban workers.Experts predict the coming year will be characterized by flat or negative industrial growth, rising unemployment and a widening budget deficit.Unless the government suddenly reverses course, wages for most workers won't keep pace with inflation, creating a potential source of urban unrest. The economy's slowdown is due only partly to the austerity program launched in September 1988 to cool an overheated economy and tame inflation. (Industrial output surged 21% in 1988, while inflation peaked last February at nearly 30%.) The slowdown also results from chronic energy and raw-materials shortages that force many factories to restrict operations to two or three days a week. In Western, market-driven countries, recessions often have a bright side: prodding the economy to greater efficiency.In China, however, there isn't likely to be any silver lining because the economy remains guided primarily by the state. Instead, China is likely to shell out ever-greater subsidies to its coddled state-run enterprises, which ate up $18 billion in bailouts last year.Nor are any of these inefficient monoliths likely to be allowed to go bankrupt.Rather, the brunt of the slowdown will be felt in the fast-growing private and semi-private "township" enterprises, which have fallen into disfavor as China's leaders re-emphasize an orthodox Marxist preference for public ownership. "When the going gets rough, China penalizes the efficient and rewards the incompetent," says a Western economist. Reports of an economy near recession come as officials prepare a major Communist Party plenum for sometime in the next few weeks.The meeting is expected to call for heightened austerity for two years.But with industrial growth stagnant and inflation showing signs of easing, some voices may call for measures to pump new life into the economy. Some analysts believe China soon will begin relaxing economic controls, particularly by loosening credit.That would benefit Chinese enterprises as well as Sino-foreign joint ventures, both of which have been plagued by shortages of working capital.A dangerous buildup this year of billions of dollars in inter-company debts threatens, if unchecked, to bring the economy to a collapse. One sign of a possible easing of credit policy was the decision this week of People's Bank of China, the central bank, to allocate $5.4 billion in short-term loans to pay farmers for the autumn harvest, the official China Daily reported. But while pumping more money into the economy would bring relief to many industries, it also runs the risk of triggering another period of runaway growth and steep inflation.The cycle has been repeated several times since China began reforming its planned economy in 1979.And, because China's leaders have abandoned plans to drastically reform the economy, it is likely to continue, analysts say. The statistical bureau's report, cited in China Daily, notes that industrial output in September totaled $29.4 billion, a rise of just 0.9% from a year earlier.Output declined in several provinces, including Jiangsu and Zhejiang, two key coastal areas, and Sichuan, the nation's agricultural breadbasket.Production in Shanghai, China's industrial powerhouse and the largest source of tax revenue for the central government, fell 1.8% for the month. Nationwide, output of light industrial products declined 1.8% -- "the first decline in 10 years," a bureau spokesman told China Daily. In an unusually direct statement, the bureau spokesman recommended that state banks extend more credit to shopkeepers so that they can purchase manufacturers' goods. "This will prevent a slide in industrial production, which will otherwise cause new panic buyings," the spokesman said.
The 1986 tax overhaul, the biggest achievement of President Reagan's second term, is beginning to fall apart, and interest groups are lining up for tax goodies all over Capitol Hill. Real-estate executives are lobbying to ease anti-tax-shelter rules.Charitable groups are trying to reinstate the write-off for contributions made by individuals who don't itemize their deductions.Big auction houses want to make collectibles eligible for lower capital-gains taxes.And heavy-industry lobbyists are quietly discussing the possibility of reinstating the investment tax credit. "Everything is up for grabs," says Theodore Groom, a lobbyist for mutual life-insurance companies.Adds Robert Juliano, the head lobbyist for a variety of interests that want to protect the tax deduction for travel and entertainment expenses: "It appears as though the whole thing is wide open again." The catalyst has been the congressional move to restore preferential tax treatment for capital gains, an effort that is likely to succeed in this Congress.Other fundamental "reforms" of the 1986 act have been threatened as well.The House seriously considered raising the top tax rate paid by individuals with the highest incomes.The Senate Finance Committee voted to expand the deduction for individual retirement accounts, and also to bring back income averaging for farmers, a tax preference that allows income to be spread out over several years. As part of the same bill, the finance panel also voted in favor of billions of dollars in narrow tax breaks for individuals and corporations, in what committee member Sen. David Pryor (D., Ark.) calls a "feeding frenzy" of special-interest legislating.The beneficiaries would range from pineapple growers to rich grandparents to tuxedo-rental shops. To be sure, the full Senate, facing a fast-approaching budget deadline, last Friday stripped away all of the tax breaks that were contained in the Finance Committee bill.But lawmakers of both parties agree that the streamlining was temporary.Other bills will be moving soon that are expected to carry many of the tax cuts, including both the capital-gains and IRA provisions. "There isn't any doubt that the thread of the '86 code has been given a mighty tug," says Rep. Thomas Downey (D., N.Y.). "You'll see the annual unraveling of it." "It's back to tax-give-away time for the select few," says Rep. William Gray of Pennsylvania, the third-ranking Democrat in the House.Referring to the chairmen of the Senate and House tax-writing committees, he adds, "Next year, every special-interest group is going to be there knocking on Lloyd Bentsen's door, on Danny Rostenkowski's door." Many groups aren't waiting that long.Just last week, a House Ways and Means subcommittee held a lengthy meeting to hear the pleas of individual cities, companies and interest groups who want to open their own special loopholes. "It's a Swiss-cheese factory and the cheese smells pretty good," commented one veteran lobbyist who was watching the proceedings. Even lobbyists for heavy industry, one of the interests hit hardest in the 1986 bill, are encouraged.The return of pro-investment tax breaks such as those for capital gains and IRAs "creates more of a mood or a mindset that is helpful for getting better depreciation (write-offs) or investment credits," says Paul Huard, a vice president for the National Association of Manufacturers.Corporate lobbyist Charls Walker is planning a spring conference to discuss what tax changes to make to improve "competitiveness." In reaction to proposed capital-gains legislation, groups are lobbying to make sure they aren't left off the gravy train.Real-estate interests, for example, are protesting an omission in President Bush's capital-gains proposal: It doesn't include real-estate gains. "If there is going to be a tax scheme that contemplates lower treatment of capital gains, they certainly want to be part of it," says real-estate lobbyist Wayne Thevenot of Concord Associates. In the House-passed tax bill, Mr. Thevenot got his wish; real-estate assets are included in the capital-gains provision.But Sotheby's, Christie's and the National Association of Antique Dealers are still trying to get theirs.They have sent a letter to congressional tax-writers asking that gains from the sale of collectibles also be given preferential treatment. "Collectibles should continue to be recognized as capital assets," the letter states. All of this talk is antithetical to the Tax Reform Act of 1986.In exchange for dramatically lower tax rates, the framers of that legislation sought to eliminate most of the exemptions, deductions and credits that gave some taxpayers an advantage over others.The goal was to tax people with roughly equivalent incomes equally, and to eliminate the many shelters that allowed the wealthy to escape taxes. Two of the major ways that tax-writers managed to attain these ends were to scrap the preferential treatment of capital gains and to curtail the use of paper losses, also known as passive losses, that made many tax shelters possible.Many other tax benefits also were swept away. This year Congress, with prodding from President Bush, has been busy trying to put many of these same tax preferences back into the code.It appears likely that, this year or next, some form of capital-gains preference and passive-loss restoration will be enacted.Other tax benefits probably will be restored and created.The main obstacle is finding a way to pay for them. "The '86 act was a fluke.They wanted reform and they got a revolution," says overhaul advocate Rep. Willis Gradison (R., Ohio). So, is the tax code now open game again?Mr. Juliano thinks so.One recent Saturday morning he stayed inside the Capitol monitoring tax-and-budget talks instead of flying to San Francisco for a fund-raiser and then to his hometown of Chicago for the 30th reunion of St. Ignatius High School. "I'm too old to waste a weekend, but that's what I did," the 48-year-old Mr. Juliano moans. "These days, anything can happen."
Raymond Chandler, in a 1950 letter defending a weak Hemingway book, likened a champion writer to a baseball pitcher.When the champ has lost his stuff, the great mystery novelist wrote, "when he can no longer throw the high hard one, he throws his heart instead.He throws something.He doesn't just walk off the mound and weep." Chandler might have been predicting the course of his own career.His last published novel featuring private detective Philip Marlowe, the inferior "Playback" (1958), at times read almost like a parody of his previous work.When he died in 1959, Chandler left behind four chapters of yet another Marlowe book, "The Poodle Springs Story," which seemed to go beyond parody into something like burlesque. "Champ" Chandler's last pitch, apparently, was a screwball. Now Robert Parker, author of several best sellers featuring Spenser, a contemporary private eye in the Marlowe mold, has with the blessings of the Chandler estate been hired to complete "The Poodle Springs Story." The result, "Poodle Springs" (Putnam's, 288 pages, $18.95) is an entertaining, easy to read and fairly graceful extension of the Marlowe chronicle, full of hard-boiled wisecracks and California color.If it does not quite have Chandler's special magic -- well, at the end, neither did Chandler. As the book begins, a newly wed Marlowe roars into the desert resort of Poodle (a.k.a.Palm) Springs at the wheel of a Cadillac Fleetwood.His bride is the rich and beautiful Linda Loring, a character who also appeared in Chandler's "The Long Goodbye" and "Playback." Philip and Linda move into her mansion and can't keep their hands off each other, even in front of the Hawaiian/Japanese houseman.But the lovebirds have a conflict.He wants to continue being a low-paid private eye, and she wants him to live off the million dollars she's settled on him. That's Chandler's setup.Mr. Parker spins it into a pretty satisfying tale involving Poodle Springs high life, Hollywood low life and various folk who hang their hats in both worlds.The supporting lineup is solid, the patter is amusing and there's even a cameo by Bernie Ohls, the "good cop" of previous Chandler books who still doesn't hesitate to have Marlowe jailed when it suits his purposes.The style throughout bears a strong resemblance to Chandler's prose at its most pared down.All told, Mr. Parker does a better job of making a novel out of this abandoned fragment than anyone might have had a right to expect. But there are grounds for complaint.At one point, the reader is two steps ahead of Marlowe in catching on to a double identity scam -- and Marlowe is supposed to be the pro.More bothersome, there are several apparent anachronisms.Contact lenses, tank tops, prostitutes openly working the streets of Hollywood and the Tequila Sunrise cocktail all seem out of place in the 1950s.A little more care in re-creating Marlowe's universe would have made the book that much more enjoyable. Mr. Nolan is a contributing editor at Los Angeles Magazine.
Ko Shioya spent eight years as the editor in chief of the Japanese edition of Reader's Digest. "Japan has been a major importer of foreign information and news," says Mr. Shioya. "But one gets fed up with importing information and news." Mr. Shioya has turned the tables.Today, he is publisher of Business Tokyo magazine, the first English-language business magazine devoted to coverage of Japanese business.After a slick redesign, the two-year-old magazine has been relaunched this month by its parent company, Keizaikai Corp., the Tokyo-based company with interests that include financial services, book publishing and a tourist agency.Printed in the U.S. and carrying the line "The Insider's Japan," Business Tokyo's October cover story was "The World's No. 1 Customer" -- Japanese women. Keizaikai is one of a small but growing band of Japanese companies taking their first steps into American publishing, after making major investments in entertainment, real estate and banking companies here.Japanese concerns have retained a number of publishing consultants and media brokers to study the U.S. market, including the New York-based investment banker Veronis, Suhler & Associates.And they are quietly linking up with U.S. publishing trade groups. "Japanese publishers want to be introduced to the publishing and information industries," said John Veronis, chairman of Veronis Suhler.While there aren't any major deals in the works currently on the scale of Sony Corp. 's recent $3.4 billion agreement to buy Columbia Pictures Entertainment Inc., observers don't rule out a transaction of that size. "The Japanese take the long view." said Mr. Veronis. "It may not be weeks or months, but they are also opportunistic and if they feel comfortable, they will move on a deal," he said. In recent months, three big Tokyo-based publishing concerns -- including Nikkei Business Publications, Nikkei Home (no relation), and Magazine House -- applied for membership in Magazine Publishers of America, which represents almost all U.S. consumer magazines. Japanese involvement in American publishing has been so small to date that magazines such as Business Tokyo are considered groundbreakers.When Keizaikai launched Business Tokyo in 1987, it appealed to a more multinational audience.The magazine was overhauled with the aid of American magazine design gurus Milton Glaser and Walter Bernard, and targets top-level U.S. executives with Japanese and American advertisers. American publishers appear more than ready to do some selling.Susumu Ohara, president of Nihon Keizai Shinbun America Inc., publisher of the Japan Economic Journal, said he receives telephone calls weekly from media bankers on whether his parent company is interested in buying a U.S. consumer or business magazine. "The Japanese are in the early stage right now," said Thomas Kenney, a onetime media adviser for First Boston Corp. who was recently appointed president of Reader's Digest Association's new Magazine Publishing Group. "Before, they were interested in hard assets and they saw magazines as soft.Now they realize magazines are as much a franchise as Nabisco is a franchise."
Bell Atlantic Corp. and Southern New England Telecommunications posted strong profit gains for the third quarter, while Nynex Corp., Pacific Telesis Group and U S West Inc. reported earnings declines for the period. Rate settlements in Minnesota and Colorado depressed U S West's third-quarter profit.Denver-based U S West said net income dropped 8.9%, noting that the year-ago quarter included the sale of a building by its BetaWest Properties unit. Revenue dropped 4.3% to $2.3 billion from $2.4 billion, reflecting declines in its consumer-telephone sector, long-distance carrier business and diversified division.Revenue from business-telephone operations grew 3.3% to $618.9 million from $599.4 million a year ago. New telephone lines posted healthy growth.Overall they increased 2.8% to 12.1 million, putting U S West over the 12 million mark for the first time.Business lines increased 3.7% to 3.3 million. "On a truly comparable basis, we've seen modest earnings growth this year from the operations of our company," said Jack MacAllister, chairman and chief executive officer. "The major negative factor was the cumulative impact of regulatory activity over the past two years." He said the company expects to be "on target" with analysts' projections by year end but conceded that the fourth quarter represents "a significant challenge." Expenses in the quarter dropped 11.2% to $664.3 million from $747.7 million a year ago.Yesterday, U S West shares rose 75 cents to close at $71.25 in New York Stock Exchange composite trading. Philadelphia-based Bell Atlantic said net rose 6.5%, aided by strong growth in the network-services business and an increase in the number of new telephone lines. Revenue jumped 5.6% to $2.9 billion from $2.8 billion in the year-ago quarter.Revenue from financial and real-estate services jumped 23% to $177.4 million from $144.1 million a year ago.Network-access revenue from long-distance telephone companies increased 6.4% to $618.6 million. Bell Atlantic added 148,000 new telephone lines in the quarter for a total of 16.9 million. The company said per-share earnings were slightly reduced by the sale of 4.1 million shares of treasury stock to the company's newly formed Employee Stock Ownership Plans. In composite trading on the Big Board, Bell Atlantic closed at $100.625, up $1.50 a share. At Nynex, net slumped 14.8%, primarily because of a continuing strike by 60,000 employees, lower-than-expected profit at its New York Telephone unit and significantly higher taxes and costs. State and local taxes increased to $131.3 million from $99.1 million a year ago.Nynex said expenses rose 4.5% to $2.73 billion from $2.61 billion, a $119 million increase.Most of the higher costs were associated with acquisitions and growth in nonregulated business units, it added. "Our net income isn't where we would want it to be at this point," said William C. Ferguson, chairman and chief executive officer. "This deviation from our past growth patterns is caused largely by lower earnings at New York Telephone." Mr. Ferguson said a continued softness in New York City area's economy and increased competition, particularly in the private-line market, took a heavy toll on earnings. The three-month-old strike at Nynex seriously hurt the installation of new telephone lines in the quarter.Nynex said access lines in service at the end of the quarter were off 18,000 from the previous quarter, which reported an increase of 160,000 new access lines. Revenue rose to $3.31 billion from $3.18 billion, mostly from acquisition of AGS Computers and robust non-regulated businesses. In Big Board composite trading yesterday, Nynex common closed at $81.125, up $1.625. Southern New England Telecommunications, which bolstered its marketing efforts for telephone and non-telephone subsidiaries, reported that net increased 8.1%. Walter H. Monteith Jr., SNET chairman and chief executive officer, said: "Innovative marketing of our products and services contributed to increase revenue." Revenue and sales increased 7.5% to $423.9 million from $394.4 million a year earlier.Yellow pages advertising sales rose 11.8% to $41.2 million. Cost and expenses for the quarter, excluding interest, increased 6.1% to $333.3 million from $314 million the year before. SNET common rose $1.25 to $85.50 a share yesterday in composite trading on the Big Board. San Francisco-based Pacific Telesis said net declined 12.6%, primarily because of regulatory action.Revenue was about flat at $2.4 billion. Revenue was reduced $33 million by three extraordinary items: a California Public Utilities Commission refund for an American Telephone & Telegraph Co. billing adjustment; a provision for productivity sharing to be paid to customers in 1990 and a one-time accrual for a toll settlement with long-distance telephone companies. Excluding the one-time charges, the company would have posted earnings of $298 million, or 73 cents a share.The company also was hurt by a $289 million rate reduction that went into effect in 1989. "This is a good quarter for us in terms of our business fundamentals," said Sam Ginn, chairman and chief executive officer.Pacific Telesis said new telephone lines increased 4.5% for a total of about $13.5 million for the quarter; toll calls increased 9.6% to 807 million and minutes of telephone usage increased to 9.9 billion. In Big Board composite trading yesterday, Pacific Telesis common closed at $45.50, up 87.5 cents. a-Includes a one-time gain of $88.7 million from a commonstock sale by U S West's U S West New Vector Group. b-Includes a $41.3 million gain on the sale of FiberCom.
Amoco Corp. said third-quarter net income plunged 39% to $336 million, or 65 cents a share, as gasoline refining and marketing profits lagged substantially behind last year's record level. A charge of $80 million related to projected environmental costs in its refining and marketing operations further depressed results.A spokesman said Amoco completed an environmental analysis last quarter but that no single clean-up project was responsible. In the 1988 third quarter, the Chicago-based oil company earned $552 million, or $1.07 a share.Revenue in the latest quarter rose 12% to $6.6 billion from $5.91 billion.Aside from the special charge, Amoco's results were in line with Wall Street estimates.The company's stock ended at $48.375, up 25 cents in New York Stock Exchange composite trading. Amoco is the first major oil company to report third-quarter results.Analysts expect others to show a similar pattern.Generally in the quarter, overproduction of gasoline and higher crude oil prices pressured profitability.The industry's chemical profits also declined because excess capacity has depressed prices.Gasoline margins may rebound this quarter, some industry officials say, but they believe chemical margins could worsen. American Petrofina Inc., a Dallas-based integrated oil company, yesterday said its third-quarter earnings declined by more than half.Fina blamed lower chemical prices, reduced gasoline margins and refinery maintenance shutdowns.It said net income dropped to $15.1 million, or 98 cents a share, from $35.2 million, or $2.66 a share.Sales rose 2.2% to $711.9 million from $696.1 million. Amoco's refining and marketing profit in the quarter fell to $134 million from $319 million.Chemical earnings declined by one-third to $120 million last year's robust levels. Amoco's domestic oil and natural gas operations recorded a profit of $104 million in the quarter compared with a loss of $5 million, "primarily on the strength of higher crude oil prices," said Chairman Richard M. Morrow.Amoco also sharply boosted natural-gas output, part of it from properties acquired from Tenneco Inc. last year. But foreign exploration and production earnings fell sharply, to $12 million from $95 million.Higher oil prices weren't enough to offset a roughly $20 million charge related to a 10% reduction in Amoco's Canadian work force as well as increased exploration expenses. For the nine months, Amoco said that net income fell to $1.29 billion from $1.69 billion but if unusual items are excluded, operations produced essentially flat results.Revenue rose 12% to $19.93 billion from $17.73 billion.
For retailers, Christmas, not Halloween, promises to be this year's spookiest season. Many retailers fear a price war will erupt if cash-strapped companies such as Campeau Corp. slash tags to spur sales.Concerns about the stock market, doubts about the economy in general and rising competition from catalog companies also haunt store operators. "Profits at Christmas could be under attack for every retailer," asserts Norman Abramson, president and chief operating officer of Clothestime Inc., an off-price chain. Even if there isn't any widespread discounting, the outlook for industry profits isn't good.Management Horizons forecasts a 1.4% profit decline for non-auto retailers this year, after annual drops that averaged 4.5% in 1988 and 1987. "For the last two and a half years, retailing has been in a mild recession," says Carl Steidtmann, chief economist at the Columbus, Ohio, consulting firm. This year, many stores are entering the Christmas season in turmoil: Bonwit Teller and B. Altman parent L.J. Hooker Corp. is operating under Chapter 11 of the federal Bankruptcy Code; B.A.T Industries PLC's healthy Saks Fifth Avenue and Marshall Field's chains are on the auction block; Campeau's Bloomingdale's is also on the block. Industry observers expect a wide divergence in performance.Stores in a state of confusion are likely to fare poorly, and to lose customers to stable chains such as Limited Inc., May Department Stores Co. and Dillard Department Stores Inc., which should do well. "There are going to be very clear winners and very clear losers," says Cynthia Turk, a Touche Ross & Co. retail consultant. Says Mr. Steidtmann: "I'm looking for a bi-polar Christmas." Economists expect general merchandise sales in the fourth quarter to rise 4.5% to 6% from year-ago figures.But Mr. Steidtmann predicts that healthy stores hawking mostly apparel could ring up gains of as much as 25% to 30%.Troubled chains could see their sales drop as much as 8%, he believes, as managers distracted by fears about the future allow their stores to get sloppy.Thin merchandise selections at the most troubled chains are also expected to hurt sales. Catalog companies are likely to pose a bigger threat to all stores this year, particularly in December.More than 200 catalog outfits are promoting a low-cost Federal Express service that guarantees pre-Christmas delivery of orders made by a certain date. "Traditionally, consumers were concerned about ordering after the first of December because they didn't believe they would get it by Christmas," says Adam Strum, chairman of the Wine Enthusiast Inc., which sells wine cellars and accessories through the mail.Using Federal Express delivery last year, Mr. Strum says, "December was our biggest month." Even Sears, Roebuck & Co. is getting into the act, offering for the first time to have Federal Express deliver toys ordered by Dec. 20 from its Wish Book catalog. K mart Corp. Chairman Joseph E. Antonini summed up his outlook for the Christmas season as "not troublesome." He's not predicting a blockbuster, but he is "more optimistic than three months ago" because employment remains strong and inflation low. Other retailers are also preparing for a ho-hum holiday.Philip M. Hawley, chairman of Carter Hawley Hale Stores Inc., expects sales at department stores open at least a year to rise a modest 3% to 5% over last year's totals, both for his company and the industry in general. "I'm not looking for a runaway Christmas at all," he says. "It isn't a real boom holiday season in our eyes," says Woolworth Corp. Chairman Harold E. Sells, "but it isn't going to be a bust either." Mr. Sells expects fourth-quarter sales at his company -- which besides Woolworth stores includes Kinney and Foot Locker shoe stores and other specialty chains -- to rise "pretty much in line" with its year-to-date increases of between 8% and 9%.The estimate includes the results of new stores. A consumer poll conducted in early September by Leo J. Shapiro & Associates, a market researcher based in Chicago, also suggests a modest holiday.Of the 450 survey respondents, 35% said they expect to spend less buying Christmas gifts this year than last year, while 28% said they expect to spend more and 37% said their gift budget would stay the same.The results are almost identical to Shapiro's September 1988 numbers. Retailers could get a boost this year from the calendar.Christmas falls on a Monday, creating a big last-minute weekend opportunity for stores.Most will stay open late Saturday night and open their doors again Sunday. But many consumers probably will use the extra time to put off some purchasing until the last minute. "What you'll hear as we get into December is that sales are sluggish," predicts Woolworth's Mr. Sells. "The week ending the 24th is going to save the entire month for everyone."
The Spanish author Camilo Jose Cela won the Nobel Prize for literature yesterday, a surprising choice, but given the Swedish Academy's past perversities, hardly the most undeserved and ridiculous accolade handed out by the awarding committee.In Spain, anyway, the 73-year-old Mr. Cela enjoys some renown for the novels and travel books he wrote during the parched Franco years, the everyday poverty and stagnant atmosphere of which he described in brutally direct, vivid prose, beginning with "The Family of Pascal Duarte" (1942). Unlike other writers who either battled the fascists during the Civil War, or left Spain when Franco triumphed, Mr. Cela fought briefly on the general's side, no doubt earning with his war wound some forbearance when he went on to depict a country with a high population of vagabonds, murderers and rural idiots trudging aimlessly through a dried-out land.Still, it was in Argentine editions that his countrymen first read his story of Pascal Duarte, a field worker who stabbed his mother to death and has no regrets as he awaits his end in a prison cell: "Fate directs some men down the flower-bordered path, and others down the road bordered with thistles and prickly pears.The lucky ones gaze out at life with serene eyes and smile with a face of innocence at their perfumed happiness.The others endure the hot sun of the plains and scowl like cornered wild beasts." Mr. Cela himself was one of the lucky ones, his fortunes steadily increasing over the decades he spent putting out some 70 travelogues, novels, short story collections and poetry.These days, he is as known for his flamboyant tastes and the youthful muse who shares his life as he is for his books.The man who wore out his shoes wandering around Guadalajara in 1958, describing in his travel book "Viaje a la Alcarria" how he scrounged for food and stayed in squalid inns, now tours Spain in a Rolls-Royce. Of his 10 novels, "The Hive" (1951), full of sharp vignettes of Madrid life and centered on a cafe run by Dona Rosa, a foul-mouthed, broad-based woman with blackened little teeth encrusted in filth, used to be available in English, translated by J.M. Cohen and published by Ecco Press, which now no doubt regrets relinquishing its copyright.Here is an excerpt: The lonely woman walks on in the direction of the Plaza de Alonso Martinez.Two men have a conversation behind one of the windows of the cafe on the corner of the boulevard.Both are young, one twenty odd, the other thirty odd.The older one looks like a member of the jury for a literary award, the younger one looks like a novelist.It is evident that their conversation runs more or less on the following lines: "I've submitted the manuscript of my novel under the title `Teresa de Cepeda, ' and in it I've treated a few neglected aspects of that eternal problem which . . ." "Oh, yes.Will you pour me a drop of water, if you don't mind?" "With pleasure.I've revised it several times and I think I may say with pride that there is not a single discordant word in the whole text." "How interesting." "I think so.I don't know the quality of the works my colleagues have sent in, but in any case I feel confident that good sense and honest judgment . . ." "Rest assured, we proceed with exemplary fairness." "I don't doubt it for a moment.It does not matter if one is defeated, provided the work that gets the award has unmistakable qualities.What's so discouraging is . . ." In passing the window, Senorita Elvira gives them a smile -- simply out of habit.
Ashland Oil Inc. said it will take after-tax charges of $78 million, or $1.40 a share, in its fiscal fourth quarter, ended Sept. 30. Because of the charge, Ashland expects to report a loss for the fourth quarter and "significantly lower results" for fiscal 1989. The oil refiner said it will report fiscal fourth quarter and 1989 results next week. The company earned $66 million, or $1.19 a share, on revenue of $2.1 billion in the year-ago fourth quarter.For fiscal 1988, Ashland had net of $224 million, or $4.01 a share, on revenue of $7.8 billion.Both revenue figures exclude excise taxes. The charges consist of: a $25 million after-tax charge to cover cost overruns in Ashland's Riley Consolidated subsidiary; a previously announced $38 million after-tax charge resulting from a $325 million settlement with National Iranian Oil Co. and a $15 million after-tax charge from the previously announced sale of its Ashland Technology Corp. subsidiary.Ashland expects that sale to be complete next year. The charge for the Riley subsidiary is for expected costs to correct problems with certain bed boilers built for utilities.The charge will be added to $20 million in reserves established a year ago to cover the cost overruns.
When President Bush arrives here next week for a hemispheric summit organized to commemorate a century of Costa Rican democracy, will he be able to deliver a credible message in the wake of the Panamanian fiasco?Undoubtedly Mr. Bush will be praised by some Latin leaders prone to pay lip service to nonintervention, while they privately encourage more assertive U.S. action to remove Gen. Manuel Noriega and safeguard their countries from a Sandinista onslaught. The Panamanian affair is only the tip of a more alarming iceberg.It originates in a Bush administration decision not to antagonize the U.S. Congress and avoid, at all costs, being accused of meddling in the region.The result has been a dangerous vacuum of U.S. leadership, which leaves Central America open to Soviet adventurism. "The {influence of the} U.S. is not being felt in Central America; Washington's decisions do not respond to a policy, and are divorced from reality," says Fernando Volio, a Costa Rican congressman and former foreign minister. The disarray of the Bush administration's Latin diplomacy was evident in the failure of the Organization of American States to condemn categorically Gen. Noriega.Faced with this embarrassment, U.S. diplomats expressed confidence that the influential Rio Group of South American nations, which gathered last week in Peru, would take a stronger posture toward the Panamanian dictator.But other than a few slaps on the wrist, Gen. Noriega went unpunished by that body, too; he was not even singled out in the closing statement. Now Mr. Bush will come to Costa Rica and encounter Nicaraguan strongman Daniel Ortega, eager for photo opportunities with the U.S. president.The host, Costa Rican President Oscar Arias, did not invite Chile, Cuba, Panama or Haiti to the summit, which was to be restricted to democracies.However, Mr. Ortega was included.Formally upgrading the Sandinistas to a democratic status was an initiative harshly criticized in the Costa Rican press.Even Carlos Manuel Castillo -- the presidential candidate for Mr. Arias's National Liberation Party -- made public his opposition to the presence of Nicaragua "in a democratic festivity." Nevertheless, the Bush administration agreed to the dubious arrangement in July, a few weeks before the Central American presidents met in Tela, Honduras, to discuss a timetable for disbanding the anti-Sandinista rebels.According to officials in Washington, the State Department hoped that by pleasing President Arias, it would gain his support to postpone any decision on the Contras until after Mr. Ortega's promises of democratic elections were tested next February.However, relying on an ardent critic of the Reagan administration and the Contra movement for help in delaying the disarming of the Contras was risky business.And even some last-minute phone calls that Mr. Bush made (at the behest of some conservative U.S. senators) to enlist backing for the U.S. position failed to stop the march of Mr. Arias's agenda. Prior to this episode, Sen. Christopher Dodd (D., Conn.), sensing an open field, undertook a personal diplomatic mission through Central America to promote an early disbanding of the rebels.Visiting Nicaragua, he praised the Sandinistas for their electoral system and chided the Bush administration for not rewarding the Sandinistas.In Honduras, where the Contras are a hot political issue, he promised to help unblock some $70 million in assistance withheld due to the failure of local agencies to comply with conditions agreed upon with Washington. Aid was also the gist of the talks Sen. Dodd had with Salvadoran President Alfredo Cristiani; Mr. Cristiani's government is very much at the mercy of U.S. largess and is forced to listen very carefully to Sen. Dodd's likes and dislikes.It was therefore not surprising that close allies of the U.S., virtually neglected by the Bush administration, ordered the Nicaraguan insurgents dismantled by December, long before the elections.Fittingly, the Tela Accords were nicknamed by Hondurans "the Dodd plan." The individual foreign policy carried out by U.S. legislators adds to a confusing U.S. performance that has emboldened Soviet initiatives in Central America.On Oct. 3, following conversations with Secretary of State James Baker, Soviet Foreign Minister Eduard Shevardnadze arrived in Managua to acclaim "Nicaragua's great peace efforts." There, Mr. Shevardnadze felt legitimized to unveil his own peace plan: The U.S.S.R. would prolong a suspension of arms shipments to Nicaragua after the February election if the U.S. did likewise with its allies in Central America.He also called on Nicaragua's neighbors to accept a "military equilibrium" guaranteed by both superpowers.The Pentagon claims that in spite of Moscow's words, East bloc weapons continue to flow into Nicaragua through Cuba at near-record levels. Since Mr. Shevardnadze's proposals followed discussions with Mr. Baker, speculations arose that the Bush administration was seeking an accommodation with the Soviets in Central America.This scheme would fit the Arias Plan, which declared a false symmetry between Soviet military aid to the Sandinista dictatorship and that provided by Washington to freely elected governments.Furthermore, it is also likely to encourage those on Capitol Hill asking for cuts in the assistance to El Salvador if President Cristiani does not bend to demands of the Marxist guerrillas. The sad condition of U.S. policy in Central America is best depicted by the recent end to U.S. sponsorship of Radio Costa Rica.In 1984, the Costa Rican government requested help to establish a radio station in the northern part of the country, flooded by airwaves of Sandinista propaganda.Recovering radiophonic sovereignty was the purpose of Radio Costa Rica, funded by the U.S. and affiliated with the Voice of America (VOA). A few months ago, the Bush administration decided to stop this cooperation, leaving Radio Costa Rica operating on a shoestring.According to news reports, the abrupt termination was due to fears that VOA transmissions could interfere with the peace process.In the meantime, Russia gave Nicaragua another powerful radio transmitter, which has been installed in the city of Esteli.It is capable of reaching the entire Caribbean area and deep into North America.Perhaps its loud signal may generate some awareness of the Soviet condominium being created in the isthmus thanks to U.S. default. The Soviet entrenchment in Nicaragua is alarming for Costa Rica, a peaceful democracy without an army.Questioned in Washington about what would happen if his much-heralded peace plan would fail, President Arias voiced expectations of direct U.S. action.A poll conducted in July by a Gallup affiliate showed that 64% of Costa Ricans believe that if their country is militarily attacked by either Nicaragua or Panama, the U.S. will come to its defense.But in the light of events in Panama, where the U.S. has such clear strategic interests, waiting for the Delta Force may prove to be a dangerous gambit. Mr. Daremblum is a lawyer and a columnist for La Nacion newspaper.
Holiday Corp. said net income jumped 89%, partly on the strength of record operating income in its gaming division. Separately, the hotel and gambling giant said it was proceeding with plans to make a tender offer and solicit consents with respect to approximately $1.4 billion of its publicly traded debt. That debt is part of the $2.1 billion of Holiday debt that Bass PLC of Britain said it would retire or assume when it agreed to buy the Holiday Inn business in August. Holiday said third-quarter earnings rose to $39.8 million, or $1.53 a share, from $21 million, or 84 cents a share, a year earlier.Results for the quarter included $19.2 million in pretax gains from property transactions, including the sale of one Embassy Suites hotel, and $3.5 million of nonrecurring costs associated with the acquisition of the Holiday Inn business by Bass. Holiday said operating income related to gaming increased 4.5% to a record $61.4 million from $58.8 million a year earlier.The jump reflected record results in Las Vegas, Nev., and Atlantic City, N.J., as well as a full quarter's results from Harrah's Del Rio in Laughlin, Nev. Third-quarter revenue rose 2.7% to $433.5 million from $422.1 million. For the nine months, earnings fell 2.9% to $99.1 million, or $3.86 a share, from $102.1 million, or $4.10 a share, a year earlier.Revenue dropped 1.6% to $1.21 billion from $1.23 billion. The tender offer and consent solicitation will be made to debtholders in December.In effect, Holiday is asking holders for permission for Bass to buy their debt. Holiday said Salomon Brothers Inc. has been retained to act as the dealer-manager and financial adviser in connection with the offer and solicitation.The debt issues involved and the proposed consent fees and cash tender offer prices (expressed per $1,000 of principal amount) are as follows: 10 1/2% senior notes due 1994 at 101%; 11% subordinated debt due 1999 at 102%; 9 3/8% notes due 1993 at 100%; and 8 3/8% notes due 1996 at 95.25%. Holiday said its 15% notes due 1992 also will be included in the tender offer and consent solicitation at a price to be determined by Holiday prior to the commencement of the offer.Holiday said it intends to set the price to give noteholders approximately an 8.5% yield to the call date of Aug. 15,
The television units of Paramount Communications Inc. and MCA Inc. are exploring the possibility of offering prime-time programming to independent stations two nights a week, industry executives say. Although such a venture wouldn't match the "fourth network" created by News Corp. 's Fox Broadcasting Co., MCA and Paramount may have similar ambitions.Fox, which also owns six TV stations, provides programs three nights a week to those and other affiliates. Paramount Domestic TV and MCA TV formed a joint venture last month, named Premier Advertiser Sales, to sell advertising in programs syndicated by both companies, such as "Star Trek: the Next Generation," "Charles in Charge" and "Friday the 13th: the Series." A spokeswoman for Paramount said the company doesn't comment on speculation.Calls to Shelly Schwab, president of MCA TV, weren't returned. The two companies, like Fox, already have their own TV stations.MCA owns WWOR in New York and Paramount last month agreed to purchase a 79% stake in the TVX Broadcast Group from Salomon Inc. in a deal valued at $140 million.TVX owns five stations, including WTXF, a Fox affiliate, in Philadelphia. One broadcasting executive familiar with the project said the co-venture would target stations affiliated with Fox because Fox has the desirable independent stations in most of the key cities.Currently, Fox supplies programs on Saturdays, Sundays and Mondays, although the company plans to expand to other weeknights. Jamie Kellner, president of Fox Broadcasting, said, "We believe the partnership of Fox, its affiliates and advertisers is succeeding and will continue to grow." Another Fox official, who declined to be identified, said Fox wasn't pleased by the possible Paramount-MCA venture into prime-time programming. "To make the venture work, they would need Fox affiliates," he said. "We spent a lot of time and money in building our group of stations," he said, adding that Fox doesn't "appreciate" another company attempting to usurp its station lineup. Fox said it plans to offer its stations movies, theatrical and made-for-TV ventures, probably on Wednesdays, sometime next year.It is also planning another night of original series. Paramount and MCA, according to the broadcasting executive, plan to offer theatrical movies produced separately by Paramount and MCA for Wednesdays and perhaps a block of original shows Fridays. The executive said Paramount and MCA have also held discussions with Chris-Craft Industries' broadcasting unit, which owns five independent stations in cities such as Los Angeles, San Francisco and Portland, Ore.A Chris-Craft station manager said there have been no formal talks. "I think it's to Fox's advantage to be associated with the Paramount-MCA venture," said Michael Conway, station manager of WTXF, the TVX station that is a Fox affiliate.Mr. Conway said the Fox shows appearing on nights when Paramount-MCA shows wouldn't be offered could be promoted on the programs produced by Paramount-MCA. Michael Fisher, general manager of KTXL, a Fox affiliate in Sacramento, Calif., said, "The real question is whether the Paramount-MCA offering is practical.It isn't. . . . Why would I consider giving up Fox, a proven commodity," for an unknown venture?Fox attracts a young audience with shows such as "Married . . . With Children," its most successful series.
Banco Popular de Puerto Rico and BanPonce Corp. -- agreed to merge in a transaction valued at $324 million. Under the agreement, BanPonce stockholders will be able to exchange each of their shares for either shares in the new entity or cash.In each case, the exchange is valued at $56.25 a share. The two companies, both based in San Juan, will form a bank holding company with assets of just over $9 billion.The holding company will be called BanPonce Corp.The primary subsidiary will be the combined banking operations of the two companies and will be known as Banco Popular de Puerto Rico. Rafael Carrion Jr., chairman of Banco Popular, will be the chairman of the holding company.Alberto M. Paracchini, currently chairman of BanPonce, will serve as president of the bank holding company and chairman of the subsidiary. Banco Popular originally proposed the merger in July, in a cash and stock transaction valued at $50 a share, or about $293 million.BanPonce reacted cooly at first, but appeared to be won over, analysts said, by Banco Popular's assurances that it wanted only a friendly transaction. "Banco Popular just kept waiting," said Edward Thompson, a vice president and analyst at Thomson BankWatch Inc. in New York. "They got a transaction that's good for both companies." The two banks appear to be a good fit.BanPonce caters to a more affluent customer, while Banco Popular has always had a large presence among middle-income and lower-income markets.The merger should also allow the companies to reduce costs by combining operations in many locations in Puerto Rico. "They're often right across the street from one another," Mr. Thompson said. Richard Carrion, who is currently president and chief executive officer of Banco Popular, said the merger will result in a "larger and stronger locally based bank." Mr. Carrion, who will now serve as president and chief executive officer of the subsidiary bank, added: "We'll be able to better compete with large foreign banks.It makes sense from a strategic standpoint." The newly merged company will have 165 branches in Puerto Rico and 27 branches outside of the island.The banks said they don't expect the merger to face any regulatory hurdles.Mr. Carrion said the merger should be completed in six to nine months.
B.A.T Industries PLC won overwhelming shareholder approval for a defensive restructuring to fend off a #13.35 billion ($21.23 billion) takeover bid from Sir James Goldsmith. At a shareholders' meeting in London, the tobacco, financial-services and retailing giant said it received 99.9% approval from voting holders for plans to spin off about $6 billion in assets. B.A.T aims to sell such U.S. retailing units as Marshall Field and Saks Fifth Avenue and float its big paper and British retailing businesses via share issues to existing holders.Proceeds will help pay for a planned buy-back of 10%, or about 153 million, of its shares and a 50% dividend increase. B.A.T yesterday started its share buy-back.The company said it acquired 2.5 million shares for 785 pence ($12.48) each, or a total of #19.6 million ($31.2 million), from its broker, Barclays de Zoete Wedd.The share buy-back plan is likely to underpin B.A.T's share price. B.A.T said it may make more equity purchases until the close of business today, depending on market conditions, but will cease further purchases until Nov. 22, when it releases third-quarter results. B.A.T shares rose 29 pence to 783 pence on London's stock exchange yesterday. Shareholder approval sets the stage for a lengthy process of restructuring that might not be completed until next year's second half.Before the recent tumult in global financial markets, B.A.T officials, holders and analysts had expected a substantial part of the restructuring to be complete by the end of the first half. "We are not in any hurry to sell" Saks, Marshall Field or B.A.T's other U.S. retail properties, said Chairman Patrick Sheehy. "This isn't a distress sale.We are determined to get good prices." Company officials say the flotations of the paper and British retailing businesses are likely only after the disposals of the U.S. retailing assets. Meanwhile, Sir James still is pursuing efforts to gain U.S. insurance regulators' approval for a change in control of B.A.T's Farmers Group Inc. unit.The Anglo-French financier has indicated he intends to bid again for B.A.T if he receives approval.
Steel jackets of a type that may have prevented collapse of the columns of a 1.5-mile stretch of the Nimitz Freeway had been installed on at least a small test section of the double-decker highway last year by California's Department of Transportation, employees familiar with the project say. The test project -- which reportedly survived Tuesday's earthquake -- was a prelude to a state plan to retrofit that critical section of the freeway with the steel casings. State engineers have made a preliminary finding that it was failure of the concrete columns, wrenched and separated from the double-decker roadbed, that was responsible for the collapse. The failure in Oakland of the freeway segment known as the Cypress structure was the deadliest aspect of the quake, although officials were hopeful yesterday that the death toll there might be significantly lower than the 250 initially feared. Sorting out the wreckage is expected to take several days.Red tractors gingerly picked at the rubble while jackhammers tried to break up some of the massive slabs of concrete.Giant yellow cranes were wheeled up alongside the collapsed segment, preparing to lift off chunks of the debris. In Sacramento, a transportation department spokesman said he couldn't immediately confirm or deny existence of the test work.However, he asserted that the department hadn't mastered the technology needed to retrofit the entire Cypress structure. Moreover, other officials noted, snafus in transportation funding that the state has experienced over the years may have restricted the availability of funds for such a retrofitting, even if it were technologically feasible. Knowledgeable employees said the retrofitting, which hadn't yet been budgeted, was part of a planned, three-stage reinforcement of the Cypress structure begun by the California transportation department several years ago.The Cypress reinforcement project itself was part of an annual effort to shore up structures believed vulnerable to earthquakes.The state began such work after a 1971 tremblor in Southern California, when numerous bridges collapsed. "We had just finished phase two" of the Cypress project that involved installing a series of retaining cables designed to prevent sections of the roadway from separating as a result of seismic shock, a state DOT engineer said.After completing installation of the jackets on "one frame" of the freeway last year, the state DOT had sent the project over to its Sacramento engineers to draw up a final design. Knowledgeable employees said the project had been stymied somewhat by "the difficulty of designing" the jackets.The procedure involves encasing the concrete columns with steel, then connecting them more securely to the double-decker roadbed. The employees also said the project may have been snagged by budgetary concerns.One preliminary estimate put the retrofitting cost at as much as $50 million. The collapse of the span has provoked surprise and anger among state officials.Gov. George Deukmejian, who said he had been assured by state transportation officials that the structure could withstand an even larger quake, called for an immediate investigation. "I want to know who made the decision that it was safe for 186,000 people to use every day," said Richard Katz, a state legislator who is chairman of the California Assembly's transportation committee.He said he would convene hearings within two weeks. The Cypress structure opened in June 1957, and as such, like many buildings in the San Francisco Bay area, does not meet current building codes requiring considerably more steel support.The northern piers of the span lie in estuarian deposits that were of a type to have liquefied easily during the 1906 quake. Transportation department officials, however, said they were as surprised as anyone by the Cypress destruction.They said previous earthquakes suggested that multiple-column viaducts would stand up well, although they were working on ways to bolster them. "Unfortunately, there is only one laboratory for developing techniques to withstand earthquakes, and that is an earthquake," said Burch Bachtold, San Francisco district director for the transportation department. He said: "We know of no technology that exists anywhere in the world that would allow us to" reinforce the columns.
Financial Corp. of Santa Barbara said it rescheduled to Nov. 29 a special shareholder meeting to vote on a $75 million stock-for-debt exchange. The meeting had been scheduled for Nov. 10 but the company delayed the meeting to allow time for the Securities and Exchange Commission to review the proposal. As part of a restructuring announced earlier this year, the company proposed in August to exchange 168 newly issued common shares for each $1,000 face value of debt.However, that figure could be revised, Financial Corp. said.Currently, the company has about six million common shares outstanding.If all the debt was converted, about 13 million new shares would be issued. In composite trading Wednesday on the New York Stock Exchange, Financial Corp. closed at $1.125, unchanged. The debt consists of $50 million of 13 3/8% subordinated notes due 1998, and $25 million of 9% convertible subordinated debentures due 2012. Financial Corp. also is proposing to exchange each of its 130,000 outstanding shares of cumulative convertible preferred series A stock for two shares of common.
After years of quarreling over Bonn's "Ostpolitik", West Germany and the U.S. appear to have shifted onto a united course in Eastern Europe. Bonn and Washington have taken a leading role in aid for the reformist countries, pledging billions of dollars in fresh credit and forgiving old debt while urging other industrial nations to follow suit.Both hope to encourage pressure for change in East bloc countries still ruled by Stalinist holdouts by arranging liberal financial aid and trade benefits for Poland, Hungary and, to a lesser extent, the Soviet Union.West German officials also have the special goal of holding out hope for East Germany's fledgling reform movement. "The change taking place in the Soviet Union, Poland and Hungary has aroused new hope in both German states that reforms will be undertaken in {East Germany}, and that relations between the two German states, too, will get better," said Foreign Minister Hans-Dietrich Genscher. Addressing a conference of the New York-based Institute for East-West Security Studies in Frankfurt yesterday, Mr. Genscher said, "History will judge us by whether we have taken the opportunities that emerge from these reforms." The ultimate aim of Western support for East bloc reforms, he said, is to create "an equitable and stable peaceful order in Europe from the Atlantic to the Urals." Mr. Genscher and U.S. Secretary of Commerce Robert A. Mosbacher, in separate speeches at the conference, appealed for more Western contributions to economic reforms and business development in Hungary and Poland.Bonn and Washington are leading supporters of Poland's request for a $1 billion stand-by credit from the International Monetary Fund. "We want the bold programs of market development and political freedom in Hungary and in Poland to succeed.We are prepared to support those changes," said Mr. Mosbacher.U.S. curbs on the exports of sensitive technology to East bloc countries will remain in place, however. Meanwhile, the U.S. House of Representatives yesterday approved an $837.5 million aid package for Poland and Hungary that more than doubles the amount President Bush had requested.The package was brought to the House just 15 days after it was introduced, indicating Congress's eagerness to reward Poland and Hungary for their moves toward democracy and freemarket economic reforms. The legislation, approved 345-47 and sent to the Senate, establishes two enterprise funds, to be governed by independent nonprofit boards, which will make loans and investments in new business ventures in Hungary and Poland.The Polish fund would be seeded with $160 million, the Hungarian fund with $40 million. In addition, a group of 24 industrialized countries, including the U.S. and Japan and coordinated by the European Community Commission, has promised Poland and Hungary trade advice and a line of credit equivalent to $1.11 billion through the European Investment Bank, while the EC plans $222 million in direct aid. When Chancellor Helmut Kohl travels to Poland Nov. 9, he is expected to take with him a promise of three billion West German marks ($1.6 billion) in new credit guarantees for industrial projects.Last week, Bonn agreed to reschedule 2.5 billion marks in Polish debt that came due last year.In addition, a one billion mark credit dating from 1974 is to be written off.Poland's plan to switch to a free-market economy by 1991 is hampered by a foreign debt load of $39.2 billion. West Germany also has increased its credit guarantees to Hungary by 500 million marks to 1.5 billion marks as the emerging democratic state rushes through its own economic reforms, including a broad privatization of state-owned industry and tax incentives for industrial investment.An additional 500 million marks in credit-backing was promised by the West German state governments of Bavaria and Baden-Wuerttemberg. Deutsche Bank AG, which last year arranged a three billion mark credit for the Soviet Union, is now moving to become the first West German bank to set up independent business offices in Hungary and Poland as they shift to free-market economies.A maxim of Frankfurt banking holds that wherever Deutsche Bank goes, other West German banks follow.Indeed, at least four other West German banks are believed to be making inquiries.
Democracy can be cruel to politicians: Sometimes it forces them to make choices.Now that the Supreme Court opened the door on the subject of abortion, politicians are squinting under the glare of democratic choice.Their discomfort is a healthy sign for the rest of us. Republicans are squinting most painfully, at least at first, which is only fair because they've been shielded the most.So long as abortion was a question for litigation, not legislation, Republicans could find political security in absolutism.They could attract one-issue voters by adopting the right-to-life movement's strongest position, even as pro-choice Republicans knew this mattered little on an issue monopolized by the court.Now it matters. Much of Washington thought it detected George Bush in a characteristic waffle on abortion the past week.Only a month ago he'd warned Congress not to pass legislation to pay for abortions in cases of rape or incest.Last Friday, after Congress passed it anyway, he hinted he was looking for compromise.Was the man who once was pro-choice, but later pro-life, converting again? In fact, Mr. Bush's dance was more wiggle than waffle.Pro-life advocates say the White House never wavered over the veto.Christopher Smith (R., N.J.), a pro-life leader in the House, suggested a compromise that would have adapted restrictive language from rape and incest exceptions in the states.The White House, never eager for a fight, was happy to try, which is why George Bush said he was looking for "flexibility" last week. When Democrats refused to budge, pro-life Republicans met at the White House with Chief of Staff John Sununu on Monday, and Mr. Bush quickly signaled a veto.Amid charges of "timidity" on Panama and elsewhere, the president wasn't about to offend his most energetic constituency. The GOP doubters were in Congress.In last week's House vote, 41 Republicans defected.After the vote, Connecticut Rep. Nancy Johnson rounded up nearly as many signatures on a letter to Mr. Bush urging him not to veto.Even such a pro-life stalwart as Sen. Orrin Hatch (R., Utah) had counseled some kind of compromise.The Senate passed the same bill yesterday, with a veto-proof majority of 67. The manuevering illustrates an emerging Republican donnybrook, pacified since the early 1980s.At the 1988 GOP convention, abortion was barely discussed at all, though delegates were evenly divided on the question of an anti-abortion constitutional amendment.Ms. Johnson made a passionate statement to the platform committee, but she was talking to herself. Now many Republicans are listening.They're frightened by what they see in New Jersey, and especially Virginia, where pro-life GOP candidates for governor are being pummeled on abortion.Eddie Mahe, a Republican consultant, says the two GOP candidates could have avoided trouble if they had framed the issue first. (In Virginia, Marshall Coleman and his running mate, Eddy Dalton, are both on the defensive for opposing abortions even in cases of rape or incest.) But Mr. Mahe adds, "The net loser in the next few years is the right-to-life side." Darla St. Martin, of the National Right to Life Committee, says exit polls from the 1988 election had single-issue, pro-life voters giving Mr. Bush about five more percentage points of support than pro-choice voters gave Michael Dukakis.But the Supreme Court's opening of debate may have changed even that.GOP pollster Neil Newhouse, of the Wirthlin Group, says polls this summer showed that the single-issue voters had about evened out.Polls are no substitute for principle, but they'll do for some politicians. The Republican danger is that abortion could become for them what it's long been for Democrats, a divisive litmus test.It's already that in the Bush administration, at least for any job in which abortion is even remotely an issue. Oklahoma official Robert Fulton lost a chance for a senior job in the Department of Health and Human Services after right-to-life activists opposed him.Caldwell Butler, a conservative former congressman, was barred from a Legal Services post, after he gave wrong answers on abortion.Even the president's doctor, Burton Lee, has said on the record that he'd love to be surgeon general but couldn't pass the pro-life test. In the case of HHS Secretary Louis Sullivan, the litmus test could yet damage issues important to other parts of the Republican coalition.After Mr. Sullivan waffled on abortion last year, the White House appeased right-to-lifers by surrounding him with pro-life deputies.Their views on health care and welfare didn't much matter, though HHS spends billions a year on both.It makes only a handful of abortion-related decisions. Though Democrats can gloat at all this for now, they may want to contain their glee.On abortion, their own day will come.Eventually even Republicans will find a way to frame the issue in ways that expose pro-choice absolutism.Does the candidate favor parental consent for teen-age abortions? (The pro-choice lobby doesn't.) What about banning abortions in the second and third trimesters? (The lobby says no again.) Democracy is forcing the abortion debate toward healthy compromise, toward the unpolarizing middle.Roe v.Wade pre-empted political debate, so the extremes blossomed.Now the ambivalent middle, a moral majority of sorts, is reasserting itself.Within a few years, the outcome in most states is likely to be that abortion will be more restricted, but not completely banned.This is where the voters are, which is where politicians usually end up.
The following were among yesterday's offerings and pricings in the U.S. and non-U.S. capital markets, with terms and syndicate manager, as compiled by Dow Jones Capital Markets Report: Sequa Corp. -- $150 million of 9 5/8% notes due Oct. 15, 1999, priced at 99.75 to yield 9.664%.The noncallable issue was priced at a spread of 170 basis points above the Treasury's 10-year note.Rated Baa-2 by Moody's Investors Service Inc. and triple-B-minus by Standard & Poor's Corp., the issue will be sold through underwriters led by Merrill Lynch Capital Markets. Virginia Public School Authority -- $55.7 million of school financing bonds, 1989 Series B (1987 resolution), due 19912000, 2005 and 2010, through a BT Securities Corp. group.The bonds, rated double-A by Moody's and S&P, were priced to yield from 6% in 1991 to 7.10% in 2010.Serial bonds were priced to yield to 6.75% in 2000.Bonds due 1991-1996 carry 6.70% coupons and bonds due 1997-2000 carry 6 3/4% coupons.Term bonds due 2005 aren't being formally reoffered.They carry a 7% coupon.Term bonds due 2010 are 7.10% securities priced at par. St. Johns River Water Management District, Fla. -- $50,005,000 of land acquisition revenue bonds, Series 1989, due 1990-2000, 2003, 2006 and 2009, tentatively priced by a Smith Barney, Harris Upham & Co. group to yield from 6% in 1990 to about 7.03% in 2003.There are $9.76 million of 7% term bonds due 2003, priced at 99 3/4 to yield about 7.03%.The $11,775,000 of term bonds due 2006 and the $13,865,000 of term bonds due 2009 aren't being formally reoffered.Serial bonds were priced at par to yield to 6.90% in 2000.The bonds are insured and rated triple-A by Moody's and S&P. Federal Home Loan Mortgage Corp. -- $500 million of Remic mortgage securities being offered in 12 classes by Salomon Brothers Inc.The offering, Series 105, is backed by Freddie Mac 9 1/2% securities.Separately, $400 million of Freddie Mac Remic mortgage securities is being offered in 10 classes by Kidder, Peabody & Co.The offering, Series 106, is backed by Freddie Mac 9 1/2% securities.According to available details, yields range from 8.70%, a spread of 80 basis points over three-year Treasury securities, to 10.37%, a spread of 230 basis points over 20-year Treasurys.The offerings bring Freddie Mac's 1989 Remic issuance to $32.6 billion and its total volume to $46.5 billion since the program began in February 1988. European Investment Bank (agency) -- 200 billion lire of 12% bonds due Nov. 16, 1995, priced at 101 3/4 to yield 12% less full fees, via lead manager Banco Commercial Italiana.Fees 1 3/4. IBM International Finance (U.S. parent) -- 125 million European currency units of 9 1/8% bonds due Nov. 10, 1994, priced at 101 5/8 to yield 9.13% at the recommended reoffered price of par, via Banque Paribas Capital Markets. Societe Generale Australia Ltd. (French parent) -- 50 million Australian dollars of 17% bonds due Nov. 20, 1991, priced at 101.90 to yield 16.59 less fees, via Westpac Banking Corp. Guaranteed by Societe Generale.Fees 1 1/4. Mitsubishi Trust & Banking Corp. (Japan) -- 200 million Swiss francs of privately placed convertible notes due March 31, 1994, with a fixed 0.75% coupon at par, via Union Bank of Switzerland.Put option on March 31, 1992, at a fixed 107 3/4 to yield 3.5%.Callable from March 31, 1992, at 107 3/4, declining two points semi-annually to par.Each 50,000 Swiss franc note is convertible from Nov, 27, 1989, to March 21, 1994, at a premium over the closing share price Oct. 25, when terms are scheduled to be fixed.Also, the company issued 300 million marks of convertible bonds with an indicated 2 3/4% coupon due March 31, 1995, at par, via Westdeutsche Landesbank Girozentrale Bank.Put on March 31, 1992, at an indicated 105 to yield 4.80%.Call option beginning March 31, 1992, if the price of the stock rises more than 50% within 30 trading days as well as a call option for tax reasons.Each 1,000 mark and 10,000 mark bond is convertible from Nov. 27, 1989, to March 21, 1995, at a price to be determined when terms are fixed Oct. 25. Scandinavian Airlines System (Sweden) -- 100 million Swiss francs of 6 1/8% bonds due Nov. 24, 1999, priced at 100 3/4 to yield 6.03%, via Union Bank of Switzerland.Call from Nov. 24, 1994, at 101 1/2, declining 1/4 point a year.Federal Home Loan Mortgage Corp. -- $400 million of 10-year debentures with a coupon rate of 8.80%, priced at par.The debentures, callable at par in five years, were priced at a yield spread of about 86 basis points above the Treasury 10-year note.The issue is being sold through Freddie Mac's 17-member securities selling group.The debentures mature Oct. 27, 1999.The debentures will be available in book-entry form only in a minimum amount of $5,000 and additional increments of $5,000.Interest will be paid semi-annually.
First they get us to buy computers so we can get more information.Then the computers give us more information than we can ever read.Now they plan to sell us products that sift through all the information to give us what we really want to know. The products range from computer-edited, personal newsletters to systems that sit inside a personal computer and pick stories on selected topics off news wires. "Filtered news is what people want," says Esther Dyson, editor of Release 1.0, an industry newsletter that spots new developments. "Most people read 10 times more than necessary in order to find out what they really need." Geoffrey Goodfellow, who dropped out of high school back in the 1970s to manage a computer network at a California research firm, says: "Old network hands have started to turn off the network because they don't have time to wade through the muck." Mr. Goodfellow has started a Menlo Park, Calif., company called Anterior Technology that provides human editors for public electronic networks. "I see it as a sewage treatment plant," he says. A new product, NewsEdge, carries five business news wires simultaneously into a user's computer and beeps and flashes whenever an article appears that is of interest to the user.The product, developed by Desktop Data Corp., a new company based in Waltham, Mass., scans the wires looking for articles that contain key words specified by the user. One early user, David Semmel, a Chicago venture capitalist and investor in Desktop Data, says he uses it to track takeover developments.He says he told NewsEdge to look for stories containing such words as takeover, acquisition, acquire, LBO, tender, merger, junk and halted. "I'm pretty confident I'm catching everything," he says. NewsEdge is pricey: $7,500 a year for a limited version, $40,000 a year if the cost of all the news wires is included.And it works best in high-powered personal computers.But some investors and consultants who have tried it are enthusiastic.Jeffrey Tarter, editor of SoftLetter, a Watertown, Mass., industry newsletter, says: "I've seen a lot of people fooling around on the fringes of filtering information.This is the first time I've seen something I could imagine a lot of people using." NewsEdge uses an FM radio band to carry news wires provided by Reuters, McGraw-Hill and Dow Jones & Co., as well as PR Newswire, which carries corporate press releases.An FM receiver attached to a user's personal computer receives the information. Some organizations have devised their own systems to sort through news wire items as they come in.George Goodwin, an account manager at Royal Bank of Canada, adapted a Lotus Development Corp. program called Agenda to sort through international news wires.It automatically selects stories from particular countries for reading by the international bankers responsible for lending in those areas. For those who don't need their personalized information moment by moment, some services are offering overnight newsletters. Individual Inc., a new company in Brookline, Mass., uses filtering technology developed by Cornell University computer scientist Gerard Salton, to automatically produce customized newsletters it sends electronically to subscribers by 8 a.m. the next day. "We are operating an information refinery that takes a broad stream of raw data and turns it into actionable knowledge," says Yosi Amram, founder and president.The daily newsletter, which isn't widely available yet, will have a base cost of $2,000 a year and provides full text of relevant articles under license agreements with Reuters, McGraw Hill, United Press International, two press release news wires and Japan's Kyodo news service. One early user is NEC Corp. 's U.S. printer marketing arm. "They want the full press releases on printer announcements by their competition," Mr. Amram says.It also tracks personnel and financial announcements by NEC's distributors and customers. Individual Inc. 's technology goes beyond word searches by using a computerized thesaurus.If a customer asks for stories about "IBM," the computer will also supply stories that mention "I.B.M., International Business Machines, or Big Blue," Mr. Amram says. Moreover, Individual Inc. 's computers can weigh the value of an article based on how closely the story matches the subscriber's interest area.It compares the position of key words in the story; words in the headline or first paragraph get a higher value.And it calculates how often the words appear in the story compared with how often they appear in the entire data base.The higher the ratio of hits to total words, the higher the presumed value to the reader. Pinpoint Information Corp., Chantilly, Va., a producer of $1,800-a-year personalized newsletters about the computer industry that started full operation last month, relies on 12 human readers to code news releases by topic in order to select items for each subscriber. "The computers find all the key words they can, but the editors confirm every one.Computer picking isn't perfect," says Harvey Golomb, president and founder of Pinpoint.The humans also write abstracts of articles from some 200 computer industry publications. Once all the articles are coded and put in a data base, Pinpoint's computers pick the most relevant for each subscriber and lay them out in a three-to-five-page newsletter format; each newsletter is sent directly from the computer to the subscriber's fax machine.Mr. Golomb says each of his computers can produce and send about 75 unique newsletters a night. Many computer network users who never see news wires would like to sort through their electronic mail automatically.So-called E-mail is the collection of inter-office memos, gossip, technical data, schedules and directives distributed over local and national computer networks. "All these interconnected computers make it difficult to sort out what's junk and what's important," says Chuck Digate, a former Lotus Development executive who has started a new company to cope with the problem.Mr. Digate says his firm, Beyond Inc., has licensed technology known as Information Lens from Massachusetts Institute of Technology and plans to develop it for commercial use. The MIT project devised ways for E-mail to be automatically categorized as top priority if it comes from certain designated senders or requires action in the next couple of days.Mr. Digate says that Beyond will refine the product "so the message will be smart enough to know to come back and bother you again next week." And if a user is busy, "he can set it for crisis mode: `Don't bother me with reports until Monday. '" A program called Notes, which is under development by Lotus, also is designed to sort E-mail sent within work groups.One thing that makes E-mail difficult to sift through is that each item looks the same.Notes, which is designed for advanced computers that display graphics, allows mail senders to put different logos on their mail.A daily news briefing from the company librarian, for example, would have a distinctive format on the screen, just as a paper version would have. "With E-mail, you don't have the visual clues of paper," says Mr. Tarter, the editor of SoftLetter. "With Notes, they're visually distinct."
Dean Witter Reynolds Inc. lost its second recent arbitration case involving a former bond-trading executive. A New York Stock Exchange arbitration panel ordered Dean Witter to pay $404,294 in back bonuses to William Kelly, the company's former head of high-yield, high-risk junk-bond trading and sales.It also awarded $196,785 in back bonuses to former trader Michael Newcomb and $69,105 in fees to the two men's attorneys. The sums awarded to Messrs.Kelly and Newcomb represent bonuses the two men said they deserved from the first half of 1988, but which weren't paid because of a dispute over an incentive contract. Jeffrey L. Liddle, the two men's attorney at Liddle, O'Connor, Finkelstein & Robinson, said Mr. Kelly began working at Dean Witter in 1987.Mr. Kelly built the company's high-yield bond group, which has been a minor player in the junk-bond arena. Dean Witter lost a separate case involving a former bond executive earlier this year; in August it paid $666,666 in back pay and a bonus to a former corporate-bond trading chief, Harold Bachman.That award ended a dispute between Dean Witter and Mr. Bachman over who was responsible for certain bond-trading losses around the time of the 1987 stock-market crash. A spokesman for Dean Witter, a unit of Sears, Roebuck & Co., declined to comment.
WASHINGTON LIES LOW after the stock market's roller-coaster ride. Lawmakers, haunted by charges that some of their comments contributed to the 1987 crash, generally shy away from calls for sweeping new legislation.But a House Energy and Commerce subcommittee will quiz SEC Chairman Breeden Wednesday, and Treasury Secretary Brady will go before the Senate Banking panel Thursday. The market's wild week may speed along the market-reform legislation that has been pending for months in the aftermath of the 1987 crash.It may also expedite the SEC's modest pending changes in junk-bond disclosure rules and intensify the Treasury's look at plans for giving new tax breaks on dividends and raising taxes on short-term trades by pension funds. Brady and Breeden work well together on the plunge, despite the fact that the Treasury secretary opposed Breeden's nomination to the SEC post. BAKER FALTERS in the Mideast amid Israeli paralysis and Palestinian politics. Despite seeing his plan for Israeli-Palestinian elections wither, the cautious secretary of state is so far unwilling to cut U.S. economic or military aid to force Israeli cooperation.Baker nonetheless remains furious both at Shamir, for backing down on the elections, and at Shamir's rival, Peres, for political ineptitude in forcing a premature cabinet vote on Baker's plan. Meanwhile, some U.S. officials fear PLO chief Arafat is getting cold feet and may back off from his recent moderation and renunciation of terrorism.He is under intense fire from other Palestinian groups; Syria is pushing Ahmad Jibril, whose terrorist band is blamed for the Pan Am 103 bombing, as an alternative to Arafat. DARMAN'S MANEUVERS on the budget and capital gains hurt him in Congress. Republicans as well as Democrats were angered by the budget director's rejection of Speaker Foley's effort to expedite a deficitcutting measure by stripping it of the capital-gains tax cut as well as pet Democratic projects.Darman now blames the clash on miscommunication, but House GOP leader Michel, who carried the offer to him, observes, "I was speaking English at the time, and quite loud so I could be understood." Senate GOP leader Dole ridicules the budget chief on the Senate floor.Democratic counterpart Mitchell, asked to interpret Darman's threat to make permanent the across-the-board Gramm-Rudman cuts that took effect this week, says, "I don't even bother to interpret them." But Darman suggests such tensions will dissipate quickly. "If I can show signs of maturity, almost anybody can," he jokes. HHS OFFICIALS expect Secretary Sullivan to continue a ban on research using fetal tissue. Before he was confirmed, Sullivan said he had "reservations about any blanket prohibitions on medical research." But now, an official says, he is "surrounded by right-to-lifers," who contend that any breakthroughs in fetal-tissue research could increase the demand for abortions. COOPERATION WANES on weapons development between the U.S. and Europe. Britain, France and Italy pull out of a proposal to build new NATO frigates; the U.S. and West Germany have each withdrawn from missile projects.Defense experts say joint projects are increasingly squeezed by budget pressures and the desire to save domestic jobs; some also fear rising protectionism as European unity nears. BOTH SIDES NOW: Virginia GOP lieutenant governor candidate Eddy Dalton tries to have it both ways on the abortion issue.Though she opposes abortion in almost all cases, she airs a TV commercial using pro-choice buzzwords. "A woman ought to have a choice in cases where her life or health are in danger and in cases of rape or incest," she proclaims. HOT TOPIC: Interest in the abortion issue is so great that the Hotline, a daily, computer-distributed political newsletter, comes up with a spinoff product called the Abortion Report dealing solely with its political implications. CONSERVATIVES EXPECT Bush to solidify their majority on a key court. Bush has three vacancies to fill on the prestigious D.C. Circuit Court, which handles many important regulatory issues and is often considered a warm-up for future Supreme Court nominees.Conservatives now hold only a 5-4 edge.One slot is expected to go to EEOC Chairman Clarence Thomas, a black conservative; after mulling a fight, liberals now probably won't put up a major struggle against him. Other conservatives thought to be on the administration's short list include Washington lawyer Michael Uhlmann, who was passed over for the No. 2 job at the Justice Department, and Marshall Breger, chairman of a U.S. agency on administration. The Bush administration would also like to nominate a woman; one possibility is former Justice Department official Victoria Toensing. MINOR MEMOS: In the wake of the failed Panama coup, a bumper sticker appears: "Ollie Would Have Got Him." . . . Rep. Garcia, on trial for bribery and extortion, puts statements in the Congressional Record attributing missed votes to "scheduling conflicts." . . . A GOP Senate fund-raising letter from Sen. Burns of Montana is made to appear personally written, and its opening line is, "Please excuse my handwriting." But Burns confesses in an interview: "That's not my handwriting."
Ever since the hotly contested America's Cup race last year, the famous yachting match has run into more rough sailing out of the water than in it.Now that a key member of the San Diego Yacht Club team is splitting off to form his own team, even more competition lies ahead. Peter Isler, the winning navigator in the past two America's Cup challenges, has split from the team led by Dennis Conner, skipper of the victorious Stars & Stripes, to form his own team for the next contest in 1992.And, in addition to a crack team of sailors, Mr. Isler has lined up some real brass to help him finance the syndicate. Isler Sailing International's advisory board includes Ted Turner, Turner Broadcasting chairman and a former Cup victor; Peter G. Diamandis, head of Diamandis Communications, and Joseph B. Vittoria, chairman and chief executive of Avis Inc.His steering committee includes other notable businessmen, including the California investor and old salt Roy E. Disney. "We have the structure, people and plan," Mr. Isler said in a statement.Now, the first order of business is raising enough money to keep his team afloat -- a new yacht will cost about $3 million alone, and sailing syndicate budgets can easily run to $25 million for a Cup challenge. The split comes in the midst of a court battle over whether the San Diego Yacht Club should be allowed to keep the international trophy for sailing a catamaran against the New Zealand challengers' 90-foot monohull.In September, a New York appellate court overturned a state judge's ruling that awarded the Cup to the New Zealand team. Pending an appeal by the New Zealand team, led by Michael Fay, the finals for the next Cup challenge are scheduled to be held in mid-1992 in San Diego.But because of the uncertainty of the outcome of the suit, Mr. Conner's team has done little to begin gearing up to defend its title. "If you don't know what the rules of the game are, it's hard to start your fund-raising or design," said Dana Smith, an official with Team Dennis Conner.The Conner team won't be able to negotiate with corporate sponsors until the suit is resolved and the race site is determined, Mr. Smith said, and the syndicate's budget could easily reach $30 million. But spokesmen for both Mr. Isler and Mr. Conner say the formation of the new syndicate has to do with Mr. Isler's desire to skipper his own team and begin planning now, rather than any falling out between the two sportsmen.Mr. Smith and a spokesman for the America's Cup Organizing Committee insist that the added competition for the defender's spot will only improve the race.
Just because Stamford, Conn., High School did nothing when its valuable 1930s mural was thrown in the trash doesn't mean the city no longer owns the work of art, a federal judge ruled. The mural, now valued at $1.3 million according to appraisers, was tossed in a trash heap in 1971 by workers who were renovating the building.The 100-foot-long mural, painted by James Daugherty in 1934, was commissioned by the federal Works Project Administration. After the discarded mural was found outside the school by a concerned Stamford graduate, it eventually was turned over to Hiram Hoelzer, a professional art restorer. Throughout the 1970s, Stamford school and city officials made no effort to locate the mural.Apparently the officials didn't even know the mural was missing until 1980, when a researcher found that the painting was in Mr. Hoelzer's studio and questioned school officials about it. In 1986, Stamford officials thanked Mr. Hoelzer for taking care of the mural -- and demanded he return it as soon as possible.Mr. Hoelzer, however, sued Stamford, claiming that the city had abandoned the artwork and that it had waited too long to reclaim it. But Judge Louis L. Stanton of federal court in Manhattan ruled that the city couldn't be faulted for waiting too long because it didn't realize until 1986 that its ownership of the painting was in dispute.The judge also ruled that the painting wasn't abandoned because officials didn't intend for it to be thrown away and were unaware that the workmen had discarded it. Mr. Hoelzer didn't return phone calls seeking comment on the judge's decision.The judge ordered that a hearing be held Nov. 17 to determine how much the city should pay Mr. Hoelzer for his services. Mary E. Sommer, corporate counsel for Stamford, said the city has discussed several possible plans for displaying the mural, which portrays various scenes from the Great Depression.She said the mural "preserves an era in Stamford and in our country when this type of work was being done."
The prices of corn futures contracts jumped amid rumors that the Soviet Union is keeping up its dizzying October buying binge of U.S. corn. Those rumors were confirmed after the end of trading yesterday when the U.S. Agriculture Department announced that the Soviets had bought 1.2 million metric tons of U.S. corn, bringing their U.S. corn purchases confirmed so far this month to about five million metric tons. In trading at the Chicago Board of Trade, the corn contract for December delivery jumped 5.75 cents a bushel to settle at $2.44 a bushel. The Soviet purchases are close to exceeding what some analysts had expected the Soviet Union to buy this fall, the season in which it usually buys much of the corn it imports from the U.S.That pace is causing some analysts to speculate that the Soviet Union might soon purchase as much as another two million metric tons. One sign that more Soviet purchases are possible is that U.S. grain companies yesterday bought an unusually large amount of corn futures contracts.That sometimes signals that they are laying plans to export corn. By some estimates, several grain companies combined bought contracts for the possession of roughly one million metric tons of corn.By buying futures contracts, these companies attempt to protect themselves from swings in the price of the corn that they are obligated to deliver. Rumors of Soviet interest also pushed up the prices of soybean futures contracts.Among other things, the Agriculture Department is widely thought to be mulling whether to subsidize the sale of soybean oil to the Soviet Union. On top of all this, corn and soybean prices rose on reports that the Midwest harvest was disrupted by a freakishly early snow storm that dumped several inches in parts of Indiana and Ohio.The harvest delays, however, are expected to be temporary.Balmy temperatures are forecast for next week, said Robert Lekberg, an analyst at Farmers Grain & Livestock Corp., Chicago. Many farmers used the jump in prices to sell their recently harvested crop to grain elevator companies.The heavy selling by farmers helped to damp the price rally. Wheat futures prices rose slightly. In other commodity markets yesterday: PRECIOUS METALS: Futures prices declined.A number of developments were negatively interpreted by traders.December delivery gold fell $1.80 an ounce to $370.60.December silver eased 2.7 cents an ounce to $5.133.January platinum was down $3.60 an ounce at $491.10.One price-depressing development was the lower-than-expected increase of only 0.2% in the consumer price index for September, an analyst said.He noted that the "core inflation rate," which excludes food and energy, was also low at 0.2%.Other news that weighed on the market: Initial unemployment claims rose by 62,000 last week; American Telephone & Telegraph Co. will reduce its managerial staff by 15,000 through attrition; the oil market turned weaker; there wasn't any investor demand for bullion; and the dollar strengthened during the day, putting pressure on gold.Also, the analyst said, economic circumstances are such that both South Africa and the Soviet Union, the principal gold and platinum producers, are being forced to continue selling the metals.Both are in great need of foreign exchange, and South Africa is also under pressure to meet foreign loan commitments, he said. "Putting it all together, we have a negative scenario that doesn't look like it will improve overnight," he said. COPPER: Futures prices recovered in quiet trading.The December contract rose 1.50 cents a pound to $1.2795.That contract fell a total of 5.75 cents during the first three days of this week, mostly in reaction to last Friday's stock market plunge, which prompted concern that it might signal a similar sharp slowing of the U.S. economy and thus reduced demand for copper, a leading industrial metal.In recent days, however, there has been increased purchasing of copper in London, an analyst said.Some of this buying was by Japan, which has had its supplies sharply reduced by long production stoppages at the Bougainville mine in Papua New Guinea, Highland Valley mine in British Columbia, and the Cananea mine in Mexico, which are major shippers to Japan.The increasing likelihood that Cananea and Highland Valley will soon return to production may have cut some of that purchasing, but even if any of these mines begin operating soon, their output won't be significant until at least the end of the year, analysts note.So, one analyst said, even though the long-term production problems may be easing, there will still be a significant need for copper over the next three months, when inventories will remain relatively low. ENERGY: Crude oil prices ended mixed.West Texas Intermediate for November delivery fell 14 cents a barrel to $20.42.But so-called outer month contracts finished higher.For instance, December contracts for WTI rose 17 cents to $20.42.Most energy futures opened lower, following Wednesday's market downturn.But a flurry of late trading yesterday beefed up prices.Heating oil and gasoline futures ended higher as well.
Melvin Belli's San Francisco law offices may have been the epicenter of legal activity after Tuesday's earthquake. In the first 25 minutes after his office's telephone service was restored yesterday morning, 17 potential clients had called seeking the services of the self-proclaimed King of Torts. Mr. Belli, like many other personal-injury lawyers, suspects that the earthquake, which measured 6.9 on the Richter scale, will generate enough lawsuits to keep this city's personal-injury and construction lawyers busy for quite some time.Suits are likely to be filed against engineering firms, contractors and developers, as well as against local-government agencies. But lawyers looking to cash in on the quake may have a tough time once their cases reach a judge.Experts on California tort law say protections afforded government agencies in such cases are pretty ironclad.Even claims against individuals and companies face significant roadblocks.The major legal barrier is the principle that no one can be held liable for an "act of God." For now, says Laurence Drivon, president-elect of the 6,000-member California Trial Lawyers Association, "the last thing we really need to worry about is whether anybody is going to get sued, or whether they have liability or not.We still have people wandering around in a daze in San Francisco worrying about whether it's going to rain tonight." But that won't stop plaintiffs' lawyers from seeking a little room for maneuvering.In San Francisco, they argue, an earthquake was a near certainty.Therefore, engineering firms, construction contractors and developers can be sued for not keeping structures up to standard, and government agencies can be held accountable for failing to properly protect citizens from such a foreseeable disaster, if negligence can be proven. "My prediction is there will be mass litigation over errors and omissions in engineering and contracting," says Stanley Chesley, a well-known Cincinnati plaintiffs lawyer.From what he saw on television, Mr. Chesley points out that Interstate 880, which collapsed and killed more than 200 commuters, suffered serious damage while surrounding buildings appeared to sustain no damage whatsoever.He adds that "they were aware of the propensity for earthquakes and the San Andreas Fault." The flamboyant and publicity-conscious Mr. Belli says he already has investigators looking into who could be held liable for the damage on the Bay Bridge and the interstate approaching it. "We won't know until the smoke clears -- but yes, we're looking into it," he says. Mr. Belli says he wants to know whether state or federal engineers or private companies could have prevented the damage.Mr. Belli, who was at Candlestick Park for the World Series Tuesday night, says he has hired civil engineers to check out his own mildly damaged building and to investigate the bridge collapse. Defense lawyers, perhaps understandably, say that plaintiffs' lawyers taking such an approach will have little success in pursuing their claims, though they add that the facts of each case must be looked at individually. "A lot of this is going to be code-related," says Ignazio J. Ruvolo, a construction law specialist at Bronson, Bronson & McKinnon, a San Francisco law firm.Plaintiffs, he says, will argue that damaged structures weren't built to proper design standards.But if defendants can prove that they met San Francisco's stringent building codes, "that's probably going to protect them," Mr. Ruvolo says. Government entities, continues Mr. Ruvolo, could be protected by the California Government Tort Liability Act.Under the statute, agencies are provided "defenses that normally aren't available in the private sector," Mr. Ruvolo says. "The legislature does not want to inhibit the unique government activities by exposing public entities to liability." Built into the statute are so-called design immunities, which are likely to protect government agencies, according to Mr. Ruvolo and Richard Covert, a lawyer with the California Department of Transportation, which oversees the damaged Bay Bridge.The state is protected when plans and designs for public structures were approved ahead of time or when structures met previously approved standards, says Mr. Covert.He believes those defenses might well apply to the Bay Bridge collapse.Nevertheless, he adds, "I wouldn't get totally shocked if we get lawsuits out of the Bay Bridge." If there's going to be a race to the courthouse, it hasn't started yet.Mr. Covert had to search through law books scattered on the floor of his office yesterday, and Mr. Belli's courtyard was strewn with bricks.Wednesday, Mr. Belli's staff wasn't permitted into his office by city officials worried about their safety.He said he set up shop on the sidewalk in front of his town-house office and helped victims apply for federal aid -- free of charge. In a news release issued by Mr. Drivon, the trial lawyers association also promised free assistance to victims.The association said it would monitor the conduct of lawyers and warned that solicitation of business is unethical.
What's in a name?Apparently a lot, according to the British firm of Deloitte, Haskins & Sells. The British firm has begun court proceedings in London to prevent the use of the name "Deloitte" by Deloitte, Haskins & Sells and Touche Ross & Co. in England and the rest of the world.The British Deloitte firm recently withdrew from the merger of Deloitte and Touche world-wide and joined Coopers & Lybrand. John Bullock, senior partner of Deloitte in the U.K., said "the decision to start these proceedings hasn't been taken lightly." Mr. Bullock said the British firm has used the name "Deloitte" since 1845.In the U.S., Deloitte, Haskins & Sells was known as Haskins & Sells until 1978, when it added the "Deloitte" name of its British affiliate. John C. Burton, an accounting professor at Columbia University's Graduate School of Business, said "there's a lot of emotion involved in the name of an accounting firm with a long history and with roots in England, where accounting predates the U.S." Although accountants aren't noted as "being deeply emotional, they really hold it all in," said Mr. Burton, former chief accountant of the Securities and Exchange Commission. J. Michael Cook, chairman of Deloitte, Haskins & Sells International, said he believes the legal action by the British firm "to be without merit." Mr. Cook said that last June, the international executive committes of Deloitte and Touche agreed to a world-wide merger. "The merger is proceeding according to plan, except as to the withdrawal of the Deloitte U.K. firm," he said. Partners at other accounting firms say that the Deloitte firm in the U.K. is filing the suit to get even with the merged Deloitte-Touche firm for keeping major auditing work in England.General Motors Corp., a Deloitte audit client, for example, has agreed to keep its annual $18 million world-wide audit and associated tax work with the merged Deloitte-Touche firm, to be known as Deloitte & Touche in the U.S.In England, this would mean that the British Deloitte would lose revenue for its audit of GM's Vauxhill unit. The defection of Deloitte's affiliates in Britain and the Netherlands to Coopers & Lybrand will make Coopers one of the biggest accounting firms in Europe, rivaling KPMG Peat Marwick there.Although Coopers hasn't been courted by other major accounting firms for a merger, it is benefiting greatly from fallout from the Deloitte-Touche merger. In New York, Harris Amhowitz, general counsel of Coopers, said Coopers "was aware of the litigation," but he declined further comment.He also declined to comment on the name that Coopers would use in England if Deloitte UK won its litigation to keep its name.Coopers uses the Coopers & Lybrand name world-wide.
William Bennett, the White House drug-policy director, accused local officials in the Washington area of blocking construction of prison facilities to house convicted drug dealers. "Politics has essentially put up a roadblock" to finding sites for new federal prisons, Mr. Bennett said at a news conference called to report on his "emergency assistance program" for the capital.Without more space to incarcerate convicted criminals, he added, "we will not win the war on drugs." Mr. Bennett declared in April that he would make Washington a "test case" for how the Bush administration would aid cities afflicted by heavy drug trafficking and violence.The drug czar claimed that enforcement efforts are working here, "albeit at a slower and more halting pace than we would like." He acknowledged, however, that Washington's "drug-related murder rate is intolerably high.The prisons are too crowded.Drugs continue to be sold openly around schools, parks and housing projects." Mr. Bennett declined to name the area officials who he believes have impeded plans for building more federal prisons to ease Washington's problem.But other Bush administration officials have criticized Maryland Gov. William Schaefer for blocking the use of possible sites in that state.Administration officials also have said that Washington Mayor Marion Barry has delayed consideration of sites in the city. In a letter to Mr. Bennett's office, released yesterday, Washington's city administrator, Carol Thompson, complained that the drug czar had exaggerated the amount of federal drug-related assistance provided to the capital.Referring to Mr. Bennett's claim that the federal government would provide $97 million in emergency federal support, Ms. Thompson wrote, "Our analysis was unable to even come close to documenting that figure." Of his successes in Washington, Mr. Bennett stressed that existing federal prisons have taken custody of 375 local inmates.He also noted that the federal Drug Enforcement Administration has established a federal-local task force responsible since April for 106 arrests and more than $2 million in seizures of drug dealers' assets.The Defense Department has lent the Washington U.S. attorney 10 prosecutors, and the Federal Bureau of Investigation has provided crime laboratory facilities and training, he added.
What if it happened to us? In the wake of the earthquake in California and the devastation of Hurricane Hugo, many companies in disaster-prone areas are pondering the question of preparedness.Some, particularly in West Coast earthquake zones, are dusting off their evacuation plans, checking food stocks and reminding employees of what to do if emergency strikes.Others say they feel confident that steps they've already taken would see them through a disaster. Preparedness involves more than flashlights and fire alarms these days.Some big companies have teams of in-house experts focusing on safety and business resumption.Many companies in the path of potential disaster have set up contingency offices in safe regions, hoping they can transport employees there and resume operations quickly.That means making sure that copies of vital computer software and company records are out of harm's way. Some businesses -- like Disneyland -- claim that even if they became isolated in a crisis, they would be able to feed and care for their people for as long as five days. "Self-sufficiency has to be the cornerstone of your plan," says Stephanie Masaki-Schatz, manager of corporate emergency planning at Atlantic Richfield Co. in Los Angeles. "If you don't save your critical people, you won't be able to bring up your vital business functions." Although ARCO's head office, more than 300 miles from the epicenter, wasn't affected by this week's tremors, Ms. Masaki-Schatz used the occasion to distribute a three-page memo of "Earthquake Tips" to 1,200 ARCO employees. "You need to capitalize on these moments when you have everyone's attention," she says. "It was a good reminder that we all need to prepare prior to an event." The ARCO memo urges employees to keep certain supplies at work, such as solid shoes and "heavy gloves to clear debris." It also recommends that employees be aware of everyday office items that could be used for emergency care or shelter.Among the suggestions: Pantyhose and men's ties could be used for slings, while removable wooden shelves might aid in "breaking through office walls." ARCO maintains an office in Dallas that would take over if payroll operations in Pasadena were disrupted.Two months ago the company set up a toll-free number, based outside California, to handle queries from employees about when they should report back to work after an earthquake or other disaster. The ARCO plan takes into account such details as which aspects of business are busier at certain times of the year.This way, depending on when a quake might strike, priorities can be assigned to departments that should be brought back on line first. At Hewlett-Packard Co., the earthquake came just as the company was reviewing its own emergency procedures. "We were talking about scheduling a practice drill for November," says Joan Tharp, a spokeswoman. "Then we had a real one in the afternoon." The Palo Alto, Calif., computer maker scrambled to set up a special phone line to tell manufacturing and support staff to stay home Wednesday.Sales and service employees were asked to report to work to help Bay area clients who called with computer problems.Hewlett-Packard also called in its systems experts to restore its own computer operations. "That means we can accept orders" and begin getting back to normal, says Ms. Tharp. Prompted by an earlier California earthquake, as well as a fire in a Los Angeles office tower, Great Western Bank in the past year hired three emergency planners and spent $75,000 equipping a trailer with communications gear to serve as an emergency headquarters. Although officials of the savings and loan, a unit of Great Western Financial Corp., used some of their new plans and equipment during this week's quake, they still lost touch for more than 24 hours with 15 branches in the affected areas, not knowing if employees were injured or vaults were broken open. "Some people flat out didn't know what to do," says Robert G. Lee, vice president for emergency planning and corporate security at Great Western. As it turned out, bank employees weren't hurt and the vaults withstood the jolts.Still, says Mr. Lee: "We need to educate people that they need to get to a phone somehow, some way, to let someone know what their status is." Some companies are confident that they're prepared.Occidental Petroleum Corp. holds regular evacuation drills and stocks food, oxygen and non-prescription drugs at checkpoints in its 16-story headquarters.The company also maintains rechargeable flashlights in offices and changes its standby supply of drinking water every three months. "We feel we are doing everything we can," an Occidental spokesman says. Walt Disney Co. 's Disneyland in Anaheim, Calif., stocks rescue equipment, medical supplies, and enough food and water to feed at least 10,000 visitors for as long as five days in the event that a calamity isolates the theme park. The park also has emergency centers where specially trained employees would go to coordinate evacuation and rescue plans using walkie-talkies, cellular phones, and a public-address system.The centers are complete with maps detailing utility lines beneath rides and "safe havens" where people can be assembled away from major structures. Vista Chemical Co., with three chemical plants in and near Lake Charles, La., "prepares for every hurricane that enters the Gulf of Mexico," says Keith L. Fogg, a company safety director.Hurricane Hugo, an Atlantic storm, didn't affect Vista.But two other major storms have threatened operations so far this year, most recently Hurricane Jerry this week. Because hurricanes can change course rapidly, the company sends employees home and shuts down operations in stages -- the closer a storm gets, the more complete the shutdown.The company doesn't wait until the final hours to get ready for hurricanes. "There are just tons of things that have to be considered," Mr. Fogg says. "Empty tank cars will float away on you if you get a big tidal surge." Still, Vista officials realize they're relatively fortunate. "With a hurricane you know it's coming.You have time to put precautionary mechanisms in place," notes a Vista spokeswoman. "A situation like San Francisco is so frightening because there's no warning."
Former Democratic fund-raiser Thomas M. Gaubert, whose savings and loan was wrested from his control by federal thrift regulators, has been granted court permission to sue the regulators. In a ruling by the Fifth U.S. Circuit Court of Appeals in New Orleans, Mr. Gaubert received the go-ahead to pursue a claim against the Federal Home Loan Bank Board and the Federal Home Loan Bank of Dallas for losses he suffered when the Bank Board closed the Independent American Savings Association of Irving, Texas. Mr. Gaubert, who was chairman and the majority stockholder of Independent American, had relinquished his control in exchange for federal regulators' agreement to drop their inquiry into his activities at another savings and loan.As part of the agreement, Mr. Gaubert contributed real estate valued at $25 million to the assets of Independent American. While under the control of federal regulators, Independent American's net worth dropped from $75 million to a negative $400 million, wiping out the value of Mr. Gaubert's real estate contribution and his stock in the institution. Mr. Gaubert's suit to recover his damages was dismissed last year by U.S. District Judge Robert Maloney of Dallas under the Federal Tort Claims Act, which offers broad protection for actions by federal agencies and employees. Earlier this week, a Fifth Circuit appellate panel upheld Judge Maloney's dismissal of Mr. Gaubert's claim as a shareholder but said the judge should reconsider Mr. Gaubert's claim for the loss of his property. "It may depend on whether there was an express or implied promise . . . that the federal officials would not negligently cause the deterioration" of Independent American, the court wrote.Mr. Gaubert's lawyer, Abbe David Lowell of Washington, D.C., says the impact of the ruling on other cases involving thrift takeovers will depend on the degree of similarity in the facts. "I don't know if this will affect one institution or a hundred," Mr. Lowell says. "It does establish a very clear precedent for suing the FHLBB where there was none before." MAITRE'D CLAIMS in suit that restaurant fired her because she was pregnant. In a suit filed in state court in Manhattan, the American Civil Liberties Union is representing the former maitre'd of the chic Odeon restaurant.The suit, which seeks compensatory and punitive damages of $1 million, alleges that the firing of Marcia Trees Levine violated New York state's human-rights law.Among other things, the law prohibits discrimination on the basis of sex and pregnancy. The suit alleges that Ms. Levine was fired after she refused to accept a lower paying, less visible job upon reaching her sixth month of pregnancy.Ms. Levine told her employer that she was pregnant in February; a month later, the suit says, the restaurant manager told Ms. Levine that she would be demoted to his assistant because he felt customers would be uncomfortable with a pregnant maitre'd. Kary Moss, an attorney with the ACLU's Women's Rights Project, said, "They wanted a svelte-looking woman, and a pregnant woman is not svelte.They told her, 'We don't hire fat people and we don't hire cripples.And pregnant women are fat. '" Ms. Moss said Ms. Levine secretly taped many conversations with her bosses at the Odeon in which they told her she was being fired as maitre'd because she was pregnant. Paul H. Aloe, an attorney for Odeon owner Keith McNally, denied the allegations.He said Ms. Levine had never been fired, although she had stopped working at the restaurant. "The Odeon made a written offer to Marcia Levine on July 10 to return to work as the maitre'd, at the same pay, same hours and with back pay accrued," he said. Mr. Aloe said the Odeon "has no policy against hiring pregnant people." LAWYERS IN Texas's biggest bank-fraud case want out in face of retrial. Lawyers representing five of the seven defendants in the case say their clients can no longer afford their services.The trial of the case lasted seven months and ended in September with a hung jury. The defendants were indicted two years ago on charges that they conspired to defraud five thrifts of more than $130 million through a complicated scheme to inflate the price of land and condominium construction along Interstate 30, east of Dallas. The defense lawyers, three of whom are solo practitioners, say they can't afford to put their law practices on hold for another seven-month trial.Some of the lawyers say they would continue to represent their clients if the government pays their tab as court-appointed lawyers. Assistant U.S. Attorney Terry Hart of Dallas says the government will oppose any efforts to bring in a new defense team because it would delay a retrial. FEDERAL JUDGE ALCEE HASTINGS of Florida, facing impeachment, received an unanticipated boost yesterday.Sen. Arlen Specter (R., Pa.) urged acquittal of the judge in a brief circulated to his Senate colleagues during closed-door deliberations.Among other things, the brief cited insufficient evidence.Sen. Specter was vice chairman of the impeachment trial committee that heard evidence in the Hastings case last summer.A former prosecutor and member of the Senate Judiciary Committee, Sen. Specter is expected to exercise influence when the Senate votes on the impeachment today. RICHMOND RESIGNATIONS: Six partners in the Richmond, Va., firm of Browder, Russell, Morris & Butcher announced they are resigning.Five of the partners -- James W. Morris, Philip B. Morris, Robert M. White, Ann Adams Webster and Jacqueline G. Epps -- are opening a boutique in Richmond to concentrate on corporate defense litigation, particularly in product liability cases.The sixth partner, John H. OBrion, Jr., is joining Cowan & Owen, a smaller firm outside Richmond. LAW FIRM NOTES: Nixon, Hargrave, Devans & Doyle, based in Rochester, N.Y., has opened an office in Buffalo, N.Y. . . . Mayer, Brown & Platt, Chicago, added two partners to its Houston office, Eddy J. Roger Jr., and Jeff C. Dodd. . . . Copyright specialist Neil Boorstyn, who writes the monthly Copyright Law Journal newsletter, is joining McCutchen, Doyle, Brown & Enersen.
New York Times Co. 's third-quarter earnings report is reinforcing analysts' belief that newspaper publishers will be facing continued poor earnings comparisons through 1990. The publisher was able to register soaring quarter net income because of a onetime gain on the sale of its cable-TV system.However, operating profit fell 35% to $16.4 million.The decline reflected the expense of buying three magazines, lower earnings from the forest-products group, and what is proving to be a nagging major problem, continued declines in advertising linage at the New York Times, the company's flagship daily newspaper. In composite trading on the American Stock Exchange, New York Times closed at $28.125 a share, down 37.5 cents. Analysts said the company's troubles mirror those of the industry.Retail advertising, which often represents half of the advertising volume at most daily newspapers, largely isn't rebounding in the second half from extended doldrums as expected.At the same time, newspapers are bedeviled by lagging national advertising, especially in its financial component.Dow Jones & Co. recently reported net fell 9.9%, a reflection, in part, of continued softness in financial advertising at The Wall Street Journal and Barron's magazine. "We expect next year to be a fairly soft year in newspaper-industry advertising," said John Morton, an analyst for Lynch, Jones & Ryan. "Next year, earnings will hold steady, but we just don't see a big turnaround in the trend in advertising." John S. Reidy, an analyst for Drexel Burnham Lambert Inc., said, "The Times faces the same problem of other publishers: linage is down.It will be hard to do handstands until real linage starts heading back up." In the quarterly report, Arthur Ochs Sulzberger, New York Times Co. chairman and chief executive officer, said negative factors affecting third-quarter earnings will continue.Analysts agreed with company expectations that operating profit will be down this year and in 1990.Mr. Sulzberger said the scheduled opening of a new color-printing plant in Edison, N.J., in 1990 would involve heavy startup and depreciation costs. "With the Edison plant coming on line next summer, the Times is facing some tough earnings comparison in the future," said Peter Appert, an analyst with C.J. Lawrence, Morgan Grenfell. "But many newspapers are facing similar comparisons." The sale of the company's cable franchise brought an after-tax gain of $193.3 million, part of which will be used to reduce debt.The company also has a stock-repurchase plan. Analysts said they were impressed by the performance of the company's newspaper group, which consists of the Times, 35 regional newspapers and a one-third interest in the International Herald Tribune; group operating profit for the quarter increased slightly to $34.9 million from $34.5 million on flat revenue. Drexel Burnham's Mr. Reidy pointed out that "profits held up in a tough revenue environment.That's a good sign when profits are stable during a time revenue is in the trough."
Investors celebrated the second anniversary of Black Monday with a buying spree in both stocks and bonds.But the dollar was mixed. Stock and bond investors were cheered by last month's encouragingly low inflation rate.This news raised hopes for further interest-rate cuts.Treasury-bond prices immediately rallied, setting the stock market rolling from the opening bell. The Dow Jones Industrial Average, up about 60 points in mid-afternoon, finished with a gain of 39.55 points, to 2683.20.That brought the average's cumulative gain this week to about 114 points.Since the 1987 crash, the industrials have soared more than 54%, and the widely watched market barometer is about 4% below its record high set earlier this month. The stock-market rally was led by blue-chip issues, but, unlike Monday's rebound, was broadly based.Indeed, over-the-counter stocks, led by technology issues, outleaped the industrial average.The Nasdaq Composite Index soared 7.52, or 1.6%, to 470.80, its highest one-day jump in points this year. Many takeover-related stocks rose after news that a group obtained financing commitments for the proposed buy-out of American Medical International Inc.Among the biggest winners were brokerage-house stocks, responding to heavy trading volume. The government said consumer prices rose only 0.2% last month.Economists expected twice as large an increase.That news, plus recent signs of economic sluggishness, greatly increases pressure on the Federal Reserve to ease credit further, which in turn would be good news for stocks, investment managers say. "I see a lot of evidence indicating a slower economy, and that means my interest-rate outlook has a downward tilt," said Garnett L. Keith Jr., vice chairman of Prudential Insurance Co. of America, one of the nation's largest institutional investors.Fed officials probably won't drive down rates immediately, Mr. Keith said.Despite the inflation news, several Fed officials still fear consumer-price pressures will intensify because they insist the economy is stronger than generally believed. But Wall Street analysts expect further signs of economic weakness in government reports during the next few weeks.If so, that will cinch the case for another shot of credit-easing within a month or so.That, in turn, is expected to persuade banks to cut their prime lending rate, a benchmark rate on many corporate and consumer loans, by half a percentage point, to 10%. "We're not out of the woods yet by any means," said George R. Mateyo, president and chief executive of Carnegie Capital Management Co., Cleveland.But the economy "is slowing enough to give the Federal Reserve leeway to reduce interest rates." But many individual investors are leery about stocks because of fresh signs of fragility in the huge junk-bond market. Investors also are anxious about today's "witching hour," the monthly expiration of stock-index futures and options, and options on individual stocks.This phenomenon often makes stock prices swing wildly at the end of the trading session. In major market activity: Stock prices surged in heavy trading.Volume on the New York Stock Exchange rose to 198.1 million shares from 166.9 million Wednesday.Gaining Big Board issues outnumbered decliners by 1,235 to 355. The dollar was mixed.In New York late yesterday, it was at 141.70 yen, up from 141.45 yen late Wednesday.But it fell to 1.8470 marks from 1.8485.
Tuesday's rout of a GOP congressional hopeful in a Mississippi district that hasn't backed a Democratic presidential candidate since Adlai Stevenson is another reminder that, at least at the federal level, political "ticket splitting" has been on the rise over the past half century.In only one presidential election year prior to 1948 did more than 20% of the nation's congressional districts choose a different party's candidate for the White House than for the House of Representatives.Now that percentage routinely equals a third and twice has been above 40%. As we know, voters tend to favor Republicans more in races for president than in those for Congress.In every presidential election over the past half century, except for the Goldwater presidential candidacy, the GOP has captured a greater percentage of the major-party popular vote for president than it has of congressional seats or the popular vote for Congress.Prior to 1932, the pattern was nearly the opposite. What accounts for the results of recent decades?A simple economic theory may provide at least a partial explanation for the split personality displayed by Americans in the voting booth.The theory relies on three assumptions: 1) Voters can "buy" one of two brands when they select their political agents -- a Republican brand that believes in the minimalist state and in the virtues of private markets over the vices of public action, and a Democratic brand that believes in big government and in public intervention to remedy the excesses attendant to the pursuit of private interest. 2) Congressional representatives have two basic responsibilities while voting in office -- dealing with national issues (programmatic actions such as casting roll call votes on legislation that imposes costs and/or confers benefits on the population at large) and attending to local issues (constituency service and pork barrel). 3) Republican congressional representatives, because of their belief in a minimalist state, are less willing to engage in local benefit-seeking than are Democratic members of Congress. If these assumptions hold, voters in races for Congress face what in economic theory is called a prisoner's dilemma and have an incentive, at the margin, to lean Democratic.If they put a Republican into office, not only will they acquire less in terms of local benefits but their selected legislator will be relatively powerless to prevent other legislators from "bringing home the bacon" to their respective constituencies.Each legislator, after all, is only one out of 535 when it comes to national policy making. In races for the White House, a voter's incentive, at the margin, is to lean Republican.Although a GOP president may limit local benefits to the voter's particular district/state, such a president is also likely to be more effective at preventing other districts/states and their legislators from bringing home the local benefits.The individual voter's standing consequently will be enhanced through lower taxes. While this theory is exceedingly simple, it appears to explain several things.First, why ticket splitting has increased and taken the peculiar pattern that it has over the past half century: Prior to the election of Franklin Roosevelt as president and the advent of the New Deal, government occupied a much smaller role in society and the prisoner's dilemma problem confronting voters in races for Congress was considerably less severe. Second, it explains why voters hold Congress in disdain but generally love their own congressional representatives: Any individual legislator's constituents appreciate the specific benefits that the legislator wins for them but not the overall cost associated with every other legislator doing likewise for his own constituency. Third, the theory suggests why legislators who pay too much attention to national policy making relative to local benefit-seeking have lower security in office.For example, first-term members of the House, once the most vulnerable of incumbents, have become virtually immune to defeat.The one exception to this recent trend was the defeat of 13 of the 52 freshman Republicans brought into office in 1980 by the Reagan revolution and running for re-election in 1982.Because these freshmen placed far more emphasis on their partisan role -- spreading the Reagan revolution -- in national policy making, they were more vulnerable to defeat. Fourth, the theory indicates why the Republican Party may have a difficult time attracting viable candidates for congressional office.Potential candidates may be discouraged from running less by the congressional salary than by the prospect of defeat at the hands of a Democratic opponent.To the extent that potential Republican candidates and their financial backers realize that the congressional prisoner's dilemma game works to their disadvantage, the Republican Party will be hindered in its attempts to field a competitive slate of congressional candidates. Fifth, the theory may provide at least a partial reason for why ticket splitting has been particularly pronounced in the South.To the extent that Democratic legislators from the South have held a disproportionate share of power in Congress since 1932 and have been able to translate such clout into relatively more local benefits for their respective constituencies, voters in the South have had an especially strong incentive to keep such Democrats in office. Finally, the theory suggests why Republicans generally have fared better in Senate races than in campaigns for the House.Since local benefit-seeking matters more and national policy making matters less in the lower chamber of Congress, this is precisely the pattern one would expect if Republicans are less willing to engage in local benefit-seeking than their Democratic counterparts. Is there any empirical support for this theory?Three pieces of evidence corroborate the key assumption that Democratic legislators are more willing to engage in local benefit-seeking than their Republican colleagues.First, economists James Bennett and Thomas DiLorenzo find that GOP senators turn back roughly 10% more of their allocated personal staff budgets than Democrats do.To the extent that the primary duty of personal staff involves local benefit-seeking, this indicates that political philosophy leads congressional Republicans to pay less attention to narrow constituent concerns. Second, if the key assumption is valid, Democrats should have lower attendance rates on roll-call votes than Republicans do to the extent that such votes reflect national policy making and that participating in such votes takes away from the time a legislator could otherwise devote to local benefit-seeking.This is indeed what the data indicate, particularly in the case of the House.The Democratic House attendance rate has not exceeded the Republican House attendance rate since 1959. Finally, as shown in the table, Democrats allocate a higher proportion of their personal staffs to district offices -- where local benefit-seeking duties matter more and national policy making activities matter less relative to Washington offices.An examination of changes in personal staffing decisions in the Senate between 1986 and 1987 (when control of that body changed party hands), moreover, reveals that the personal staffing differences noted in the table cannot be attributed to the disproportionate control Democrats exercise, due to their majority-party status, over other resources such as committee staff. An additional piece of evidence from the Senate: Holding other factors constant, such as incumbency advantages and regional factors, the difference between popular votes for Republican presidential and senatorial candidates in states conducting a Senate election turns out to be a positive function of how onerous the federal government's tax burden is per state (a progressive tax rate hits higher-income states harder).Put more simply, GOP candidates for president are looked on more kindly by voters than Republican candidates for the Senate when the prisoner's dilemma is more severe. Moreover, ticket splitting appears to take the same peculiar pattern at the state government level as it does at the federal level.State government is more typically split along Republican-governor/Democratic-legislature lines than the reverse.A cross-state econometric investigation, furthermore, reveals that, holding other factors constant, the difference between a state's major-party vote going to the Republican gubernatorial candidate and the Republican share of the lower state house is a positive function of the state tax rate. In sum, at both the federal and state government levels at least part of the seemingly irrational behavior voters display in the voting booth may have an exceedingly rational explanation. Mr. Zupan teaches at the University of Southern California's business school.
A House-Senate conference approved a nearly $17 billion State, Justice and Commerce Department bill that makes federal reparations for Japanese-Americans held in World War II internment camps a legal entitlement after next Oct. 1. The measure provides no money for the promised payments until then, but beginning in fiscal 1991, the government would be committed to meeting annual payments of as much as $500 million until the total liability of approximately $1.25 billion is paid.The action abandons earlier efforts to find offsetting cuts to fund the payments, but is widely seen as a more realistic means of expediting reparations first authorized in 1988. The action came as Congress sent to President Bush a fiscal 1990 bill providing an estimated $156.7 billion for the Departments of Labor, Education, Health and Human Services.Final approval was on a 67-31 roll call in the Senate, which sets the stage for a veto confrontation with Mr. Bush over the issue of publicly financed abortions for poor women. Reversing an eight-year federal policy, the measure supports Medicaid abortions in cases of rape and incest, but Mr. Bush has so far refused to support any specific exemption beyond instances in which the mother's life is in danger.Mr. Bush's veto power puts him a commanding position in the narrowly divided House, but a vote to override his position could well pick up new support because of the wealth of health and education programs financed in the underlying bill. The measure before the conference yesterday funds the Departments of State, Justice and Commerce through fiscal 1990.An estimated $1.32 billion is provided for next year's census, and negotiators stripped a Senate-passed rider seeking to block the counting of illegal aliens. Elsewhere in the Commerce Department, nearly $191.2 million is preserved for assistance programs under the Economic Development Administration.And in a footnote to the fall of House Speaker James Wright this year, the conference voted to rescind $11.8 million in unspent EDA funds for a Fort Worth, Texas, stockyards project that figured in ethics charges against the former Democratic leader. Fiscal pressures also forced the adoption of new fees charged by federal agencies, and an 18% increase in the Securities and Exchange Commission's budget would be financed entirely by an added $26 million in filing fees.In an unprecedented step, the measure anticipates another $30 million in receipts by having the Federal Bureau of Investigation charge for fingerprint services in civil cases -- a change that is almost certain to increase Pentagon costs in processing personnel and security clearances. The bill doesn't include an estimated $1.9 billion in supplemental anti-drug funds for Justice Department and law-enforcement accounts that are still in conference with the House.But yesterday's agreement would make it easier for state governments to handle the promised aid by deferring for one year a scheduled 50% increase in the required state matching funds for law-enforcement grants. Similarly, the measure adjusts the current funding formula to promise smaller states such as New Hampshire and Delaware a minimum allocation of $1.6 million each in drug grants, or three times the current minimum. The odd mix of departments in the bill makes it one of the more eclectic of the annual appropriations measures, and the assorted provisions attached by lawmakers run from $1.5 million for a fish farm in Arkansas to a music festival in Moscow under the United States Information Agency.Lawmakers scrapped all of a $7.4 million State Department request for the 1992 Expo in Seville, Spain, but agreed elsewhere to $15,000 for an oil portrait of former Chief Justice Warren Burger. Senate Commerce Committee Chairman Ernest Hollings (D., S.C.), who also chairs the Senate appropriations subcommittee for the department, attached $10 million for an advanced technology initiative, including work on high-definition television.His Republican counterpart, Sen. Warren Rudman (R., N.H.), has used his position to wage a legislative war with the conservative board of the Legal Services Corp. An estimated $321 million is provided to maintain the program, but Mr. Rudman also succeeded in attaching language seeking to curb the authority of the current board until new members are confirmed.The effective date of any new regulations by the current board would be delayed until Oct. 1 next year, and the bill seeks to reverse efforts by the corporation to cut off funds to service organizations such as the Food Research and Action Center. The bill also provides $620.5 million to meet U.S. contributions to international organizations and $80 million for peace-keeping activities.Both accounts reflect significant increases from fiscal 1989, although the amount for peace-keeping shows a 27% cut from the administration's request.
Watching Congress sweat and grimace through its annual budget labors, fighting the urge to spend more, we're reminded of those late-night movies in which the anguished serial killer turns himself in to police and says, "Stop me before I kill again." The Members know they're doing wrong, but they need help to restrain their darker compulsions. Arkansas Democrat David Pryor spilled his guts on the Senate floor the other day after he'd joined the Finance Committee's early-morning pork-barrel revels: "I must tell you . . . I come to the floor tonight as one who ended up with a busload of extraneous matter.It was nothing more or nothing less than a feeding frenzy." He was turning himself in. "Frankly, as I was walking back to get in my car, I heard many, many people . . . opening champagne bottles and celebrating individual victories that some of us had accomplished in getting our little deal in the tax bill and winking at this person for slipping this in," he said. "As I was driving home, I did not feel very good about myself." We can applaud Mr. Pryor's moment of epiphany, even as we understand that he and his confreres need restraint lest they kill again.A good place to start the rehabilitation is a "legislative line-item veto" bill now being offered by Indiana Senator Dan Coats.The Coats bill, which already has 32 Senate co-sponsors, isn't a pure line-item veto because it would apply only to spending bills.Instead it's a form of "enhanced rescission," giving a President a chance to rescind, or strike, specific spending items that just go too far. Under the proposal, a President would have a chance twice each year to return a package of "rescissions" to the Hill -- once when he proposes his budget and again after Congress disposes.Congress would have 20 days to reject the package with a 50% majority, but then a President could veto that rejection.Congress would then need the usual two-thirds majority to override any veto. The proposal would restore some discipline erased from the budget process by the 1974 Budget "Reform" Act.Before 1974, a President could "impound," or refuse to spend, funds appropriated by Congress.Presidents Kennedy and Johnson were both big users of the impoundment power, but Congress saw its chance against a weakened President Nixon and stripped it away. Today a President can still send up spending rescissions, but they're meaningless unless Congress has a guilty conscience and changes its mind.This is like asking foxes to feel remorse about chickens, and naturally rescissions are almost never approved.In 1987, President Reagan sent 73 rescissions back to the Hill, but only 3% of the spending total was approved by Congress.Senator Coats's proposal would let the proposed spending cuts take place automatically unless Congress acts.The Members could still try to serve their constituents with special-interest goodies, but the police (in the form of a President) would be there with a straitjacket if they really get crazy, as they do now. Mr. Coats plans to offer his proposal as an amendment to a bill to raise the federal debt limit before the end of the month.President Bush has endorsed the idea, and at least 50 sitting Senators have voted to support enhanced rescission authority in the past.We're told Senator Pryor isn't yet a co-sponsor, but if he and his colleagues are serious about kicking their compulsions, they'll sign up.
Business and civic operations lurched back toward normalcy here as congressional officials estimated that the price tag for emergency assistance to earthquake-ravaged California would total at least $2.5 billion. "That is a minimum figure, and I underscore minimum," said House Speaker Thomas Foley (D., Wash.) after conferring with California lawmakers. "It's impossible to put an exact figure on it at this time." The Office of Management and Budget has begun looking into legislation to provide more funds for earthquake repairs.And California's 45-member delegation in the House is expected to propose that emergency funds be added to a stop-gap spending bill that the House Appropriations Committee is to consider Monday. For the most part, major corporations' headquarters and plants were unaffected or only slightly damaged by Tuesday's earthquake, which registered 6.9 on the Richter scale.One of the last big employers in the Silicon Valley to report in, Seagate Technology, said it expects to be back at full strength Monday.The day before the quake, Seagate completed three days of emergency training and drills. Echoing the response of almost all big corporations in the Bay Area, Don Waite, Seagate's chief financial officer, said, "I wouldn't expect this to have any significant financial impact." The city's recovery from the earthquake was uneven.Banks indicated they were operating at greater than 90% of their usual capacity, but a Nob Hill hotel said tourists had fled, leaving the previously full hotel with an 80% vacancy rate.City crews tallied the wreckage to buildings, but lacked a clear sense of how gravely transportation arteries were disabled.Among the city's banks, Bank of America said all but eight of its 850 branches were open.The closed branches, in San Francisco, Hayward, Santa Clara and Santa Cruz, sustained structural damage.Power failures kept just seven of its 1,500 automated-teller machines off-line.Securities-trading operations were moved to Bank of America's Concord office, and foreign-exchange trading operations were shifted to Los Angeles, the bank said. Wells Fargo & Co. said its Emergency Operations Committee -- which met all night Tuesday -- moved its global-funds transfer system to El Monte, Calif., 500 miles to the south.Only five of 496 branches statewide remain closed, while 23 of 600 automated-teller machines remained out of order. The most extensive damage was in small towns near the quake's epicenter, 80 miles south of San Francisco.Santa Cruz County estimates total damage at nearly $600 million.Santa Clara County has a running total so far of $504 million, excluding the hard-hit city of Los Gatos. Oakland officials were still uncertain about the magnitude of structural damage late yesterday; a section of I-880, a twotiered highway, collapsed in Oakland, causing a majority of the deaths resulting from the quake. San Francisco Mayor Art Agnos estimated that damages to the city total $2 billion.That includes dwellings in the ravaged Marina district that must be demolished, peeled business facades south of Market Street, and houses in the city's outer Richmond district that were heaved off their foundations.Many streets and sidewalks buckled, and subterranean water mains and service connections ruptured. The federal funds would go to a range of programs, including the Federal Emergency Management Agency, highway construction accounts and the Small Business Administration, according to Rep. Vic Fazio (D., Calif.). FEMA, which coordinates federal disaster relief, is already strapped by the costs of cleaning up after Hurricane Hugo, which hit the Carolinas last month.It is likely to get as much as $800 million initially in additional funds, and eventually could get more than $1 billion, according to Mr. Fazio, a member of the House Appropriations Committee. White House spokesman Marlin Fitzwater said there is enough money on hand to deal with immediate requirements.The Bush administration has at its disposal $273 million in funds remaining from the $1.1 billion Congress released for the cleanup after Hurricane Hugo. "We feel we have the money necessary to handle the immediate, short-term requirements," Mr. Fitzwater said.He added that the Office of Management and Budget, the Transportation Department and other agencies are "developing longer-term legislation" that should be ready soon. Much of the cost of cleaning up after the earthquake will involve repairing highways and bridges.California lawmakers are seeking changes in rules governing the federal highway relief program so more money can be made available for the state. Some things can't be repaired.The Asian Art Museum in Golden Gate Park reports $10 million to $15 million in damage, including shattered porcelains and stone figures.Its neighbor, the De Young Museum, totaled $3 million to $5 million in structural damage and shattered sculpture. The city's main library is closed because of fissures that opened in its walls, and marble facings and ornamental plaster at the Beaux Arts City Hall broke off in the temblor. The ground along the Embarcaderothe street that skirts the city's eastern boundary and piers -- dropped six inches after the quake, wreaking major damage to at least one of the piers.At San Francisco International Airport, shock waves wrecked the control tower, knocking down computers and shattering glass.Offices of the city's Rent Board were destroyed. Mayor Agnos's $2 billion estimate doesn't include damage to freeway arteries leading into the city, some of which remained closed.A major chunk of the $2 billion is expected to be eaten up by overtime for city workers deployed in the emergency, said a spokesman for Mr. Agnos. "All of the city's $5.9 million emergency reserve was spent in the first 24 hours" on overtime salaries, he said. Insurers struggled to to get a firm grasp on the volume of claims pouring into their offices. At Fireman's Fund Corp., a spokesman said 142 claims were received in the first 24 hours after the quake, and the company is braced for as many as 5,000 claims from its 35,000 residential and 35,000 business policyholders in the affected area. "Claims range from a scratched fender -- and there were an awful lot of cars damaged in this -- to a major processing plant," a spokesman said. "We're delivering a check for $750,000 to an automotive business in Berkeley that burned on Tuesday." Fireman's is part of a $38 million syndicate that supplies business interruption insurance to the city on the Bay Bridge, which must pay employees during the three weeks or more it is expected to be out of service and deprived of toll income. California lawmakers want to eliminate temporarily a $100 million cap on the amount of federal highway relief for each state for each disaster, as well as a prohibition on using the emergency highway aid to repair toll roads. In addition, under the highway-relief program, the federal government provides 100% of emergency highway aid for only the first 90 days of a repair effort.After that, the federal share diminishes.For interstate highways, the federal share normally would drop to 90% of the cost of repairs, and the state would have to pick up the remainder of the cost.But lawmakers want to extend the period for 100% federal funding for several months. Those changes also would apply to two areas hit hard by Hurricane Hugo -- South Carolina and the U.S. Virgin Islands, according to an aide to Rep. Fazio. Meanwhile, the FEMA announced a toll-free telephone number (800-462-9029) to expedite service to victims of the earthquake.Lines will be available 24 hours a day to take applications for such disaster relief as temporary housing and emergency home repairs by phone. Transportation officials are expecting utter traffic pandemonium beginning Monday and growing worse over the next several weeks.Some 250,000 cars normally cross the closed Bay Bridge between Oakland and San Francisco daily.Officials say it is clear that alternate routes can't handle the overflow. The state is calling in a flotilla of navy landing vessels and other boats to expand ferry service across the bay and hopes to add numerous new bus routes and train departures to help alleviate the traffic problem.Moreover, state officials are urging freight haulers to bypass many of the area's main highways and to travel late at night or during predawn hours.Even so, "We're looking for chaos," said George Gray, a deputy district director at the California Department of Transportation. "If there's any way you can do it, you ought to go to Idaho and go fishing for a while." Most of San Francisco's tourists and business travelers already have left -- despite hotel's offers of rate cuts. "Everyone left," said Peter Lang, reservations manager of the Mark Hopkins Hotel. The Westin St. Francis hotel, which survived the 1906 earthquake and fire, currently is less than 50% occupied. "We still have our die-hard baseball fans," a spokesman said. "One lady from New York said she's not going home until the {World Series} is over." Gerald F. Seib and Joe Davidson in Washington contributed to this article.
Is an American Secretary of State seriously suggesting that the Khmer Rouge should help govern Cambodia?Apparently so.There are no easy choices in Cambodia, but we can't imagine that it benefits the U.S. to become the catalyst for an all-too-familiar process that could end in another round of horror in Cambodia. Now that Vietnam appears to have pulled out its occupation army, the State Department is talking again about accepting an "interim" coalition government in the Cambodian capital of Phnom Penh.The coalition would include the current Vietnamese-backed Hun Sen regime, the two non-communist resistance groups led by Son Sann and Prince Sihanouk, and the Khmer Rouge.The aim would be to end the guerrilla war for control of Cambodia by allowing the Khmer Rouge a small share of power.The State Department says that any Khmer Rouge participation would have to be "minimal." The usual problem with including communists in "interim" coalition governments is that their ideology and methods require they squeeze out everyone else.Recall that Nicaragua's Sandinistas came into Managua as partners in a coalition government with anti-Somoza moderates.Within two years, the moderates were exiled or in prison, Nicaragua had gone communist, and the Sandinistas were building one of the biggest armies in Latin America and threatening their neighbors.In Laos, when the Western powers bowed to pressure for such a coalition it turned out they were opening the door to communist domination.Even Mao Tse-tung's China began in 1949 with a partnership between the communists and a number of smaller, non-communist parties. What complicates the scene in Cambodia is that the current regime is already communist, as are its Vietnamese overseers back in Hanoi, as are the Khmer Rouge -- who are the strongest of the three guerrilla groups.It's not clear which crew of communists might prevail in a coalition government, but the one good bet is that the non-communists would disappear.That would leave Hun Sen and the Khmer Rouge. The Hun Sen regime has sent thousands of conscript laborers to die of malaria and malnourishment while building Cambodia's equivalent of the Berlin Wall near the Thai border.The Khmer Rouge, however, carry an unsurpassed record for Cambodian tyranny.These utopians caused the deaths -- by starvation, disease or execution -- of well over one million Cambodians.The Cambodian horror was so bad that the Vietnamese occupation in 1978 was a perverse form of relief. The world might want to believe that the Khmer Rouge can't still be such bad guys, just as in the late 1970s it was reluctant to credit the reports of genocide then taking place.But there is no solid evidence that the Khmer Rouge have changed.Some of our sources in Thailand say the notorious old Khmer Rouge leader, Pol Pot, has been holed up this summer in Khmer Rouge camps near the Thai-Cambodian border. So it's difficult to swallow the notion that Mr. Baker is willing to accept conditions that would help the Khmer Rouge set up shop again in Phnom Penh.True, Prince Sihanouk backs the idea of such a coalition, at least for this week.But Prince Sihanouk has backed all sorts of ideas over the years, and done rather better by himself than by Cambodia.Nor should the U.S. worry much about offending China, which still aids the Khmer Rouge.It's time the State Department recognized that China does not play by gentlemen's rules. For the U.S. to lend even the slightest support to the most infamous killers on Indochina's bleak scene could only disturb America's allies elsewhere.It would be entirely rational for communist insurgents in countries such as the Philippines or Peru to conclude the following: Fight viciously enough and the U.S., under the banner of pragmatism, might eventually help negotiate your way to victory.U.S. diplomacy has done it before, and it will likely do it again. The administration and Congress have lately tangoed around the idea of sending military aid to Cambodia's non-communists.But now the possibility of "diplomatic movement" (Vietnam's withdrawal, the Baker initiative) has put that plan on hold, with the proviso that if the going got rough, the U.S. would then rearm the opposition.Why the timidity?At the very least, the odds are heavily weighted against the prospects of preventing the Khmer Rouge and Cambodia's communists from ultimately moving against their opponents.When that day comes, it would be particularly awful to know that the United States sat on military aid and deprived these people of the means to settle their fate with at least a little honor.
Cipher Data Products Inc. posted a net loss of $14.2 million, or 97 cents a share, for its fiscal first quarter, compared with net income of $3.8 million, or 27 cents a share, a year ago. Revenue for the quarter ended Sept. 30 fell 20%, to $41.3 million from $51.9 million in the year-earlier period. Cipher Data, a San Diego maker of magnetic tape peripherals and optical disc drives, said the loss included reserves of $3.8 million related to a corporate restructuring. The restructuring calls for a 24% reduction in its work force over the next two months, affecting about 525 jobs, Cipher Data said.It is eliminating the positions of president and chief operating officer, formerly held by Edward L. Marinaro. Cipher Data said Mr. Marinaro consequently has resigned from those posts and from the company's board.Mr. Marinaro couldn't immediately be reached for comment.
The scene opens with pinstripe-suited executives -- Easterners, obviously -- glued to cellular phones and hightailing it out of town in chauffeur-driven limousines. "The carpetbaggers," snorts the narrator with a Texas twang, "have packed their bags and went." But, he continues, "They're forgetting we're all Texans.The Lone Star is on the rise again." As the music swells, viewers discover they're watching a commercial for Lone Star Beer, the pride of Texas, a product of G. Heileman Brewing Co., a La Crosse, Wis., unit of Bond Corp. As the ad's tone implies, the Texas spirit is pretty xenophobic these days, and Lone Star isn't alone in trying to take advantage of that.From Chevy trucks to Lipton iced tea to a host of battling banks, the state has been inundated with broadcast commercials and print advertising campaigns celebrating Texans and castigating outsiders. While advertisers have long appealed to Texans' state pride and prejudices, the latest trend has been sparked, in part, by the state's recent hard economic times.That has taken some of the swagger out of natives who like to brag that Texas is the only state that was once a nation, but it has increased their legendary resentment of outsiders.In the past, writes Houston Chronicle columnist Jim Barlow, outlanders were accepted only after passing a series of tests to prove they had the "right" Texas attitudes and "of course they had to be dipped for parasites." There is no small irony in the fact that some of the most-jingoistic advertising comes courtesy of -- you guessed it -- outsiders.Lone Star's Bond Corp. parent, for instance, hails from Perth, Australia.North Carolinians, New Yorkers, Californians, Chicagoans and Ohioans own Texas banks.All kinds of landmark Texas real estate has been snapped up by out-of-staters.Even the beloved Dallas Cowboys were bought by an Arkansas oil man. "Texas has lost its distinctiveness, leaving Texans with a hunger to feel proud about themselves," says Stephen Klineberg, a sociology professor at Rice University, Houston. "This plays right into the hands of the advertising agencies." For example, the iced-tea radio campaign for Thomas J. Lipton Co., an Englewood Cliffs, N.J., unit of Anglo-Dutch Unilever Group, emphatically proclaims: "Real Texans do not wear dock-siders -- ever.Real Texans don't play paddleball, at least I hope not.This is football country.And another thing -- real Texans drink Lipton iced tea." In developing that theme at Interpublic Group of Cos. ' Lintas: New York unit, account supervisor Lisa Buksbaum says she made a "couple of phone calls" to Dallas ad friends and reported her "findings" to a team of writers.Her findings? "You know," she says, "stereotypical stuff like armadillos, cowboys and football." Not exactly sophisticated market research, but who cares as long as the campaigns work.And ad agencies insist that they do.Stan Richards of Richards Group Inc., Dallas, tells of the Texan who saw the agency's tear-jerking commercial for First Gibraltar Bank F.S.B. -- complete with the state's anthem -- and promptly invested $100,000 in the thrift's CDs.Never mind that First Gibraltar is one of the failed Texas thrifts taken over by outsiders -- in this case, an investor group headed by New York financier Ronald Perelman. The North Texas Chevy Dealers recently had a record sales month after the debut of ad campaign that thumbs its nose at elite Easterners.And deposits at NCNB Texas National Bank, a unit of NCNB Corp., Charlotte, N.C., have increased $2 billion since last year after heavy advertising stressing commitment to Texas. "Obviously, pride sells in Texas," says a spokeswoman for Bozell Inc., Omaha, Neb., which represents The ad campaigns usually follow one of three tracks -- stressing the company's `Texasness, ' pointing out the competition's lack thereof, or trying to be more Texan than Texans.Ford trucks may outsell Chevy trucks in places like "Connecticut and Long Island," sniffs a commercial for Chevrolet, a division of General Motors Corp.The commercial, created by Bateman, Bryan & Galles Inc., of Dallas, adds derisively: "I bet it takes a real tough truck to haul your Ivy League buddies to the yacht club." Because they want a truck that is "Texas tough," the commercial concludes, "Texans drive Chevy." J.C. Penney Co., which relocated from New York to suburban Dallas two years ago, gently wraps itself in Texas pride through a full-page magazine ad: "Taking the long-range view to conserve what is of value to future generations is part of the Lone Star lifestyle," the ad reads. "It's part of our style, too." According to several ad-agency sources, newcomers to the Texas banking market are spending a combined $50 million this year to woo Texans.Meanwhile, surviving Texas banking institutions are busily pitching themselves as the only lenders who truly care about the state. The most-strident anti-outsider sentiment among bankers comes from the Independent Bankers Association of Texas, although it's hard to tell from previews of the $5 million "The I's of Texas" TV campaign.Commercials will highlight heart-rending scenes of Texas and chest-swelling, ain't-it-great-to-be-a-Texan music.Supporting banks will sign a "Texas Declaration of Independents." But in introductory material for the campaign, the trade group urges members to "arm" for a "revolution" against big, out-of-state bank-holding companies.A video sent to association members, featuring shots of the Alamo, cowboys, fajitas and a statue of Sam Houston, doesn't mince words. "Texans can sniff a phony a mile away," the narrator warns outsiders. "So, don't come and try to con us with a howdy y'all or a cowboy hat." Young & Rubicam's Pact Young & Rubicam, fighting charges that it bribed Jamaican officials to win the Jamaica Tourist Board ad account in 1981, said it will no longer create the tourist board's advertising. In a statement, Alex Kroll, Young & Rubicam's chairman, said "under the present circumstances {we} have agreed that it is prudent to discontinue that contract." Young & Rubicam has pleaded innocent to the charges.The board wouldn't comment on its impending search for a new ad agency to handle its estimated $5 million to $6 million account. Ad Notes. . . . NEW ACCOUNT: Sunshine Biscuits Inc., Woodbridge, N.J., awarded its estimated $5 million account to Waring & LaRosa, New York.The account had been at Della Femina McNamee WCRS, New York. MEDIA POLICY: MacNamara Clapp & Klein, a small New York shop, is asking magazine ad representatives to tell it when major advertising inserts will run in their publications.It says it may pull its clients' ads from those magazines. COKE ADS: Coca-Cola Co. said it produced a new version of its 1971 "I'd like to teach the world to sing" commercial.The ad is part of Classic Coke's 1990 ad campaign, with the tag line, "Can't beat the Real Thing." Basketball star Michael Jordan and singer Randy Travis have also agreed to appear in ads.
Dell Computer Corp., squeezed by price pressure from its larger competitors and delays in its new product line, said its per-share earnings for fiscal 1990 will be half its previous forecasts. Although the personal computer maker said it expects revenue to meet or exceed previous projections of $385 million for the year ending Jan. 28, 1990, earnings are expected to be 25 cents to 35 cents a share, down from previous estimates of 50 cents to 60 cents.Earnings for fiscal 1989 were $14.4 million, or 80 cents a share, on sales of $257.8 million. Results for the third quarter ending Oct. 31, are expected to be released the third week of November, according to Michael Dell, chairman and chief executive officer.Mr. Dell said he doesn't expect a loss in either the third or fourth quarter, but said third-quarter earnings could be as low as four cents a share.In the third quarter last year, Dell had net income of $5 million, or 26 cents a share, on sales of $75.2 million. Mr. Dell attributed the earnings slide to new product delays, such as a laptop scheduled for September that won't be introduced until early November.Some delays have been caused by a shortage of micoprocessors -- notably Intel Corp. 's newest chip, the 486 -- but others apparently have been caused by Dell's explosive growth and thinly stretched resources. "They've got a lot of different balls in the air at the same time," observes Jim Poyner, a computer securities analyst with Dallas-based William K. Woodruff & Co. Mr. Dell, meanwhile, concedes the company was "definitely too optimistic" in its expectations. Product delays, however, have left Dell buffeted by harsher competition in its bread-and-butter line of desktop computers, as powerhouse competitors Compaq Computer Corp. and International Business Machines Corp. price their PCs more aggressively.The result has been thinner margins, which have been further eroded by an ambitious research and development effort and rapid overseas expansion. Analyst James Weil of the Soundview Financial Group believes Dell's response has been to place increased emphasis on product quality, "in an effort to rise above some of that price pressure." But that has been the key to Compaq's success, he adds, whereas Dell carved out its market niche as a direct seller of low-cost but reliable computers -- and it might be too late in the game for a shift in strategy. In national over-the-counter trading, Dell closed yesterday at $6 a share, down 87.5 cents.
Tuesday's earthquake will depress local real-estate values in the short term and force companies to reconsider expanding in or relocating to the Bay Area and California, real-estate and relocation specialists said. Few specialists said they expect the quake to have much of an effect on most California property values.But real-estate experts and brokers said the quake undoubtedly will drag down prices in neighborhoods built on less stable ground, especially in the Bay Area. "California prices were already coming down.This isn't going to help," said Kenneth T. Rosen, chairman of the Center for Real Estate and Urban Economics at the University of California at Berkeley.State housing prices, at a median $201,028, have declined in recent months because of potential buyers' inability to afford homes. Mr. Rosen, among others, suggested that the quake, the strongest since the 1906 temblor that struck San Francisco, will in the short term create a two-tier price system for quake-prone communities, with dwellings built on sturdy ground likely to demand higher prices. One San Francisco neighborhood likely to test Mr. Rosen's theory soon is the city's fashionable Marina district, which boasts some of the highest home prices in the state.The district, built on landfill, suffered heavy quake damage, including collapsed buildings.Yesterday, the city demolished two dwellings in the district because of severe structural damage and said as many as 19 of the district's 350 dwellings might have to be razed. Brokers agreed with the two-tier price theory. "My gut feeling is that the Marina properties will be affected," said Grace Perkins, senior vice president at Grubb & Ellis Residential Brokerage Inc. Neither she nor other real-estate executives and brokers could project how much less Marina properties might bring, but she said the two-tier price structure would affect prices "for a while." Mr. Rosen said the quake will revive consumer interest in a little-publicized 1972 state law that requires brokers to disclose to potential buyers how close a property sits to a fault line. Because of the size of the California market, few relocation specialists expect a widespread corporate flight in the quake's aftermath.But they said the quake will force some companies to relocate or expand part or all of their operations outside the state. "What you're going to get is 'We don't want to put all of our eggs in one basket' theory," said James H. Renzas, president of Location Management Services Inc., a Palo Alto, Calif., relocation concern. Mr. Renzas, among others, said the quake will prod companies in certain industries, like semiconductors, computers and aerospace, to consider moving operations that involve particularly sensitive machinery to locations outside California.Because of the quake threat, "some firms have evaluated what the cost is to shore up their buildings and compared it with the cost of building it elswehere," he said. One Southern California aerospace firm, for example, two months ago asked Location Management to compare the costs of reinforcing its current building against earthquakes with the cost of building a new structure elsewhere.A new dwelling would cost $21 million, Location Management found, compared with $22 million to make the present building earthquake-proof.The company, Mr. Renzas said, hasn't yet determined what to do.
International Business Machines Corp. and MCA Inc. said they agreed to sell their Discovision Associates joint venture to U.S. units of Pioneer Electronic Corp. for $200 million. The joint venture licenses a portfolio of about 1,400 patents and patent applications relating to optical-disk recording technology. IBM and MCA formed Discovision in 1979 to make laser-read optical products.But the partners didn't believe the market for the systems was developing as rapidly as they had hoped.After reportedly investing $100 million in the business, Discovision ceased manufacturing operations in 1982 and sold many of its assets to Tokyo-based Pioneer, among others. Discovision now has world-wide license agreements with major manufacturers covering CD audio disks, audio disk players, videodisks and videodisk players.It also licenses optically based data storage and retrieval devices. James N. Fiedler, president of Discovision and a vice president of MCA, said that IBM and MCA hadn't planned to sell the joint venture, which is now profitable, but that Pioneer approached Discovision earlier this year.He said it isn't certain whether Discovision's current management will remain when Pioneer buys the company. The agreement is contingent on certain government approvals and should be completed later this year.
Tokyo stocks closed higher in moderately active but directionless trading as the recent anxiety in world stock markets continued to fade. London shares also closed firmer in thin trading driven largely by technical factors and support from a new Wall Street rally.Prices also rose on almost every other major exchange in Europe, Asia and the Pacific. Tokyo's Nikkei index of 225 issues, which gained 111.48 points Wednesday, climbed 266.66, or 0.76%, to 35374.22.Volume on the first section was estimated at 800 million shares, compared with 841 million Wednesday.Winners outnumbered losers 645-293, with 186 issues unchanged. In early trading in Tokyo Friday, the Nikkei index rose 170.65 points, to 35544.87. On Thursday, the Tokyo Stock Price Index of all issues listed in the first section, which gained 0.24 point Wednesday, was up 22.78, or 0.86%, at 2665.66. The morning session was dominated by individuals and dealers, but some institutions participated in the afternoon, encouraged by the market's firmness, traders said.Sentiment was helped by the small gain made by New York stocks Wednesday despite anxiety over possible effects of the major earthquake that struck northern California Tuesday. Having survived both last Friday's 6.9% Wall Street plunge and the immediate aftermath of the San Francisco Bay area earthquake, Tokyo market participants expressed relief that trading had returned to normal. Hiroyuki Murai, general manager of the stock trading division at Nikko Securities, said that after looking at the reasons for Friday's Wall Street plunge, participants realized that the Tokyo and New York markets have different economic fundamentals.This conclusion, he said, restored the credibility of Tokyo stocks. Yoshiaki Mitsuoka, head of the investment information department at Daiwa Investment Trust & Management, said that if New York stocks just fluctuate in or near their current range, the Tokyo market will remain firm with a moderately upward trend for the rest of the year. But traders said the market lacks a base on which to set long-term buying strategy, as the future direction of U.S. interest rates remains unclear. "Investor interest switches back and forth ceaselessly as they are unable to shift their weight to one side for sure," Mr. Mitsuoka of Daiwa Investment Trust said. Many of Wednesday's winners were losers yesterday as investors quickly took profits and rotated their buying to other issues, traders said. Pharmaceuticals made across-the-board advances.Fujisawa Pharmaceutical gained 130 to 1,930 yen ($13.64) a share, Mochida Pharmaceutical was up 150 at 4,170, and Eisai advanced 60 to 2,360. Housing issues were boosted by a report that Daiwa House expects to post 43% higher earnings for its latest fiscal year, traders said.Daiwa House advanced 100 to 2,610, Misawa Homes was up 60 at 2,940, and Sekisui House gained 100 to 2,490. Leading construction companies also attracted interest for their strong earnings outlooks, traders said.They and many other major Japanese corporations will issue results soon for the fiscal first half ended Sept. 30.Ohbayashi was up 60 to close at 1,680, Shimizu gained 50 to 2,120, and Kumagai-Gumi advanced 40 to 1,490. Other winners included real estate issues Mitsubishi Estate, which closed at 2,500, up 130, and Mitsui Real Estate Development, which gained 100 to 2,890. Steel shares fell back after advancing for three days.Kawasaki Steel was down 11 at 788, Kobe Steel lost 5 to 723, and Nippon Steel slipped 6 to 729. Mitsubishi Rayon, a leading advancer Wednesday, fell 44 to 861 as investors grabbed profits. London's Financial Times-Stock Exchange 100-share index finished 19.2 points higher at 2189.3.The Financial Times 30-share index ended 13.6 higher at 1772.1.Volume continued to ease from the active dealings at the start of the week.Turnover was 382.9 million shares, compared with 449.3 million Wednesday. Dealers said the market was underpinned by a squeeze in FT-SE 100 stocks, particularly among market-makers seeking shares that had been hit hard in recent weeks, such as retailers and building-related concerns. But despite the flurry of interest in those shares, dealers said, the market remains nervous about Wall Street's volatility and high U.K. interest rates. U.K. money supply figures for September, released yesterday, showed continued growth in corporate and personal lending, which will keep pressure on the government to maintain tight credit. Among the stocks featured in the market-makers' squeeze was Sears, which closed at 107 pence ($1.70) a share, up 3. General Universal Stores, another top-tier stock hit recently by concerns over retail demand in the face of high interest rates, gained 20 to #10.44.Storehouse gained 2 to Another active FT-SE 100 stock was clothing and furniture retailer Burton, which gained 6 to 196. Insurers recovered ground again on market-maker demand and speculative buying linked to talk of mergers in the industry before the European Community's planned market unification in Royal Insurance was the sector's hottest issue, ending 15 higher at 465.Sun Alliance fell 1 to close at 289, and General Accident jumped 10 to #10.13. B.A.T Industries surged in afternoon dealings after its shareholders approved a plan to dispose of its U.S. and U.K. retailing operations to fend off Hoylake Investment's #13.4 billion ($21.33 billion) hostile bid.With the company also exercising a plan to buy back as many as 10% of its shares outstanding, B.A.T closed at 783, up 27.Turnover was 6.8 million shares, including about four million shares traded in the afternoon after the shareholders' meeting.B.A.T said it purchased 2.5 million shares at 785. In other European markets, shares closed sharply higher in Stockholm, Frankfurt, Zurich and Paris and higher in Milan, Amsterdam and Brussels.South African gold stocks closed firmer. Prices also closed higher in Singapore, Sydney, Taipei, Wellington, Hong Kong and Manila but were lower in Seoul. Here are price trends on the world's major stock markets, as calculated by Morgan Stanley Capital International Perspective, Geneva.To make them directly comparable, each index is based on the close of 1969 equaling 100.The percentage change is since year-end.
The federal response to California's earthquake crisis was marred by coast-to-coast name-calling between the White House and San Francisco's Mayor Art Agnos. Mr. Agnos complained that he was "ticked off" that Vice President Dan Quayle, who toured the earthquake site Wednesday, didn't schedule a private meeting with him.The mayor said the Quayle visit was "a publicity stunt." The White House said Mr. Quayle's staff had invited the mayor to two meetings of the vice president and groups of local officials and had offered to dispatch a helicopter to pick him up.Mr. Agnos declined the invitations, the White House said. Marlin Fitzwater, White House press secretary, also asserted that Mr. Agnos had failed to return telephone calls from John Sununu, White House chief of staff. "We regret very much that the mayor of San Francisco has decided not to cooperate with us on this matter in making sure that there is adequate federal support for the disaster in his city," Mr. Fitzwater said. By late yesterday, both sides appeared prepared to bury the hatchet.The White House announced that Mr. Agnos, along with the mayors of Oakland and Alameda, are to accompany President Bush on a tour of the earthquake area today.And one White House official reported that Mr. Agnos had been "very helpful" in making arrangements for Mr. Bush's hastily scheduled trip to California.
Gold and silver broker Preston Semel asked a federal court to halt the Commodity Exchange from imposing a record $550,000 fine on his firm. The suit, filed in federal court in Manhattan, also asks that the Comex's nine-month suspension of Mr. Semel be lifted, pending the broker's appeal of the disciplinary measures.The fine and suspension, announced in August, are the stiffest sanctions the Comex has ever ordered against one of its members. The Comex accused the 39-year-old Mr. Semel of "fraudulent conduct" and improper trading.The disciplinary proceedings stem from trading in April 1987. Mr. Semel and his firm, Semel & Co., have appealed the Comex decision and the sanctions to the Commodity Futures Trading Commission.The commission denied Mr. Semel's request that the fine and suspension be delayed pending the appeal. The lawsuit states that unless the sanctions are halted pending an appeal, the broker and his firm "will be irreparably injured and their business will be totally and permanently destroyed." Already the firm has paid $211,666 of the fine, the suit said, and it will have to liquidate additional assets in order to pay the rest. A spokesman for the Comex couldn't be reached to comment.
Robert M. Gintel, senior partner of a Greenwich, Conn., investment firm, said he plans to launch a proxy fight against the board of Boston-based Xtra Corp. Mr. Gintel, head of Gintel & Co., said he plans to conduct a proxy contest to elect a majority of Xtra's board at the next annual stockholders meeting.Xtra, a transportation leasing company, said in a statement it would have no comment on Mr. Gintel's plans until "further information has been disclosed by him." The company also said its 1990 annual meeting has not been scheduled. Mr. Gintel owns 300,000 of the company's 6.3 million common shares outstanding.Xtra said it recently bought back approximately 55,000 of its shares pursuant to its existing authorization to acquire as many as 650,000 shares. Mr. Gintel has filed suit in Delaware Chancery Court, seeking to block Xtra's anti-takeover tactic. In a filing with the Securities and Exchange Commission, Mr. Gintel said Xtra "has pursued business strategies that aren't in the best interest of stockholders."
AFTERSHOCKS RATTLED Northern California amid an earthquake cleanup. As power and commuters returned to much of downtown San Francisco for the first time since Tuesday's temblor in the Bay area, three strong aftershocks, one measuring 5.0 on the Richter scale, jolted the region.Serious injuries or damages weren't reported.Californians, meanwhile, tried to cope with still-limited services, blocked roadways and water shortages in the aftermath of the tremor that left scores dead and injured.Thousands remained homeless.Bush is to visit the area today, and officials in Washington estimated that emergency assistance would total at least $2.5 billion. A series of earthquakes struck northern China, killing at least 29 people, injuring hundreds and razing about 8,000 homes, the Xinhua News Agency said. The Senate rejected a constitutional amendment sought by Bush to prohibit desecration of the U.S. flag.While the proposal won a slight majority, the 51-48 vote was well short of the two-thirds needed to approve changes in the Constitution.It was considered a victory for Democratic leaders, who favor a law barring flag burning. The House approved an $837 million aid package for Poland and Hungary, nearly double what Bush had requested.The vote of 345-47 sent the measure to the Senate. Britain's chief justice quashed the murder convictions of four people for Irish Republican Army bombings that killed seven people in 1974.The reversal came after the government conceded that investigators may have faked evidence.The "Guildford Four," three Irishmen and an Englishwoman, have been imprisoned since 1975. The Nobel Prize in literature was won by Camilo Jose Cela, a Spanish writer.His 1942 novel "The Family of Pascual Duarte" is considered the most popular work of fiction in Spanish since Cervantes's "Don Quixote" was published 400 years ago.The Swedish Academy in Stockholm cited the 73-year-old Cela for "rich and intensive prose." The editor of Pravda was dismissed and succeeded by a confidant of Soviet leader Gorbachev.The action at the Communist Party daily, viewed as the Soviet Union's most authoritative newspaper, was considered the most significant development in a week of Kremlin wrangling over the press, including sharp criticism from Gorbachev. East Germany's new leader met with Lutheran Church officials to discuss a growing opposition movement demanding democratic freedoms.As they conferred near East Berlin, a pro-democracy protest erupted in the Baltic city of Greifswald, and activists threatened further rallies against leader Krenz's expected hard-line policies. Police in Prague raided an international meeting on human rights, detaining Czechoslovakia's former foreign minister, Jiri Hajak, and 14 other activists.A leading U.S. human-rights monitor also was briefly held.Dissident playwright Vaclav Havel reportedly escaped the crackdown, the fourth against activists in recent days. Bush met in Washington with Spain's Prime Minister Gonzalez and discussed what the president called "the unique role" that Madrid can play in furthering democracy in Eastern Europe and Latin America.Gonzalez, who pledged to help monitor voting in Nicaragua, was said to be carrying proposals for free elections in Panama. The Galileo spacecraft sped unerringly toward the planet Jupiter, while five astronauts aboard the space shuttle Atlantis measured the Earth's ozone layer.The robot probe was dispatched Wednesday by the shuttle crew, which is to conduct a series of medical and other experiments before their scheduled landing Monday in California. Argentina and Britain agreed to resume diplomatic and economic relations, seven years after the two nations battled over the Falkland Islands.The announcement, in which they said hostilities had ceased, followed a two-day meeting in Madrid. Rebel artillerists bombarded the capital of Afghanistan, killing at least 12 people, as the Soviet Union was reported to be airlifting arms and food to Kabul's forces.Fighting also was reported around the strategic town of Khost, near the Pakistani border. Saudi Arabia's foreign minister met in Damascus with President Assad to develop a plan for the withdrawal of Syria's 40,000 troops from Lebanon as part of a settlement of that nation's 14-year-old civil war.The talks came as Lebanese negotiations on political changes appeared deadlocked. GOP Sen. Specter of Pennsylvania said he would vote to acquit federal Judge Alcee Hastings in his impeachment trial on charges of perjury and bribery conspiracy.Specter, the vice chairman of the Senate's evidence panel, said there was "insufficient evidence to convict" the Miami jurist.
After slipping on news of a smaller-than-expected U.S. inflation figure, the dollar rebounded later in the trading day. The U.S. unit dipped to a session low against the mark just after the release of the U.S. consumer price index.The report showed that September consumer prices rose just 0.2%, a smaller increase than expected.The market had anticipated a 0.4% rise in the price index. The September index fueled speculation, damaging to the dollar, that the Federal Reserve soon will ease monetary policy further. But foreign-exchange dealers said the dollar staged a quick comeback, prompted by a round of short covering and some fresh buying interest later in the trading day. Traders said that a nearly 40-point gain in the Dow Jones Industrial Average, fueled in part by news of a lower-than-expected price index, had little influence on the dollar's moves. "The market is beginning to disassociate itself from Wall Street," said one New York trader. In late New York trading yesterday, the dollar was quoted at 1.8470 marks, down from 1.8485 marks late Wednesday, and at 141.70 yen, up from 141.45 yen late Wednesday.Sterling was quoted at $1.5990, up from $1.5920 late Wednesday. In Tokyo Friday, the U.S. currency opened for trading at 141.93 yen, up from Thursday's Tokyo close of 141.55 yen. Some analysts said the consumer price index reflects a more significant slowdown in the U.S. economy than earlier indicated.They point out that September's producer-price index showed a 0.9% increase. They noted that because the consumer price index, known as the CPI, is a more comprehensive measure of inflation and is rising less rapidly than the producer-price index, or PPI, it could signal further easing by Fed. Others suggested, however, that the Fed will hold any changes in monetary policy in check, leaving fed funds at around 8 3/4%, down from the 9% level that prevailed from July through September. Kevin Logan, chief economist with the Swiss Bank Corp., said that both PPI and CPI climbed around 4 1/2% year-to-year in September.He argued that both CPI and PPI have in fact decelerated since spring. "The Fed won't be stampeded into easing," Mr. Logan said, predicting that for now, interest rates will stay where they are. A four-day matched sale-purchase agreement, a move to drain liquidity from the system, was viewed as a technical move, rather than an indication of tightening credit. Market participants note that the mark continues to post heftier gains against its U.S. counterpart than any other major currency, particularly the yen. "There's a bottomless pit of dollar demand" by Japanese investors, said Graham Beale, managing director of foreign exchange at Hongkong & Shanghai Banking Corp. in New York, adding that purely speculative demand wouldn't hold the dollar at its recent levels against the Japanese currency. Mr. Beale commented that the mark remains well bid against other currencies as well. Robert White, manager of corporate trading at First Interstate of California, called the market "psychologically pro-mark," noting that the U.S. remains a "veritable grab bag" for Japanese investors which accounts for the unabated demand for U.S. dollars. On the Commodity Exchange in New York, gold dropped $1.60 to $367.10 an ounce in moderate trading.Estimated volume was three million ounces. In early trading in Hong Kong Friday, gold was at about $366.85 an ounce.
STOCKS AND BONDS SURGED on the second anniversary of Black Monday as a favorable inflation report prompted speculation of lower interest rates.The Dow Jones industrials closed up 39.55, at 2683.20, after rising over 60 points in mid-afternoon.The rally brought the gain so far this week to about 114 points.The dollar finished mixed, while gold declined. Consumer prices climbed a moderate 0.2% in September, mostly due to higher clothing costs.Energy prices continued to fall at the retail level, but economists worried about a big rise in wholesale energy costs. British Airways dropped out of the current bidding for United Air's parent, leaving a UAL management-pilots group without a key partner.British Air's move raised new questions about the buy-out group's efforts to revive a stalled bid for UAL. A capital-gains tax-cut plan was dropped by Senate Democrats under pressure from their leadership.The move is a setback for Bush, who needs Democratic support to pass a capital-gains cut in the Senate. Other tax breaks also are likely to be restored or created in the coming months as special interest groups try to undo the 1986 tax overhaul. Many retailers are worried that a price war could erupt this Christmas if cash-strapped firms such as Campeau slash prices to spur sales. AT&T unveiled a sweetened early retirement plan for management that the company hopes will save it $450 million in the next year.Also, profit rose 19% in the third quarter. Chrysler will idle a Toledo assembly plant temporarily due to slowing sales of its profitable Jeep Cherokee and Wagoneer sport utility vehicles. Digital Equipment's profit fell 32% in the latest quarter, prompting forecasts of weaker results ahead.Analysts were troubled by signs of flat U.S. orders at the computer maker. IBM plans to unveil over 50 software products on Tuesday to try to end some of the problems in computerizing manufacturing operations. The TV units of Paramount and MCA are exploring offering prime-time programming to independent stations two nights a week. BankAmerica's profit jumped 34% in the third quarter.The rapid recovery continued to be fueled by growth in consumer loans, higher interest margins and only minor loan losses. Big Board short interest fell 4.2% for the month ended Oct. 13, the second decline in a row.Borrowed shares on the Amex rose to another record. Bell Atlantic posted a strong earnings gain for the third quarter, as did Southern New England Telecommunications.But Nynex, Pacific Telesis and U S West had lower profits. B.A.T Industries won shareholder approval for a defensive restructuring to fend off Sir James Goldsmith. American Express's profit climbed 21% in the quarter, aided by a surge in its travel business and despite a big rise in Third World loan reserves. Markets -- Stocks: Volume 198,120,000 shares.Dow Jones industrials 2683.20, up 39.55; transportation 1263.51, up 15.64; utilities 215.42, up 1.45. Bonds: Shearson Lehman Hutton Treasury index 3398.65, up Commodities: Dow Jones futures index 130.13, up 0.23; spot index 130.46, up 0.10. Dollar: 141.70 yen, up 0.25; 1.8470 marks, off 0.0015.
H&R Block is one of the great success stories of U.S. business.Oddly enough, this presents a problem for the stock. Some money managers are disenchanted with H&R Block because they suspect the company's glory days are past, or at least passing.Block's tax-preparation business is mature, they say, and some of its diversifications are facing tough competition. It's no secret that Block dominates the mass-market tax-preparation business.The Street knows all about the predictability of its earnings, which are headed for a ninth consecutive yearly increase.The company has consistently earned more than a 20% annual return on its net worth while many companies would be happy with 15%. But the tax-preparation business simply has no more room to grow, says Mark Cremonie, director of research for Capital Supervisors Inc., a Chicago firm that manages $6.5 billion. "You go to any medium-sized town in the U.S. and you're going to see H&R Block tax services." Mr. Cremonie's firm once held about 4.8% of H&R Block.That was before the 1986 tax "reform" made taxes more complex than ever. "One thing you can bet on," he says, "is that Congress will do stupid things with the Tax Code." But Capital Supervisors sold the last of its H&R Block holdings earlier this year. "They're thrashing around for diversification," he says. "I think a lot of their businesses are just so-so." Last week the stock hit an all-time high of 37 1/4 before getting roughed up in the Friday-the-13th minicrash.It closed yesterday at 34 3/4. To be sure, the stock still has a lot of fans. "If you invested $10,000 in the initial public offering in 1962, it would be worth well over $5 million today," says Fredric E. Russell, a Tulsa, Okla., money manager. "I don't know what the risk is {of holding the stock}.Taxes are not going out of business." Many of his peers feel the same way.The number of big institutions that own H&R Block shares is 207 and growing, according to a midyear tally by CDA Investment Technologies.Brokerage houses are sweet on H&R Block, too.Zacks Investment Research counts five brokerage houses that consider the stock a buy, and four that call it a hold.None dare say to sell it. But some money managers are doing just that.Eugene Sit, president of Sit Investment Associates in Minneapolis, says, "When we bought it, we thought the growth rate was going to accelerate" because of computerized tax filing and instant refunds (the customer gets a refund immediately but pays extra to the tax preparer, which waits for Uncle Sam's check). But neither of those developments did much to juice up growth, Mr. Sit says.He figures Block earnings are now growing at about a 10% annual rate (down from about 14% the past five years) and will grow at an 8%-10% rate in the future. That's "not bad," Mr. Sit says, but it sure doesn't justify Block shares being priced at 15 to 16 times estimated earnings for fiscal 1990.He wants stocks whose price/earnings ratio is less than their growth rate; as he figures it, H&R Block doesn't even come close. Two other money managers, in explaining why they have sold large amounts of H&R Block stock this year, spoke on the condition they not be named. "The stock was going no place and the earnings were so-so," said one. (In the past two years, the stock almost stalled out.It was above 33, adjusted for a subsequent split, in 1987, and hasn't gotten much higher since.) "There's no more growth in the tax business {except} for increasing prices," the money manager added.The CompuServe subsidiary (which provides information to home-computer users) is "where the growth is," he said, but its format is "still too complicated." CompuServe provides about 20% of both sales and earnings.The tax business still provides about 70% of earnings, on about 50% of sales.Personnel Pool (temporary workers, mostly in the health-care area) chips in close to 25% of sales but only about 9% of earnings. The shortage of nurses is crimping profit at Personnel Pool, said the second money manager.He concedes H&R Block is "well-entrenched" and "a great company," but says "it doesn't grow fast enough for us.We're looking for something that grows faster and sells at a comparable {price-earnings} multiple." Thomas M. Bloch, president and chief operating officer, says "I would disagree" that the tax business is mature.For example, he says, the company is planning to go nationwide with a new service, tested in parts of the country, aimed at taxpayers who want refunds in a hurry. Mr. Bloch concedes that a recent diversification attempt fell through. "We're still interested {in diversifying}," he says, "but we'd rather be prudent than make a mistake." He also says CompuServe's earnings continue to grow "20% to 30% a year" in spite of tough competition from giants like Sears and IBM.And he says Block's other businesses are growing, although less consistently. H&R Block (NYSE; Symbol:HRB) Business: Tax Preparation Year ended April 30, 1989: Revenue: $899.6 million Net loss: $100.2 million; $1.90 a share First quarter, July 31, 1989: Per-share earnings: Loss of 8 cents vs. loss of 9 cents Average daily trading volume: 145,954 shares Common shares outstanding: 52.6 million
(During its centennial year, The Wall Street Journal will report events of the past century that stand as milestones of American business history.) PUTS AND CALLS, STOCK MARKET PATOIS for options to sell or buy a company's shares, were long an arcane Wall Street art best left to the experts, who used them either as a hedge or for pure speculation. Options lost some of their mystery in 1973 when the Chicago Board of Trade set up a special exchange to deal in them.Until then, options had been traded only in the over-the-counter market, mostly in New York, and in an almost invisible secondary market operating chiefly by telephone. The Chicago Board of Trade, the No. 1 U. S. grain market, had long chafed under the attention won by its innovative archrival, the livestock-dealing Mercantile Exchange.So the men who ran the grain pits listened when Joseph Sullivan, a 35-year-old former Wall Street Journal newsman, offered them the idea of all-options trading.After four year of tinkering and $2.4 million in seed money, the board set up the new marketplace, titled it the Chicago Board Options Exchange, and named Sullivan its first president. The beginnings were modest.The CBOE opened for business on April 26, 1973, in what had been a Board of Trade lunchroom.It listed just 16 options to buy a "pilot list" of stocks on the New York Stock Exchange. (Puts, or sell options, would not be added until 1977.) The 282 members had paid $10,000 apiece for seats. (The 1989 price: $250,000.) The first day's business was 911 contracts (each for 100 shares of one of the listed stocks).By the end of 1973, the number of "underlying" Big Board stocks had been increased to 50 and the options exchange had run up volume of 1.1 million contracts.A year later, it was 5.7 million.Last year, more than 1,800 traders on the CBOE bought and sold 112 million contracts on 178 listed stocks, 60% of all U.S. listed options trading. The new exchange drew instant recognition from an unwelcome quarter.The government, campaigning against fixed brokerage commissions, promptly sued the CBOE over its minimum-fee system.
Thursday, October 19, 1989 The key U.S. and foreign annual interest rates below are a guide to general levels but don't always represent actual transactions. PRIME RATE: 10 1/2%.The base rate on corporate loans at large U.S. money center commercial banks. FEDERAL FUNDS: 8 3/4% high, 8 5/8% low, 8 11/16% near closing bid, 8 11/16% offered.Reserves traded among commercial banks for overnight use in amounts of $1 million or more.Source: Fulton Prebon (U.S.A.) Inc. DISCOUNT RATE: 7%.The charge on loans to depository institutions by the New York Federal Reserve Bank. CALL MONEY: 9 3/4% to 10%.The charge on loans to brokers on stock exchange collateral. COMMERCIAL PAPER placed directly by General Motors Acceptance Corp.: 8.45% 30 to 44 days; 8.25% 45 to 73 days; 8.325% 74 to 99 days; 7.75% 100 to 179 days; 7.50% 180 to 270 days. COMMERCIAL PAPER: High-grade unsecured notes sold through dealers by major corporations in multiples of $1,000: 8.525% 30 days; 8.425% 60 days; 8.375% 90 days. CERTIFICATES OF DEPOSIT: 8.05% one month; 8.02% two months; 8% three months; 7.98% six months; 7.95% one year.Average of top rates paid by major New York banks on primary new issues of negotiable C.D.s, usually on amounts of $1 million and more.The minimum unit is $100,000.Typical rates in the secondary market: 8.60% one month; 8.60% three months; 8.45% six months. BANKERS ACCEPTANCES: 8.45% 30 days; 8.32% 60 days; 8.32% 90 days; 8.17% 120 days; 8.08% 150 days; 7.98% 180 days.Negotiable, bank-backed business credit instruments typically financing an import order. LONDON LATE EURODOLLARS: 8 11/16% to 8 9/16% one month; 8 11/16% to 8 9/16% two months; 8 11/16% to 8 9/16% three months; 8 5/8% to 8 1/2% four months; 8 9/16% to 8 7/16% five months; 8 9/16% to 8 7/16% six months. LONDON INTERBANK OFFERED RATES (LIBOR): 8 3/4% one month; 8 11/16% three months; 8 9/16% six months; 8 9/16% one year.The average of interbank offered rates for dollar deposits in the London market based on quotations at five major banks. FOREIGN PRIME RATES: Canada 13.50%; Germany 8.50%; Japan 4.875%; Switzerland 8.50%; Britain 15%.These rate indications aren't directly comparable; lending practices vary widely by location. TREASURY BILLS: Results of the Monday, October 16, 1989, auction of short-term U.S. government bills, sold at a discount from face value in units of $10,000 to $1 million: 7.37% 13 weeks; 7.42% 26 weeks. FEDERAL HOME LOAN MORTGAGE CORP. (Freddie Mac): Posted yields on 30-year mortgage commitments for delivery within 30 days. 9.87%, standard conventional fixed-rate mortgages; 7.875%, 2% rate capped one-year adjustable rate mortgages.Source: Telerate Systems Inc. FEDERAL NATIONAL MORTGAGE ASSOCIATION (Fannie Mae): Posted yields on 30 year mortgage commitments for delivery within 30 days (priced at par) 9.81%, standard conventional fixed-rate mortgages; 8.70%, 6/2 rate capped one-year adjustable rate mortgages.Source: Telerate Systems Inc. MERRILL LYNCH READY ASSETS TRUST: 8.50%.Annualized average rate of return after expenses for the past 30 days; not a forecast of future returns. China said the question of Taiwan's membership in the General Agreement on Tariffs and Trade should be considered only after China's own membership in the 97-nation organization is restored. Both China and Taiwan are seeking seats in GATT, which sponsors trade-liberalizing agreements and sets world-commerce rules. "As one of China's provinces, Taiwan has no right to join GATT on its own," Foreign Ministry spokesman Li Zhaoxing said. China, under the Nationalist government of Chiang Kai-shek, was a founding member of GATT in 1947.The Nationalists withdrew in 1950, after their flight to Taiwan, and the Communist government in Beijing applied for restoration of China's membership in July 1986. The U.S. has voiced opposition to China's bid for GATT membership, saying China has yet to undertake needed economic reforms. Japan's biggest women's underwear maker, Wacoal Corp., said that it developed a sports car that it plans to market in two years.The "Jiotto Caspita" can run at over 188 miles an hour, a company spokesman said.The base price of the car is estimated at 30 million yen (about $213,000).Wacoal said it intends to produce the cars through a car manufacturer.Along with the car, Wacoal plans to launch a series of Caspita-brand men's underwear. "Our image is a company that makes women's products," said a Wacoal spokesman. "Now, we're going to sell to men." The British satirical magazine Private Eye won an appeal against the size of a $960,000 libel award to Sonia Sutcliffe, the estranged wife of the "Yorkshire Ripper" mass murderer.An appeals-court panel slashed all but $40,000 from the award, the largest ever set by a British jury, pending a reassessment of the damages.But the panel dismissed the magazine's contention that it hadn't libeled Mrs. Sutcliffe when it accused her of trying to sell her story to capitalize on the notoriety of her husband.Private Eye had been threatened with closure because it couldn't afford the libel payment. Senshukai Co., a travel agent based in Osaka, Japan, announced that it and Nissho Iwai Corp., a major Japanese trading house, will jointly build a 130-unit condominium in Queensland, Australia.Senshukai said the partners plan to rent to tourists but will also sell to interested parties.Senshukai has a 60% stake in the venture and Nissho Iwai has the rest.Construction of the 34-floor building will begin next May and should be completed in April 1992.Units will cost from 500,000 to 3.5 million Australian dollars (about US$386,000 to US$2.7 million). The Soviet Union has halted construction of two Chernobyl-type nuclear reactors and is reassessing the future of 12 other existing reactors.Viktor Sidorenko, vice chairman of the State Committee on Nuclear Safety, said the two reactors were at Kursk and Smolensk.News of the halt comes amid growing anger in the Ukraine and Byelorussia over continuing high levels of radiation from Chernobyl. A former vice president of the Singapore branch of Drexel Burnham Lambert Group Inc. was charged in court yesterday on 19 counts of cheating.Francis Dang, 41, is alleged to have been involved in cheating Drexel Burnham Lambert of up to 2.1 million Singapore dollars (US$1.1 million) by carrying out unauthorized transactions on the London Commodities Exchange and the International Petroleum Exchange.Mr. Dang is alleged to have used the account of Singapore hotel and property magnate Ong Beng Seng to effect the transactions. Japan says its economic growth will fall sharply if it cuts back on the use of oil, coal and gas to cap emissions of carbon dioxide. A Ministry of International Trade and Industry official said that a study found that Japan's annual economic growth rate would eventually be only 0.8% if carbon-dioxide emissions remained at this year's level of 300 million tons.The study will support arguments against capping carbon-dioxide emissions that Japan will make at a U.N.-backed conference on atmospheric pollution next month. The study said Japan's carbon-dioxide emissions would slightly more than double by 2010 unless the nation reduced its dependence on fossil fuels.It said that expanding nuclear-power capability is the quickest way to lessen that dependence. But increased reliance on nuclear power would meet stiff opposition from environmentalists, a second ministry official said. Just in time for Halloween, Britain's Oxford University Press is publishing a "Dictionary of Superstitions." The books 1,500 entries include stepping on cracks and knocking on wood. . . . In New Zealand's tiny township of Kaitaia, which has had direct dialing for less than a year, about 30 angry phone-company customers questioned the size of their bills.It turned out their children had been dialing a "sex fantasy" service in the U.S.
Slowing sales of its profitable Jeep Cherokee and Wagoneer sport utility vehicles are forcing Chrysler Corp. to temporarily idle its Toledo, Ohio, assembly plant for the first time since April 1986. About 5,500 hourly workers will be laid off for a week beginning Oct. 23, and overtime has been eliminated at the plant for the fourth quarter, a Chrysler spokesman said.That's a significant change from earlier this year when the plant worked substantial overtime only to have sales fall short of the company's bullish expectations. Sales of Cherokee, the best-selling Jeep, and the lower-volume Wagoneer were actually up about 10% through the end of last month.But that's less than Chrysler officials had hoped when they set ambitious production schedules for the Toledo plant earlier this year. Even when it became clear this spring that demand wasn't coming up to expectations, Chrysler officials "resisted" cutting output because Cherokee and Wagoneer are "very profitable vehicles," the spokesman said. Instead, Chrysler officials in late May slapped $1,000 cash rebates on the vehicles, including the first such incentives on the popular four-door Cherokee since Chrysler bought Jeep in 1987.The incentives boosted sales for a while, but the pace had cooled by last month. The result: Chrysler dealers had a bloated 82-day supply of the Cherokee as of the end of last month and a 161-day supply of the Comanche pickup, which Toledo also builds.A 60-day to 65-day supply is considered normal. At Jasper Jeep-Eagle, one of the largest Jeep dealerships in the country, inventories have continued to swell.Steve Lowe, general manager of Jasper, Ga., dealership, said new rebates of $500 to $1,000 on the models have stimulated sales, but not enough to significantly cut dealer stocks. "If people aren't buying, you have to close plants," he said. Separately, Chrysler said it will idle for four weeks the St. Louis assembly plant that builds the Chrysler LeBaron and Dodge Daytona models.Chrysler officials said the plant is scheduled to resume production on Nov. 20., and 3,300 hourly workers will be affected. General Motors Corp., meanwhile, said it will idle for yet another week its Linden, N.J., assembly plant, bringing to three weeks the total time that plant will be idled during October. GM said the assembly plant, which builds the Chevrolet Corsica and Beretta compact cars, originally was scheduled to reopen Monday but now will not resume production until Oct. 30.The shutdown affects 3,000 workers and will cut output by about 4,320 cars. Sluggish sales of the Beretta and Corsica spurred GM to offer $800 rebates on those cars.The Corsica and Beretta make up the highest-volume car line at Chevrolet, but sales of the cars are off 9.6% for the year, and fell a steep 34.2% early this month. GM has scheduled overtime at its Lordstown, Ohio, and Janesville, Wis., assembly plants, which build the Chevrolet Cavalier. Ford Motor Co. said it will shut down for one week its Kentucky Truck Plant because of a "shortage of dealer orders." The shutdown will idle 2,000 hourly employees and eliminate production of about 1,300 medium and heavy duty trucks.The assembly plant is scheduled to resume production on Oct. 30. Meanwhile, the nine major U.S. auto makers plan to build 143,178 cars this week, down 11.7% from 162,190 a year ago and flat with last week's 142,117 car output. f-Includes Chevrolet Prizm and Toyota Corolla. r-Revised. x-Year-to-date 1988 figure includes Volkswagen domestic-production through July.
Loral Corp. said fiscal second-quarter net income was $19.8 million, or 79 cents a share, compared with year-earlier earnings from continuing operations of $15.6 million, or 62 cents a share. Year-earlier net of $21 million, or 84 cents a share, included the results of Loral's former Aircraft Braking Systems and Engineered Fabrics divisions, which were sold April 27 to the company's chairman, Bernard L. Schwartz. The defense electronics concern attributed the operating improvement to higher profit margins and lower net interest expense. Loral also reported that its bookings more than doubled to $654 million in the quarter, ended Sept. 30, from $257 million, in the year-before period.The increase was due mainly to a $325 million order from Turkey to equip its fleet of F-16 fighters with Loral's ALQ-178 Rapport III electronic countermeasures system.The order is the biggest in the company's history. Sales in the latest period edged up to $295.7 million from $293.9 million. Mr. Schwartz said the recent increase in orders "puts us well on the way to our goal of $1.6 billion in bookings for the year." He added: "I expect to see the earnings momentum we experienced this quarter continue for the rest of the year." Loral said it expects sales to accelerate in both the third and fourth quarters of this fiscal year. Loral's profit from continuing operations for the first six months of fiscal 1990 was $36.4 million, or $1.44 a share, up 31% from $27.8 million, or $1.11 a share, a year earlier.Net income fell 8.6% to $37.1 million, or $1.43 a share, from $40.6 million, or $1.56 a share. Fiscal first-half sales slipped 3.9% to $528.4 million from $549.9 million. Bookings for the first half totaled $813 million, compared with the $432 million recorded last year. In New York Stock Exchange composite trading, Loral closed at $33.25, down 37.5 cents.
A Canadian government agency conditionally approved proposed exports to the U.S. of natural gas from big, untapped fields in the Mackenzie River delta area of the western Canadian Arctic. Three companies, Esso Resources Canada Ltd., Shell Canada Ltd. and Gulf Canada Resources Ltd., applied to the Canadian National Energy Board to export 9.2 trillion cubic feet of Mackenzie delta natural gas over 20 years starting in 1996. To be economically feasible, the 11 billion Canadian dollar (US$9.37 billion) project requires almost a doubling of natural gas export prices.It also faces numerous other hurdles including an agreement on a pipeline route for the gas. The board said the export licenses would be issued on the condition that Canadian interests would also be allowed to bid for the Mackenzie delta gas on terms similar to those offered to U.S. customers. U.S. buyers have already been lined up.They include Enron Corp., Texas Eastern Corp., Pacific Interstate Transmission Co. and Tennessee Gas Pipeline Co. The project could result in the U.S. taking more than 10% of its natural gas supplies from Canada, up from about 5% currently.It would bring 13 gas fields into production at a combined rate of about 1.2 billion cubic feet a day. The board estimated that the cost of building a pipeline from the Mackenzie delta to Alberta would be about C$5.9 million.It also said projections of surging U.S. demand for natural gas and price forecasts of C$5.25 per thousand cubic feet by 2005 would make the project economically viable. Esso, a unit of Imperial Oil Ltd. which is 71%-owned by Exxon Corp., will be allowed to export 5.1 trillion cubic feet to the U.S. in the 20-year period.Shell, a subsidiary of Royal Dutch/Shell Group, will be allowed to export 0.9 trillion cubic feet, and Gulf, a unit of Olympia & York Developments Ltd. will be allowed to export 3.2 trillion cubic feet.
Where do Americans put their money?It depends on when you look. In 1900, for instance, less than 8% of assets went into bank deposits.That rose to nearly 18% during the Depression, and hasn't changed much since.Pension reserves, on the other hand, made up a relatively small part of household assets until the last decade, when they skyrocketed.And there has been a drastic decline in the importance of unincorporated business assets -- thanks to industry consolidation and a decline in family farms. That's some of what emerges from the following charts, which show how Americans have changed their investment patterns over the past 90 years.Some results are self-explanatory.But other figures are surprising. Housing, for instance, has remained a fairly steady component of household assets over the past decade -- although common wisdom would have expected an increase. "There is a lot of attention paid to housing as a form of household wealth," says Edward N. Wolff, professor of economics at New York University. "But it hasn't increased much relative to other assets.It suggests that households accumulate wealth across a broad spectrum of assets.And housing though it appears in the popular mind as being the major {growing} household asset, isn't." In addition, investors' desire to hold stocks -- directly and through mutual funds -- has held surprisingly steady; stocks' importance among assets largely reflects the ups and downs of the stock market, and not a shift in stock-holding preferences. "Stocks have not spread to the general public, despite the fact that the environment is much different," concludes Robert Avery, an economist at Cornell University. "To me it says that despite all the views that we spend too much of our wealth on paper assets, we have ways of holding wealth similar to 100 years ago." -- The charts show how househld assets have been distributed over time.The main components of the various asseet categories: Housing: Primary home, but not the land it's on. Land and Other Real Estate: Land on which primary home is built, investment property. Consumer Durables: Automobiles, appliances, furniture. Bank Deposits: Currency, checking-account deposits, small savings and time deposits, certificates of deposits, money-market fund shares. Bonds: Excludes bond funds. Stocks/Mutual Funds: Stocks and mutual funds other than money-market funds. Unincorporated Business: Partnerships and sole proprietorships, professional corporations. Pension Reserves: Holdings by pension funds.
McCaw Cellular Communications Inc. said it sent a letter to LIN Broadcasting Corp. clarifying its revised tender offer for LIN and asking LIN to conduct "a fair auction." The letter apparently came in response to a request for clarification by LIN earlier this week.LIN, which has agreed with BellSouth Corp. to merge their cellular-telephone businesses, said then that it wouldn't take a position on McCaw's revised tender offer. Earlier this month, McCaw revised its offer to $125 a share for 22 million LIN shares.McCaw is seeking 50.3% of the cellular and broadcasting concern; the revised offer includes a feature requiring McCaw to begin an auction process in July 1994 that would buy out remaining holders at a per-share price roughly equivalent to what a third party might then have to pay for all of LIN. The letter outlines broad powers for an independent group of directors provided for in the revised offer.In a statement, Craig O. McCaw, chairman and chief executive officer of McCaw, said: "We trust LIN will take no further actions that favor BellSouth." McCaw said the three independent directors provided for in the offer would be designated by the current board.The successors would be nominated by the independent directors. LIN would have a priority right to pursue all opportunities to acquire U.S. cellular interests in markets other than those in which McCaw holds an interest, or which are contiguous to those markets, unless LIN has an interest there or contiguous to it.Independent directors would have veto rights to any acquisition if they unanimously decide it isn't in LIN's best interest. Independent directors would be able to block transactions they unanimously deem would be likely to depress the private market value of LIN at the time it is to be sold in five years. If LIN is put up for sale rather than purchased by McCaw in five years, McCaw won't submit a bid unless the independent directors request it, and the independent directors will run the bidding.The directors would be able to sell particular assets to enable such buyers as the regional Bell operating companies to purchase the company's interests.
Helmsley Enterprises Inc. plans to close its company-owned insurance business and is seeking other brokers to take over its policies, according to individuals familiar with the New York firm. Helmsley Enterprises is the umbrella organization for companies controlled by Harry B. Helmsley.These include office and residential real estate giant, HelmsleySpear Inc., and Helmsley Hotels.The insurance brokerage agency, just a fragment of Helmsley's vast empire, would be the first piece of the company to be stripped away since last summer when Mr. Helmsley's wife, Leona Helmsley, was found guilty of tax evasion. Industry sources estimate the agency brokers property and casualty premiums worth about $25 million annually, and has revenue, based on a standard 10% commission rate, of about $2.5 million.The insurance firm acts as a broker on policies covering buildings managed by HelmsleySpear and others.Many of the properties are owned through limited partnerships controlled by Mr. Helmsley. New York State law prohibits insurance brokerages from deriving more than 10% of revenue from insuring affiliated companies.Helmsley's insurance division had slightly exceeded that percentage, sources say, but the division wasn't considered significant enough to the company to be restructured, particularly at a difficult time for the firm. Adverse publicity from the scandal surrounding its founder's wife and related management strife have put pressure on the entire Helmsley organization.However, individuals close to the company insist shuttering the insurance division, a sideline from the company's core property management business, isn't the beginning of a sale of assets. Helmsley's insurance premiums are expected to be transferred to several different insurance brokerage companies.Frank B. Hall Inc. of Briarcliff Manor, N.Y. is reportedly working out an agreement with Helmsley.Officials there declined to comment, as did Helmsley management.
Outside the white-walled headquarters of the socalled Society of Orange Workers, all seems normal in South Africa's abnormal society. A pickup truck driven by a white farmer rumbles past with a load of black workers bouncing in the back.Over at Conradies, the general store, a black stock boy scurries to help an elderly white woman with her packages.Down the street, a car pulls into the Shell station and is surrounded by black attendants. But inside the white walls of the Orange Workers' office -- just about the largest building in town, save for the Dutch Reformed Church and the school -- South Africa's neat racial order is awry.A dozen white office workers fold newsletters and stuff them into envelopes.White women serve tea and coffee, and then wash the cups and saucers afterwards.White children empty the wastepaper baskets and squeegee the windows.There isn't a black worker in sight.Not in the kitchen, or the storeroom or the book shop. "If we want to have our own nation, then we must be willing to do all the work ourselves," says Hendrik Verwoerd Jr., son of the former prime minister and the leader of the Orange Workers, founded in 1980. They do indeed want their own nation.The pillars of apartheid may be trembling in the rest of South Africa, with Johannesburg opening its public facilities to all races, blacks storming the all-white beaches of the Cape and the government releasing seven leaders of the banned African National Congress.But here in Morgenzon, a sleepy town amid the corn fields of the eastern Transvaal, the Orange Workers are holding the pillars steady. The Orange Workers -- who take their name from William of Orange of the Netherlands, a hero of the Dutch-descended Afrikaners -- believe that the solution to South Africa's racial problems isn't the abolition of apartheid, it's the perfection of apartheid -- complete and total separation of the races. Here, then, is where the Orange Workers have come to make apartheid's last stand.Their idea is to create a city, first, and then an entire nation -- without blacks.This may seem to be a preposterous and utterly futile effort in Africa.And the fact that there are only 3,000 card-carrying Orange Workers may put them on the loony fringe.But their ideal of an Afrikaner homeland, an all-white reserve to be carved out of present-day South Africa, is a mainstream desire of the right-wing, which embraces about one-third of the country's five million whites.Afrikaner philosophers and theologians have long ruminated on the need for a white homeland.The Orange Workers are just putting this preaching into practice. Thus, farmer Johan Fischer, his T-shirt and jeans covered in grease, crawls around under his planter, tightening bolts and fixing dents.On almost every other farm in South Africa, black workers do the repairs.But not here.Mr. Fischer plows his own fields, sows his own corn and sunflowers, and feeds his own sheep. Over at the fiberglass factory, four white workers assemble water tanks on their own, and in their spare time they build townhouses across the road.On Main Street, Alida Verwoerd and her daughters look after the clothes and fabric shop, then hurry home to fix lunch for the rest of the family.Down by the stream, a group of Orange Workers puts the finishing touches on a golf course.If whites want to play there by themselves, says consulting engineer Willem van Heerden, whites should also build it by themselves. "If we want to survive as a people," he says, "we have to change our way of life.The Afrikaner must end his reliance on others." In their quest to perfect apartheid, the Orange Workers have discovered a truth that most of privileged white South Africa tries mightily to deny: The master can't become dependent on the slave and expect to remain master forever. "If apartheid means you want cheap black labor and all the comforts that go with it, but you also want to exclude the blacks from social and political integration, then these are two contradictions that can't go on forever," says Mr. Verwoerd.He is sitting in his living room, beneath a huge portrait of his late father, Hendrik F. Verwoerd, apartheid's architect and South African prime minister from 1958 to 1966.Somewhere, the son sighs, things went terribly wrong with apartheid; today, whites even rely on blacks to police their separation. "People took separate development as an opportunity to use black labor without ever getting rid of it.But my father meant it to mean real separation," says the son. The Orange Workers speak sincerely. "We agree with world opinion that the status quo in South Africa is morally wrong," says Pieter Bruwer, the Orange Workers' chief scribe and pamphleteer. "We must either integrate honestly or segregate honestly." Morgenzon has long been a special domain of Afrikanerdom.According to Mr. Verwoerd, the early Afrikaner pioneers were the first people to settle in the eastern Transvaal, even before the blacks.Then, when Morgenzon was incorporated in 1908, the farmer who owned the land stipulated that only whites could reside in town; blacks could work there, but they had to leave at night. Today, Morgenzon is a town of 800 whites and two paved roads.Weeds push up through the cracks in the sidewalks, and many houses and storefronts are empty.There are few factories and no mines.It was an ideal place for the Orange Workers to start their new nation, unencumbered by the demographics that have undermined apartheid elsewhere in South Africa. So far, about 150 Orange Workers have moved here, spending nearly $1 million buying up property over the past three years.Still, complete and total segregation remains elusive.Just beyond the city limits is a shantytown of 2,000 blacks who are employed throughout the area.Despite the Orange Workers' intention to put them all out of work, they are in no hurry to leave.A young man called July (that's when he was born), who works at the railroad station just up the street from the Orange Workers office, points at the whitewalled building and says matter-of-factly, "We're not allowed in there, that's all I know." The 650-or-so local whites who aren't Orange Workers are more troubled.Try as they might, they just can't conceive of life without black workers. "Impossible, impossible," say the Conradies, an elderly couple who have run the general store for decades. "We can't do without their help," says Mrs. Conradie. "Oh no.We need them and I thank God for them." Over at the Shell station, owner Rudi van Dyk, who doubles as Morgenzon's mayor, worries that the Orange Workers have made his town the laughingstock of the nation. "What they want us to do just isn't practical," he says, noting that he employs 16 blacks. "I couldn't afford to hire 16 whites.The only Afrikaners who would be willing to work for this salary wouldn't know how to handle money." Back at the Verwoerd house, Hendrik Sr. peers down over the shoulder of Hendrik Jr.The son believes that when the Afrikaners finally realize there is no turning back the integration of South African society and politics, Morgenzon will boom. "We urge our people not to wait until they have to fight for their own nation," says Mr. Verwoerd. "By populating a place now, we make ourselves a power any new government will have to take into account." Curiously, he compares the Orange Workers to the ANC, which his father outlawed in 1960. "The ANC won't be stopped until there is a provision for black aspirations," says Mr. Verwoerd. "Likewise, no government will stop this idea of the Afrikaners." He apologizes for sounding pushy. "Look," he says, "If the rest of South Africa wants to have an integrated melting pot, that's their choice.We'll leave them alone.We just want to have our own cup of tea." And they will even serve it themselves.
Okay, now you can pick up that phone.But don't do anything rash. After last Friday's stock-market plunge, investment professionals cautioned people to resist the urge to call their brokers and sell stocks.Not selling into a panic turned out to be very good advice: Despite the market's volatility, the Dow Jones Industrial Average has surged 114 points in the past four days. Now, with a semblance of normalcy returning, some advisers say it's time for investors to take a hard, cold look at the stocks they own and consider some careful pruning. "The market is sending nervous signals," says Peter J. Canelo, chief market strategist for Bear, Stearns & Co., and it's "unwise" to be overcommitted to stocks.Alan Weston, president of Weston Capital Management, a Los Angeles money-management firm, adds that in periods of uncertainty like today, "it's a good time to cut out the dead branches of your portfolio." Not everybody agrees that it's time to trim. "We aren't inclined to prune stock portfolios now," says Steven G. Einhorn, chairman of the investment policy committee of Goldman, Sachs & Co. "Investors should stay with their stocks.We expect a choppy and sloppy market for a short period, but we don't think it will be ugly.The downside is limited." And even those who say some selective selling may be in order stress that individuals need to be in the stock market to achieve their long-term investment objectives and to help balance their other assets. Any selling, they say, should be well thought-out, and executed gradually, during market rallies.They offer these suggestions: GET RID OF THE DOGS. "Sell stocks that aren't doing well now, and that don't have good earnings prospects," says Alfred Goldman, technical analyst at St. Louis-based A.G. Edwards & Sons. "Most people do just the opposite: They sell their winners and keep their losers." Which types of stocks are most likely to qualify?Technology stocks, says Mr. Goldman. WATCH FOR EARNINGS DISAPPOINTMENTS.A company doesn't have to post a loss to be a candidate for sale, says Charles I. Clough Jr., chief market strategist at Merrill Lynch & Co.If earnings don't live up to analysts' expectations, he says, that's enough to dump the stock. John Markese, director of research for the American Association of Individual Investors, raises a cautionary note. "Substituting a rule of thumb for your own judgment" can be a mistake, he says.An earnings disappointment may reflect a situation that's short-term. But Mr. Clough says, "The risk is that earnings disappointments will continue." The economy is decelerating after six good years, and "right now it's better to shoot first and ask questions later." Which types of stocks currently have the greatest earnings risks?Computer companies; commodity cyclical stocks, like autos; and retailing stocks, he says. BEWARE OF HEAVY DEBT.The companies apt to run into earnings problems soonest are the ones with heavy debt loads, says Larry Biehl, partner in the San Mateo, Calif., money-management firm of Bailard, Biehl & Kaiser.Mr. Canelo of Bear Stearns agrees: "If we do have an economic slowdown," he says, "companies with high debt ratios will be dumped en masse." The best course for individual investors is to sell these stocks now, the two advisers say. SELL `WHISPER' STOCKS. UAL Corp. 's difficulty in obtaining bank financing for its leveraged buy-out and its resulting price plunge is a tip-off to what's going to happen to "takeover stocks," says Mr. Canelo.Takeover activity will slow down as more and more banks tighten their lending requirements, he says. "There'll be fewer and fewer deals." Moreover, many financial advisers say individuals should be in the stock market as long-term investors, not as traders trying to catch the next hot stock.In general, they say, avoid takeover stocks. COMPARE P/E RATIOS WITH PROSPECTS. Mr. Canelo suggests that investors compare price/earnings ratios (the price of a share of stock divided by a company's per-share earnings for a 12-month period) with projected growth rates. "If you think earnings will grow at 20% a year, it's all right to pay 20 times earnings," he says. "But don't pay 30 times earnings for a company that's expected to grow at 15% a year." Mr. Canelo thinks the market will probably go higher, but "will be ruthless with stocks if the earnings aren't there." Mr. Markese cautions that investors shouldn't slavishly follow any specific price/earnings sell trigger. "If you say sell anytime a company's price/earnings ratio exceeds 15, that knocks out all your growth stocks," he says. "You eliminate companies with substantial prospects that are moving up in price." EXAMINE WHAT HAS CHANGED. Tom Schlesinger, market analyst at A.G. Edwards & Sons Inc., says investors should consider selling if there has been a fundamental change in a company since they bought its stock.Say you purchased a stock because of a new product that was in the works.Now, because of various difficulties, the product has been scrapped.Time to sell, says Mr. Schlesinger. Similarly, he says, suppose you were attracted to a company because of expectations that sales would hit $200 million by 1990.If things haven't worked out that well, and sales won't hit $200 million until 1992, it's time to consider selling, he says.
BankAmerica Corp. reported a 34% jump in third-quarter earnings, as its rocket-like recovery from nearly ruinous losses several years ago continued to be fueled by growth in consumer loans, higher interest margins and negligible loan losses. For the quarter, BankAmerica said it earned $254 million, or $1.16 a share, compared with $190 million, or 97 cents a share, a year earlier. BankAmerica spokesmen said preliminary reports indicate the company wasn't materially affected by the Tuesday earthquake.All but eight of the 850 branches, which had some structural damage, reopened yesterday for business.Automated teller machine operations also were up and operating yesterday, a bank spokesman said. For the first time in nearly two years, BankAmerica results failed to improve in consecutive quarters, but the decline from the second quarter was attributable to special factors.Third-quarter profit was 16% below the $304 million, or $1.50 a share, earned in the 1989 second quarter. The company cited higher tax credits in the second quarter, totaling $63 million, compared with $28 million in the third quarter.Excluding tax credits, profit was 6% below the second quarter.But that drop was caused entirely by a decline in Brazilian interest paid, to $5 million from $54 million the second quarter. Moreover, BankAmerica continued to build its reserve against troubled foreign loans by boosting its loan-loss provision to $170 million, about the same as the previous quarter but well above the $100 million in the year-earlier quarter.The provision rate was far above BankAmerica's actual net credit losses of $24 million in the third quarter, compared with $18 million in the second period and $38 million a year earlier. As a result, BankAmerica said its reserve against troubled foreign-country loans, once below 25%, now amounts to 45% of the $6.4 billion of non-trade debt it calculates it is owed by those nations.That level is about the same as some other big banks, but far below the 85% and 100% reserves of Bankers Trust New York Corp. and J.P. Morgan & Co., respectively. By any measure, third-quarter earnings were still robust, equivalent to a 0.92% return on assets even excluding tax credits.By that key measure of operating efficiency, BankAmerica turned in a better performance than its well-regarded Los Angeles-based competitor, Security Pacific Corp., which posted a 0.89% return in the third quarter.But it continued to badly trail its San Francisco neighbor, Wells Fargo & Co., which reported an extraordinary 1.25% return on assets.Both returns don't include any tax credits. "They {BankAmerica} continue to show good performance," said Donald K. Crowley, an analyst with Keefe, Bruyette & Woods Inc., San Francisco.In composite trading yesterday on the New York Stock Exchange, BankAmerica common stock edged up 12.5 cents to close at $32 a share. Shareholder equity improved to 4.68% from 4.23% in the previous quarter.The 4.52% net interest margin, or the difference between the yield on a bank's investments and the rate it pays for deposits and other borrowings, was still markedly higher than the 3.91% ratio a year earlier, and is among the best in the industry, analysts said. The high margin partly stems from continued strong growth in high-yielding consumer loans, which jumped 31% to $17.47 billion from a year earlier, and residential mortgages, which rose 25% to $12 billion.BankAmerica's total loans rose 8% to $71.36 billion. For the nine months, BankAmerica profit soared 81% to $833 million, or $4.07 a share, from $461 million, or $2.40 a share.
International Business Machines Corp. will announce on Tuesday a slew of software products aimed at eliminating some of the major problems involved in computerizing manufacturing operations, industry executives said. Many plant floors currently resemble a Tower of Babel, with computers, robots and machine tools that generally speak their own language and have trouble talking to each other.As a result, if a problem develops on a production line, it is unlikely some supervisor sitting in front of a personal computer or workstation will know about it or be able to correct it. So IBM will be announcing more than 50 products that will be aimed at letting even the dumbest machine tool talk to the smartest mainframe, or anything in between.In an unusual display of openness, IBM also will be helping customers tie together operations that include lots of equipment made by IBM's competitors. In addition, the executives said IBM will be offering programming tools designed to let anyone working on a factory floor write ad-hoc software, for instance, to do statistical analysis that would pinpoint a problem on a manufacturing line. In Armonk, N.Y., an IBM spokeswoman confirmed that IBM executives will be announcing some computer-integrated-manufacturing plans next week but declined to elaborate. The industry executives said that, as usual with such broad announcements from IBM, this one will be part reality and part strategy.So it will take many quarters for IBM to roll out all the products that customers need, and it will take years for customers to integrate the products into their operations.Also as usual, the products will appeal mostly to heavy users of IBM equipment, at least initially. Still, consultants and industry executives said the products could help make manufacturing operations more efficient, and provide a boost to the computer-integrated-manufacturing market -- a market that Yankee Group, a research firm, has said may double to $40 billion by 1993. "This is a step in the right direction," said Martin Piszczalski, a Yankee Group analyst.He added, though, that "a lot of this is intentions. . . . We'll have to wait and see" how the plan develops. The announcements also should help IBM go on the offensive against Digital Equipment Corp. on the plant floor.While IBM has traditionally dominated the market for computers on the business side of manufacturing operations and has done well in the market for design tools, Digital has dominated computerized manufacturing.Hewlett-Packard Co. also has begun to gain share in the whole computer-integrated-manufacturing arena. IBM will face an uphill climb against Digital, given Digital's reputation for being better than IBM at hooking together different manufacturers' computers.In addition, Hewlett-Packard, while a much smaller player, has made a big commitment to the sorts of industry standards that facilitate those hookups and could give IBM some problems.Both can be expected to go after the market aggressively: Gartner Group Inc., a research firm, estimated the Digital gets 30% of its revenue from the manufacturing market, and Hewlett-Packard gets 50%. IBM, which Gartner Group said generates 22% of its revenue in this market, should be able to take advantage of its loyal following among buyers of equipment.That is because many companies will standardize on certain types of equipment as the various parts of the manufacturing market merge, and IBM is the biggest player.But much will depend on how quickly IBM can move. The whole idea of computer-integrated manufacturing, CIM, seems to be making a comeback after losing a little luster over the past couple of years when it became apparent that it wasn't a panacea that would make U.S. plants more efficient and banish foreign competition. Erik Keller, a Gartner Group analyst, said organizational changes may still be required to really take advantage of CIM's capabilities -- someone on the shop floor may not like having someone in an office using a personal computer to look over his shoulder, for instance, and may be able to prevent that from happening.But he said a system such as IBM's should help significantly. In making polyethylene sheets out of plastic chips, for instance, a chip sometimes doesn't melt, gets caught in the machinery and creates a run in the sheets.That can be expensive, because the problem may not be noticed for a while, and the sheets are typically thrown away.But Mr. Keller said that, if computers can be integrated into the process, they could alert an operator as soon as the problem occurred.They could also check through the orders on file to find a customer that was willing to accept a lower grade of polyethylene.The computer would let the machine run just until that order was filled, eliminating waste. This sort of improved link figures to eventually become a significant weapon for some companies.Companies might be able to tell salespeople daily, for instance, about idle equipment, so they could offer discounts on whatever that equipment produces.Salespeople also could get a precise reading on when products could be delivered -- in much the same way that Federal Express has marketed its ability to tell exactly where a package is in the delivery system.
Ford Motor Co. 's Merkur, the company's first new car franchise in the U.S. since the Edsel was unveiled in 1957, now will share Edsel's fate. Ford said yesterday it will halt imports of the Merkur Scorpio, a $28,000 luxury sedan built by Ford of Europe in West Germany.The cars are sold under a separate franchise with its own sign in front of Lincoln-Mercury dealers -- as opposed to new models such as Taurus or Escort, which are sold under existing Ford divisions. The move to halt imports -- announced 29 years and 11 months to the day after Henry Ford II declared that the Edsel division and its gawky car would be scrapped -- kills the four-year-old Merkur brand in the U.S. market.It will continue to be sold in the European market. Merkur's death isn't nearly as costly to Ford as was the Edsel debacle, because Merkur was a relatively low-budget project with limited sales goals.Still, Merkur's demise is a setback for Ford at a time when the company's image as the U.S. auto maker with the golden touch is showing signs of strain. The No. 2 auto maker's new Thunderbird and Mercury Cougar models haven't met sales expectations in the year since they were introduced, and Ford's trucks are losing ground to their GM rivals.This fall, Ford introduced only one new product: A restyled version of its hulking Lincoln Town Car luxury model. The demise of Merkur (pronounced mare-COOR) comes after a September in which 670 Merkur dealers managed to sell only 93 Scorpios.Total Merkur sales for the first nine months dropped 46% from a year ago to just 6,320 cars. Merkur isn't the only European luxury brand having problems in the U.S.The Japanese assault on the luxury market is rapidly overshadowing such European makes as Audi and Saab, which at least have clear brand images.Merkur, as an import on domestic car lots, suffered from the same sort of image confusion that is hobbling sales of imports at General Motors Corp. and Chrysler Corp. Merkur was originally aimed at enticing into Lincoln-Mercury dealerships the kind of young, affluent buyers who wouldn't be caught dead in a Town Car -- a vehicle so bargelike that Ford is staging a press event next month linking the Town Car's launch to the commissioning of a new aircraft carrier in Norfolk, Va. But the brand had trouble from the start.The first Merkur, the XR4Ti, went on sale in early 1985.The sporty coupe foundered in part because American buyers didn't go for the car's unusual double-wing rear spoiler. In May 1987, Ford began importing the Scorpio sedan from West Germany to sell next to a redesigned XR4Ti in showrooms.Ford officials said they expected the two Merkurs would sell about 15,000 cars a year, and in 1988 they reached that goal, as sales hit 15,261 cars. It was downhill from there, however.One major factor was the decline of the dollar against the mark, which began less than a year after Merkur's 1985 launch.As the West German currency rose, so did Merkur prices. The Merkur cars also suffered from spotty quality, some dealers say. "It was like a comedy of errors," says Martin J. "Hoot" McInerney, a big dealer whose Star Lincoln-Mercury-Merkur operation in Southfield, Mich., sold more XR4Ti's than any other dealership.But by the third quarter of 1988, Scorpios had a high satisfaction rating in internal Ford studies, a spokesman said. Apparently, however, the improvement came too late.Last fall, Ford announced it would discontinue the XR4Ti in the U.S. at the end of the 1989 model year.Ford said then it would keep the Scorpio.This year, Scorpio sales plummeted, and at the current sales pace it would take Ford 242 days to sell off the current Scorpio inventory of about 4,600 cars.
Canadian Pacific Ltd. said it proposed acquiring the 44% of Soo Line Corp. it doesn't already own for $19.50 a share, or about $81.9 million, after failing to find a buyer for its majority stake earlier this year. Soo Line said its board appointed a special committee of independent directors to study the proposal.The troubled Minneapolis-based railroad concern said the committee has the authority to hire financial and legal advisers to assist it.The proposed acquisition will be subject to approval by the Interstate Commerce Commission, Soo Line said. In New York Stock Exchange composite trading yesterday, Soo Line shares jumped well above the proposed price, closing at $20.25, up $2.75. Canadian Pacific put its 56% stake in Soo Line up for sale last year but couldn't find any takers.Canadian Pacific, which has interests in transportation, telecommunications, forest products, energy and real estate, finally took its majority block off the market this spring. "It turned out we couldn't sell it," a Canadian Pacific official said, adding that acquiring the remainder of Soo Line is now "the best way to rationalize operations." Canadian Pacific is Soo Line's biggest customer and has owned a majority stake in the U.S. railroad since 1947.Canadian Pacific and Soo Line tracks connect at two points in the West on the Canada-U.S. border and the two companies operate a very successful Chicago-Montreal rail service. Separately, for the first nine months, Soo Line reported a loss of $398,000, or four cents a share, compared with net income of $12.5 million, or $1.32 a share, a year earlier.Revenue fell 5.8% to $407.9 million from $433.2 million.The company had a loss from operations of $1.7 million.
Capital Holding Corp. said it requested and received the resignation of John A. Franco, its vice chairman, as an officer and a director of the life insurance holding company. The company said Mr. Franco developed a plan to establish a business that might be competitive with Capital Holding Corp. 's Accumulation and Investment Group, which Mr. Franco headed.The group temporarily will report to Irving W. Bailey II, chairman, president and chief executive officer of Capital Holding. Mr. Franco, 47 years old, said in a telephone interview that he has been considering and discussing a number of possible business ventures, but that "nothing is at a mature stage." He said he "didn't argue with" the company's decision to seek his resignation because contemplating outside business ventures can distract an executive from performing his best "at the job he is paid to do." Martin H. Ruby, a managing director of Capital Holding's Accumulation and Investment Group, also resigned to pursue other business interests, Capital Holding said. Mr. Ruby, 39, said that he had "an amicable parting" with Capital Holding and that he has "a number of ventures in the financial-services area" under consideration.He said that his resignation was a mutual decision with Capital Holding management, but that he wasn't actually asked to resign. The Accumulation and Investment Group is responsible for the investment operations of all Capital Holding's insurance businesses and markets guaranteed investment contracts to bank trust departments and other institutions.It also sells single-premium annuities to individuals. Mr. Bailey said he expects to name a new group president to head that operation following the Nov. 8 board meeting.
(During its centennial year, The Wall Street Journal will report events of the past century that stand as milestones of American business history.) PLASTIC PENCILS, CODE-NAMED E-71, made their hush-hush debut in children's pencil boxes at five-and-dime stores in 1973.But few knew it then and most still think all pencils are wooden. Eagle Pencil of Shelbyville, Tenn., "Pencil City U.S.A.," had made its earliest pilot plastic pencils in 1971.But it wasn't until after it hired Arthur D. Little, a Cambridge, Mass., research concern, that its new product was refined for commercial sale in 1973.Three A.D.L. inventors applied April 6, 1973, for the patent, which was assigned and awarded in 1976 to Hasbro Industries, then Eagle's parent. Pencil pushers chew and put the plastic models behind their ears just like traditional pencils made of glued strips of California incense cedar filled with ceramic lead.It takes five steps to make standard pencils, just one for the plastic type.Automated machines coextrude long plastic sheaths with graphite-plastic cores that are printed, cut, painted and eraser-fitted. "After more than 200 years, something new has happened to pencils," said Arthur D. Little in a 1974 report that publicly described the previously secret item.Eagle's plastic type sharpens and looks like a wooden pencil.A major difference is that a snapped wooden pencil will have a slivered break while a plastic model will break cleanly. The softness of the core constrains the plastic models to No. 1, No. 2 or No. 3-type pencils, which account for the bulk of the market.Artists and draftsmen need harder "leads." Eagle, now called Eagle-Berol, remains a leading company among the 10 in the U.S. that produced about 2.3 billion pencils last year, according to the Pencil Makers Association.It's a trade secret how many were plastic, and most writers still don't know what they're using.
H.F. Ahmanson & Co., the nation's largest thrift holding company, posted a 12% earnings decline for the third quarter while another large California savings and loan, Great Western Financial Corp., reported a slight earnings gain. H.F. Ahmanson, parent of Home Savings of America, reported third-quarter net of $49.2 million, or 50 cents a share, down from $56.1 million, or 57 cents a share, in the year-earlier period. Most of the earnings decline reflected an increase in the company's effective tax rate to 44% from 37% in the year-ago third quarter when nonrecurring tax credits were recorded, the company said.Pretax earnings declined 1.3%. For the nine months, Los Angeles-based H. F. Ahmanson had profit of $128.1 million, or $1.29 a share, a 4.6% decline from earnings of $134.2 million in the year-ago nine months.The company said the decline was attributable to a 79% reduction in net gains on loan sales this year. Third-quarter spreads widened to the highest level in two years as loan portfolio yields rose and money costs declined, the company said. Great Western Financial said third-quarter profit rose slightly to $68.4 million, or 52 cents a share, from $67.9 million, or 53 cents a share, from a year ago.Great Western, based in Beverly Hills, Calif., is a financial services firm and parent to Great Western Bank, an S&L. Great Western said it had a sharp increase in margins in the recent third quarter.Margins are the difference between the yield on the company's earning assets and its own cost of funds. But a reduction in one-time gains on the sale of various assets and an increase in the company's provision for loan losses held down the earnings gain, the company said.Great Western's provision for loan losses was increased to $27.9 million for the recent quarter compared with $21.8 million a year ago primarily as a result of "continued weakness in various commercial and multifamily real estate markets outside California." For the nine months Great Western posted net of $177.5 million, or $1.37 a share, a 5.9% decline from $188.7 million, or $1.48 a share, in the year-ago period.
Dun & Bradstreet Corp. posted a 15% rise in third-quarter earnings. But revenue declined more than 2%, reflecting in part a continuing drop in sales of credit services in the wake of controversy over the company's sales practices.The information company also cited the stronger dollar, the sale last year of its former Official Airline Guides unit and other factors. Net income rose to a record $155.3 million, or 83 cents a share, from $134.8 million, or 72 cents a share.Revenue fell to $1.04 billion from $1.07 billion. In composite trading on the New York Stock Exchange, Dun & Bradstreet closed yesterday at $53.75, down 25 cents a share. Analysts said the results were as expected, but several added that the earnings masked underlying weaknesses in several businesses. "The quality of earnings wasn't as high as I expected," said Eric Philo, an analyst for Goldman, Sachs & Co. For example, he noted, operating profit was weaker than he had anticipated, but nonoperating earnings of $14.6 million and a lower tax rate helped boost net income. Dun & Bradstreet said operating earnings rose 8%, excluding the sale of Official Airline Guides. Third-quarter sales of U.S. credit services were "disappointingly below sales" of a year earlier, Dun & Bradstreet said.As previously reported, those sales have been declining this year in the wake of allegations that the company engaged in unfair sales practices that encouraged customers to overpurchase services.The company has denied the allegations but has negotiated a proposed $18 million settlement of related lawsuits.Analysts predict the sales impact will linger. "There isn't much question there will continue to be a ripple effect," said John Reidy, an analyst with Drexel Burnham Lambert Inc. Dun & Bradstreet noted that price competition in its Nielsen Marketing Research, Nielsen Clearing House and Donnelley Marketing businesses also restrained revenue growth.It cited cyclical conditions in its Moody's Investors Service Inc. and D&B Plan Services units. For the nine months, net income rose 19% to $449 million, or $2.40 a share, from $375.9 million, or $2.01 a share, a year earlier.Year-earlier earnings reflected costs of $14.3 million related to the acquisition of IMS International.Revenue rose slightly to $3.16 billion from $3.13 billion.
In the long, frightening night after Tuesday's devastating earthquake, Bay Area residents searched for comfort and solace wherever they could.Some found it on the screen of a personal computer. Hundreds of Californians made their way to their computers after the quake, and checked in with each other on electronic bulletin boards, which link computers CB-radio-style, via phone lines. Some of the most vivid bulletins came over The Well, a Sausalito, Calif., board that is one of the liveliest outposts of the electronic underground.About two-thirds of the Well's 3,000 subscribers live in the Bay Area. The quake knocked The Well out for six hours, but when it came back up, it teemed with emotional first-hand reports. Following are excerpts from the electronic traffic that night.The time is Pacific Daylight Time, and the initials or nicknames are those subscribers use to identify themselves. 11:54 p.m. JCKC: Wow! I was in the avenues, on the third floor of an old building, and except for my heart (Beat, BEAT!) I'm OK. Got back to Bolinas, and everything had fallen: broken poster frames with glass on the floor, file cabinets open or dumped onto the floor. 11:59 p.m. JKD: I was in my favorite watering hole, waiting for the game to start.I felt the temblor begin and glanced at the table next to mine, smiled that guilty smile and we both mouthed the words, "Earth-quake!" together.That's usually how long it takes for the temblors to pass.This time, it just got stronger and then the building started shaking violently up and down as though it were a child's toy block that was being tossed. 12:06 a.m. HRH: I was in the Berkeley Main library when it hit.Endless seconds wondering if those huge windows would buckle and shower us with glass.Only a few books fell in the reading room.Then the auto paint shop fire sent an evil-looking cloud of black smoke into the air. 12:07 a.m. ONEZIE: My younger daughter and I are fine.This building shook like hell and it kept getting stronger.Except for the gas tank at Hustead's Towing Service exploding and burning in downtown Berkeley, things here are quite peaceful.A lot of car alarms went off.The cats are fine, although nervous. 12:15 a.m. DHAWK: Huge fire from broken gas main in the Marina in SF. Areas that are made of `fill' liquefy.A woman in a three-story apartment was able to walk out the window of the third floor onto street level after the quake.The house just settled right down into the ground. 12:38 a.m. DAYAC: I was driving my truck, stopped at a red light at the corner of Shattuck and Alcatraz at the Oakland-Berkeley border when it hit.Worst part was watching power lines waving above my head and no way to drive away. 12:48 a.m. LMEYER: Was 300 ft. out on a pier in San Rafael.It flopped all around, real dramatic! Many hairline cracks in the concrete slabs afterwards.Ruined the damn fishing! 1:00 a.m. HEYNOW: I rode it out on the second floor of Leo's at 55th and Telegraph in Oakland.I heard parts of the building above my head cracking.I actually thought that I might die.I couldn't decide if I should come home to Marin, because my house is on stilts.I decided to brave the storm.There was a horrible smell of gas as I passed the Chevron refinery before crossing the Richmond-San Rafael Bridge.I could also see the clouds across the bay from the horrible fire in the Marina District of San Francisco. I have felt many aftershocks.My back is still in knots and my hands are still shaking.I think a few of the aftershocks might just be my body shaking. 1:11 a.m. GR8FLRED: I could see the flames from San Francisco from my house across the bay.It's hard to believe this really is happening. 1:11 a.m. RD: Building on the corner severely damaged, so an old lady and her very old mother are in the guest room.Books and software everywhere.This being typed in a standing position. 1:20 a.m. DGAULT: Bolinas -- astride the San Andreas Fault.Didn't feel a thing, but noticed some strange bird behavior.Duck swarms. 3:25 a.m. SAMURAI: I just felt another aftershock a few seconds ago.I'm just numb. 3:25 a.m. MACPOST: Downtown Bolinas seems to be the part of town that's worst off.No power, minimal phones, and a mess of mayonnaise, wine, and everything else all over the floors of the big old general store and the People's Co-op.The quivers move through my house every few minutes at unpredictable intervals, and the mouse that's been living in my kitchen has taken refuge under my desk.It runs out frantically now and then, and is clearly pretty distressed. I was in Stinson Beach when the quake rolled through town.At first, we were unfazed.Then as things got rougher, we ran for the door and spent the next few minutes outside watching the brick sidewalk under our feet oozing up and down, and the flowers waving in an eerie rhythm.Amazing what it does to one's heart rate and one's short-term memory.Everyone looked calm, but there was this surreal low level of confusion as the aftershocks continued. 4:02 a.m. SHIBUMI: Power is back on, and UCSF {medical center} seems to have quieted down for the night (they were doing triage out in the parking lot from the sound and lights of it).A friend of mine was in an underground computer center in downtown SF when the quake hit.He said that one of the computers took a three-foot trip sliding across the floor. Today should be interesting as people realize how hard life is going to be here for a while. 4:30 a.m. KIM: I got home, let the dogs into the house and noticed some sounds above my head, as if someone were walking on the roof, or upstairs.Then I noticed the car was bouncing up and down as if someone were jumping on it.I realized what was happening and screamed into the house for the dogs.Cupboard doors were flying, the trash can in the kitchen walked a few feet, the dogs came running, and I scooted them into the dog run and stood in the doorway myself, watching the outside trash cans dance across the concrete. When I realized it was over, I went and stood out in front of the house, waiting and praying for Merrill to come home, shivering as if it were 20 below zero until he got there.Never in my life have I been so frightened.When I saw the pictures of 880 and the Bay Bridge, I began to cry. 5:09 a.m. JROE: The Sunset {District} was more or less like a pajama party all evening, lots of people & dogs walking around, drinking beer. 6:50 a.m. CAROLG: I was just sitting down to meet with some new therapy clients, a couple, and the building started shaking like crazy.It's a flimsy structure, built up on supports, and it was really rocking around.The three of us stopped breathing for a moment, and then when it kept on coming we lunged for the doorway.Needless to say, it was an interesting first session! 7:13 a.m. CALLIOPE: Albany escaped embarrassingly unscathed.Biggest trouble was scared family who couldn't get a phone line through, and spent a really horrible hour not knowing. 8:01 a.m. HLR: Judy and I were in our back yard when the lawn started rolling like ocean waves.We ran into the house to get Mame, but the next tremor threw me in the air and bounced me as I tried to get to my feet.We are all fine here, although Mame was extremely freaked.Kitchen full of broken crystal.Books and tapes all over my room.Not one thing in the house is where it is supposed to be, but the structure is fine.While I was standing on the lawn with Mame, waiting for another tremor, I noticed that all the earthworms were emerging from the ground and slithering across the lawn! 9:31 a.m. GR8FLRED: It's amazing how one second can so completely change your life. 9:38 a.m. FIG: I guess we're all living very tentatively here, waiting for the expected but dreaded aftershock.It's hard to accept that it's over and only took 15 seconds.I wonder when we'll be able to relax. 9:53 a.m. PANDA: Flesh goes to total alert for flight or fight.Nausea seems a commonplace symptom.Berkeley very quiet right now.I walked along Shattuck between Delaware and Cedar at a few minutes before eight this morning.Next to Chez Panisse a homeless couple, bundled into a blue sleeping bag, sat up, said, "Good morning" and then the woman smiled, said, "Isn't it great just to be alive?" I agreed.It is.Great.
The House Public Works and Transportation Committee approved a bill that would give the Transportation Department power to block airline leveraged buy-outs, despite a clear veto threat from the Bush administration. The 23-5 vote clears the way for consideration on the House floor next week or the week after.Transportation Secretary Samuel Skinner, in a letter to the committee, warned that he would urge President Bush to veto the legislation if it passed Congress.The Senate Commerce Committee already has approved similar legislation. On Monday, a letter from Mr. Skinner's deputy, Elaine Chao, said the administration opposed the legislation "in its present form." Some of the bill's supporters had taken heart from the fact that the letter wasn't signed by Mr. Skinner and that it didn't contain a veto threat. The stepped-up administration warnings annoyed some lawmakers, especially senior Republicans who supported the bill because they thought the Transportation Department favored it. "We backed this bill because we thought it would help Skinner," one Republican said, "and now we're out there dangling in the wind." A few weeks ago, Mr. Skinner testified before Congress that it would be "cleaner, more efficient" if he had authority to block buy-outs in advance.But he never took an official position on the bill and has steadfastly maintained that he already has enough authority to deal with buy-outs. Under the committee bill, the Transportation secretary would have 30 days, and an additional 20 days if needed, to review any proposed purchase of 15% or more of a major U.S. airline's voting stock.The secretary would be required to block an acquisition if he concluded that it would so weaken an airline financially that it would hurt safety or reduce the carrier's ability to compete, or if it gave control to a foreign interest. Although the legislation would apply to any acquisition of a major airline, it is aimed at transactions financed by large amounts of debt.Supporters of the bill are concerned an airline might sacrifice costly safety measures in order to repay debt. The panel's action occurs in a politically charged atmosphere surrounding recent buy-out proposals, their apparent collapse and the volatile conditions in the stock market. "It became apparent in hearings that there ought to be regulation of leveraged buy-outs of some sort," Rep. James Oberstar (D., Minn.), chairman of the House Aviation Subcommittee, said during the panel's deliberations. "I don't believe in the airline business you can be totally laissez-faire because of the high degree of public interest" at stake. But Mr. Skinner disagreed, calling the legislation "a retreat from the policy of deregulaton of the airline industry." In his letter to Committee Chairman Glenn Anderson (D., Calif.), the secretary also said the bill "would be at odds with the administration's policies welcoming open foreign investment and market allocation of resources." Currently, the Transportation Department doesn't have the authority to block a takeover in advance.However, if the secretary concludes that a transaction has made a carrier unfit to operate, the department may revoke its certificate, grounding the airline.Such authority is more than adequate, say opponents of the legislation.But supporters argue that grounding an airline is so drastic that the department would hesitate doing it. The panel rejected a proposal pushed by AMR Corp., the parent of American Airlines, to allow the Transportation secretary to block corporate raiders from waging proxy fights to oust boards that oppose a leveraged buy-out.It also voted down proposals to give the secretary much more discretion on whether to block a buy-out and to require the department to consider the impact of a buy-out on workers.
London shares rallied to post strong gains after initial fears evaporated that the California earthquake would depress Wall Street prices. Tokyo stocks, which rebounded strongly Tuesday, extended their gains yesterday, but most other Asian and Pacific markets closed sharply lower. In London, the Financial Times-Stock Exchange 100-share index jumped 34.6 points to close at its intraday high of 2170.1.The index was under pressure for most of the morning over concerns that the effects of Tuesday night's major earthquake in the San Francisco area would undermine the U.S. market.The mood changed after dealers reappraised the direct impact of the disaster on shares and Wall Street rebounded from early losses. The Financial Times 30-share index settled 27.8 points higher at 1758.5.Volume was 449.3 million shares, the slowest of a hectic week, compared with 643.4 million Tuesday. U.K. composite, or non-life, insurers, which some equity analysts said might be heavily hit by the earthquake disaster, helped support the London market by showing only narrow losses in early trading.The insurers' relative resilience gave the market time to reappraise the impact of the California disaster on U.K. equities, dealers said. Dealers said the market still hasn't shaken off its nervousness after its bumpy ride of the past several sessions, caused by interest-rate increases last week and Wall Street's 6.9% plunge Friday.But technical factors, including modest gains in the value of the pound, helped draw buying back into the market and reverse losses posted a day earlier. Among composite insurers, General Accident rose 10 pence to #10.03 ($15.80) a share, Guardian Royal climbed 5 to 217 pence, Sun Alliance rose 3 to 290, and Royal Insurance jumped 12 to 450.Life insurers fared similarly, with Legal & General advancing 3 to 344, although Prudential fell 2 to 184 1/2.Pearl Group rose 5 to 628, and Sun Life finished unchanged at #10.98. Most banking issues retreated after a sector downgrade by Warburg Securities, although National Westminister showed strength on positive comments from brokerage firms about its long-term prospects.NatWest, the most actively traded of the banks, finished at 300, up 1. B.A.T Industries fell in early dealings but recovered to finish at 754, up 5.Dealers said the market was nervous ahead of a special B.A.T holders' meeting today.The session is to consider a defensive plan to spin off assets to fend off Sir James Goldsmith's #13.4 billion bid for B.A.T. The recent stock market drop has shaken confidence in the plan, but dealers said the shares fell initially on questions about whether Mr. Goldsmith's highly leveraged bid will come to fruition. Trading was suspended in WCRS Group, a U.K. advertising concern, pending an announcement that it is buying the remaining 50% of France's Carat Holding for 2.02 billion French francs ($318.7 million) and expanding commercial and equity ties with advertising group Eurocom. Merchant banker Morgan Grenfell climbed 14 to 406 on renewed takeover speculation.S.G. Warburg, also mentioned in the rumor mill, jumped 14 at to 414.Jaguar advanced 19 to 673 as traders contemplated a potential battle between General Motors and Ford Motor for control of the U.K. luxury auto maker. Tokyo's Nikkei index of 225 issues rose 111.48 points, or 0.32%, to 35107.56.The index gained 527.39 Tuesday.Volume was estimated at 800 million shares, compared with 678 million Tuesday.Declining issues outnumbered advancers 505-455, with 172 unchanged.The Tokyo Stock Price Index of all issues listed in the first section, which gained 41.76 Tuesday, was up 0.24 points, or 0.01%, at 2642.88. In early trading in Tokyo Thursday, the Nikkei index rose 135.09 points to 35242.65. On Wednesday, shares were pushed up by index-related buying on the part of investment trusts as well as small orders from individuals and corporations, traders said. Institutions, meanwhile, stepped back to the sidelines as the direction of U.S. interest rates remained unclear.The uncertainty was multiplied by the persistent strength of the dollar, traders said, and by the U.S. trade deficit, which widened by 31% in August from the previous month. Traders and analysts said they didn't see any effect on Tokyo stocks from the California earthquake.The impact on Japanese insurers and property owners with interests in the San Francisco area is still being assessed, they said. Buying was scattered across a wide range of issues, making the session fairly characterless, traders said.With uncertainty still hanging over interest rates and the dollar, the market failed to find a focus that might lead to further investor commitments, they said. Some traders said the popularity of issues that gained yesterday won't last long, as investors will rotate their buying choices over the short term. Interest rate-sensitive shares such as steel, construction and electric utility companies, which rose early in the week, saw their advance weaken yesterday. Traders said these issues need large-volume buying to push up their prices, so substantial gains aren't likely unless institutional investors participate. An outstanding issue in yesterday's session was Mitsubishi Rayon, which surged 95 to 905 yen ($6.34) a share.Its popularity was due to speculation about the strong earnings potential of a new type of plastic wrap for household use, a trader at County Natwest Securities Japan said. Some laggard food issues attracted bargain-hunters, traders said.Kirin Brewery was up 100 at 2,000, and Ajinomoto gained 70 to 2,840.Pharmaceuticals were mostly higher, with SS Pharmaceutical gaining 140 to 1,980. Shares closed lower in other major Asian and Pacific markets, including Sydney, Hong Kong, Singapore, Taipei, Wellington, Seoul and Manila.Most of those markets had rebounded the day before from Monday's slide.But unlike the Tokyo exchange, they failed to extend the rise to a second session. Elsewhere, prices surged for a second day in Frankfurt, closed higher in Zurich, Stockholm and Amsterdam and were broadly lower in Milan, Paris and Brussels.South African gold stocks ended marginally firmer. In Brussels, it was the first trading day for most major shares since stocks tumbled on Wall Street Friday.Trading had been impeded by a major computer failure that took place before the start of Monday's session. Here are price trends on the world's major stock markets, as calculated by Morgan Stanley Capital International Perspective, Geneva.To make them directly comparable, each index is based on the close of 1969 equaling 100.The percentage change is since year-end.
Housing construction sank in September to its lowest level since the last recession, the Commerce Department reported. Work began on homes and apartments at an annual rate of 1,263,000 units last month, down 5.2% from August, the department said.The September decline followed an even steeper drop of 6.2% in August and left housing starts at their weakest since October 1982, when the country was nearing the end of a recession.Originally the department had reported the August decline as 5%. The numbers suggest that the housing industry is still suffering the effects of the Federal Reserve's battle against inflation.The industry had shown signs of recovery this summer, after the central bank began to relax its clamp on credit, allowing interest rates to drop a bit after pushing them up for a year.Sales of new homes rose and inventories of houses, which had been climbing, dropped. But last month new construction in all types of homes waned, from single-family houses to large apartment complexes. "It's pretty much weak across the board," said Martin Regalia, chief economist of the National Council of Savings Institutions. Mr. Regalia said the industry may be reluctant to step up building at the moment for fear the inventories of unsold homes will increase again. Another reason for the weakness, he said, may be that mortgage rates have hit a plateau since they began edging down after a peak in March.In August, rates on 30-year fixed-rate mortgages started creeping up a bit, but they inched down again through September. "Rates haven't really peeled off that much," Mr. Regalia said. "We've kind of settled now into an interest-rate environment that's fairly high." Work was begun on single family homes -- the core of the housing market -- at an annual rate of 971,000 in September, a drop of 2.1% from the previous month.That followed a 3.3% decline in August. Construction of apartments and other multi-family dwellings slipped 2.2% to an annual rate of 1,022,000 following a 3.5% decline in August. The number of building permits issued for future construction dropped 2.4% to a 1,296,000 annual rate after rising 3.7% in August. All the numbers were adjusted for normal seasonal variations in building activity.The housing starts numbers, however, are one of the least precise of the government's economic indicators and are often revised significantly as more information is collected.
Shearson Lehman Hutton Holdings Inc. posted a sharp third-quarter turnaround from a year earlier, but net income would have dropped from the second quarter without a $37 million after-tax gain. The securities firm posted third-quarter net of $66 million, or 64 cents a share, compared with a restated year-earlier loss of $3 million, or 11 cents a share. Revenue climbed 25% to $3.3 billion from $2.6 billion. The latest period included the gain, which was $77 million before tax, from the previously announced sale of the institutional money management business of Lehman Management Co.The 1988 period was restated from net income of $8 million to correct an overstatement in the company's Boston Co. subsidiary. In the 1989 second quarter, Shearson had net income of $55 million, or 54 cents a share.An average 102.5 million common shares were outstanding in the latest quarter, up from 87.1 million. In New York Stock Exchange composite trading yesterday, Shearson shares lost 37.5 cents to $18.125. The company said the improved performance from a year ago reflects higher commissions and revenue from marketmaking and trading for its own account.Commission revenue was $522 million, up 49%.But industrywide trading activity slowed in September as institutional investors turned cautious and individuals continued to shy away from the market. Investment banking revenue fell 32% to $205 million, in part reflecting the continued slowdown of the underwriting business. In the nine months, net fell 3% to $106 million, or 98 cents a share, from $110 million, or $1.05 a share.Revenue advanced 26% to $9.6 billion from $7.6 billion.
Two major drug companies posted strong third-quarter earnings, in line with profits already reported by industry leaders and analysts' expectations.But Pfizer Inc., based in New York, reported flat earnings. Schering-Plough Corp., based in Madison, N.J., reported a 21% rise in earnings as American Home Products Corp. of New York posted an 11% increase in net. American Home Products American Home Products said sales and earnings for the third quarter and nine months were at record levels.Sales for the third quarter increased 6.5% to $1.51 billion from $1.42 billion. Sales of health-care products increased 6% in the third quarter, based in part on strong sales of prescription drugs such as Premarin, an estrogen-replacement drug, and sales of the company's infant formula. American Home Products said net income benefited from a "lower effective tax rate," reflecting a reduction of foreign tax rates, and additional operations in Puerto Rico.Net also was aided by a gain on the sale of the company's equity interests in South Africa effective Sept. 1. In New York Stock Exchange composite trading yesterday, American Home Products closed at $102.25 a share, down 75 cents. Pfizer Pfizer said third-quarter sales increased 4% to $1.44 billion from $1.38 billion.The company said net income was flat because of investment in research and development and costs related to launches of several products. The company said the dollar's continued strengthening reduced world-wide sales growth by three percentage points. Pfizer posted its largest gains in healthcare sales, up 3%, and consumer products, up 23%.Sales by the specialty chemicals and materials science segments were flat, and sales by the agriculture segment declined 5%. In the health-care segment, pharmaceutical sales increased 4% and sales of hospital products increased 1%.During the quarter, Pfizer received federal approval of Procardia XL, a calcium channel blocker approved for both angina and hypertension, and Monorail Piccolino, used to open obstructed coronary arteries. In New York Stock Exchange composite trading yesterday, Pfizer closed at $67.75 a share, up 75 cents. Schering-Plough Schering-Plough said sales gained 2.7% to $743.7 million from $724.4 million. In the period, the company completed the sale of its European cosmetics businesses, sold a majority interest in its Brazilian affiliate, and announced the reorganization of its over-the-counter drug businesses into a new unit, Schering-Plough Health Care Products.These actions didn't affect results because the gain on the sale of the European cosmetics businesses was offset by provisions relating to the Brazil divestiture and drug restructuring. U.S. pharmaceutical sales rose 15%, led by allergy, asthma and cold products; dermatological products; anti-infectives and anti-cancer products; and cardiovascular products. World-wide consumer product sales declined 12%, primarily because of the European cosmetics sale.Significantly lower sales of `Stay Trim' diet aids also were a factor in the drop.The Maybelline beauty product line had higher sales following a sluggish first half. In Big Board composite trading, Schering-Plough shares fell 75 cents to close at $74.125.
It is quite unfortunate that you failed so miserably in reporting the Hurricane Hugo disaster.Your Sept. 27 page-one article "Charleston Lost Quite a Lot to Hugo, Especially Gentility" leaves the impression that the storm was little more than an inconvenience.The damage reported focused on a select few who owned irreplaceable historic homes on the Battery. Not mentioned were the 50,000 people rendered homeless, and the more than 200,000 out of work for an indeterminable period; the $1 billion-plus in losses to homes and personal property on the barrier islands; the near- and long-term impact on the state's largest industry, tourism, not to mention the human suffering. In centering on the disruption of a few proud local customs such as the historichomes tour and the damage to the antiquities, your reporter served to only perpetuate an outdated and stereotypically provincial view of this otherwise thriving port city.The damage will undoubtedly prove to be one of the epic human and economic disasters of the decade in this country. David M. Carroll Columbia, S.C. Your story was tasteless and insensitive.Depicting the people of a traumatized city reeling from a disaster of unprecedented proportions was at the very best ludicrous under the circumstances.Your narrow focus appears to be a contrived attempt to show the people of that historic city to be doddering fools. You had to have been blind not to see the scenario there for what it was and is and will continue to be for months and even years -- a part of South Carolina that has sustained a blow that the Red Cross expects will cost that organization alone some $38 million. William C. Barksdale Jr. Columbia, S.C. Charleston is historic and aristocratic, as your reporter said, but not haughty, as he suggested.Charlestonians are instead indomitable and have contributed mightily to the culture and history of our country for more than 300 years.I suggest your reporter see Charleston next spring in its full glory.William C. Stuart III Silver Spring, Md.
Sebastian Guzman Cabrera took over the oil workers union, Mexico's most powerful labor organization, only last January.But even in that short time Mr. Guzman Cabrera has become as controversial in his own way as his deposed predecessor, Joaquin Hernandez Galicia, known as La Quina. President Carlos Salinas de Gortari used the army to oust La Quina, who reigned for 28 years over a graft-riddled empire that made state-run Petroleos Mexicanos, or Pemex, one of the world's most inefficient oil companies.Now, Mr. Guzman Cabrera is facing accusations that he's as much a company man as La Quina was a crook. In recent contract negotiations with Pemex management, Mr. Guzman Cabrera accepted major concessions that greatly curtail the union's role in subcontracting, long a source of millions of dollars in illicit earnings.And with the quiet pragmatism of Mr. Guzman Cabrera replacing the prickly populism of La Quina, government technocrats have been given a free hand to open the petrochemical sector to wider private and foreign investment. Mr. Guzman Cabrera's new order hasn't arrived without resistance.Brawls between union factions still erupt at Pemex installations.Leftist leader Cuauhtemoc Cardenas publicly questioned Mr. Guzman Cabrera's "moral quality," suggesting he is part of a conspiracy to turn over the country's oil, a symbol of Mexican nationalism, to foreigners. The 61-year-old Mr. Guzman Cabrera takes such criticisms in stride. "This isn't a new kind of union leadership, it's a new Mexico.We're no longer afraid of associating with private or foreign capital," he says. Pemex, which produces 40% of government revenue, desperately needs new investment.Since world oil prices collapsed in 1982, the government has siphoned Pemex's coffers to make payments on Mexico's $97 billion foreign debt.Little money has been returned to upgrade Pemex's aging facilities.While the government drains Pemex from above, the union has drained it from below.A bloated payroll and pervasive graft caused Pemex's operating costs to balloon to 95 cents of each $1 in sales, far above the industry norm. The declines in investment and efficiency explain in part why Mexico has been importing gasoline this year.Some projections show Mexico importing crude by the end of the century, barring an overhaul of operations. "Whatever you tried to change, whether it was cutting costs or attracting new partners, the big obstacle was the old union leadership," says oil consultant George Baker. Enter Mr. Guzman Cabrera, who has a clear understanding of where union leaders fit in the pro-enterprise regime of President Salinas. "I'm the secretary-general, if there is one," he says, greeting a visitor to his office.Beginning as a laborer in a refinery, Mr. Guzman Cabrera put in more than 40 years at Pemex before being pushed into retirement by La Quina after a dispute two years ago. Though he also long benefited from the system built by La Quina, Mr. Guzman Cabrera says union perks had simply gotten out of hand.They are "at the base of all of the problems of corruption," he says. Thus, in recent contract negotiations, Mr. Guzman Cabrera gave up the union's right to assign 40% of all of Pemex's outside contracts -- an enormous source of kickbacks.The union also ceded the 2% commission it had received on all Pemex maintenance contracts. (The union will keep a 2% commission on construction projects.) The new contract also eliminates the $15 monthly coupon, good only at union-owned grocery stores, that was part of the salary of every worker, from roughneck to chief executive.About 9,800 technical workers, notably chemists and lawyers, were switched to non-union status.Also, because of its reduced capital budget, Pemex has phased out about 50,000 transitory construction workers, reducing the work force to about 140,000, the union leader says.Mr. Guzman Cabrera says the union's sacrifices will be offset by a wage and benefit package that amounts to a 22% increase in compensation. But Pemex managers are the ones most thrilled by the contract. "We are retaking the instruments of administration," says Raul Robles, a Pemex subdirector.Pemex officials wouldn't say how much money the new contract would save the company, but one previous government estimate pegged savings at around $500 million a year. Pemex's customers also are pleased with the company's new spirit.Grupo Desc, a big conglomerate, has long depended on Pemex petrochemicals to produce plastic packing material.But when the Pemex plant shut down for an annual overhaul, it would never give notice to its customers. "The capriciousness would completely disrupt our operations," says Ernesto Vega Velasco, Desc's finance director.This year, for the first time, Desc and other customers were consulted well in advance of the Pemex plant's shutdown to ensure minimal inconvenience. Taming the union complements previous moves by the government to attract private investment in petrochemicals, which Mexico has been forced to import in large quantities in recent years.In May, the government unveiled new foreign investment regulations that create special trusts allowing foreigners, long limited to a 40% stake in secondary petrochemical companies, to own up to 100%.Later, the government reclassified several basic petrochemicals as secondary products. But Pemex's courtship with private companies, and especially foreign ones, is controversial in a country where oil has been a symbol of national sovereignty since foreign oil holdings were nationalized in 1938. "They are preparing the workers for what's coming: foreign control," wrote Heberto Castillo, a leftist leader. Mr. Guzman Cabrera and government officials insist that foreigners will be limited to investing in secondary petroleum products.But the new union leader makes no apologies for Pemex's more outward-looking attitude. "If we do not integrate into this new world of interdependence, sooner or later we're going to become victims of our own isolation," he says.
Couple Counseling Grows to Defuse Stress MORE EXECUTIVES and their spouses are seeking counseling as work and family pressures mount.Some employers initiate referrals, especially if work problems threaten a top manager's job. Many couples "are like ships passing in the night," a communications gulf that sparks problems on the job and at home, says psychologist Harry Levinson.His Levinson Institute in Belmont, Mass., has seen in recent years a doubling in the number of executives and spouses at its weeklong counseling program.Employers foot the bill, he says, figuring what's good for the couple is good for the company. One East Coast manufacturing executive, faced with a job transfer his wife resented, found that counseling helped them both come to grips with the move.And the vice president of a large Midwestern company realized that an abrasive temperament threatened his career when his wife confided that similar behavior at home harmed their marriage. More dual-career couples also are getting help, with men increasingly bringing their working wives for joint counseling. "The level of stress for a woman is often so high, it's the husband who says, 'I'm worried about her, '" says psychologist Marjorie Hansen Shaevitz.Her Institute for Family and Work Relationships in La Jolla, Calif., has noted a doubling in the number of couples seeking help the past two years. "No matter how competent and smart you both are, the relationship almost certainly will erode if you don't have time to talk, to have fun and to be sexual," says Ms. Shaevitz. She urges client couples to begin a "detoxification" period, purging social and other nonproductive activities and setting time apart for themselves. "Putting those times on the calendar," she says, "is as important as remembering business appointments." Power of Suggestion Stronger in Japan HERE'S ONE more explanation for why Japan is a tough industrial competitor: Two of three Japanese employees submit suggestions to save money, increase efficiency and boost morale, while only 8% of American workers do. And the Japanese make far more suggestions -- 2,472 per 100 eligible employees vs. only 13 per 100 employees in the Data for 1987 from the National Association of Suggestion Systems and the Japan Human Relations Association also indicate that Japanese employers adopt four of five suggestions, while their U.S. counterparts accept just one in four. In Japan, small suggestions are encouraged.Each new employee is expected to submit four daily in the first few months on the job.U.S. companies tend to favor suggestions "that go for the home runs," says Gary Floss, vice president of corporate quality at Control Data Corp. That helps explain why American employers grant an average award of $604.72 per suggestion, while Japan's payment is $3.23.Still, suggestions' net savings per 100 employees is $274,475 in Japan vs. $24,891 in the U.S. U.S. companies developing management teams are wrestling with how to handle individual suggestion systems.Control Data, for one, plays down its employee suggestion program because it favors the team-management focus. Merger Fallout: Beware Employee Dishonesty CORPORATE security directors increasingly worry that merger mania spawns a rise in employee dishonesty. A Security magazine survey places the effect of takeovers and buy-outs among the industry's 10 biggest challenges. "If it causes management to take their eye off the ball, inventory shrinkage is going to be affected," says Lewis Shealy, vice president for loss prevention at Marshall Field's, the department store chain. A separate study of the extent of employee misconduct linked general job satisfaction to property loss.Co-author Richard Hollinger cites what happened at one family-owned company absorbed by a foreign giant.Pilferage climbed dramatically as many angry employees "felt abandoned by the former owners," says the University of Florida sociologist. But top management should watch for other tell-tale signs of employee misdeeds, like expense-account fudging and phone misuse.Security consultant Dennis Dalton of Ventura, Calif., thinks mergers often trigger longer lunch hours and increased absenteeism, conduct which can sap the bottom line more than thefts. New management can take several steps to reduce dishonesty.Most important, experts say, is to show that a company's ethical tone is set at the top.Mr. Dalton also recommends that the chief executive establish a rumor control center and move swiftly to bolster morale. Consultant John Keller of Southlake, Texas, urges that top management adopt a "tough hands-on approach" with very tight controls and monitoring.And security authority Robert L. Duston favors disciplining all employees who cheat. Firms Walk Fine Line In Distributing Profits ARE CORPORATE profits distributed fairly?A survey by Sirota, Alper & Pfau, a New York consulting firm, underscores the difficulty for top management in satisfying employees and investors on that score. Nearly seven of 10 investors think companies reinvest "too little" of their profits in the business.And half the employees surveyed think companies dole out too little to them.But both see a common enemy: About 66% of employees and 73% of investors think senior managers get too big a slice of the profit pie.
Bank of New York Co. said it agreed in principle to acquire the credit-card business of Houston-based First City Bancorp. of Texas for between $130 million and $134 million. The move, subject to a definitive agreement, is part of a trend by big-city banks that have been buying up credit-card portfolios to expand their business.Just last month, a Bank of New York subsidiary agreed to buy the credit-card operation of Dreyfus Corp. 's Dreyfus Consumer Bank for $168 million, a transaction that is expected to be completed by the end of the year. First City's portfolio includes approximately 640,000 accounts with about $550 million in loans outstanding.First City, which issues both MasterCard and Visa cards, has agreed to act as an agent bank. At the end of the third quarter, Bank of New York's credit-card business consisted of 2.4 million accounts with $3.6 billion in loans outstanding.Bank of New York is currently the seventh-largest issuer of credit cards in the First City said that because of increased competition in the credit-card business, it had decided it either had to expand its own holdings substantially or sell them. "We think there's a good prospect that competition is going to get pretty fierce in this market," said James E. Day, a First City vice president. "We see it becoming a bargain-basement kind of business." The company estimated that the transaction would enhance its book value, which stood at $28.55 a share on Sept. 30, by more than $100 million, or about $4 a share.The company also said the transaction would bolster after-tax earnings by $3.25 a share when completed and boost its primary capital ratio to 7% from 6.63%. First City, which recently purchased three small Texas banking concerns, said it would use the proceeds to pursue additional expansion opportunities in the Southwest and elsewhere.With that possibility in mind, analysts said the transaction was a positive move for First City. "I think they'll be able to move faster to make acquisitions in Texas," said Brent Erensel, an analyst with Donaldson, Lufkin & Jenrette. "That's something they can do very well."
British Airways PLC said it is seeking improved terms and a sharply lower price in any revised bid for United Airlines parent UAL Corp. following the collapse of a $6.79 billion, $300-a-share buy-out bid. Derek Stevens, British Air's chief financial officer, told Dow Jones Professional Investor Report a price of $230 a share is "certainly not too low," and indicated his company would like to reduce the size of its $750 million cash investment. He added the airline isn't committed to going forward with any new bid, and hasn't participated in bankers' efforts to revive the transaction that collapsed. "We're in no way committed to a deal going through at all.We're not rushing into anything.We don't want to be party to a second rejection," he said, adding that coming up with a revised offer could easily take several weeks. Mr. Stevens's remarks, confirming a report in The Wall Street Journal that British Air wants to start from scratch in any new bid for the nation's second-largest airline, helped push UAL stock lower for the fourth straight day. UAL fell $6.25 a share to $191.75 on volume of 2.3 million shares in composite trading on the New York Stock Exchange as concern deepened among takeover stock traders about the length of time it will take to revive the purchase. Under the original buy-out approved by the UAL board Sept. 14, UAL's pilots planned to put up $200 million in cash and make $200 million in annual cost concessions for a 75% stake.UAL management was to pay $15 million for 10%, and British Air was to receive a 15% stake. The buy-out fell through when Citicorp and Chase Manhattan Corp. unexpectedly failed to obtain bank financing.Since then, UAL stock has fallen 33% in what may rank as the largest collapse of a takeover stock ever. The tenor of Mr. Stevens's remarks seemed to indicate that British Air will take a more active, high-profile role in pursuing any new bid.He said he believes UAL management was badly advised on the funding of its original transaction. Mr. Stevens said British Air hasn't received any new buy-out proposals from the labor-management group, led by UAL Chairman Stephen Wolf, and hasn't received any indication of when one might be forthcoming. "As far as we're concerned, we're waiting for the dust to settle," he said. Although British Air is waiting to see what the buy-out group comes up with, Mr. Stevens said a revised transaction with less debt leverage is likely to be more attractive to banks.He said the original proposal is dead, and all aspects of a revised version are up for change, in light of the changes in UAL's market price, the amount of debt banks are willing to fund, and the price British Air would be willing to pay. Mr. Stevens said he expects the new price will be considerably lower, but declined to specify a figure.Asked whether a $230-a-share figure circulating in the market yesterday is too low, he said, "It's certainly not too low." He added the original offer was "a pretty full price," and that British Air's contribution "was quite a large chunk for us." British Air was originally attracted to the chance of obtaining a 15% stake in the company, but wasn't particularly happy with paying $750 million. "If the {new} deal had us putting up less money but still having 15%, that would be a point in our favor," he said.In any new proposal, British Air would expect a greater rate of return than the 20%-plus in the original proposal. In the event that the buy-out group stalls in reviving its bid, the UAL board could remain under some pressure to seek another transaction, even without any legal obligation to do so.Roughly one-third of its stock is believed held by takeover stock traders, who could vote to oust the board if they become impatient. Meanwhile, the buy-out group's task of holding its fragile coalition together, in the face of the bid's collapse and internal opposition from two other employee groups, has been further complicated by an apparent rift in the ranks of the pilot union itself. A pilot representing a group of 220 pilots hired during United's 1985 strike filed suit Friday in Chicago federal court to block the takeover.The dissident pilots oppose the plan because it would cause them to lose their seniority. UAL's management agreed to reduce the seniority of those pilots in exchange for the support of the United pilot union for the buy-out proposal.The 220 pilots involved in the suit aren't members of the union.The airline had allowed them to move ahead of some union members in seniority following the 1985 strike, a move the union had contested in a previous lawsuit. Judith Valente contributed to this article.
Corporate efforts to control health-care costs by requiring evaluations prior to planned hospitalization and surgery haven't been sweeping enough to reduce the long-term rate of cost increases, according to a study by the Institute of Medicine. In the last decade, many corporations have embraced the "utilization management" cost containment strategy as a way to control health-care costs for employees.These programs vary widely, but often require second opinions on proposed surgery, preadmission reviews of elective hospitalizations and reviews of treatment during illnesses or recovery periods.Between 50% and 75% of today's workers are covered by such plans, up from 5% five years ago. "Although it probably has reduced the level of expenditures for some purchasers, utilization management -- like most other cost containment strategies -- doesn't appear to have altered the long-term rate of increase in health-care costs," the Institute of Medicine, an affiliate of the National Academy of Sciences, concluded after a two-year study. "Employers who saw a short-term moderation in benefit expenditures are seeing a return to previous trends." While utilization management frequently reduces hospitalization costs, these savings are often offset by increases in outpatient services and higher administrative costs, according to the report by a panel of health-care experts. The report suggested that current review programs are too narrow. "The unnecessary and inappropriate use of the hospital, and not the actual need for a particular procedure, has been the main focus," the panel said. "As a general rule, prior-review programs have not made case-by-case assessments of the comparative costs of alternative treatments or sites of care." The report said that utilization management should have more of an impact as federal research on the effectiveness of medical treatments helps lead to medical practice guidelines. Howard Bailit, a panel member and a vice president of Aetna Life & Casualty, said that utilization management will also do a better job of containing costs as it spreads to cover medical services delivered outside of hospitals. "There's pretty good evidence that utilization management has reduced inappropriate hospitalization," he said.But at the same time, spending on physician services and ambulatory care have mushroomed. "It's like squeezing a balloon," Dr. Bailit said. David Rahill of A. Foster Higgins & Co. said that clients of his consulting firm report that utilization management reduces their hospital care bills by about 5%, but he agreed that for the health-care system as whole, some of these savings are offset by administrative and outpatient care costs. Jerome Grossman, chairman of the panel, agrees that administrative costs of utilization management programs can be high. "You have a whole staff standing ready" to evaluate the appropriateness of recommended treatment, he said.Dr. Grossman, who also is president of New England Medical Center Hospitals in Boston, noted that the hospitals he runs deal with more than 100 utilization management firms and that many of them have different procedures and requirements.The panel urged greater efforts to reduce the complexity, paperwork and cost of utilization review. "Utilization management needs to better demonstrate that it reduces the wasteful use of resources, improves the appropriateness of patient care and imposes only reasonable burdens on patients and providers," the panel concluded.
Renault and DAF Trucks NV announced a preliminary agreement to jointly manufacture a line of trucks in Britain and France. Philippe Gras, a Renault managing director, said the new line will cover trucks of between 2.5 tons and 4.2 tons and will be built at Renault's Bapilly plant in France and at DAF's British plant.The French state-controlled auto group and the Dutch truck maker plan to incorporate the new trucks into their product lines when they begin production toward the middle of the 1990s. Mr. Gras said he expects a definitive agreement between the two companies to be completed in the next few months.The venture is the latest example of the trend toward cooperative projects in Europe ahead of the 1992 deadline for eliminating trade barriers within the European Community. Renault and DAF are expected to invest a total of about three billion French francs ($157.8 million) in the venture, including FFr1 billion for design and development costs.In addition, the companies will each spend about FFr1 billion on tooling up their plants. Mr. Gras said the joint venture represents considerable savings for both Renault and DAF, since both companies would in any case have had to renew their existing ranges of light goods vehicles.By pooling their resources, the two groups have effectively halved the design and development costs that would otherwise have been entailed, he said. Renault officials said the potential European market for light trucks in the 2.5-ton to 4.2-ton range is between 700,000 and 800,000 vehicles annually, and Renault and DAF are aiming for a combined market share of about 11%. Both Renault and DAF will have world-wide marketing rights for the new range of vans and light trucks.Under a separate arrangement, British Aerospace PLC's Rover Group PLC subsidiary will also be able to offer the vehicles through its dealers in the U.K., and Renault's truck-building subsidiary Renault Vehicles Industriels will have similar rights in France. DAF is 16%-owned by British Aerospace, with a further 6.5% held by the Dutch state-owned chemical group NV DSM.The van Doorne family of the Netherlands holds an additional 11% of DAF's capital.
The Federal Reserve System is the standard object of suggestions for organizational and institutional changes, for two reasons. First, its position in the government is anomalous.It has an unusual kind of independence from elected officials and still has authority over one of the most powerful of government's instruments -- the control of the money supply.Thus we have a condition that is easily described as undemocratic.Second, the responsibilities of the Federal Reserve as guardian of the currency, which means as guardian of the stability of the price level, sometimes lead it to take measures that are unpopular.As former Fed Chairman William McChesney Martin used to say, they would have to take the punch bowl away just as the party is getting interesting. So the Federal Reserve is an attractive target for complaint by politicians.The Fed is easily assigned the blame for unpleasantness, like high interest rates or slow economic growth, while the politicians can escape responsibility by pointing to the Fed's independence. This leads to proposals for "reform" of the Fed, which have the common feature of making the Fed more responsive to the administration, to the Congress and to public opinion -- without, however, any assumption of additional responsibility by the politicians.These proposals include changing the term of the chairman, shortening the terms of the members, eliminating the presidents of the Federal Reserve Banks from the decision-making process, putting the Secretary of the Treasury on the Federal Reserve Board, having the Fed audited by an arm of Congress (the General Accounting Office), putting the Fed's expenditures in the budget, and requiring prompt publication of the Fed's minutes.Some of these ideas are again under consideration in Congress. But these proposals do not rest on a view of what the Fed's problem is or, if they do, they rest on an incorrect view.They would not solve the problem; they would make it worse.The problem is not that the Fed is too unresponsive to the public interest.On the contrary, it is too responsive to an incorrect view of the public interest. The price level in the U.S. is now about 4 1/4 times as high as it was 30 years ago.On average, something that cost $100 30 years ago now costs $425.Or, a wage that was $100 30 years ago would buy only $23.53 worth of stuff today.On two occasions the inflation rate rose to more than 10% a year.In each case the ending of this unsustainable inflation caused a severe recession -- the two worst of the postwar period. The enormous inflation over the past 30 years was largely due to monetary policy.At least, it would not have happened without the support of monetary policy that provided for a 10-fold increase in the money supply during the same period.And that increase in the money supply would not have happened without the consent of the Federal Reserve. The basic problem of monetary policy, to which reform of the Fed should be addressed, is to prevent a recurrence of this experience. There were two general reasons for the mistaken monetary policy of the past 30 years: 1.To some extent the Federal Reserve shared the popular but incorrect view that expansionary monetary policy could yield a net improvement in employment and output. 2.Even where the Fed did not share this view it felt the need to accommodate to it.Despite all the formal provisions for its independence, the Fed seems constantly to feel that if it uses its independence too freely it will lose it. The common proposals for reforming the Fed would only make the situation worse, if they had any effect at all.Putting the Secretary of the Treasury on the Board of Governors, one of the leading proposals today, is an example.The secretary is the world's biggest borrower of money.He has a built-in, constant longing for lower interest rates.Moreover, he is a political agent of a political president, who naturally gives extraordinary weight to the way the economy will perform before the next election, and less to its longer-run health.These days, the secretary suffers the further disqualification that he is a member of a club of seven finance ministers who meet occasionally to decide what exchange rates should be, which is a diversion from the real business of the Federal Reserve to stabilize the price level. How should a reasonable member of the Federal Reserve Board interpret a congressional decision to put the secretary on the board?Could he plausibly interpret it as encouragement for the Fed to give primary emphasis to stabilizing the price level?Or would he interpret it as instruction to give more weight to these other objectives that the secretary represents -- low interest rates, short-run economic expansion, and stabilization of exchange rates at internationally managed levels?The answer seems perfectly clear. (True, a succession of Fed chairmen has given color to the notion that the Secretary of the Treasury belongs on the Fed.By their constant readiness to advise all and sundry about federal budgetary matters the chairmen have encouraged the belief that fiscal policy and monetary policy are ingredients of a common stew, in which case it is natural that the Fed and the Treasury, and probably also the Congress, should be jointly engaged in stirring the pot.The Fed's case for its own independence would be a little stronger if it were more solicitous of the independence of the rest of the government.) The Fed's problem is not that it is too independent, or too unpolitical.The Fed is responsive to, and cannot help being responsive to, the more overtly political part of the government.The Fed exercises a power given to it by Congress and the president.But Congress and the president accept no responsibility for the exercise of the power they have given the Fed. Critics of the present arrangement are correct to say that it is undemocratic.What is undemocratic is the unwillingness of the more political parts of the government to take the responsibility for deciding the basic question of monetary policy, which is what priority should be given to stabilizing the price level.To leave this decision to an "independent" agency is not only undemocratic.It also prevents the conduct of a policy that has a long-term rationale, because it leaves the Fed guessing about what are the expectations of its masters, the politicians, who have never had to consider the long-term consequences of monetary policy. The greatest contribution Congress could make at this time would be to declare that stabilizing the price level is the primary responsibility of the Federal Reserve System.Legislation to this effect has been introduced in Congress in this session by Rep. Stephen Neal (D., N.C.).It is not the kind of thing that is likely to be enacted, however.Congress would be required to make a hard decision, and Congress would much prefer to leave the hard decision to the Fed and retain its rights of complaint after the fact. People will say that the nation and the government have other objectives, in addition to stabilizing the price level, which is true.But that is not the same as saying that the Federal Reserve has other objectives.The government has other agencies and instruments for pursuing these other objectives.But it has only the Fed to pursue price-level stability.And the Fed has at most very limited ability to contribute to the achievement of other objectives by means other than by stabilizing the price level. The two objectives most commonly thought to be legitimate competitors for the attention of the Fed are high employment and rapid real growth.But the main lesson of economic policy in the past 30 years is that if the Fed compromises with the price-stability objective in the pursuit of these other goals, the result is not high employment and rapid growth but is inflation. A former chairman of the president's Council of Economic Advisers, Mr. Stein is an American Enterprise Institute fellow.
Abortion-rights advocates won last week's battles, but the war over the nation's most-contentious social question is about to pick up again on turf that favors those seeking to restrict abortions. Strict new regulations seem certain to pass the state House in Pennsylvania next week, with easy approval by the Senate and by Democratic Gov. Bob Casey expected shortly thereafter.Legislation to require the consent of parents before their daughters under the age of 18 can have abortions will probably pass both houses of the Michigan legislature and set up a grinding battle to override the expected veto of Democratic Gov. James Blanchard. The short-term shift in the political climate surrounding abortion reflects two factors that are likely to govern the debate in the next several months: the reawakening of the abortion-rights movement as a potent force after years of lassitude, and the ability of each side to counter the other's advance in one arena with a victory of its own elsewhere. The action in Pennsylvania, for example, will follow last week's collapse of a special session of the Florida legislature to enact restrictions on abortions in that state, and the vote here in Washington by the House to permit federally paid abortions for poor women who are victims of rape or incest.But President Bush is expected to veto the congressional legislation and that, along with the easy approval of the Pennsylvania measure, is likely to mute the abortion-rights activists' claims of momentum and underline the challenges faced by this resurgent movement. "It's great to feel good for once in 15 years," says Harrison Hickman, a consultant to abortion-rights advocates, reflecting the relief of his compatriots after last week's victories, the first major events since the Supreme Court, in its July 3 Webster decision, permitted the states to enact restrictions on abortions. "But how many more times we're going to feel good in the next 15 is another question." Indeed, abortion-rights activists still face their greatest tests. "The pro-choice movement has shown -- finally -- that it can mobilize," says Glen Halva-Neubauer, a Furman University political scientist who specializes in how state legislators handle the abortion question. "But it still hasn't shown that it can win in a state like Pennsylvania or Missouri, where abortion has been clearly an electoral issue and where it's been an emotional issue for a long time." The foes of abortion hold the strong whip hand in Pennsylvania, where abortion-rights activists are so much on the defensive that their strategy is less to fight the proposed legislation than it is to stress how the state legislature doesn't reflect the viewpoints of the state's citizens. As a result, GOP state Rep. Stephen Freind of Delaware County, the legislature's leading foe of abortion, has been given all but free rein to press a strict seven-point plan to restrict abortion and, he hopes, to force the Supreme Court directly to reassess its 1973 Roe v.Wade decision that established the right of abortion in the first place. The Freind legislation -- the state's House Judiciary Committee approved it in Harrisburg this week and the full Pennsylvania House is expected to take up the bill next Tuesday -- includes a provision to ban abortions after 24 weeks of pregnancy, except to avert the death of the mother.Mr. Freind calculates that the provision, which attacks the trimester standards that Roe established, will "make it necessary" for the Supreme Court to review Roe and, perhaps, to overturn it. But the Pennsylvania measure also includes an "informed consent" provision that may become widely imitated by abortion foes who want to make women contemplating abortion as uncomfortable as possible with the procedure and with themselves.Under this legislation, a woman must be informed 24 hours before the operation of the details of the procedure and its risks. "Regardless of whether one supports or opposes the right to an abortion," Mr. Freind argues, "it is virtually impossible for any rational human being to disagree with the concept that a woman has the right to have all of the appropriate materials and advice made available to her before she makes a decision which, one way or the other, might remain with her for the rest of her life." In Michigan, where the state Senate is expected to approve parental-consent legislation by the end of next week, Gov. Blanchard is the principal obstacle for anti-abortionists.Susan Rogin, a consultant to abortion-rights activists in the state, takes comfort from the fact that the state's House abortion opponents "haven't been able to muster the votes to overturn a veto on abortion in 16 years." But proponents believe they may be able to shake enough votes loose to override the veto if they are successful in portraying the legislation as a matter of parents' rights. In Illinois, lawmakers will vote before next spring on legislation requiring physicians to perform tests on fetuses at 20 weeks to determine their gestational age, weight and lung maturity along with a provision requiring that, if fetuses survive an abortion, a second doctor must be on hand to help it survive.The legislation failed by one vote to clear the House Rules Committee Tuesday, but anti-abortionists still may succeed in bringing the measure to the floor this fall.Pamela Sutherland, executive director of the Illinois Planned Parenthood Council, says she and her allies are "cautiously optimistic" they can defeat it if it comes to a floor vote. Abortion foes in Wisconsin, meanwhile, expect a parental-consent bill to be sent to the state assembly floor by early November and are hopeful of prevailing in both houses by next March.In Texas, abortion opponents want to pass parental-consent legislation along with a statewide ban on the use of public funds, personnel and facilities for abortion, and viability tests for fetuses 19 weeks and older.The anti-abortionists are urging GOP Gov. Bill Clements to press the issues in a special session scheduled to run Nov. 14 to Dec. 13. "The prognosis is only fair," says Kathie Roberts, administrative director of the Texas Right to Life Committee. "Next year is an election year and the legislators just don't want to do anything about this now." This legislative activity comes as both sides are undertaking new mobilization efforts, plunging into gubernatorial races in Virginia and New Jersey, and girding for next autumn's state elections. At the same time, abortion foes have developed a national legislative strategy, deciding to move on what Jacki Ragan, the National Right to Life Committee's director of state organizational development, calls "reasonable measures that an overwhelming mainstream majority of Americans support." These include bans on the use of abortion for birth control and sex selection, and the public funding of alternatives for abortion. "Those who are on the other side can hardly oppose alternative funding if they continue to insist on calling themselves 'pro-choice' rather than `pro-abortion, '" says Mary Spaulding, the group's associate state legislative coordinator. Over the weekend, the National Abortion Rights Action League singled out eight politicians, including Pennsylvania's Mr. Freind, as 1990 targets and held a Washington seminar designed to train its leaders in political techniques, including how to put the anti-abortionists on the defensive in state legislatures. "We now see pro-choice legislators going on the offensive for the first time," says Kate Michelman, executive director of the group.
Congress sent President Bush an $18.4 billion fiscal 1990 Treasury and Postal Service bill providing $5.5 billion for the Internal Revenue Service and increasing the Customs Service's air-interdiction program nearly a third. Final approval came on a simple voice vote in the Senate, and the swift passage contrasted with months of negotiations over the underlying bill which is laced with special-interest provisions for both members and the executive branch. An estimated $33 million was added for university and science grants, including $1.5 million for Smith College.And Southwest lawmakers were a driving force behind $54.6 million for U.S.-Mexico border facilities, or more than double the administration's request. More than $1.8 million is allocated for pensions and expenses for former presidents, and the budget for the official residence of Vice President Quayle is more than doubled, with $200,000 designated for improvements to the property.Even the Office of Management and Budget is remembered with an extra $1 million to help offset pay costs that other government departments are being asked to absorb. Within the IRS, nearly $1.95 billion is provided for processing tax returns, a 12% increase over fiscal 1989 and double what the government was spending five years ago.Investigation and taxpayer service accounts would grow to $1.6 billion, and Congress specifically added $7.4 million for stepped up criminal investigations of money laundering related to drug traffic. The large increase in Customs Service air-interdiction funds is also intended to counter smuggling, and the annual appropriations level has more than quadrupled in five years.The $196.7 million provided for fiscal 1990 anticipates the purchase of a Lockheed P-3 surveillance aircraft and five Cessna Citation II jets.Despite administration reservations, the plan has had the quiet backing of customs officials as well as influential lawmakers from Cessna's home state, Kansas. Among legislative provisions attached to the bill is a ban on any Treasury Department expenditure for enforcement of a 1986 tax provision intended to counter discrimination in employee-benefit plans.Small-business interests have lobbied against the so-called Section 89 tax rules.Repeal is considered likely now, but the Treasury Department bill has been used as a vehicle to raise the profile of the issue and block any action in the interim. Less noticed is a bit of legislative legerdemain by Houston Republicans on behalf of HEI Corp. of Texas to retroactively "move" a Missouri hospital from one county to the next to justify higher Medicare reimbursements.The provision seeks to wipe out an estimated $1.4 million in claims made by the Health Care Finance Administration against HEI, which owned the hospital in Sullivan, Mo., during most of the four-year period -- 1983-1987 -- covered in the amendment. In a separate development, a private meeting is scheduled this morning between House Appropriations Committee Chairman Jamie Whitten (D., Miss.) and Sen. Dale Bumpers (D., Ark.) in an effort to end a dispute which for two weeks has delayed action on an estimated $44 billion agriculture bill.A House-Senate conference reached agreement Oct. 5 on virtually all major provisions of the bill, but final settlement has been stalled because of differences between the two men over the fate of a modest Arkansas-based program to provide technical information to farmers seeking to reduce their dependence on chemical fertilizers and pesticides. The program's nonprofit sponsors received $900,000 in fiscal 1989 through an Extension Service grant, but Mr. Whitten has been adamant in insisting that the program be cut in 1990.The 79-year-old Mississippian takes a more orthodox, entrenched view of agriculture policy than those in the movement to reduce chemical use, but as a master of pork-barrel politics, he is believed to be annoyed as well that the project moved to Arkansas from a Tennessee center near Memphis and the northern Mississippi border.
B.A.T Industries PLC may delay aspects of its defensive restructuring plan -- including the sale of its Saks Fifth Avenue and Marshall Field units -- in the wake of the current upheaval in financial markets, company officials said. The British conglomerate, planning its own defensive restructuring to fight off a #13.35 billion ($21.03 billion) takeover bid by Anglo-French financier Sir James Goldsmith, intends to press ahead with an extraordinary shareholder vote today to clear the way for its value-boosting measures.If anything, the gyrations in world stock markets -- and in B.A.T's share price -- since last Friday's sharp Wall Street sell-off have increased the likelihood of shareholder approval for the restructuring, analysts and several big institutional holders said. "Thank God we have some deal on the table," said Stewart Gilchrist, a director at Scottish Amicable Investment Managers, which intends to vote its roughly 1% stake in favor of the restructuring. Investors in B.A.T have been on a roller coaster.B.A.T has been London's best-performing blue chip over the past six months, up 40% against a 4% rise in the Financial Times 100-Share Index.But this week, B.A.T has been hit harder than other big U.K. stocks -- first by the market gyrations, then by Tuesday's San Francisco earthquake, which could leave B.A.T's Farmers Group Inc. insurance unit facing big claims.B.A.T rose five pence (eight cents) to 756 pence ($11.91) in London yesterday as a late market rally erased a 28-pence fall earlier in the day. To fight off predators, B.A.T plans to spin off about $6 billion in assets, largely by selling such U.S. retailing units as Marshall Field and Saks and by floating its big paper and U.K. retailing business via share issues to existing holders.Proceeds will help pay for a planned buy-back of 10% of its shares and a 50% dividend increase. "I think the restructuring will get the required support," said Michael Pacitti, an analyst at London stockbroker UBS Phillips & Drew. "The shareholders effectively will support the share price by clearing the share buy-back." But B.A.T's restructuring, which was never going to happen quickly, now will take longer because of the market upheaval.Company officials, holders and analysts who previously expected the disposals to be substantially complete by the end of next year's first half now say the market gyrations could delay the actions well into the second half. "We aren't forced sellers.We don't have an absolute deadline and if market conditions are truly awful we might decide it is not the right time," to take particular steps, said Michael Prideaux, a B.A.T spokesman. Even if B.A.T receives approval for the restructuring, the company will remain in play, say shareholders and analysts, though the situation may unfold over the next 12 months, rather than six.The new B.A.T will be a smaller tobacco and financial-services hybrid whose price-earnings ratio may more closely reflect the lower-growth tobacco business than the higher-multiple financial-services business, these holders believe.Thus B.A.T's restructuring may only make the company a more manageable target for other corporate predators -- possibly such acquisitive bidders as Hanson PLC. "The last few days will surely slow down the pace of events," says Scottish Amicable's Mr. Gilchrist. "But I wouldn't write off" Sir James or other potential bidders. Among possible delays, the sales of Saks and Marshall Field -- which were expected to be on the block soon after the crucial Christmas season -- may slide into the second quarter or second half.Analysts estimate that sales of the two businesses could raise roughly $2 billion. B.A.T isn't predicting a postponement because the units "are quality businesses and we are encouraged by the breadth of inquiries," said Mr. Prideaux.But the delay could happen if B.A.T doesn't get adequate bids, he said. People familiar with B.A.T say possible acquirers for the units include managers from both retailing chains, and General Cinema Corp., which is interested in bidding for Saks.Other potential bidders for parts of B.A.T's U.S. retail unit include Dillard Department Stores Inc., May Department Stores Co. and Limited Inc. B.A.T has declined to identify the potential bidders. Though Sir James has said he intends to mount a new bid for B.A.T once approval from U.S. insurance regulators is received, jitters over prospects for junk-bond financing and U.S. leverage buy-outs are making investors more skeptical about Sir James's prospects.His initial offer indicated he needed to raise as much as 80% of the takeover financing through the debt markets. Market uncertainty also clouds the outlook for B.A.T's attracting a premium price for its U.S. retailing properties.Finally, Tuesday's California earthquake initially knocked 3.7% off B.A.T's share price in London yesterday because of fears of the potential claims to Los Angeles-based Farmers, which has a substantial portion of its property and casualty exposure in California. On Farmers, Mr. Prideaux said it is too early to quantify the level of potential claims.He added B.A.T "has no expectation of a material impact on Farmers."
Bridge and highway collapses will disrupt truck and auto transportation in the San Francisco Bay area for months to come. But rail, air and ocean-shipping links to the area escaped Tuesday's earthquake with only minor damage, and many are expected to be operating normally today, government and corporate transport officials said. Air traffic at San Francisco International Airport was running about 50% of normal yesterday afternoon, but airport officals said they expect a return to full operations by Saturday.The major gateway to Asia and one of the nation's 10 busiest airports was closed to all but emergency traffic from the time the quake hit Tuesday afternoon, until 6 a.m. PDT yesterday when controllers returned to the tower. Getting to and from the airport in coming weeks may be the problem, however. "People's ability to drive throughout the bay area is greatly restricted," said a spokesman for the American Automobile Association. Tom Schumacher, executive vice president and general manager of the California Trucking Association in Sacremento, said his organization urged trucking firms to halt all deliveries into the Bay area yesterday, except for emergency-medical supplies. "Some foodstuff shipments will probably resume Thursday," he said. "Right now most of the roads into the Bay area are closed, but the list of closings changes about every 20 minutes.This {Wednesday} morning the San Mateo bridge was open and now we are informed that it is closed," Mr. Schumacher said. United Parcel Service, Greenwich, Conn., said its operations in the San Francisco area have been reduced to 40% of normal.A UPS spokesman said that although none of the company's terminals, trucks or airplanes were damaged in the quake, road shutdowns and power failures have impeded its pickup and delivery of packages.The spokesman noted four-hour to five-hour traffic delays on the San Mateo bridge, for example.In addition, power failures prevented its package-sorting facilities from operating, causing delays. But freight railroads reported that damage to their facilities was relatively minor, with Santa Fe Pacific Corp. 's rail unit the least affected by the quake.Santa Fe stopped freight trains Tuesday night while its officials inspected track but resumed service at 10:45 p.m. when they found no damage. Union Pacific Corp. 's rail unit said that except for damage to shipping containers in its Oakland yard, its track, bridges and structures were unharmed.That railroad is operating trains but with delays caused by employees unable to get to work. Southern Pacific Transportation Co., the hardest hit of the three railroads in the Bay area, said service on its north-south coastline, which is used by an Amtrak train between Los Angeles and Seattle, was suspended temporarily because of kinked rails near the epicenter of the quake.But service on the line is expected to resume by noon today. "We had no serious damage on the railroad," said a Southern Pacific spokesman. "We have no problem to our freight service at all expect for the fact businesses are shut down." Amtrak said it suspended train service into its Oakland station, which sustained "heavy structural damage" during the quake.The passenger railroad said it terminated some runs in Sacramento, relying on buses to ferry passengers to the Bay area.Amtrak said it planned to resume some train operations to Oakland late yesterday. Rail-transit operations suffered little damage, according to Albert Engelken, deputy executive director of the American Public Transit Association in Washington.The Bay Area Rapid Transit "withstood the earthquake perfectly," said Mr. Engelken, adding that the rail system was running a full fleet of 45 trains during the day to provide an alternative for highway travelers. "The highway system is screwed up" by the earthquake, Mr. Engelken said. "The transit system is how people are going to be getting around." He added that San Francisco's trolley cars and trolley buses were also running at full service levels. Although air-traffic delays in San Francisco were significant yesterday, they didn't appear to spread to other airports.The earthquake shattered windows at San Francisco International's air-traffic control tower and rained pieces of the ceiling down on controllers, three of whom suffered minor injuries.Terminals at San Francisco International also were damaged, but the tower itself was intact.Tuesday night, thousands were diverted to other airports and had to wait a day to resume travel. Runways at San Francisco weren't damaged, but traffic was being limited yesterday to 27 arrivals and 27 departures an hour -- down from 33 to 45 an hour normally -- mainly because the noise level in the control tower was overwhelming without the windows, an FAA spokeswoman said. While the airport was closed, flights were diverted to airports in Sacramento and Stockton, Calif.; Reno and Las Vegas, Nev.; and Los Angeles.United Airlines, the largest carrier at San Francisco, was operating only 50% of its scheduled service in and out of the area because of damage to its terminal, which in turn was causing delays for travelers headed to the Bay area.A United spokesman said 14 of its 21 gates were unusable, mainly because of water damage caused when a sprinkler system was triggered by the tremors. The United spokesman said none of its people were injured at the airport; in fact, as the airport was being evacuated Tuesday night, two babies were born. Yesterday, the United ticket counter was active, with people trying to get flights out, but the airline said demand for seats into the city also was active, with people trying to get there to help family and friends. The airports in San Jose and Oakland were both fully operational by noon yesterday, the Federal Aviation Administration said. In terms of diversions, Denver's Stapleton International may have experienced the most far-flung: A United flight from Japan was rerouted there. "I think that's the first nonstop commercial passenger flight from Japan to land here," an airport spokesman said. A Japan Air Lines spokesman said its flights into and out of San Francisco weren't affected, but getting information about its operations was difficult.Its telecommunications headquarters in Burlingame, Calif., had been knocked out since the quake. "We're in the dark," he said.
Whitbread & Co. put its spirits division up for sale, triggering a scramble among global groups for the British company's brands. Whitbread already has been approached by "about half a dozen" companies interested in buying all or part of the spirits business, a spokesman said.Analysts expect the spirits operations and some California vineyards that also are being sold to fetch about #500 million ($788.8 million). Among the brands for sale are Beefeater gin, the No. 2 imported gin in the U.S., and Laphroaig single-malt whiskey.Also for sale are Buckingham Wile Co., which distributes Cutty Sark blended whiskey in the U.S., and Whitbread's Atlas Peak Vineyards in California's Napa Valley. Beefeater alone is worth as much as #300 million, analysts said.Whitbread bought the Beefeater distillery two years ago for #174.5 million. That purchase represented an attempt by Whitbread, a venerable British brewer, to become a major player in the global liquor business.But Whitbread has been squeezed by giant rivals amid widespread consolidation in the industry.Now, it wants to concentrate on beer and its newer hotel and restaurant operations. For rival liquor companies, the Whitbread auction is a rare opportunity to acquire valuable brands. "It's not very often something like this comes up," said Ron Littleboy, a liquor company analyst at Nomura Research Institute in London. "The division will be sold off quite rapidly," predicted Neill Junor, an analyst at London brokers County NatWest WoodMac.Among possible buyers, Grand Metropolitan PLC might find Beefeater a useful addition to its portfolio.Grand Met owns Bombay gin, the No. 3 imported gin in the U.S.; rival Guinness PLC has the No. 1 imported brand, Tanqueray.The Whitbread spirits auction "is an extremely interesting development . . . and naturally we'll be considering it carefully," a Grand Met spokesman said. Guinness, which owns several leading whiskey brands plus Gordon's gin, the world's No. 1 gin, is considered less likely to bid for the Whitbread spirits.A Guinness spokesman declined to comment. Two other global liquor giants, Canada's Seagram Co. and Britain's Allied-Lyons PLC, also are possible buyers.Seagram's gin is the world's No. 2 gin brand, but the company doesn't own any of the major gin brands imported in the U.S. Allied-Lyons, while powerful in whiskey, doesn't own any major white-spirit brands. "We will certainly have to take a look at" the Whitbread spirits business, an Allied-Lyons spokesman said. "We would certainly like to have a major white-spirits brand in our portfolio." A Seagram spokesman in New York wouldn't comment. Smaller liquor companies, such as Brown-Forman Corp. and American Brands Inc. of the U.S., also are likely to be interested.Such companies "are increasingly being left behind" in the global liquor business, says Nomura's Mr. Littleboy.In New York, a spokesman for American Brands wouldn't comment.Brown-Forman, a Louisville, Ky. distiller, also declined to comment. Whitbread's wine, spirits and soft-drink operations had trading profit of #35.4 million on sales of #315.5 million in the year ended Feb. 25.The company, which is retaining most of its wine and all of its soft-drink interests, didn't break out results for the businesses it plans to sell.But analysts estimate their trading profit at #30 million.Whitbread had total pretax profit in the year ended Feb. 25 of #223.2 million, on sales of #2.26 billion. Whitbread's spirits auction occurs amid a parallel shakeup in the British beer industry.Earlier this year, the government announced plans to foster increased competition in the industry.British brewers currently own thousands of pubs, which in turn sell only the breweries' beer and soft drinks.Under new rules, many of the country's pubs would become "free houses," selling beers of their choice. Whitbread now intends to bolster its brewing interests, in an effort to grab a share of sales to free houses.The company, which last month paid #50.7 million for regional British brewer Boddington Group PLC, has about 13% of the British beer market.Whitbread also owns the license to brew and distribute Heineken and Stella Artois beers in Britain. In addition, Whitbread intends to focus on its newer hotel, liquor store and restaurant businesses in Europe and North America.In Britain, those interests include the Beefeater steakhouse chain and joint ownership with PepsiCo Inc. of the country's Pizza Hut chain.In Canada and the U.S., Whitbread owns The Keg chain of steak and seafood restaurants. Focusing on beer, restaurants and hotels means "we can concentrate our skills and resources more effectively," Peter Jarvis, Whitbread's managing director, said in a statement.The spirits business "would require substantial additional investment to enable it to compete effectively in the first division of global players." Whitbread also announced that Mr. Jarvis, who is 48, will become the company's chief executive March 1.At that time Sam Whitbread, the company's chairman and a descendant of its 18th-century founder, will retire from executive duties.He will retain the honorary title of non-executive chairman.
Digital Equipment Corp. is planning a big coming-out party on Tuesday for its first line of mainframe computers.But an uninvited guest is expected to try to crash the party. On the morning of the long-planned announcement, International Business Machines Corp. is to introduce its own new mainframe. "Their attitude is, `You want to talk mainframes, we'll talk mainframes, '" says one computer industry executive. "They're deliberately trying to steal our thunder," a Digital executive complains. "Maybe we should take it as a compliment." Digital's target is the $40 billion market for mainframe computers, the closet-sized number-crunchers that nearly every big company needs to run its business.IBM, based in Armonk, N.Y., has dominated the market for decades. That doesn't scare Digital, which has grown to be the world's second-largest computer maker by poaching customers of IBM's mid-range machines.Digital, based in Maynard, Mass., hopes to stage a repeat performance in mainframes, and it has spent almost $1 billion developing the new technology.A spoiler, nimble Tandem Computers Inc. in Cupertino, Calif., jumped into the fray earlier this week with an aggressively priced entry. IBM appears more worried about Digital, which has a broad base of customers waiting for the new line, dubbed the VAX 9000. "It's going to be nuclear war," says Thomas Willmott, a consultant with Aberdeen Group Inc. The surge in competition is expected to stir new life into the huge mainframe market, where growth has slowed to single digits in recent years.IBM's traditional mainframe rivals, including Unisys Corp., Control Data Corp. and NCR Corp., have struggled recently. Digital is promising a new approach.Robert M. Glorioso, Digital's vice president for high performance systems, says Digital's mainframe is designed not as a central computer around which everything revolves, but as part of a decentralized network weaving together hundreds of workstations, personal computers, printers and other devices.And unlike IBM's water-cooled mainframes, it doesn't need any plumbing. The challengers will have a big price advantage.Digital is expected to tag its new line from about $1.24 million to $4.4 million and up, depending on configuration.That's about half the price of comparably equipped IBM mainframes.Tandem's pricing is just as aggressive. The heightened competition will hit IBM at a difficult time.The computer giant's current mainframe line, which has sold well and has huge profit margins, is starting to show its age.The new 3090s due next week will boost performance by only about 8% to 10%.And IBM isn't expected to deliver a new generation of mainframes until 1991. Still, no one expects IBM's rivals to deliver a knockout.IBM has a near-monopoly on mainframes, with an estimated 70% share of the market.IBM is five times the size of Digital -- and 40 times the size of Tandem -- and wields enormous market power.It counts among its customers a majority of the world's largest corporations, which entrust their most critical business information to IBM computers. "We're not going to walk in and replace a company's corporate accounting system if it's already running on an IBM mainframe," concedes Kenneth H. Olsen, Digital's president. He says Digital will target faster-growing market segments such as on-line transaction processing, which includes retail-sales tracking, airline reservations and bank-teller networks.Tandem, which already specializes in on-line transaction processing, is a potent competitor in that market. A key marketing target for Digital will be the large number of big customers who already own both Digital and IBM systems.One such company is Bankers Trust Co. Stanley Rose, a vice president, technological and strategic planning at Bankers Trust, says that despite Digital's low prices, "we aren't about to unplug our IBM mainframes for a DEC machine.The software conversion costs would dwarf any savings." But Mr. Rose is still looking seriously at the 9000.Bankers Trust uses Digital's VAX to run its huge money-transfer and capital markets accounts, juggling hundreds of billions of dollars each day, he says.As that system grows, larger computers may be needed. "In the past, customers had to go to IBM when they outgrew the VAX. Now they don't have to," he says. "That's going to cost IBM revenue." Analysts say Digital can expect this pent-up demand for the new VAX to fuel strong sales next year.Barry F. Willman, an analyst at Sanford C. Bernstein & Co., estimates the 9000 could boost sales by more than $1 billion in the fiscal year beginning in July.He bases the estimate on a survey of hundreds of Digital's largest customers. Although Digital will announce a full family of mainframes next week, it isn't expected to begin shipping in volume until next year.The first model available will be the 210, which is likely to appeal to many technical and scientific buyers interested in the optional super-charger, or vector processor, says Terry Shannon of International Data Corp., a market research concern. Four more models, aimed squarely at IBM's commercial customers, are expected to begin shipping in late June.Most analysts don't expect the new mainframes to begin contributing significantly to revenue before the fiscal first quarter, which begins next July 1. Digital's new line has been a long time coming.The company has long struggled to deliver a strong mainframe-class product, and made a costly decision in 1988 to halt development of an interim product meant to stem the revenue losses at the high end.Digital's failure to deliver a true mainframe-class machine before now may have cost the company as much as $1 billion in revenue in fiscal 1989, Mr. Willman says. IBM will face still more competition in coming months.Amdahl Corp., backed by Japan's Fujitsu Ltd., has a growing share of the market with its low-priced, IBM-compatible machines.And National Advanced Systems, a joint venture of Japan's Hitachi Ltd. and General Motors Corp. 's Electronic Data Systems, is expected to unveil a line of powerful IBM-compatible mainframes later this year. NOTE: NAS is National Advanced Systems, CDC -- Control Data Corp., Bull NH Information Systems Inc. Source: International Data Corp. Compiled by Publishers Weekly from data from large-city bookstores, bookstore chains and local bestseller lists across the U.S. Copyright 1989 by Reed Publishing USA.
The frenetic stock and bond markets cooled off, but the dollar slumped. Stocks rose slightly as trading activity slowed from the frenzied pace earlier this week.Prices of long-term Treasury bonds hovered in a narrow band most of the day, finishing little changed despite the dollar's weakness and fears about a wave of government borrowing coming soon. Helped by futures-related program buying, the Dow Jones Industrial Average gained 4.92 points to close at 2643.65.But the Dow Jones Transportation Average fell for the seventh-consecutive session as more investors dumped UAL shares. Bond prices rallied early yesterday morning as traders scrambled to buy Treasury issues on fears that the Northern California earthquake might lead to a stock-market debacle.But when stocks held steady, Treasury bonds later retreated. Speculation that the Federal Reserve will lower interest rates in coming weeks helped push the dollar down while boosting stocks, traders said.But many investors remain wary about stocks, partly because they expect continued turbulence in the junk-bond market that would make it more difficult to finance corporate takeovers. "I'm surprised we didn't see more volatility" in stocks, said Raymond F. DeVoe Jr., market strategist at Legg Mason Wood Walker. "I think the problems in the junk-bond area are just beginning, and this will be very unsettling for companies that have issued junk bonds.In a bull market, credit does not matter," Mr. DeVoe added. "But when it does matter, then it's the only thing that matters." However, many institutional investors are reacting to the stock market's plunge as "a great buying opportunity," said Charles I. Clough, chief investment strategist at Merrill Lynch Capital Markets. "Things are beginning to settle down.The markets are returning to normalcy." Oil prices initially rose on fears that the massive earthquake in Northern California would disrupt production.But prices later reversed course, finishing slightly lower, as investors concluded that any cuts wouldn't be large and that foreign oil producers would quickly pick up the slack. In major market activity: Stock prices rose.New York Stock Exchange volume shrank to 166.9 million shares from 224.1 million Tuesday.Advancers on the Big Board outpaced decliners by 822 to 668. Bond prices were little changed in sluggish activity.The yield on the Treasury's 30-year issue fell slightly to 8.03%. The dollar dropped.In New York late yesterday, the currency was at 141.45 yen and 1.8485 marks, down from 142.75 yen and 1.8667 marks late Tuesday.
AMR Corp. posted an 8.8% drop in third-quarter net income and said the fourth quarter will be "disappointing" as well, primarily because of slimmer profit margins and increased fuel costs. AMR's earnings decline comes a year after the parent company of American Airlines and the rest of the airline industry set profit records.Some analysts say the latest results only seem pale by comparison with a spectacular second half of 1988. Still, AMR's stumble doesn't bode well for the rest of the industry.The Fort Worth, Texas, company is generally regarded as one of the best-run in the business, and its difficulties are likely to be reflected industrywide as other major carriers report third-quarter results over the next several days. Meanwhile, the company's board, which had said nothing publicly about investor Donald Trump's recently withdrawn $7.5 billion offer for AMR, issued a statement condemning "ill-conceived and reckless" bids and saying it was "pleased" that Mr. Trump had backed out. In the third quarter, AMR said, net fell to $137 million, or $2.16 a share, from $150.3 million, or $2.50 a share.Revenue rose 17% to $2.73 billion from $2.33 billion a year earlier. AMR's chairman, Robert L. Crandall, said the results were due to an 11% year-to-year increase in fuel prices and a slight decrease in yield, an industry measure analogous to profit margin on each seat sold. "We think these trends will continue and will produce a very disappointing fourth quarter as well," he said.Tim Pettee, an analyst with Merrill Lynch & Co., said: "The business turned faster than expected.Costs are giving them a little bit of trouble, and the whole industry is having a pricing problem." For the nine months, AMR's net rose 15% to $415.9 million, or $6.59 a share, from $360.1 million, or $5.99 a share.Revenue jumped 22% to $7.89 billion from $6.46 billion. AMR's board, in a statement after a regular meeting yesterday, said: "Ill-considered and reckless acquisition proposals adversely affect employee, financial and business relationships and are contrary to the best interests of AMR shareholders. . . . AMR has not been, and is not, for sale." Mr. Crandall said the company's current decline in earnings is exactly the kind of situation that an excessively leveraged company laden with debt from a takeover would find difficult to weather. "Our very disappointing third-quarter results and the discouraging outlook for the fourth quarter underscore the importance of an adequate capital base," he said.
The government said 13.1% of Americans, or 31.9 million people, were living in poverty in 1988. While last year's figure was down from 13.4% in 1987 and marked the fifth consecutive annual decline in the poverty rate, the Census Bureau said the 1988 drop wasn't statistically significant. The bureau's report also showed that while some measures of the nation's economic well-being improved modestly in 1988, the fruits of prosperity were shared less equitably than the year before. Summarizing data derived from a March 1989 survey of 58,000 households, William Butz, associate director of the Census Bureau, said that "most groups either stayed the same or improved." But, he added, "Since the late 1960s, the distribution of income has been slowly getting less equal.There was no reversal {of that trend} between 1987 and 1988." Per capita income, a widely used measure of a nation's economic health, hit a record in 1988, rising 1.7% after inflation adjustment to $13,120.But the median income of American families fell 0.2%, the first time it has failed to rise since 1982. Mr. Butz said the divergence in the two measures reflects changes in family size and structure, including the rising number of female-headed families and a sharp increase in income reported by Americans who aren't living in families. As a result of last year's decline, the government's estimate for the number of people living below the poverty line declined by about 500,000.The poverty threshold, defined as three times food expenses as calculated by the Agricultural Department, last year was $12,092 for a family of four.The Census Bureau counts all cash income in determining whether families are below the line, but it doesn't consider other government benefits, such as Medicare. Thanks largely to the continued growth of the U.S. economy, the poverty rate is now substantially lower than the 1983 peak of 15.3%, but the improvements have been modest in the past couple of years. Poverty remains far more widespread among blacks than other Americans.In 1988, 31.6% of blacks lived in poverty, compared with 10.1% for whites and 26.8% for Hispanics.But two-thirds of all poor Americans were white.More than half of poor families were headed by women living without men, the bureau said.More than three-fourths of poor black families were headed by women. The poverty rate of children under 18 years old dropped last year to 19.7% from 20.5% in 1987, but remained far higher than a decade ago.The rate among the elderly -- 12% in 1988 -- wasn't significantly lower than the year before.If it weren't for Social Security payments, more than three times as many elderly would be below the poverty line, Mr. Butz said. The Census Bureau also said: -- Some 17.2% of all money income received by families in 1988 went to the wealthiest 5% of all families, up from 16.9% in 1987.That is the greatest share reported for any year since 1950, although changing definitions over the years distort the comparison. -- The top fifth of all families got 44% of the income, up from 41.5% a decade earlier.The bottom fifth of all families got 4.6% of the income, down from 5.2% a decade earlier. -- Confirming other government data showing that wages aren't keeping pace with inflation, earnings of year-round, full-time male workers fell 1.3% in 1988 after adjusting for higher prices, the first such drop since 1982.Earnings of female workers were unchanged. -- Women working full-time earned 66 cents for every dollar earned by men, a penny more than in 1987 and seven cents more than in 1978. -- Median household income -- which includes both those living in families and those who aren't -- rose 0.3% last year to $27,225 after inflation.It rose sharply in the Northeast and Midwest and fell slightly in the South and West.Median family income was $32,191, down 0.2%. -- Per capita income of blacks, though still only 60% that of whites, rose 3.9% in 1988, while per capita income of whites rose only 1.5%. -- Among married couples, the gap between blacks and whites narrowed sharply, as income of black families shot up 6.8% while income of whites didn't budge. Fueling a controversy that has been simmering for years, the Census Bureau also said its figures would look far rosier if it recalculated the poverty threshold using an improved consumer-price measure adopted in 1983.The bureau said some 3.5 million fewer people would have fallen below the poverty line in 1988 -- and the poverty rate would have been 10.5% instead of 13.1% -- under the alternative calculation. Critics on the left and right have been calling for all sorts of revisions to the measure for years.A report by the staff of the Joint Economic Committee of Congress released yesterday concluded, "It is misleading to make this change without adjusting for other changes." The official poverty threshold is set by the Office of Management and Budget.
The space shuttle Atlantis boosted the Galileo spacecraft on its way to Jupiter, giving a big lift as well to an ambitious U.S. program of space exploration. Seven years late in the launching, $1 billion over budget and a target of anti-nuclear protestors, Galileo has long been a symbol of trouble for the National Aeronautics and Space Administration.But yesterday, as Atlantis rumbled into a patch of clear sky above Florida with storm clouds closing in on it, NASA sought to turn Galileo into a symbol of triumph. "NASA did it right; that's the message," said J.R. Thompson, the agency's deputy administrator. The $1.4 billion robot spacecraft faces a six-year journey to explore Jupiter and its 16 known moons.If all goes well, it will parachute a probe into the dense Jovian atmosphere in July 1995 to pick up detailed data about gases that may be similar to the material from which the solar system was formed 4.6 billion years ago.Jupiter is so enormous -- its mass is 318 times that of Earth -- that its gravity may have trapped these primordial gases and never let them escape. Investigating Jupiter in detail may provide clues to what astronomer Tobias Owen calls the "cosmic paradox" of life: Jupiter and other bodies in the outer solar system are rich in elements such as hydrogen that are essential for life on Earth, but these planets are lifeless; Earth, on the other hand, has a diminished store of such material but is rich in life.Some scientists have suggested that comets and asteroids may have brought enough of this kind of material from the outer solar system to Earth to spawn life. Beginning in December 1995, Galileo will begin a two-year tour of the Jovian moons.In 1979, two Voyager spacecraft sent back stunning photos of Jovian moons Io and Europa that showed them to be among the most intriguing bodies in the solar system.The photos showed active geysers on Io spewing sulfurous material 190 miles into its atmosphere and indicated that Europa may have an ocean hidden under a thick sheet of ice. Galileo's photos of Europa will be more than 1,000 times as sharp as Voyager's, according to Torrence Johnson, Galileo's project scientist, and may show whether it actually has the only known ocean other than those on Earth. Atlantis lifted Galileo from the launch pad at 12:54 p.m. EDT and released the craft from its cargo bay about six hours later. "Galileo is on its way to another world in the hands of the best flight controllers in this world," Atlantis Commander Donald Williams said. "Fly safely." The five-member Atlantis crew will conduct several experiments, including growing plants and processing polymeric materials in space, before their scheduled landing at Edwards Air Force Base, Calif., Monday. The Galileo project started in 1977, and a number of project veterans were on hand to watch the launch.An ebullient Mr. Johnson, wearing a NASA baseball cap and carrying a camera and binoculars, called the launch "fantastic." Benny Chin, manager of the Galileo probe, compared it to watching a child leave home. "I'm happy and sad," he said. Anti-nuclear activists took a less positive view.Having argued that Galileo's plutonium power source could have released lethal doses of radiation if the shuttle exploded yesterday, they weren't quieted by yesterday's successful launch.Galileo will skim past Earth in 1990 and 1992, collecting energy from the planet's gravitational field to gain momentum for its trip to Jupiter.The protesters point out that Galileo also could crash to Earth then. They said they dropped plans to infiltrate the Kennedy Space Center after NASA beefed up its security.One protest did get past NASA's guard, though; a computer virus caused anti-Galileo messages to flash onto some computer screens at NASA centers. The successful launch continues a remarkable recovery in the U.S. space-science program.An unmanned spacecraft, Magellan, already is heading to Venus and is due to begin mapping the planet next August.Voyager 2 sent back spectacular photos of Neptune and its moon, Triton, this summer. Next month, NASA plans to launch a satellite to study cosmic rays dating from the birth of the universe.In December, the shuttle Columbia will try to retrieve a satellite that's been in orbit for nearly five years measuring the deleterious effects of space on materials and instruments.Next March, the shuttle Discovery will launch the Hubble space telescope, a $1.5 billion instrument designed to see the faintest galaxies in the universe. Not all of NASA's space-science work will be so auspicious, though.Around Thanksgiving, the Solar Max satellite, which NASA repaired in orbit in 1984, will tumble back into the Earth's atmosphere.NASA won't attempt a rescue; instead, it will try to predict whether any of the rubble will smash to the ground and where.
Bally Manufacturing Corp. and New York developer Donald Trump have agreed in principle to a $6.5 million settlement of shareholder litigation stemming from Bally's alleged greenmail payment to Mr. Trump. According to lawyers familiar with the settlement talks, the verbal agreement to end a lawsuit filed more than two years ago was reached last week and will soon be submitted to a federal judge in Camden, N.J. In February 1987, Bally thwarted a possible hostile takeover bid from Mr. Trump by agreeing to buy 2.6 million of Mr. Trump's 3.1 million Bally shares for $83.7 million -- more than $18 million above market price.The term greenmail refers to a situation where a company pays a premium over market value to repurchase a stake held by a potential acquirer. Lawyers for shareholders, Bally and Mr. Trump all declined to talk publicly about the proposed settlement, citing a request by a federal court magistrate not to reveal details of the agreement until it is completed. But some attorneys who are familiar with the matter said the $6.5 million payment will be shared by Bally and Mr. Trump, with the casino and hotel concern probably paying the bulk of the money. The amount Bally and Mr. Trump will pay to settle the class-action suit pales in comparison to the $45 million Walt Disney Co. and Saul Steinberg's Reliance Group Holdings Inc. agreed to pay to settle a similar suit in July.That settlement represented the first time shareholders were granted a major payment in a greenmail case.Mr. Steinberg made a $59.7 million profit on the sale to Disney of his investment in the company in 1984. But lawyers said Mr. Steinberg probably faced much more potential liability because, when he sued Disney during his takeover battle, he filed on behalf of all shareholders.When Disney offered to pay Mr. Steinberg a premium for his shares, the New York investor didn't demand the company also pay a premium to other shareholders.When Mr. Trump sued Bally, he sued only on behalf of himself. Mr. Trump and Bally also appeared to have some leverage in the case because in the state of Delaware, where Bally is incorporated, courts have held that greenmail is often protected by the business-judgment rule.That rule gives boards of directors wide latitude in deciding how to deal with dissident shareholders. SENATE HEARS final arguments in impeachment trial of federal judge. Yesterday, U.S. Judge Alcee Hastings faced his jury -- the full U.S. Senate -- and said, "I am not guilty of having committed any crime." Seventeen articles of impeachment against the Florida judge, one of the few blacks on the U.S. bench, were approved by the House in August 1988.The central charge against Judge Hastings is that he conspired with a Washington lawyer to obtain a $150,000 bribe from defendants in a criminal case before the judge, in return for leniency.He is also accused of lying under oath and of leaking information obtained from a wiretap he supervised. The Senate's public gallery was packed with Judge Hastings' supporters, who erupted into applause after he finished his argument.Judge Hastings, who was acquitted of similar charges by a federal jury in 1983, claims he is being victimized and that the impeachment proceedings against him constitute double jeopardy. But Rep. John Bryant (D., Texas), the lead counsel for the House managers who conducted a lengthy inquiry into Judge Hastings' activities, said "a mountain of evidence points to his certain guilt." The Senate will deliberate behind closed doors today and is scheduled to vote on the impeachment tomorrow.If the judge is impeached, as is thought likely, he will be removed from office immediately. However, Judge Hastings has said he will continue to fight and is contemplating an appeal of any impeachment to the U.S. Supreme Court. COMPANIES SEEKING to make insurers pay for pollution cleanup win court victory. In a case involving Avondale Industries Inc. and its insurer, Travelers Cos., the Second U.S. Circuit Court of Appeals in New York ruled in favor of the company on two issues that lawyers say are central to dozens of pollution cases around the country. Travelers and other insurers have maintained that cleanup costs aren't damages and thus aren't covered under commercial policies.They also have argued that government proceedings notifying a company of potential responsibility don't fit the legal definition of a lawsuit; thus, such governmental proceedings aren't covered by the policies, the insurers say. The appeals court disagreed on both counts.Avondale was notified by Louisiana officials in 1986 that it was potentially responsible for a cleanup at an oil-recycling plant.Avondale asked Travelers to defend it in the state proceeding, but the insurer didn't respond.The appeals court upheld a district judge's ruling that the insurer had to defend the company in such proceedings. The appeals court also said, "We think an ordinary businessman reading this policy would have believed himself covered for the demands and potential damage claims" stemming from any cleanup. "This decision will have a very considerable impact," said Kenneth Abraham, professor of environmental law and insurance law at the University of Virginia, because many commercial insurance policies are issued by companies based in New York. William Greaney, an attorney for the Chemical Manufacturers Association, said that while other appeals courts have ruled differently on whether cleanup costs are damages, the influence of the appeals court in New York "will make insurers sit up and listen." He said the decision was the first in which a federal appeals court has ruled whether administrative government proceedings qualify as litigation. Barry R. Ostrager, an attorney for Travelers, said, "there are procedural bases on which this case will be appealed further." NEW YORK'S poor face nearly three million legal problems a year without legal help. That is the conclusion of a report released by the New York State Bar Association.The report was based on a telephone survey of 1,250 low-income households across the state, a mail survey of major legal-services programs and on-site interviews with individuals in the field. "The report provides detailed documentation of the extent and nature of the problem and indicates how we may want to shape solutions," said Joseph Genova, chairman of the committee that oversaw the survey and a partner at the law firm of Milbank, Tweed, Hadley & McCloy. According to the study, slightly more than 34% of those surveyed reported having at least one housing problem every year for which they had no legal help.Nearly 36% ranked housing problems as their most serious unmet legal need.Other areas targeted by the survey's respondents included difficulty obtaining or maintaining public benefits (22%), consumer fraud (15.4%), and health-care issues (15%). During the 15-month survey, 43% of all legal-services programs said that at some period they were unable to accept new clients unless they had an emergency. Mr. Genova said the committee may meet to propose solutions to the problems identified in the study. PROSECUTOR TO JOIN Gibson Dunn: Assistant U.S. Attorney Randy Mastro, who headed the government's racketeering case against the International Brotherhood of Teamsters, will join Gibson, Dunn & Crutcher in its New York office.Mr. Mastro has been with the New York U.S. attorney's office for nearly five years.In 1987 he became deputy chief of the civil division.Mr. Mastro will do civil litigation and white-collar defense work for Gibson Dunn, which is based in Los Angeles. FORMER APPLE COMPUTER Inc. general counsel John P. Karalis has joined the Phoenix, Ariz., law firm of Brown & Bain.Mr. Karalis, 51, will specialize in corporate law and international law at the 110-lawyer firm.Before joining Apple in 1986, Mr. Karalis served as general counsel at Sperry Corp.
After failing to find a buyer for the Sears Tower in Chicago, Sears, Roebuck & Co. is negotiating with Boston pension fund adviser Aldrich, Eastman & Waltch Inc. to refinance the property for close to $850 million, according to people close to the negotiations. Under the proposed agreement involving the world's tallest building, Chicago-based Sears would receive about half the money through conventional mortgage financing and the other half as a convertible mortgage.At the end of the term of the convertible loan, Sears could still own half the building, and AEW could own the other half.Neither side would comment. The parties are currently negotiating over who would manage the building, which will be emptied of 6,000 employees from Sears' merchandise group, which is moving elsewhere.The new manager will face the daunting task of leasing 1.8 million square feet in a relatively soft Chicago real estate market.Also, it has not yet been decided exactly how much of the mortgage AEW will be able to convert into equity. Convertible mortgages have become an increasingly popular way to finance prestigious buildings of late.In a convertible mortgage, the investor lends the building owner a certain amount in return for the option to convert its interest into equity, usually less than 50%, at the end of the loan term.During the term, the lender can either receive a percentage of cash flow, a percentage of the building's appreciation or a fixed return.The main advantage of a convertible mortgage is that it is not a sale and therefore does not trigger costly transfer taxes and reappraisal. Sears said it would put the 110-story tower on the block almost a year ago as part of its anti-takeover restructuring.But Japanese institutions shied away from bidding on the high-profile tower out of fear their purchase of the property would trigger anti-Japanese sentiment. Last summer, Sears appeared to have a deal with Canadian developer Olympia & York Developments Ltd.But that deal fell through in September after it became clear that the sale would lead to a major real estate tax reassessment, raising property taxes, and making it difficult to lease the building at competitive prices. Real estate industry executives said Sears' investment banker, Goldman, Sachs & Co., sought financing in Japan.However, Japanese authorities apparently were concerned that a refinancing also would attract too much publicity. Sears then went back to AEW, the Boston pension adviser that had proposed a convertible debt deal during the first round of bids last spring.AEW has $3.5 billion of real estate investments nationwide, according to a spokesman.
Two rules in pending congressional legislation threaten to hinder leveraged buy-outs by raising the price tags of such deals by as much as 10%. Wall Street is seething over the rules, which would curtail the tax deductibility of debt used in most LBOs.The provisions, in deficit-reduction bills recently passed by the House and Senate, could further cool the takeover boom that has been the driving force behind the bull market in stocks for much of the 1980s, some tax experts and investment bankers argue.Indeed, some investment bankers have already started restructuring deals to cope with the expected rules. Wall Street has all but conceded on the issue and is now lobbying for the less onerous Senate version of one of the provisions. At issue is the deductibility of certain junk bonds that are used in most LBOs.Such high-yield debt is similar to a zero-coupon bond in that it is sold at a discount to face value, with interest accruing instead of being paid to the holder.Under current rules, that accrued interest is deductible by the company issuing the debt. The House version of the legislation would kill that deduction, and label any such debt as equity, which isn't deductible.The less-rigorous Senate version would defer the deductibility for roughly five years. "You see these in just about every LBO," said Robert Willens, senior vice president in charge of tax issues at Shearson Lehman Hutton Inc. in New York. "It becomes a source of cash" for the company making the LBO because it gets a deduction and doesn't have to repay the debt for several years. Typically, Mr. Willens estimates, this type of debt makes up 15% to 20% of the financing for LBOs.These types of bonds have been used in buy-outs of companies such as RJR Nabisco Inc., Storer Communications Inc. and Kroger Co. A second provision passed by the Senate and House would eliminate a rule allowing companies that post losses resulting from LBO debt to receive refunds of taxes paid over the previous three years.For example, if a company posted a loss of $100 million from buy-out interest payments, the existing rule would allow the concern to be able to receive a refund from the tax it paid from 1986 through 1989, when it may have been a profitable public company. But that rule is being virtually overlooked by Wall Street, which is concentrating on coping with the deduction issue. "Prices for LBOs have to come down if you don't have that feature," argued Lawrence Schloss, managing director for merchant banking at Donaldson, Lufkin & Jenrette Securities Corp. in New York. Several Wall Street officials say the proposed legislation already is having an impact.An investment group led by Chicago's Pritzker family recently lowered a $3.35 billion bid for American Medical International, Beverly Hills, Calif., because of the threat of the legislation. Moreover, one investment banker, who requested anonymity, said his firm didn't raise the ante for a target company earlier this month after a stronger bid emerged from a public company that wasn't concerned about the financing provision. "We would have paid more if we thought that law wasn't going to pass," he said. One possible solution for Wall Street is to increase the equity part of the transaction -- that is, give lenders a bigger stake in the surviving company rather than just interest payments.That would force the buy-out firm and the target company's management to reduce their level of ownership. "The pigs in the trough may have to give a little bit of the slop back and then the deal can go through," said Peter C. Canellos, tax partner at Wachtell, Lipton, Rosen & Katz. Another solution, said a tax lawyer who requested anonymity, is for firms to use convertible bonds that sell at a discount.Since they have a lower interest rate, they wouldn't fall under the junk-bond category that would lose its deductibility.The House version of the bill would make debt non-deductible if it pays five percentage points above Treasury notes, has at least a five-year maturity and doesn't pay interest for at least one year out of the first five.The bill would then declare that the debt is equity and therefore isn't deductible.The Senate bill would only deny the deduction until interest is actually paid. Currently, even though the issuer doesn't pay tax, the debt holder is taxed on the accrued interest.But those holders are often foreign investors and tax-exempt pension funds that don't pay taxes on their holdings. The Senate estimates that its version of the provision would yield $17 million the first year and a total of $409 million over five years.The House version would raise slightly more. Even if Wall Street finds ways around the new rules, a Senate aide contends LBOs will become somewhat more difficult. "There's no question it will make LBOs more expensive," he said. "The interest deduction was the engine that made these things more productive."
The government moved aggressively to open the spigots of federal aid for victims of the California earthquake, but its reservoir of emergency funds must be replenished soon if the aid is to continue. President Bush signed a disaster declaration covering seven Northern California counties.The declaration immediately made the counties eligible for temporary housing, grants and low-cost loans to cover uninsured property losses. In addition, an unusually wide array of federal agencies moved to provide specialized assistance.The Department of Housing and Urban Development prepared to make as many as 100 vacant houses available for those left homeless, the Agriculture Department was set to divert food from the school-lunch program to earthquake victims, and the Pentagon was providing everything from radio communications to blood transfusions to military police for directing traffic. But the pool of federal emergency-relief funds already is running low because of the heavy costs of cleaning up Hurricane Hugo, and Congress will be under pressure to allocate more money quickly.In Hugo's wake, Congress allocated $1.1 billion in relief funds, and White House spokesman Marlin Fitzwater said $273 million of that money remains and could be diverted for quick expenditures related to the earthquake. Now, though, enormous costs for earthquake relief will pile on top of outstanding costs for hurricane relief. "That obviously means that we won't have enough for all of the emergencies that are now facing us, and we will have to consider appropriate requests for follow-on funding," Mr. Fitzwater said.The federal government isn't even attempting yet to estimate how much the earthquake will cost it.But Mr. Fitzwater said, "There will be, I think quite obviously, a very large amount of money required from all levels of government." In Congress, lawmakers already are looking for ways to add relief funds.Money could be added to a pending spending bill covering the Federal Emergency Management Agency, which coordinates federal disaster relief.More likely, relief funds could be added to an omnibus spending bill that Congress is to begin considering next week. But it isn't just Washington's relief dollars that are spread thin; its relief manpower also is stretched.FEMA still has special disaster centers open to handle the aftermath of Hugo, and spokesman Russell Clanahan acknowledged that "we're pretty thin." Mr. Clanahan says FEMA now possibly may have the heaviest caseload in its history. To further complicate relief efforts, the privately funded American Red Cross also finds itself strapped for funds after its big Hugo operation. "It's been a bad month money-wise and every other way," said Sally Stewart, a spokeswoman for the Red Cross. "It just makes it a little rough when you have to worry about the budget." The Red Cross has opened 30 shelters in the Bay area, serving 5,000 people.Twenty-five trucks capable of cooking food were dispatched from other states. All the precise types of federal aid that will be sent to California won't be determined until state officials make specific requests to FEMA, agency officials said.And in the confusion after the earthquake, "the information flow is a little slow coming in from the affected area," said Carl Suchocki, a FEMA spokesman. Still, some aid is moving westward from Washington almost immediately.HUD officials said they will make available as many as 100 Bay area houses that are under HUD loans but now are vacant after the houses have been inspected to ensure they are sound.Additional housing vouchers and certificates will be made available, officials said, and some housing and community-development funds may be shifted from other programs or made available for emergency use. Another federal agency not normally associated with disaster relief -- the Internal Revenue Service -- moved quickly as well.The IRS said it will waive certain tax penalties for earthquake victims unable to meet return deadlines or make payments because of the quake's devastation.The agency plans to announce specific relief procedures in the coming days. And the Treasury said residents of the San Francisco area will be able to cash in savings bonds even if they haven't held them for the minimum six-month period. One advantage that federal officials have in handling earthquake relief is the large number of military facilities in the San Francisco Bay area, facilities that provide a ready base of supplies and workers.Even before the full extent of the devastation was known, Defense Secretary Dick Cheney ordered the military services to set up an emergency command center in the Pentagon and prepare to respond to various FEMA requests for assistance. By yesterday afternoon, Air Force transport planes began moving additional rescue and medical supplies, physicians, communications equipment and FEMA personnel to California.A military jet flew a congressional delegation and senior Bush administration officials to survey the damage.And the Pentagon said dozens of additional crews and transport aircraft were on alert "awaiting orders to move emergency supplies." Two Air Force facilities near Sacramento, and Travis Air Force Base, 50 miles northeast of San Francisco, were designated to serve as medical-airlift centers.Some victims also were treated at the Letterman Army Medical Center in San Francisco and at the Naval Hospital in Oakland.In addition, 20 military police from the Presidio, a military base in San Francisco, are assisting with traffic control, and a Navy ship was moved from a naval station at Treasure Island near the Bay Bridge to San Francisco to help fight fires. To help residents in Northern California rebuild, FEMA intends to set up 17 disaster assistance offices in the earthquake area in the next several days and to staff them with 400 to 500 workers from various agencies, said Robert Volland, chief of the agency's individual assistance division.At these offices, earthquake victims will be helped in filling out a one-page form that they will need to qualify for such federal assistance as home-improvement loans and to repair houses. And federal officials are promising to move rapidly with federal highway aid to rebuild the area's severely damaged road system.The Federal Highway Administration has an emergency relief program to help states and local governments repair federally funded highways and bridges seriously damaged by natural disasters.The account currently has $220 million.And though federal law dictates that only $100 million can be disbursed from that fund in any one state per disaster, administration officials expect Congress to move in to authorize spending more now in California. To get that money, states must go through an elaborate approval process, but officials expect red tape to be cut this time. Keith Mulrooney, special assistant to Federal Highway Administrator Thomas Larson, also said that after the 1971 San Fernando earthquake in Southern California, the state set tougher standards for bridges, and with federal aid, began a program to retrofit highways and bridges for earthquake hazards.The first phase of the program has been completed, but two other phases are continuing. The two major structures that failed Tuesday night, he said, were both built well before the 1971 earthquake -- the San Francisco Bay Bridge, completed in the 1930s, and the section of I-880, built in the 1950s.The I-880 section had completed the first phase of the retrofitting. Laurie McGinley contributed to this article.
FARMERS REAP abundant crops.But how much will shoppers benefit? The harvest arrives in plenty after last year's drought-ravaged effort: The government estimates corn output at 7.45 billion bushels, up 51% from last fall.Soybean production swells 24%.As a result, prices paid to farmers for the commodities, which are used in products as diverse as bubble gum and chicken feed, plummet 20% to 33%.But don't expect too much in the way of price breaks soon at the supermarket.Economists expect consumer food prices to jump 5.5% this year to the highest level since 1980 and up from last year's 4.1% rise.Next year may see a drop of one percentage point. Beef prices, hovering near records since the drought, could drop in earnest this winter if ranchers expand herds.Lower feed prices may help animals eat more cheaply, but humans have to factor in an expensive middleman: the processor.Food companies probably won't cut their prices much, blaming other costs. "Labor takes the biggest single chunk out of the `food dollar, '" says Frank Pankyo of the Food Institute. Stokely says stores revive specials like three cans of peas for 99 cents.Two cans cost 89 cents during the drought. IF IN VITRO fertilization works, it usually does so after only a few tries. Costly infertility problems and procedures proliferate as aging baby boomers and others decide to have children -- now.It's estimated that one in six couples experiences infertility, and in 1987, Americans spent about $1 billion to fight the problem.Only about five states now offer some form of insurance coverage, but more are expected.A letter in the New England Journal of Medicine notes that while technology offers "almost endless hope . . . when to stop has become a difficult question. . . ." The authors, from Boston's Beth Israel Hospital, say that 84% of the 50 births they followed occurred after only two in vitro cycles.It adds that births were "extremely unlikely" after the fourth cycle and concludes couples who don't achieve a pregnancy after four to six procedures should be advised that success is unlikely.Some couples continue to try. "Such determination may translate into extreme physical, emotional and financial costs," the letter warns. MARKET MOVES, these managers don't.Only three of the 25 corporate pension fund managers attending a Lowry Consulting Group client conference say they plan to change the asset allocation mix in their portfolios because of the market drop. WORLD ODDITIES come alive in a multimedia version of the Guinness Book of Records.The $99 CD-ROM disk (it can only be played on an Apple Macintosh computer at the moment) combines animation, music and sound.Among the Guinness disk's wonders: the world's loudest recorded belch. ARTY FAX from David Hockney begins a tongue-in-cheek exhibit today at New York's Andre Emmerich Gallery.One of the artist's earliest Fax works was "Little Stanley Sleeping," a portrait of his dog. PACS GIVE and receive in a debatable duet with employees' favored charities. The Federal Election Commission clears corporate plans to donate to an employee's chosen charity in exchange for the worker's gift to the company political action committee.Latest approvals: Bell Atlantic's New Jersey Bell and General Dynamics.Companies get more political clout plus a possible tax-deductible charitable donation -- so far no word from the IRS on deductibility.Detroit Edison, the plan pioneer, generated $54,000 in matching funds this year, up from $39,000 in 1988.But the utility may not continue next year. "We're on a tight budget," says Detroit Edison's Carol Roskind. Two election commission members opposed the matching plans.Scott E. Thomas says the plans give employees "a bonus in the form of charitable donations made from an employer's treasury" in exchange for the political donation. "The U.S. government could be, in effect, subsidizing political contributions to corporate PACs," he says.New Jersey Bell awaits state clearance. Despite federal approval, General Dynamics says it decided it won't go ahead with the matching program. CHRISTMAS SHOPPERS find a helping hand from some catalog companies. Blunt Ellis & Loewi estimates direct mail catalog sales rose to $12 billion last year.And while it's too soon to tell how sales will fare in the important 1989 Christmas season, some companies take steps to ease the usual 11th-hour crush.Spiegel promises a "Guaranteed Christmas," with a pledge to deliver goods before Christmas if ordered by Dec. 20.And, for an extra $6, Land's End will deliver orders within two days; customers can designate the day. Spiegel, which also owns Eddie Bauer and Honeybee, says that since 1987, sales have doubled during the week before Christmas.An L.L. Bean spokeswoman notes: "People are just used to living in a last-minute society." Blunt Ellis, a Milwaukee brokerage firm, says part of the reason catalog sales grow in popularity is because consumers have more money but less time to spend it. L.L. Bean hires about 2,700 workers for the season rush, about 300 more than last year; Land's End hires 2,000. BRIEFS: Guarana Antarctica, a Brazilian soft drink, is brought to the U.S. by Amcap, Chevy Chase, Md.New Product News says the beverage "looks like ginger ale, tastes a little like cherries and smells like bubble gum." . . . "Amenities" planned for Chicago's new Parkshore Tower apartments include an on-site investment counselor.
Four years ago, Pittsburgh was designated the most-livable U.S. city by Rand McNally's Places Rated Almanac, and the honor did wonders to improve Pittsburgh's soot-stained image. "People asked, is it really true?" says Maury Kelley, vice president, marketing services, for Beecham Products USA, a maker of health and personal-care products that used the ranking in its recruiting brochure. Yuba City, Calif., meanwhile, ranked dead last among 329 metro areas.Unamused, residents burned Rand McNally books and wore T-shirts that said: "Kiss my Atlas." The almanac will be making new friends and enemies on Oct. 27, when an updated version will be released. Pittsburgh figures it will be dethroned but plans to accept its ouster graciously.The city's Office of Promotion plans media events to welcome its successor. "We're encouraging a graceful transition," says Mary Kay Poppenberg, the organization's president. "Our attitude is that (the ranking) is like Miss America.Once you're Miss America, you're always Miss America." Tell that to Atlanta, which Pittsburgh replaced as the most-livable city in 1985.Many Atlantans thought Pittsburgh was an unworthy heir.A columnist in the Atlanta Journal and Constitution wrote: "Who did the research for this report?Two guys from Gary, Ind.?" Not so.Co-authors David Savageau and Richard Boyer, live in Gloucester, Mass., and Asheville, N.C., respectively. "Atlanta," Mr. Savageau sniffs, "has unrealistic pretensions to world-class status." The new edition lists the top 10 metropolitan areas as Anaheim-Santa Ana, Calif.; Boston; Louisville, Ky.; Nassau-Suffolk, N.Y.; New York; Pittsburgh; San Diego; San Francisco; Seattle; and Washington.Mr. Savageau says earthquake or not, San Francisco makes the list. But attention also rivets on who finishes last, and Pine Bluff, Ark. -- which finished third to last in 1981 and second to last in 1985 -- is certainly in the running. "I hate to dignify the publication by commenting on the obscene rating," Mayor Carolyn Robinson says, adding that cities have no way to rebut the book. "It's like fighting your way out of a fog.You don't know which way to punch."
Northrop Corp. 's third-quarter net income fell 25% to $21.5 million, or 46 cents a share, while General Dynamics Corp. reported nearly flat earnings of $76.5 million, or $1.83 a share. Los Angeles-based Northrop recorded an 8.2% decline in sales as B-2 Stealth bomber research-and-development revenue continued to ebb and high costs on some other programs cut into profit.The aerospace concern earned $28.8 million, or 61 cents a share, a year earlier.Sales in the latest period were $1.25 billion, down from $1.36 billion in the 1988 quarter. At St. Louis-based General Dynamics, sales rose 10% to $2.52 billion from $2.29 billion.It earned $76.4 million, or $1.82 a share, in the 1988 quarter.General Dynamics credited significant earnings gains in its general aviation and material service segments, an earnings recovery in submarine operations, and higher military aircraft sales. Northrop said sales fell because of the decline in B-2 development dollars from the government as the plane continues its initial production stage and because fewer F/A-18 fighter sections are being produced in its subcontract work with prime contractor McDonnell Douglas Corp. In composite trading on the New York Stock Exchange, Northrop shares closed at $21.125, off 25 cents.General Dynamics closed at $54.875, up 50 cents. Northrop, which since early 1988 has declined to accept fixed-price contracts for research and development, said earnings were hurt by excessive costs on a number of such contracts won years ago.Among them were the ALQ-135 electronic countermeasures system for the F-15 fighter.Northrop's interest expense also soared to $35 million from $17 million a year ago.It said debt remained at the $1.22 billion that has prevailed since early 1989, although that compared with $911 million at Sept. 30, 1988. The backlog of undelivered orders at Northrop on Sept. 30 was $4.68 billion, down from $5.16 billion a year earlier. For the nine months, Northrop reported a net loss of $46.9 million, or $1 a share, compared with profit of $190.3 million, or $4.05 a share, in 1988.Sales dipped 3.6% to $3.92 billion from $4.07 billion. At General Dynamics, factors reducing earnings in the military aircraft segment included higher levels of cost-sharing in development of the Advanced Tactical Fighter, and the high cost of an advanced version of the F-16 fighter.F-16 deliveries also have fallen "slightly behind schedule," although a return to the previous schedule is expected in 1990, the company said. Backlog at General Dynamics rose to $16.5 billion from $15.8 billion.Its interest expense surged to $21.5 million from $12.4 million.For the nine months, General Dynamics earned $210.3 million, or $5.03 a share, up marginally from $208.8 million, or $4.97 a share, on a 4.9% rise in sales to $7.41 billion from $7.06 billion.
Lotus Development Corp. reported a surprisingly strong 51% increase in third-quarter net income on a 32% sales gain, buoyed by strong demand for a new version of its 1-2-3 computer spreadsheet. The results topped analysts' expectations and the earnings growth of competitors, prompting traders to all but forget the product-launch delays that bogged down the company for much of the past two years. Yesterday, in heavy, national over-the-counter trading, Lotus shares rose to $32.50, up $1.25 apiece, capping a threemonth run-up of more than 40%. Lotus said net rose to $23 million, or 54 cents a share, on sales of $153.9 million.A year ago, net was $14.3 million, or 31 cents a share, on sales of $116.8 million. For the nine months, net of $38.5 million, or 92 cents a share, trailed the year earlier's $49.9 million, or $1.08 a share.Sales rose to $406 million from $356 million the year earlier.In the first half, Lotus struggled to keep market share with costly promotions while customers awaited the launch of 1-2-3 Release 3, the upgraded spreadsheet software. Lotus's results were about 10% higher than analysts' average expectations and compared favorably with the 36% earnings rise reported a day earlier by rival Microsoft Corp. of Redmond, Wash.The company said results were bolstered by upgrades to Release 3 by previous customers and improved profit margins, the result of manufacturing-cost controls. Rick Sherlund, a Goldman Sachs analyst, said Lotus had upgrade revenue of about $22 million in the quarter, twice what he had expected.Also, he estimated unit shipments of 1-2-3 in all its forms were about 315,000, up 7% from 1988's quarterly average. Demand for the new version was enabling Lotus to raise prices with distributors and to hold market share against Microsoft and other competitors that tried to exploit the earlier delays in Release 3's launch, Mr. Sherlund added.He estimated that 1-2-3 outsold Microsoft's Excel spreadsheet by four-to-one in the quarter, and held a 70% or better share of the spreadsheet market.
Silicon Valley heaved a sigh of relief yesterday. Though details were sketchy in the aftermath of the violent earthquake that shook the high-tech corridor along with the rest of the San Francisco Bay area, a spot check of computer makers turned up little, if any, potentially lingering damage to facilities or fabrication equipment. Analysts and corporate officials said they expected practically no long-term disruption in shipments from the Valley of either hardware or software goods.Intel Corp., Advanced Micro Devices Inc. and National Semiconductor Corp. were all up and running yesterday, though many workers were forced to stay home because of damaged roadways; others elected to take the day off. "These systems are more rugged than many people would believe," said Thomas Kurlak, who tracks the computer industry for Merrill Lynch Research. "It's not the end of the world if you shake them up a little bit." Other companies, including International Business Machines Corp. and Hewlett-Packard Co., completely idled their operations because of Tuesday evening's temblor, which registered 6.9 on the Richter scale.Personnel spent the morning inspecting buildings for structural weaknesses, mopping up water from broken pipes and clearing ceiling tiles and other debris from factory floors. Still, many were confident that "in a day or two, everything should be back to normal," according to a spokeswoman for the Semiconductor Industry Association, based in Cupertino.IBM, for instance, said it anticipates returning to a normal work schedule by the weekend at its San Jose plant, which puts out disk drives for the 3090 family of mainframes.A Hewlett-Packard spokeswoman said that, while "things are a big mess," some 18,000 Valley employees have been called back to work today. Apple Computer added that it was being "cautiously optimistic," despite not yet closely eyeballing all of its 50 buildings in the region.Even the carefully calibrated machinery in its giant Fremont plant, to the north of the Valley, was believed to be undamaged.Sun Microsystems Inc. and Tandem Computers Inc. also signaled that they should recover quickly. Digital Equipment Corp., with major facilities in Santa Clara, Cupertino, Palo Alto and Mountain View, said that all of its engineering and manufacturing sites had reported to corporate headquarters in Maynard, Mass., Tuesday night.None sustained "significant" damage, a spokesman said, adding that "the delicate manufacturing process machines were checked and were all found to be operating normally." For many companies, of course, there is still a slew of nagging problems to grapple with, some of which have the potential to become quite serious.For example, a spokesman for Advanced Micro Devices said the Sunnyvale chip maker is worried about blackouts.A sudden surge or drop in electric power could ruin integrated circuits being built. But, given what might have happened to the fragile parts that are at the heart of the microelectronics business, the bulk of Valley companies seemed to be just about shouting hosannas. Several factors apparently spared the Valley -- a sprawling suburban stretch from San Jose to Palo Alto -- from the kind of impact felt in San Francisco, an hour's drive north.For one thing, buildings there tend to be newer and, thus, in step with the latest safety codes.Also, the soil in the Valley is solid, unlike the landfill of San Francisco's downtown Marina District, which was hit with fires and vast destruction. In addition, some microelectronics companies said they were prepared for tremulous conditions like Tuesday's.Their machine tools are even bolted to the shop floor.Intel said that over the past decade, it has installed computer sensors and shutoff valves, sensitive to the shake of an earthquake, in the pipes that snake through its plants. Like other large Valley companies, Intel also noted that it has factories in several parts of the nation, so that a breakdown at one location shouldn't leave customers in a total pinch. That's certainly good news for such companies as Compaq Computer Corp., Houston, which has only a four-day supply of microprocessors from the Valley on hand because of a just-in-time manufacturing approach that limits the buildup of inventory.Compaq said it foresees no difficulties in obtaining parts in the immediate future. Computer makers were scrambling to help customers recover from the disaster.Digital Equipment has set up disaster-recovery response centers in Dallas, Atlanta and Colorado Springs, Colo.These units were handling calls both from people in the San Francisco area and from computers themselves, which are set to dial Digital automatically when trouble arises.They then run remotely controlled self-diagnostic programs.Digital also said it has dispatched teams of technicians to California. Meanwhile, several other major installations around the Valley -- America's center of high-tech -- said they, too, fared as well as could be expected.Lawrence Livermore National Laboratory, where the Energy Department tests and conducts research on nuclear weapons, had only "superficial damage," a spokesman said. At Lockheed Corp. 's missiles and space systems group in Sunnyvale, about 40 miles south of San Francisco, workers were asked to head to work yesterday after it was realized that "there were no show-stoppers" in the 150-plus buildings on its one-square-mile campus. Several engineering and research offices needed closer scrutiny to make sure they weren't in danger of crumbling, but "the bulk of the place is in pretty good shape," an official said. One of Lockheed's most lucrative sectors -- accounting for more than half the aerospace company's $10.59 billion in sales in 1988 -- the missiles and space group is the prime Pentagon contractor on the Trident II ballistic missile.It also generates pieces of the missile shield called the Strategic Defense Initiative. Fortunately, the Hubble Space Telescope -- set to be launched on the shuttle next year in a search for distant solar systems and light emitted 14 billion years ago from the farthest reaches of the universe -- was moved from Sunnyvale to the Kennedy Space Center in Florida at the beginning of October. John R. Wilke contribued to this article.
Michael Maynard offered the world a faster way to break eggs.As thanks, the egg industry tried to break him. And the egg producers have done a pretty good job.They tried to put Mr. Maynard out of business by an act of Congress.Egg-industry lobbying helped persuade six states to ban Mr. Maynard's automatic egg-breaking machine because of fears over salmonella.His company, Misa Manufacturing Inc., was forced to seek protection from creditors under federal bankruptcy law in 1987 and has since been liquidated.Monthly sales of his Egg King machine -- which he now is marketing through a new company -- have sunk to about half a dozen from a peak of 75, says the 46-year-old businessman. Mr. Maynard isn't the first entrepreneur to bump up against entrenched interests.But his case is notable both for the scale of the fight -- it isn't often that a congressional hearing is held to determine whether one small businessman is a threat to the republic -- and for what it tells about the pitfalls of marketing a new product. Now one might ask why people who sell eggs would fight someone who is trying to make it easier to crack them.Part of the answer lies in the nature of the industry.Many larger egg producers are also egg processors, who crack, inspect, and sanitize billions of eggs, turning them into powdered, liquified or frozen egg products. However, dozens of bakers, restaurant chefs and other food preparers who flocked to Mr. Maynard's defense say that products ranging from egg bread to eclairs lose some zip when the eggs come in 30-pound cans instead of shells.But for companies that use hundreds of eggs a day, breaking them by hand can get, well, out of hand. The idea behind the Egg King is pretty simple: put the eggs into a cylinder that contains perforated baskets, spin them at a high speed to break the shells and strain the edible part through the baskets. One Egg King -- which at just under four feet tall and two feet wide has been likened to the robot R2-D2 -- can crack about 20,000 eggs an hour.Because fresh eggs are less expensive than processed ones, a big egg user can recover the Egg King's $3,390 cost in a few months, says Mr. Maynard. Such centrifugal egg breakers have been around since the 1890s.But when Mr. Maynard came forward with his machine in the early 1970s nobody else was offering them in the U.S.The main reason: salmonella. Chickens carry this bacteria, which can cause upset stomachs and, in rare cases, death among people.Hens sometimes pass salmonella to the eggs, and it can also be found on unclean shells.Thus, any machine that breaks large amounts of eggs at once has the potential to spread salmonella if a bad egg gets in with the good ones. Mr. Maynard claims this is a manageable problem.The Egg King carries written instructions to break only high-grade eggs that have been properly sanitized and, as an added precaution, to use the eggs only in products that will be cooked enough to kill bacteria.With nearly 4,000 machines in use, there have been no salmonella problems as long as instructions were followed, Mr. Maynard boasts. He says the handful of salmonella cases involving products that may have used eggs broken by an Egg King stemmed from a failure to adequately cook the products.But he says that's no more a reason for banning Egg Kings than bad drivers are a reason for banning cars. Opponents don't buy such arguments. "Human nature being what it is, people don't always follow instructions," says Jack Guzewich, chief of food protection for the New York state Health Department. Leading the assault against the Egg King has been United Egg Producers.The Decatur, Ga., trade group has issued a "briefing book" that claims the machine is "a health hazard" and that Mr. Maynard is trying "to make a fast buck at the expense of the nation's egg producers." The UEP declines to comment, but the group's attorney, Alfred Frawley, says the group's actions are motivated solely by "health concerns." An early battleground was the U.S. Department of Agriculture.Mr. Maynard initially won approval for his machine to be used at egg-processing facilities regulated by the USDA's Food Safety Inspection Service.Unfortunately for Mr. Maynard, another branch of the USDA, the Agricultural Marketing Service, was in charge of eggs.After receiving complaints from egg producers, this branch got the other branch to rescind its approval, thus limiting the machine's potential market to bakeries and restaurants and other establishments that aren't regulated by the USDA. The egg producers also lobbied the Food and Drug Administration.But the FDA in a 1985 letter to the United Egg Producers said that there was "little likelihood" of a health problem as long as instructions were followed. So the producers went to Capitol Hill, where a congressman from Georgia introduced a measure to ban centrifugal egg-breaking machines.Mr. Maynard, whose company at the time was based in Santa Ana, Calif., enlisted his local congressman, and the battle was joined. Mr. Maynard's forces finally defeated the measure, though it took a vote on the floor of the House of Representatives to do it.Even then, opponents managed to get a congressional hearing to examine what one congressman called an "unscrupulous" method for breaking eggs. Foiled in their effort to get a national ban, the egg producers turned their attention to the states.So far, New York, New Jersey, Nebraska, Georgia, Michigan and Minnesota have outlawed Mr. Maynard's device, citing health concerns. An antitrust suit that Mr. Maynard's company filed in Los Angeles federal court against the United Egg Producers and others only added to the entrepreneur's woes.The judge dismissed the suit and ordered Mr. Maynard's company to pay over $100,000 in legal fees to the defendants' lawyers.Mr. Maynard says the ruling pushed his company into bankruptcy court. Now he has moved to Oklahoma where costs are lower, and started a new company, Adsi Inc., to market his machine.But, so far, the change of scenery hasn't ended his string of bad breaks.Mr. Maynard recently fell from a horse and fractured his arm.
Michelle Pfeiffer can't chew gum and sing at the same time.But on the evidence of "The Fabulous Baker Boys," that may be the only thing she can't do, at least when she's acting in movies. As the tough, slinky lounge chanteuse in "The Fabulous Baker Boys," Ms. Pfeiffer sings for herself, and more than passably well.Her Susie Diamond handles a song the way the greats do, like she's hearing the way it should sound inside her head and she's concentrating on matching that internal tone.Yet her intensity stops and starts with the music.When she isn't performing for an audience, she prepares for a song by removing the wad of gum from her mouth, and indicates that she's finished by sticking the gum back in. Like almost everything in this wonderfully romantic and edgy movie, Ms. Pfeiffer's Susie seems like someone you've seen before, in numerous show-biz stories (even her name, Susie Diamond, sounds like a character Marilyn Monroe must have played).Yet nothing about "Baker Boys," and certainly nothing about Ms. Pfeiffer, really is like something from the video vault. Steve Kloves, the young writer and director (he isn't yet 30), has only one produced picture to his credit; he wrote the screenplay for "Racing With the Moon," a lovely coming-of-age picture set in the '40s.Both movies are infused with the nostalgic sensibility of someone much older, someone who doesn't dismiss dreams, but who also has enough experience to see his limits.However, Mr. Kloves directs his own material without sentimentality and at its own eccentric pace; "Baker Boys" is both bluesy and funny. He's put a fresh spin on material that could come off terribly cliched; for example, the way Susie wows an audience the first time she sings with the Baker Boys.Of course, it doesn't hurt that Mr. Kloves has made up for his lack of experience behind the camera with technicians who know exactly what they're doing. Much of the picture's sensuality emerges from cinematographer Michael Ballhaus's slyly seductive lens work.After working for years with Werner Rainer Fassbinder, the late German director, and more recently with Martin Scorsese ("After Hours," "The Color of Money," "The Last Temptation of Christ"), Mr. Ballhaus has developed a distinctively fluid style.And Dave Grusin's witty score embraces the banal requirements of banquet-hall musicianship ("Feelings" is a must) without condescension. Though Ms. Pfeiffer has the flashy part -- she gets the best comic bits and to wear glamorous dresses and spiked heelsthe boys are pretty great, too.What seemed like a good idea, to cast the Bridges brothers (Jeff and Beau) as the Baker brothers, actually turned out to be a good idea.Anyone who's tried to appear "natural" in front of a camera knows that it's much more natural to end up looking like a stiff.So it's quite possible that the terrific play between the brothers isn't natural at all, that Jeff and Beau had to work like crazy to make their brotherly love -- and resentment and frustration and rage -- seem so very real. When the movie opens the Baker brothers are doing what they've done for 15 years professionally, and twice as long as that for themselves: They're playing proficient piano, face-to-face, on twin pianos.They're small time in the small time-hotels (not the best ones) and restaurants in Seattle.Yet they don't disparage their audiences by disparaging their act.They wear tuxedos most nights, unless circumstances (a regular gig at a "tropical" lounge, for example) require them to wear special costumes, like Hawaiian shirts. Plump Beau, looking eager to please with his arched eyebrows and round face, plays the older brother, Frank.Frank plans the program, takes care of business, and approaches the work like any other job.He's even able to think of a job that takes him out of the house 300 nights a week as an ordinary job.He's got a wife and two kids and a house in the suburbs; the audience sees only the house, and only near the end of the movie.Frank grovels a little for the bookers, probably no more or less than he would have to if he worked for a big corporation.On his off-hours he wears cardigan sweaters. Jeff Bridges is the younger brother, Jack, who fancies himself the rebellious artist; he lives in a loft with his sick dog and the occasional visit from the little girl upstairs, who climbs down the fire escape.Yet Jack's the one who can remember every dive they ever played, and when, and he dutifully shows up for work night after night (he consoles himself with booze and by showing up at the last minute).Looking leaner than he has in a while, the younger Mr. Bridges's Jack is sexy and cynical and a far sadder case than Frank, who's managed to chisel his dreams to fit reality without feeling too cheated.He can live with little pleasures. Mr. Kloves has put together some priceless moments.These include Jennifer Tilly's audition to be the Baker Boys' girl singer.Ms. Tilly of the tweety-bird voice showed great comic promise during her stint as the mobster's girlfriend on the television show, "Hill Street Blues." Here she delivers, especially during her enthusiastically awful rendition of the "Candy Man," which she sings while prancing around in a little cotton candy pink angora sweater that couldn't be more perfect. (It matches her voice.) And Ms. Pfeiffer's particular version of "Making Whoopee" -- and the way Mr. Ballhaus photographs her, from the tips of her red high heels right up her clingy red velvet dress -- might make you think of Marilyn Monroe if Ms. Pfeiffer hadn't gone and become a star in her own right. VIDEO TIP: If you'd like to see the first time Michelle Pfeiffer sang on screen, and you have a lot of patience, take a look at "Grease 2." You'll find her there.Better yet, check out the emergence of her comic persona in "Married to the Mob," Jonathan Demme's delightful Mafia comedy.
Money-market mutual fund assets grew at nearly three times their usual rate in the latest week, as investors opted for safety instead of the stock market. Money-fund assets soared $4.5 billion in the week ended Tuesday, to a record $348.4 billion, according to IBC/Donoghue's Money Fund Report, a Holliston, Mass.-based newsletter. "We were expecting it, following the fall of the Dow Friday," said Brenda Malizia Negus, editor of Money Fund Report. "It's the proverbial flight to safety." Despite recent declines in interest rates, money funds continue to offer better yields than other comparable investments.The average seven-day compound yield on the 400 taxable funds tracked by IBC/Donoghue's was 8.55% in the latest week, down from 8.60%.Compound yields assume reinvestment of dividends and that current yields continue for a year. Most short-term certificates of deposit are yielding about 8% or less at major banks, and the yields on Treasury bills sold at Monday's auction fell to 7.61% for three months and 7.82% for six months. Money-fund assets have been rising at an average rate of $1.6 billion a week in recent months, Ms. Negus said, reflecting the relatively high yields.In the latest week, funds open to institutions alone grew by $1.8 billion. Some fund managers say inflows could increase in coming days as a result of stock selling in the wake of Friday's 190.58point drop in the Dow Jones Industrial Average. "If you're selling equities, you don't start getting proceeds for five to seven days," said Frank Rachwalski, who manages the Kemper Money Market Fund. Neal Litvack, marketing vice president for Fidelity Investments, said inflows Friday into Fidelity's Spartan and Cash Reserves money-market funds were about twice normal levels, with about half coming from equity and junk-bond funds.Monday and Tuesday "were lackluster in comparison," he said. "People aren't necessarily running scared," Mr. Litvack said. "They're maintaining their attitude toward investing, which has leaned toward the conservative recently." Money-fund yields tend to lag interestrate trends as portfolio managers adjust the maturities of their investments -- short-term Treasury securities, commercial paper and the like -- to capture the highest yields.Maturities usually are shorter when rates are rising and longer when they are falling. The average maturity of the funds tracked by IBC/Donoghue's remained at 38 days for the third consecutive week.It was as short as 29 days at the start of this year, when rates were marching steadily upward, and hit 42 days in August. The average seven-day simple yield of the funds fell to 8.21% this week from 8.26%.The average 30-day simple yield was 8.26%, compared with 8.27% the week before, and the 30-day compound yield slid to 8.60% from 8.61%. Some funds are posting yields far higher than the average.The highest yielding taxable fund this week was Harbor Money Market Fund, with a seven-day compound yield of 12.75%.That included capital gains that were passed along to customers. Among the other high-yielding funds, Fidelity's Spartan Fund had a seven-day compound yield of 9.33% in the latest week.The seven-day compound yield of the Dreyfus Worldwide Dollar Fund was 9.51%.
whose Della Femina McNamee WCRS agency created liar Joe Isuzu, among others -- announced a massive restructuring that largely removes it from the advertising business and includes selling the majority of its advertising unit to Paris-based Eurocom. The complex restructuring, which was long expected, transforms London-based WCRS from primarily a creator of advertising into one of Europe's largest buyers of advertising time and space.It also creates a newly merged world-wide ad agency controlled by Eurocom and headed jointly by New York ad man Jerry Della Femina and two top WCRS executives.The merged agency's admittedly ambitious goal: to become one of the world's 10 largest agencies, while attracting more multinational clients than the agencies were able to attract alone. WCRS's restructuring reflects the growing importance of media buying in Europe, where the only way to get a good price on advertising time and space is to buy it in bulk.For Eurocom, meanwhile, the move gives it a strong U.S. foothold in Della Femina, and more than quadruples the size of its ad agency business world-wide.It also gives the outspoken Mr. Della Femina -- who often generates as much publicity for himself as for his clients -- an international platform that he most certainly won't be loath to use. According to terms, WCRS will pay 2.02 billion French francs ($318.6 million) for the 50% it doesn't already own of Carat Holding S.A., one of Europe's largest media buyers.Meanwhile, Eurocom, which had held 20% of WCRS's ad unit, will pay #43.5 million ($68.5 million) to raise its stake to 60%.That price also covers Eurocom raising to 60% its 51% stake in Europe's Belier Group, a joint venture ad agency network it owns with WCRS. Eurocom will also have the right to buy the remaining 40% of the merged ad agency group in six years. The transaction places the three executives squarely at the helm of a major agency with the rather unwieldy name of Eurocom WCRS Della Femina Ball Ltd., or EWDB.The merged agency will include Della Femina McNamee based in New York, Eurocom's various agencies in France, the Belier Group in Europe and WCRS's other advertising and direct marketing operations. Mr. Della Femina will be joint chairman with former WCRS executive Robin Wight.Both will report to Tim Breene, a former WCRS executive who will be chief executive officer at the new agency. In an interview in New York, Mr. Breene, fresh from a Concorde flight from Paris where executives had worked through most of the night, outlined big plans for the new agency. "Our goal is to develop quite rapidly to a top-10 position . . . by the end of three years from now.It implies very dramatic growth," he said.He added that Eurocom and WCRS had agreed to provide a development fund of #100 million for acquisitions.The new agency group is already in discussions about a possible purchase in Spain, while Mr. Breene said it also plans to make acquisitions in Scandinavia, Germany and elsewhere. Cracking the top 10 within three years will be difficult at best.Della Femina had billings of just $660 million last year and ranked as the U.S.'s 24th-largest ad agency.The merged company that it now becomes part of will have billings of just more than $2.6 billion -- most of that in Europe -- bringing it to about 14th world-wide.To make it to top-10 status, it would have to leapfrog over such formidable forces as Grey Advertising, D'Arcy Masius Benton & Bowles and Omnicom's DDB Needham. The merged agency's game plan to attract multinational packaged-goods advertisers may prove equally difficult.When WCRS created Della Femina McNamee out of the merger of three smaller agency units in 1988, it said it did so in order to attract larger clients, especially packaged-goods companies.Since then, Della Femina won Pan Am as an international client and also does work for a few packaged-goods clients, including Dow Chemical Co. 's Saran Wrap. But major packaged-goods players of the world -- such as Procter & Gamble, Colgate-Palmolive and Unilever -- have steadfastly eluded the agency. "Three of our favorite names," Mr. Della Femina calls that roster, adding hopefully, "We're a much more attractive agency to large multinationals today than we were yesterday." Still, the restructuring could create one of the most powerful alliances between advertising and media-buying firms that Europe has seen.As part of the restructuring, WCRS and Eurocom said they will look for ways to combine their media buying across Europe. What's more, both Eurocom and brothers Francis and Gilbert Gross, who founded Carat, will acquire 14.99% stakes in WCRS Group, creating a powerful link between Eurocom and Carat.Carat will receive its WCRS stake as part of payment for the 50% Carat stake that WCRS is buying, while Eurocom said it expects to pay about #32 million for its WCRS stake. Mr. Della Femina says he plans to remain heavily involved in the creative product at the world-wide agency, serving as a sort of "creative conscience." Louise McNamee, Della Femina's president, will continue running the U.S. agency day-to-day.They and other top executives signed long-term employment contracts and Mr. Della Femina will receive an additional multimillion-dollar sum, which some industry executives pegged at about $10 million. WCRS Group, for its part, will now be able to follow its longstanding plan of becoming "a holding company for a series of media-related businesses," said Peter Scott, the firm's chief executive.In addition to Carat, WCRS will hold onto its public relations, TV programming and other businesses.WCRS says its debt will be cut to #24 million from #66 million as a result of the transaction. For Carat, meanwhile, the alliance with Eurocom and WCRS is intended to strengthen its own push outside France.Carat's Gross brothers invented the idea of large-scale buying of media space.By buying the space in bulk, they obtain discounts as high as 50%, which they can pass on to customers.They thus have won the French space-buying business of such advertising giants as Coca-Cola Co., Fiat S.p.A., Gillette and Kodak.But now, other agencies are getting into the business with their own competing media-buying groups -- and Carat wants to expand to the rest of Europe. To help finance the Carat purchase, WCRS said it plans an issue of Euroconvertible preferred shares once the market settles down.But WCRS added that "in the light of the current uncertainty in the equity markets," it has arranged medium-term debt financing, which would be underwritten by Samuel Montagu & Co. Ltd. Earthquake's Damage Tuesday's earthquake brought the San Francisco ad scene to a screeching halt yesterday, with only a few staffers showing up at their offices, mainly to survey the damage or to wring their hands about imminent new-business presentations. While no agencies reported injuries to employees, the quake damaged the offices of J. Walter Thompson, Chiat/Day/Mojo and DDB Needham, among others, spokesmen for those agencies said.Staffers at Thompson, whose offices are in the ultramodern Embarcadero Center, watched pictures drop from the walls and then felt the skyscraper sway seven to eight feet, according to a spokeswoman.Plaster fell and windows were broken at Chiat/Day/Mojo, a spokesman for that agency said. Late yesterday afternoon, DDB Needham executives were scrambling to figure out what to do about a new business presentation that had been scheduled for today, a spokesman said.DDB Needham's office building may have sustained structural damage, the spokesman added. "All operations have stopped," he said.A number of agencies, including Thompson and Foote, Cone & Belding, said some employees who live outside of San Francisco, fearful that they wouldn't be able to get home, spent the night at the agency. Ad Notes. . . . NEW ACCOUNT: Chesebrough-Pond's Inc., Greenwich, Conn., awarded its Faberge hair care accounts to J. Walter Thompson, New York.Thompson, a unit of WPP Group, will handle Faberge Organic shampoo and conditioner and Aqua Net hairspray.The accounts, which billed about $7 million last year, according to Leading National Advertisers, were previously handled at Bozell, New York. WHO'S NEWS: William Morrissey, 44, was named executive vice president, world-wide director of McCann Direct, the direct marketing unit of Interpublic Group's McCann-Erickson agency.He had been president and chief operating officer of Ogilvy & Mather Direct. BOZELL: Los Angeles will be the site of a new entertainment division for the ad agency.The division will be headed by Dick Porter, who returns to Bozell after being vice president of media at MGM. AC&R ADVERTISING: The agency's three California offices, previously called AC&R/CCL Advertising, will now be called AC&R Advertising to match the name of its New York office.AC&R Advertising is a unit of Saatchi & Saatchi Co. NEW BEER: Sibra Products Inc., Greenwich, Conn., awarded its Cardinal Amber Light beer account to Heidelberg & Associates, New York.Budget is set at $1.5 million.The new beer, introduced this week at a liquor industry convention, is imported from Switzerland's Cardinal brewery.Heidelberg's first ads for the brand, which Sibra says will compete with imported light beer leader Amstel Light, feature the line "The best tasting light beer you've ever seen."
One of the most remarkable features of the forced marches of the ethnic Turks out of Bulgaria over the past five months has been the lack of international attention.The deportation of more than 315,000 men, women and children by the Bulgarian regime adds up to one of the largest migrations seen in the postwar years.Yet some people are advancing a chilling casuistry: that what we are seeing is somehow the understandable result of the historical sins committed by the Turks in the 16th century.Today's Turks in Bulgaria, in other words, deserve what is coming to them four centuries later. As if this weren't enough, the Senate Judiciary Committee is getting into the act.On Tuesday it approved Senator Bob Dole's proposed commemorative resolution designating April 24, 1990, as the "National Day of Remembrance of the 75th Anniversary of the Armenian Genocide of 1915-1923," suffered at the hands of the warring Ottoman Empire. There can be no quibbling that the Armenians endured terrible suffering, but one has to wonder what possible good such a resolution will achieve.It puts great strain on a longstanding U.S. friendship with Turkey, a country that has been one of America's strongest allies in NATO.The resolution also comes at a time when Turkey has been seeking help from the United States in resolving its Bulgarian emigration controversy and pursuing democratic reforms that may lead to membership in the European Community. Turkey has been fighting its past for years, and thus far has been only partially successful.Must it now accept that one of its strongest allies blames it for the genocide of another people?Such sentiment only encourages the adverse feelings toward Turkey that surfaced when Turkey asked for assistance in dealing with its Bulgarian emigration crisis. Mr. Dole's odd effort notwithstanding, most of Turkey's political problems lie with the Europeans.Part of the problem some Europeans have with Turkey seems to stem from its location -- Turkey isn't really part of Europe.Why, they wonder, should it belong to the EC?Another anti-Turkish hook is the Islamic faith of the majority of the Turkish people: Turkey, we are told, is not a Christian nation; its people simply won't fit in with the Western European Judeo-Christian tradition.It's when these rationalizations fall on deaf ears that the old standby of retribution for treatment at the hands of the Ottoman Empire comes to the fore. No one has to accept the sins of the Ottoman Empire to reject that argument.Turkey in any event is long past it.The country has in recent years accepted more than 500,000 refugees from at least four bordering nations.Kurds, suffering what many people consider to be a current extermination campaign at the hands of Syria, Iran and Iraq have inundated eastern Turkey.Now it is their fellow Turks arriving as refugees from Bulgaria. The Turkish refugee tragedy and the ongoing crisis cannot be ignored and shuttled off to that notorious dustbin of history that has become so convenient recently.Surely, the past suffering of any people at any time cannot be simply filed away and forgotten.But what the Senate Judiciary Committee has done in supporting the strongly worded Armenian resolution achieves no useful end; it merely produces more controversy and embittered memories. Congress has enough difficulty dealing with the realities of the world as it currently exists.Bulgaria's government has been behaving beyond the pale for months, and the U.S. does its values no credit by ignoring that while casting its votes into the past.
Many in Washington say President Bush will have to raise taxes to pay for his war on drugs.We have a better idea: Dismantle HUD to pay for the war on drugs. Housing and Urban Development's budget is $17 billion.From what we and the nation have been reading, the money isn't being spent very well.The single most important contribution the government could make now to help the poor is to get the specter of drugs out of their neighborhoods.If that takes money, take it away from this discredited federal department. But of course the Democrats pillorying HUD in hearings and in the press have no such solution in mind.Instead, they're scrambling to protect the very programs at the heart of the HUD scandal. This month, HUD Secretary Jack Kemp unveiled a series of proposed reforms to improve management at HUD. No doubt many of his ideas are worthy, but ultimately he is proposing to make fundamentally flawed programs work slightly more fairly and efficiently.Congress is unlikely to go even that far. Last week, Secretary Kemp ran into a buzzsaw of criticism from House Banking Committee members.They were appalled, for instance, that he wanted to target more of the $3 billion Community Development Block Grant (CDBG) program to low-income projects and zero out the notorious "discretionary" funds that have allowed HUD officials to steer contracts to political cronies. These development grants mainly enrich developers who want to put up shopping centers and parking garages.They also give those in Congress political credit for bringing home the pork, and so they are popular with such Members as Mary Rose Oakar. Rep. Oakar, a Democrat from Cleveland, wants a $6.9 million grant so Cleveland can build an 18-story Rock and Roll Hall of Fame.She says it'd create 600 jobs and bring Cleveland tourist revenue.HUD says the project doesn't qualify, and Mr. Kemp says that rock 'n' roll musicians and the music industry ought to put up the money. At the hearing, Rep. Oakar started wailing about "phoney baloney regulations" that would stand between her and "housing for downtown Cleveland." Rep. Chalmers Wylie, an Ohio Republican, rallied to the cause: "I think the gentlelady is making an important statement.The implication that if a congressman calls about a project in his district there's something wrong, I think is most unfortunate." We're sure some theologian can explain the difference between what the Republican consultants have been doing with HUD and what these gentleladies and gentlemen want to do with HUD.Our view is that given Congress's attitude toward HUD, the place probably is beyond reform. For more than 50 years the federal government has tried various ways to provide housing for the poor and revive cities.In the process HUD has wasted untold billions, created slums and invited corruption. Much of HUD's spending actually is disguised welfare for developers or the middle class.That includes the CDBG funds and the Federal Housing Administration, which loans out money for private home mortgages and has just been discovered to be $4 billion in the hole.Selling the FHA's loan portfolio to the highest bidder would save the taxpayers untold billions in future losses. Some HUD money actually does trickle down to the poor, and zeroing out housing middlemen would free up more money for public housing tenants to manage and even own their units.The rest ought to be used to clean out drugs from the neighbhorhoods. Rival gangs have turned cities into combat zones.Even suburban Prince George's County, Md., reported last week there have been a record 96 killings there this year, most of them drug-related.Innocent bystanders often are the victims.A man in a wheelchair was gunned down in the crossfire of a Miami drug battle.A three-year-old Brooklyn boy was used as a shield by a drug dealer. Decent life in the inner cities won't be restored unless the government reclaims the streets from the drug gangs.Until then, the billions HUD spends on inner-city housing simply is wasted. It's still unclear whether Secretary Kemp wants to completely overhaul the engine room at HUD or just tighten a few screws here and there.No doubt he believes the place can be salvaged.Having seen the hypocrisy with which Congress has addressed the HUD scandals, we disagree.It's time to scrap the politically infested spending machine HUD has become and channel the resources into the drug war.
Natural upheavals, and most particularly earthquakes, are not only horrible realities in and of themselves, but also symbols through which the state of a society can be construed.The rubble after the Armenian earthquake a year ago disclosed, quite literally, a city whose larger structures had been built with sand.The extent of the disaster stemmed from years of chicanery and bureaucratic indifference. The larger parallel after the earthquake centered south of San Francisco is surely with the state of the U.S. economy.Did the stock-market tremors of Friday, Oct. 13, presage larger fragility, far greater upheavals?Are the engineering and architecture of the economy as vulnerable as the spans of the Bay Bridge? The eerie complacency of the Reagan-Bush era has produced Panglossian paeans about the present perfection of U.S. economic and social arrangements.A licensed government intellectual, Francis Fukuyama, recently announced in The National Interest that history is, so to speak, at an end since the course of human progress has now culminated in the glorious full stop of American civilization.His observations were taken seriously.But we are, in reality, witnessing the continuing decline of the political economy of capitalism: not so much the end of history but the history of the end. The financial equivalent of the sand used by those Armenian contractors is junk bonds and the leveraged buy-outs associated with them.Builders get away with using sand and financiers junk when society decides it's okay, necessary even, to look the other way.And by the early 1980s U.S. capitalists had ample reason to welcome junk bonds, to look the other way. By that time they found extremely low profit rates from non-financial corporate investment.Government statistics in fact show that the profit rate -- net pretax profits divided by capital stock -- peaked in 1965 at 17.2%.That same calculation saw profit rates fall to 4.6% in the recession year 1982 and the supposed miracle that followed has seen the profit rate rise only to 8.1% in 1986 and 8% in 1987. Corresponding to the fall in profit rates was -- in the early 1980s -- the drop in the number arrived at if you divide the market value of firms by the replacement costs of their assets, the famous Q ratio associated with Prof.James Tobin.In theory, the value attached to a firm by the market and the cost of replacing its assets should be the same.But of course the market could decide that the firm's capital stock -- its assets -- means nothing if the firm is not producing profits.This is indeed what the market decided.By 1982 the ratio was 43.5%, meaning that the market was valuing every dollar's worth of the average firm's assets at 43 cents. From the history of capitalism we can take it as a sound bet that if it takes only 43 cents to buy a dollar's worth of a firm's capital stock, an alert entrepreneur won't look the other way.His assumption is that the underlying profitability rate will go up and the capital assets he bought on the cheap will soon be producing profits, thus restoring the market's faith in them.Hence the LBO craze. But here is where the entrepreneur made a very risky bet, and where society was maybe foolish to look the other way.The profit rate is still low and the Q ratio was only 65% in 1987 and 68.9% in 1988.Result: a landscape littered with lemons, huge debt burdens crushing down upon the arch and spans of corporate America. The mounting risks did not go unobserved, even in the mid-1980s.But there were enough promoters announcing the end of history (in this case suspension of normal laws of economic gravity) for society to continue shielding its eyes.Mainstream economists and commentators, craning their necks up at the great pyramids of junk financing, swiveling their heads to watch the avalanche of leveraged buy-outs, claimed the end result would be a leaner, meaner corporate America, with soaring productivity and profits and the weaker gone to the wall.But this is not where the rewards of junk financing were found.The beneficiaries were those financiers whose icon was the topic figure of '80s capitalism, Michael Milken's $517 million salary in one year. Left-stream economists I associate with -- fellows in the Union of Radical Political Economists, most particularly Robert Pollin of the economics faculty at the University of California at Riverside -- were not hypnotized in the manner of their pliant colleagues.All along they have been noting the tremors and pointing out the underlying realities.Profit rates after the great merger wave are no higher, and now we have an extremely high-interest burden relative to cash flow. The consequences of building empires with sand are showing up.In contrast to previous estimates reckoning the default rate on junk bonds at 2% or 3%, a Harvard study published in April of this year (and discussed in a lead story in The Wall Street Journal for Sept. 18) found the default rate on these junk bonds is 34%. What is the consequence of a high-interest burden, high default rates and continued low profitability?Corporations need liquidity, in the form of borrowed funds.Without liquidity from the junk-bond market or cash flow from profits, they look to the government, which obediently assists the natural motions of the capitalist economy with charity in the form of cuts in the capital-gains tax rate or bailouts.The consequence can be inflation, brought on as the effect of a desperate bid to avoid the deflationary shock of a sudden crash. Attacks on inflation come with another strategy of capital of a very traditional sort: an assault on wages.Mr. Fukuyama, peering through binoculars at the end of history, said in his essay that "the class issue has actually been successfully resolved in the West . . . the egalitarianism of modern America represents the essential achievement of the classless society envisioned by Marx." Mr. Fukuyama might want to consult some American workers on the subject of class and egalitarianism.From its peak in 1972 of $198.41, the average American weekly wage had fallen to $169.28 in 1987 -- both figures being expressed in 1977 dollars.In other words, after the glory boom of the Reagan years, wages had sunk from the post World War II peak by 16% as capitalists, helped by the government, turned down the screws or went offshore. But there are signs now -- the strikes by miners, Boeing workers, telephone workers, etc. -- that this attack on wages is being more fiercely resisted. These are long-term Richter readings on American capitalism.The whole structure is extremely shaky.Governments have become sophisticated in handling moments of panic (a word the London Times forbade my father to use when he was reporting the Wall Street crash in 1929).But sophistication has its limits.The S&L bailout could cost $300 billion, computing interest on the government's loans.These are real costs.Under what weights will the Federal Deposit Insurance Corporation totter?Capitalism may now be engineered to withstand sudden shocks, but there are fault lines -- the crisis in profits, the assault on wages, the structural inequity of the system -- that make fools of those who claim that the future is here and that history is over. Mr. Cockburn is a columnist for The Nation and LA Weekly.
Japan Air Lines, Lufthansa German Airlines and Air France reportedly plan to form an international air-freight company this year, a move that could further consolidate the industry. Japanese newspaper Nihon Keizai Shimbun reported that the three giants plan to integrate their cargo computers and ground-cargo and air-cargo systems.They reportedly will invest a total of 20 billion yen ($140 million) in the venture, whose headquarters would be in France or West Germany. The action follows Federal Express Corp. 's acquisition of Flying Tiger Line Inc. in August.After that, "it would make sense for airlines to talk about doing things jointly," said Cotton Daly, director of cargo services for New York consulting firm Simat, Helliesen & Eichner Inc. Mr. Daly said such discussions are motivated by the competitive threat posed by Federal Express, United Parcel Service of America Inc. and other fast-growing air-freight companies.Many airlines are talking about cargo ventures, and there have been rumors about such a tie between JAL and European airlines. In Tokyo, a JAL spokesman said he couldn't confirm or deny the latest Japanese report.But he said JAL is talking to Lufthansa and Air France about some sort of cargo venture. "It is just one of a number of strategies JAL has embarked upon to come to terms with the situation in Europe after 1992," the deadline for ending trade barriers in the EC, he said. In Frankfurt, a Lufthansa spokesman confirmed talks are under way, but declined to comment.A Lufthansa spokeswoman in Tokyo said the head of Lufthansa's cargo operations had been in Toyko last week for talks with JAL.In Paris, Air France declined to comment. "Nothing is defined or signed at this point," Mr. Daly said of the talks.Whatever accord the three carriers reach, he said, he is skeptical it would create a separate airline. If the three companies pool their air-freight businesses, their clout would be considerable.According to figures from the International Air Transport Association, they carried a combined 1.8 million tons of freight last year.Federal Express and Flying Tiger, as separate companies, carried a combined 2.6 million tons. Air France and Lufthansa last month concluded a far-reaching cooperation accord that includes air-freight activities.They plan to increase cooperation in freight ground-handling and create a world-wide computer system to process cargo.Other airlines would have access to the system, they said, and negotiations with partners were already under way. Both European airlines operate extensive fleets of Boeing 747 freighters and 747 Combis, aircraft that carry both freight and passengers on the main deck.They currently have large orders for cargo planes. Several airlines, including Lufthansa, JAL and Cathay Pacific Airways, are working on a so-called global cargo system and are trying to attract other carriers to join, Mr. Daly said. JAL also has signaled it is looking for toeholds in Europe before the end of 1992.Last month, the carrier said it wanted to lease crews and planes from British Airways so it could funnel its passengers from London to other European destinations. British Airways said it hasn't received a proposal from JAL.But last week there were air-traffic negotiations between the U.K. and Japan, a likely first step to any commercial agreement between JAL and British Airways or another U.K. carrier.
In a move to prevent any dislocation in the financial markets from the California earthquake, the Securities and Exchange Commission said it temporarily reassigned options listed on the Pacific Stock Exchange to the American, New York and Philadelphia stock exchanges and to the Chicago Board Options Exchange. The decision, which affects millions of dollars of trading positions, was made late yesterday because the Pacific exchange's options floor was shut down as a result of Tuesday's earthquake.The SEC, faced with a major squeeze on options positions, said it was necessary to ensure that options listed on the exchange could be traded today and tomorrow. SEC Chairman Richard Breeden said the cooperation by the exchanges would enable investors to buy and sell options listed solely on the Pacific exchange, guaranteeing the liquidity of the market. Officials at the four exchanges said well over 50 traders from the Pacific exchange were taking flights from San Francisco late yesterday to the American, New York and Philadelphia exchanges and to the CBOE, where they would continue making markets in the Pacific-listed options.The Big Board said carpenters quickly erected a new options floor to accomodate 40 traders from the Pacific exchange.In addition, specialists on the exchanges agreed to provide backup capital for market-making in Pacific exchange options traded on the exchanges. Trading was light on the Pacific Stock Exchange yesterday, with workers at the exchange's main floor in San Francisco struggling to execute orders by flashlight as a result of a continuing power outage. The most pressing problem was the suspension of options trading.The Pacific exchange has options for 129 underlying stock issues, including highly active Hilton Hotels Corp., which is listed on the Big Board.Investors were concerned that they might be unable to exercise options that expire tomorrow. But professionals said throughout the day that the shutdown wouldn't be a cause for alarm even if it were to persist for several days. "I've told my staff and clients that they still have the ability to exercise their options, because they are guaranteed by the Options Clearing Corp.," said Michael Schwartz, a senior registered options strategist at Oppenheimer & Co. The SEC reassigned trading in the options, however, to allow investors to do more than simply exercise the options. While the exchange's equities floor in San Francisco remained open on a limited basis, orders were being routed and executed in Los Angeles.Workers could dial out, but they couldn't receive telephone calls. "It's a very uncertain situation right now," said Navin Vyas, administrative assistant of trading floor operations of the exchange, which has daily volume of about 10 million shares. Because the exchange's computer was rerouting orders to the exchange's trading operations in Los Angeles, "business is as usual" Mr. Vyas said. "If one city is down, the other can take over." Meanwhile, the brokerage firms in San Francisco were trying to cope.Charles Daggs, chairman and chief executive officer of Sutro & Co., said traders came to work at 5 a.m. PDT -- many on foot because of uncertain road and traffic conditions -- but learned that they would have to await a required inspection by the city in order to turn the power back on at the company's two main facilities there.That should happen by today, he said. Traders worked with the help of sunlight streaming through windows, despite large cracks in the walls and a lack of incoming phone calls.Also, most of the telecommunications equipment was out.The traders were executing municipal bond, mutual fund and other orders through a sister firm, Tucker Anthony Inc., which is also owned by John Hancock Freedom Securities but is based in New York. "We are having a regular day.Volume is down out of San Francisco, but not out of the 11 outlying offices," Mr. Daggs added.Sutro's Oakland office executed orders through the Sacramento office, which wasn't affected by the quake. Others, like Prudential-Bache Securities Inc., which has eight offices in the San Francisco area, set up an 800 number yesterday morning for customers to obtain market commentary and other help. At Kidder, Peabody & Co. 's Sacramento branch, Manager Janet White received calls yesterday morning from workers in San Francisco who offered to work in Sacramento.Then she discovered that Quotron Systems Inc. 's Sacramento lines were down, because they are normally tied in through a system that goes through San Francisco.So the Kidder brokers had to call other company offices to get quotes on stocks. At Quotron, the company's National Call-In Center, which swung into action for the first time last month for Hurricane Hugo, assembled a tactical team at 5 a.m. yesterday to begin rerouting lines and restore service to brokers and traders.The company dispatched as many as 200 people in the San Francisco area to do the work, though most of the rerouting was done by computer. Service appeared to be down throughout the financial district in downtown San Francisco, while just parts of Oakland and San Jose were knocked out.But Dale Irvine, director of the emergency center, said service was being restored to outlying San Francisco areas. In Chicago yesterday, Options Clearing confirmed that it guarantees the Pacific exchange options.The firm also will permit its members and the public "to exercise their put and call options contracts traded on the Pacific exchange" even if the exchange is closed, said Wayne Luthringshausen, chairman of Options Clearing. (Put options give holders the right, but not the obligation, to sell a financial instrument at a specified price, while call options give holders the right, but not the obligation, to buy a financial instrument at a specified price). Investors and traders in Pacific exchange options "are protected to the extent that they can convert their put and call options into the underlying instrument," Mr. Luthringshausen said. "We are seeing such exercises today, in fact."
International Business Machines Corp. said its board approved the purchase of $1 billion of its common shares, a move that should help support its battered stock. Even as the stock market has generally done well this year, IBM's shares have slipped steadily from its 52-week high of $130.875.Yesterday's closing price of $101.75, down 50 cents, in composite trading on the New York Stock Exchange, puts the stock at about 1 1/2 times book value, which is as low as it has sunk over the past decade. The announcement came after the market's close. The move by IBM wasn't exactly a surprise.The company has spent some $5 billion over the past 3 1/2 years to buy back 42 million common shares, or roughly 7% of those outstanding. In addition, despite IBM's well-publicized recent problems, the computer giant still generates enormous amounts of cash.As of the end of the second quarter, it had $4.47 billion of cash and marketable securities on hand. As a result, some securities analysts had predicted in recent days that IBM would authorize additional purchases. In Armonk, N.Y., a spokesman said that although IBM didn't view its spending as necessarily a way to support the stock, it thought the purchases were a good way to improve such financial measurements as per-share earnings and return on equity. "We view it as a good long-term investment," the spokesman said. In the short term, the move is likely to have little effect.At yesterday's closing price, $1 billion would buy back about 10 million shares, or less than 2% of the roughly 580 million outstanding.In addition, as of Sept. 30, the company still had authorization to buy $368 million of stock under a prior repurchase program. Over the long term, however, IBM's stock repurchases -- along with its hefty, $4.84-a-share annual dividend and generally loyal following among large institutional investors -- are providing a floor for the stock price. Although IBM last year produced its first strong results in four years and was expected to continue to roll this year, it began faltering as early as January.First, it had trouble manufacturing a chip for its mainframes, IBM's bread-and-butter business.Then it had a series of smaller glitches, including problems manufacturing certain personal computers and the delay in the announcement of some important workstations.Finally, IBM had to delay the introduction of some high-end disk drives, which account for 10% of its $60 billion of annual revenue. None of the problems is necessarily fatal, and they aren't all necessarily even related.There are also other factors at work that are outside IBM's control, such as currency exchange rates.The strong dollar, which reduces the value of overseas earnings and revenue when they are translated into dollars, is expected to knock 80 to 85 cents off IBM's per-share earnings for the full year.Without that problem, IBM might have matched last year's earnings of $5.81 billion, or $9.80 a share. Still, investors will take some convincing before they get back into IBM's stock in a big way.Steve Milunovich, a securities analyst at First Boston, said that while investors were looking for an excuse to buy IBM shares a year ago, even the big institutional investors are looking for a reason to avoid the stock these days.
On Wall Street yesterday, northern California's killer earthquake was just another chance to make a buck. At the opening bell, investors quickly began singling out shares of companies expected to profit or suffer in some way from the California disaster, including insurers, construction-related companies, refiners and housing lenders.Brokerage houses jumped in, touting "post-quake demand" stocks, and Kidder, Peabody & Co. set up a toll-free hot line for San Franciscans who might need emergency investment advice and help in transferring funds. "Wall Street thinks of everything in terms of money," says Tom Gallagher, a senior Oppenheimer & Co. trader.However, he added, such event-driven trading moves typically last only a few hours and are often made without full information. The most popular plays of the day were insurance companies such as General Re Corp., which rose $2.75 to $86.50, Nac Re Corp., up $2 to $37.75, American International Group Inc., up $3.25 to $102.625, and Cigna Corp., up 87.5 cents to $62.50.Yesterday, the brokerage firm Conning & Co. said insurers will use the earthquake as an excuse to raise insurance rates, ending their long price wars. Before this bullish theory surfaced, some insurance stocks initially fell, indicating that investors thought the quake might cost insurers a lot of money.In fact, Fireman's Fund Corp., which ended the day off 50 cents to $36.50, said earthquake damage would slightly hurt fourth-quarter profit. On the prospect for rebuilding northern California, investors bid up cement-makers Calmat Co., up $2.75 to $28.75, and Lone Star Industries Inc., up $1.75 to $29.25.Bridge and road builders had a field day, including Kasler Corp., up $2.125 to $9.875, Guy F. Atkinson Co., up 87.5 to $61.875, and Morrison Knudsen Corp., which reported higher third-quarter earnings yesterday, up $2.25 to $44.125.Fluor Corp., a construction engineering firm, gained 75 cents to $33.375.But home-building stocks were a mixed bag. Timber stocks got a big boost.Georgia Pacific Corp., up $1.25 to $58, and Maxxam Inc., up $3 to $43.75, both reported strong profits.Merrill Lynch & Co. touted Georgia-Pacific, Louisiana Pacific Corp. and Willamette Industries Inc. as the best post-quake plywood plays. Other gainers were companies with one or more undamaged California refineries.Tosco Corp. jumped $1.125 to $20.125 and Chevron Corp., despite a temporary pipeline shutdown, rose $1 to $65. Meanwhile, shares of some big housing lenders got hit, on the likelihood that the lenders' collateral -- people's homes -- suffered physical damage and perhaps a loss in value.Wells Fargo & Co. fell 50 cents to $81.50, and BankAmerica Corp. fell 50 cents to $31.875.Some California thrift stocks also fell, including Golden West Financial Corp. and H.F. Ahmanson & Co., which reported lower earnings yesterday. "Property values didn't go up in California yesterday," says one money manager. Pacific Gas & Electric Co. fell 37.5 cents to $19.625.One of its power generators was damaged, though the company said there won't be any financial impact. Pacific Telesis Group lost 62.5 cents to $44.625.A computer failure delayed its earnings announcement, and some investors think it might have extra costs to repair damaged telephone lines. Heavy construction, property-casualty insurance and forest products were among the best performing industry groups in the Dow Jones Equity Market Index yesterday.
Part of a Series} Betty Lombardi is a mild-mannered homemaker and grandmother in rural Hunterdon County, N.J.But put her behind a shopping cart and she turns ruthless. If Colgate toothpaste offers a tempting money-saving coupon, she'll cross Crest off her shopping list without a second thought.Never mind that her husband prefers Crest.Some weeks when her supermarket runs a double-coupon promotion, she boasts that she shaves $22 off her bill. Money isn't the only thing that makes her dump once favorite brands.After she heard about the artery-clogging hazards of tropical oils in many cookies, she dropped Pepperidge Farm and started buying brands free of such oils. "I always thought Pepperidge Farm was tasty and high quality," Mrs. Lombardi says. "But I don't want any of that oil for my grandkids." (Pepperidge Farm says it can't tell exactly how many customers it has lost, but it hopes to remove the objectionable tropical oil from all its products by year end.) Clearly, people like Mrs. Lombardi are giving marketers fits.She represents a new breed of savvy consumer who puts bargain prices, nutritional and environmental concerns, and other priorities ahead of old-fashioned brand loyalty. While brand loyalty is far from dead, marketing experts say it has eroded during the 1980s.Marketers themselves are partly to blame: They've increased spending for coupons and other short-term promotions at the expense of image-building advertising.What's more, a flood of new products has given consumers a dizzying choice of brands, many of which are virtually carbon copies of one other. "Marketers have brought this on themselves with their heavy use" of promotions, contends Joe Plummer, an executive vice president at the D'Arcy Masius Benton & Bowles ad agency. "Without some real product improvements, it's going to be difficult to win that loyalty back." The Wall Street Journal's "American Way of Buying" survey this year found that most consumers switch brands for many of the products they use.For the survey, Peter D. Hart Research Associates asked some 2,000 consumers, including Mrs. Lombardi, whether they usually buy one brand of a certain type of product or have no brand loyalty.More than half the users of 17 of the 25 products included in the survey said they're brand switchers. Overall, 12% of consumers aren't brand loyal for any of the 25 product categories.About 47% are loyal for one to five of the products.Only 2% are brand loyal in 16 to 20 of the categories, and no one is loyal for more than 20 types of products. For such products as canned vegetables and athletic shoes, devotion to a single brand was quite low, with fewer than 30% saying they usually buy the same brand.Only for cigarettes, mayonnaise and toothpaste did more than 60% of users say they typically stick with the same brand. People tend to be most loyal to brands that have distinctive flavors, such as cigarettes and ketchup.Kathie Huff, a respondent in the Journal survey from Spokane, Wash., says her husband is adamant about eating only Hunt's ketchup.He simply can't stomach the taste of Heinz, she says.The 31-year-old homemaker adds, "The only other thing I'm really loyal to is my Virginia Slims cigarettes.Coke and Pepsi are all the same to me, and I usually buy whichever brand of coffee happens to be on sale." Brand imagery plays a significant role in loyalty to such products as cigarettes, perfume and beer.People often stay with a particular brand because they want to be associated with the image its advertising conveys, whether that's macho Marlboro cigarettes or Cher's Uninhibited perfume. Loyalty lags most for utilitarian products like trash bags and batteries.Only 23% of trash-bag users in the Journal survey usually buy the same brand, and just 29% of battery buyers stick to one brand. Underwear scored a middling 36% in brand loyalty, but consumer researchers say that's actually quite high for such a mundane product. "In the past, you just wore Fruit of the Loom and didn't care," says Peter Kim, U.S. director of consumer behavior research for the J. Walter Thompson ad agency. "The high score reflects the attempts to make underwear more of a fashion image business for both men and women." He believes there's opportunity for a smart gasoline marketer to create a strong brand image and more consumer loyalty.What loyalty there is to gas brands, he believes, is a matter of stopping at the most conveniently located service stations. Brand loyalty was stronger among older consumers in the Journal survey.Nearly one-fourth of participants age 60 and older claim brand loyalty for more than 10 of the 25 products in the survey; only 9% of those age 18 to 29 have such strong allegiance. Higher-income people also tend to be more brand loyal these days, the Journal survey and other research studies indicate.Marketers speculate that more affluent people tend to lead more pressured lives and don't have time to research the products they buy for the highest quality and most reasonable price.An established brand name is insurance that at least the product will be of acceptable quality, if not always the best value for the money.It's sort of loyalty by default. Meanwhile, "the bottom end of the market is becoming less loyal," says Laurel Cutler, vice chairman of the ad agency FCB/Leber Katz Partners. "They're buying whatever's cheaper." The biggest wild card in the brand loyalty game: How those hotly pursued but highly unpredictable baby boomers will behave as they move into middle age.They grew up with more brand choices than any generation and have shown less allegiance so far.But now that they're settling down and raising families, might they also show more stability in their brand choices? Mr. Kim of J. Walter Thompson doesn't think so.He believes baby boomers will continue to be selective in their brand loyalties. "Earlier generations were brand loyal across categories," he says, "but boomers tend to be brand loyal in categories like running shoes and bottled water, but less so in others like toilet paper and appliances." While not as brand loyal as in the past, consumers today don't buy products capriciously, either.Rather, they tend to have a set of two or three favorites.Sometimes, they'll choose Ragu spaghetti sauce; other times, it will be Prego. Advertisers attribute this shared loyalty to the striking similarity among brands.If a more absorbent Pampers hits the market, you can be sure a new and improved Huggies won't be far behind.The BBDO Worldwide ad agency studied "brand parity" and found that consumers believe all brands are about the same in a number of categories, particularly credit cards, paper towels, dry soups and snack chips. "When there's a clutter of brands, consumers simplify the complexity by telling themselves, 'All brands are the same so what difference does it make which I buy, '" says Karen Olshan, a senior vice president at BBDO. "Too often, advertising imagery hasn't done a good job of forging a special emotional bond between a brand and the consumer." But given such strong brand disloyalty, some marketers are putting renewed emphasis on image advertising.A small but growing number of companies are also trying to instill more fervent brand loyalty through such personalized direct-marketing ploys as catalogs, magazines and membership clubs for brand users. While discount promotions are essential for most brands, some companies concede they went overboard in shifting money from advertising to coupons, refunds and other sales incentives. Some people argue that strong brands can afford to stop advertising for a time because of the residual impact of hundreds of millions of dollars spent on advertising through the years.But most companies are too afraid to take that chance.And perhaps with good reason.Says Clayt Wilhite, president of the D'Arcy Masius ad agency's U.S. division, "Every time 24 hours pass without any advertising reinforcement, brand loyalty will diminish ever so slightly -- even for a powerful brand like Budweiser." Consider, for example, what happened to Maxwell House coffee.The Kraft General Foods brand stopped advertising for about a year in 1987 and gave up several market share points and its leadership position in the coffee business.But since returning to advertising, Maxwell House has regained the lost share and is running neck and neck with archrival Folgers. "Now, Philip Morris {Kraft General Foods' parent company} is committed to the coffee business and to increased advertising for Maxwell House," says Dick Mayer, president of the General Foods USA division. "Even though brand loyalty is rather strong for coffee, we need advertising to maintain and strengthen it." Campbell Soup Co., for one, has concluded that it makes good sense to focus more on its most loyal customers than on people who buy competitive brands. "The probability of converting a non-user to your brand is about three in 1,000," says Tony Adams, the company's vice president for marketing research. "The best odds are with your core franchise.Our heavy users consume two to three cans of soup a week, and we'd like to increase that." So Campbell is talking to its "brand enthusiasts," probing their psychological attachment to its soup.In one consumer focus group, a fan declared that, "Campbell's soup is like getting a hug from a friend." That helped persuade the company to introduce a new advertising slogan: "A warm hug from Campbell's." brand
Insurers face the prospect of paying out billions of dollars for damages caused by this week's California earthquake. Getting a grip on the extent of the damages is proving a far more difficult task than what insurers faced after Hurricane Hugo ripped through the Caribbean and the Carolinas last month.The earthquake's toll, including possible deep structural damage, goes far beyond the more easily observed damage from a hurricane, says George Reider, a vice president in Aetna Life & Casualty Insurance Co. 's claims division. But investors are betting that the financial and psychological impact of the earthquake, coming so soon after the hurricane, will help stem more than two years of intense price-cutting wars among business insurers.Reflecting that logic, insurance-company stocks posted strong gains. Aetna and other insurers are hiring engineers and architects to help them assess structural damage.Most insurers already have mobilized their "catastrophe" teams to begin processing claims from their policyholders in northern California. Since commercial air travel is interrupted, Aetna, based in Hartford, Conn., chartered three planes to fly claims adjusters into Sacramento and then planned for them to drive to the Bay area.About 25 adjusters were dispatched yesterday afternoon, along with laptop computers, cellular phones and blank checks. Some adjusters, already in other parts of California, drove to the disaster area with recreational vehicles and mobile homes that could be used as makeshift claims-processing centers. Insurers will be advertising 800 numbers -- probably on the radio -- that policyholders can call to get assistance on how to submit claims. State Farm Mutual Automobile Insurance Co., the largest home and auto insurer in California, believes the losses from the earthquake could be somewhat less than the $475 million in damages it expects to pay out for claims resulting from Hurricane Hugo.State Farm, based in Bloomington, Ind., is also the largest writer of personal-property earthquake insurance in California. Earthquake insurance is sold as a separate policy or a specific endorsement "rider" on a homeowner's policy in California, because of the area's vulnerability to earthquakes.State Farm said about 25% of its policyholders in California have also purchased earthquake insurance.Allstate Insurance Co., a unit of Sears, Roebuck & Co., said about 23% of its personal property policyholders -- about 28% in the San Franciso area -- also have earthquake coverage. The Association of California Insurance Companies estimated damage to residential property could total $500 million, but only $100 million to $150 million is insured, it said. Officials from the American Insurance Association's property-claim service division, which coordinates the efforts of the claims adjusters in an area after a natural disaster, will be flying to San Francisco today.They expect to have a preliminary estimate of the damages in a day or two. Roads and bridges in the Bay area appear to have suffered some of the most costly damage.Highways, such as the section of Interstate 880 that collapsed in Oakland, generally don't have insurance coverage.Industry officials say the Bay Bridge -- unlike some bridges -- has no earthquake coverage, either, so the cost of repairing it probably would have to be paid out of state general operating funds. However, the bridge, which charges a $1 toll each way, does have "loss of income" insurance to replace lost revenue if the operation of the bridge is interrupted for more than seven days.That coverage is provided by a syndicate of insurance companies including Fireman's Fund Corp., based in Novato, Calif., and Cigna Corp., based in Philadelphia. Earthquake-related claims aren't expected to cause significant financial problems for the insurance industry as a whole.Instead, even with the liabilities of two natural disasters in recent weeks, analysts said the total capital of the industry is likely to be higher at year end than it was at midyear. Indeed, the earthquake could contribute to a turnaround in the insurance cycle in a couple of ways.For example, insurers may seek to limit their future exposure to catastrophes by increasing the amount of reinsurance they buy.Such increased demand for reinsurance, along with the losses the reinsurers will bear from these two disasters, are likely to spur increases in reinsurance prices that will later be translated into an overall price rise.Reinsurance is protection taken out by the insurance firms themselves. "We are saying this is the breaking point, this is the event that will change the psychology of the marketplace," said William Yankus, an analyst with Conning & Co., a Hartford firm that specializes in the insurance industry.His firm, along with some others, issued new buy recommendations on insurer stocks yesterday. Among the insurance stocks, big gainers included American International Group, up $3.25 to $102.625; General Re Corp., up $2.75 to $86.50; Aetna, up $2.375 to $59.50; and Marsh & McLennan Inc., up $3.125 to $75.875. Still, a few individual companies, most likely smaller ones, could be devastated. "I think there is a damned good chance someone is going to hit the skids on this," said Oppenheimer & Co. analyst Myron Picoult.He suspects some insurers who had purchased reinsurance to limit their exposure to catastrophes will discover that reinsurance was used up by Hurricane Hugo. British, West German, Scandinavian and other overseas insurers are bracing for big claims from the San Francisco earthquake disaster.Although it's unclear how much exposure the London market will face, U.K. underwriters traditionally have a large reinsurance exposure to U.S. catastrophe coverage.Jack Byrne, chairman of Fireman's Fund, said this disaster will test the catastrophe reinsurance market, causing these rates to soar. The catastrophe losses sustained by insurers this year will probably be the worst on an inflation-adjusted basis since 1906 -- when another earthquake sparked the Great San Francisco Fire.Orin Kramer, an insurance consultant in New York, estimates that the 1906 San Francisco destruction, on an inflation-adjusted basis, included insured losses of $5.8 billion.He is estimating this week's disaster will generate insured losses of $2 billion to $4 billion, following about $4 billion in costs to insurers from Hurricane Hugo.
Friday's stock market plunge claimed its second victim among the scores of futures and options trading firms here. Petco Options, an options trading firm owned by the family of the deceased former Chicago Board of Trade chairman Ralph Peters, is getting out of the trade clearing, or processing and guaranteeing, business after sustaining a multimillion dollar loss Friday, options industry officials said. Nearly 75 options traders on the Chicago Board Options Exchange who cleared trades through Petco, including a handful of traders who lost between $500,000 to $1 million themselves as a result of Friday's debacle, are trying to transfer their business to other clearing firms, CBOE members said. Timothy Vincent, Petco chief executive officer, confirmed that Petco was withdrawing from the clearing business. "The owners of the company got a look at the potential risks in this business, and after Monday they felt they didn't want to be exposed any more," he said.He added that Petco remained in compliance with all industry capital requirements during the market's rapid plunge Friday and Monday's rebound.A CBOE spokeswoman declined comment on Petco. Over the weekend Fossett Corp., another options trading firm, transferred the clearing accounts of about 160 traders to First Options of Chicago, a unit of Continental Bank Corp., because it couldn't meet regulatory capital requirements after Friday's market slide.The unprecedented transfer of accounts underscored the options industry's desire not to have its credibility tarnished by potentially widespread trading defaults on Monday.The CBOE, American Stock Exchange, Options Clearing Corp. and Stephen Fossett, owner of Fossett, joined in putting up $50 million to guarantee the accounts at First Options. The head of another small options clearing firm, who asked not to be identified, said that the heightened volatility in the financial markets in recent years makes it increasingly difficult for any but the largest financial trading firms to shoulder the risk inherent in the highly leveraged options and futures business. Prior to the introduction of financial futures in the late 1970s, most trading firms clustered around the LaSalle Street financial district here were family operations handed down from one generation to the next.Most also were relatively undercapitalized compared with the size of most Wall Street securities firms. Mr. Peters, a LaSalle Street legend among the post-World War II generation of commodity traders, was rumored to have amassed a multimillion-dollar fortune from commodity trading and other activities by the time he died in May.
Jaguar PLC's chairman said he hopes to reach a friendly pact with General Motors Corp. within a month that may involve the British luxury-car maker's producing a cheaper executive model. Sir John Egan told reporters at London's Motorfair yesterday he "would be disappointed if we couldn't do {the deal} within a month." He said the tie-up would mean Jaguar could "develop cars down range {in price} from where we are" by offering access to GM's high-volume parts production.Besides creating joint manufacturing ventures, the accord is expected to give GM about a 15% stake that eventually would rise to about 30%. Jaguar figures a friendly alliance with GM will fend off unwelcome advances from Ford Motor Co.But Ford, Jaguar's biggest shareholder since lifting its stake to 10.4% this week, is pressing harder for talks with Sir John. "We're getting to the point where we are going to have to meet" with him, one Ford official said yesterday.Ford probably will renew its request for such a meeting soon, he added. Sir John has spurned Ford's advances since the U.S. auto giant launched a surprise bid for as much as 15% of Jaguar last month.Ford has signaled it might acquire a majority interest later. "I'm not obligated to sit down and talk to anybody," the Jaguar chairman asserted yesterday.He didn't rule out negotiations with Ford, however.The fiercely proud but financially strapped British company prefers to remain independent and publicly held, despite Ford's promise of access to cash and technological know-how. Sir John noted that GM, a longtime Jaguar supplier, agrees "we should remain an independent company." He said Jaguar started negotiating with GM and several other car makers over a year ago, but the rest "dropped by the wayside ever since the share price went above #4 ($6.30) a share." Jaguar shares stood at 405 pence before Ford's initial announcement, but the subsequent takeover frenzy has driven them up.The stock traded late yesterday on London's stock exchange at 673 pence, up 19 pence. Developing an executive-model range would mark a major departure for Britain's leading luxury-car maker.A typical British executive car is mass produced and smaller than a luxury car.It generally fetches no more than #25,000 ($39,400) -- roughly #16,000 less than the highest-priced Jaguars, which are all known for their hand-crafted leather work. "We have designs for such {executive} cars, but have never been able to develop them," Sir John said.GM's help would "make it possible {for Jaguar} to build a wider range of cars." An executive model would significantly boost Jaguar's yearly output of 50,000 cars. "You are talking about a couple hundred thousand a year," said Bob Barber, an auto-industry analyst at U.K. brokerage James Capel & Co. A pact with GM may emerge in as little as two weeks, according to sources close to the talks.The deal would require approval by a majority of Jaguar shareholders. "We have to make it attractive enough that {holders} would accept it," Sir John said. That may be difficult, the Jaguar chairman acknowledged, "when you have somebody else breathing down your neck." Ford probably would try to kill the proposal by enlisting support from U.S. takeover-stock speculators and holding out the carrot of a larger bid later, said Stephen Reitman, European auto analyst at London brokers UBS Phillips & Drew. Ford can't make a full-fledged bid for Jaguar until U.K. government restrictions expire.The anti-takeover measure prevents any outside investor from buying more than 15% of Jaguar shares without permission until Dec. 31, 1990. But with its 10.4% stake, Ford can convene a special Jaguar shareholders' meeting and urge them to drop the restrictions prematurely. "It's a very valuable weapon in their armory," which could enable Ford to bid sooner for Jaguar, observed Mr. Barber of James Capel. Otherwise, Jaguar may have to tolerate the two U.S. auto giants each owning a 15% stake for more than a year. "It would be difficult to see how a car company can be owned by a collective," Sir John said. "It has never been done before, but there's always a first."
Although two Baby Bells showed strong growth in access lines, usage and unregulated business revenue, one reported a modest gain in third-quarter net while the other posted a small drop. Ameritech Corp. 's earnings increased 2.8%, after strong revenue gains were offset somewhat by refunds and rate reductions imposed by regulators in its Midwest territory. BellSouth Corp. 's third-quarter earnings dropped 3.8% as a result of debt refinancing, the recent acquisition of a cellular and paging property and rate reductions in its Southeast territory. BellSouth At BellSouth, based in Atlanta, customer access lines grew by 162,000, or 3.5%, during the 12-month period ended Sept. For the third quarter, total operating revenue grew 2.6% to $3.55 billion from $3.46 billion.Total operating expenses increased 3.5% to $2.78 billion from $2.69 billion.Overall access minutes of use increased 10.3% and toll messages jumped 5.2%. BellSouth Chairman and Chief Executive Officer John L. Clendenin said three factors accounted for the drop in third-quarter earnings.The refinancing of $481 million in long-term debt reduced net income by $22 million, or five cents a share, but in the long run will save more than $250 million in interest costs.The company previously said that the recent acquisition of Mobile Communications Corp. of America would dilute 1989 earnings by about 3%.In addition, earnings were reduced by rate reductions in Florida, Kentucky, Alabama, Tennessee and Louisiana. Ameritech At Ameritech, based in Chicago, customer access lines increased by 402,000, or 2.6%, and cellular mobile lines increased by 80,000, or 62.3%, for the 12-month period ended Sept. 30. For the third quarter, revenue increased 1.9% to $2.55 billion from $2.51 billion.Operating expenses increased 2.6% to $2.04 billion, including one-time pretax charges of $40 million for labor contract signing bonuses.Local service revenue increased 3.5% and directory and unregulated business revenue jumped 9.5%.But network access revenue dropped 4% and toll revenue dropped 1.4%. a-reflects 2-for-1 stock split effective Dec. 30, 1988. b-reflects extraordinary loss of five cents a share for early debt retirement. c-reflects extraordinary loss of five cents a share and extraordinary gain of 14 cents a share from cumulative effect of accounting change.
Program traders were buying and selling at full steam Monday, the first trading session after the stock market's 190.58-point plunge Friday. They accounted for a hefty 16% of New York Stock Exchange volume Monday, the fourth busiest session ever.On Friday, 13% of volume was in computer-guided program trades.In August, by contrast, program trading averaged 10.3% of daily Big Board turnover. Program traders were publicly castigated following the 508-point crash Oct. 19, 1987, and a number of brokerage firms pulled back from using this strategy for a while.But as the outcry faded by the spring of 1988, they resumed.Some observers thought that after Friday's sharp drop, the firms would rein in their program traders to avoid stoking more controversy. But the statistics released yesterday show the firms did nothing of the sort.One reason, they said, was that the official reports on the 1987 crash exonerated program trading as a cause. Stock-index arbitrage is the most controversial form of program trading because it accelerates market moves, if not actually causing them.In it, traders buy or sell stocks and offset those positions in stock-index futures contracts to profit from fleeting price discrepancies.Under the exchange's definitions, program trading also describes a number of other strategies that, in the opinion of some traders, don't cause big swings in the market. The Big Board's disclosure of program trading activity on these two days was unusual.Though it collects such data daily, its monthly reports on program trading usually come out about three weeks after each month ends.The September figures are due to be released this week. The Big Board declined to name the Wall Street firms involved in the activity Friday and Monday, or the type of strategies used.But traders on the exchange floor, who can observe the computer-guided trading activity on monitor screens, said most of the top program-trading firms were active both days. Through August, the top five program trading firms in volume were Morgan Stanley & Co., Kidder, Peabody & Co., Merrill Lynch & Co., PaineWebber Group Inc. and Salomon Brothers Inc. Though brokerage officials defended their use of program trading, one sign of what an issue it remains was that few executives would comment on the record.Besides reciting the pardon for program trading contained in the Brady Commission report, they said stock-index arbitrage was actually needed Monday to restore the markets' equilibrium. On Friday, the stock-index futures market was unhinged from the stock market when the Chicago Mercantile Exchange halted trading in Standard & Poor's 500 futures contract -- a "circuit breaker" procedure instituted after the 1987 crash and implemented for the first time.Futures trading resumed a half-hour later, but the session ended shortly thereafter, leaving the stock market set up for more sell programs, traders said.By Monday morning, they said, stock-index arbitrage sell programs helped re-establish the link between stocks and futures. But stunning volatility was produced in the process.The Dow Jones Industrial Average plunged a breathtaking 63.52 points in the first 40 minutes of trading Monday as stock-index arbitrage sell programs kicked in.At about 10:10 a.m. EDT, the market abruptly turned upward on stock-index arbitrage buy programs.By day's end, the Dow industrials had rebounded 88.12 points, or nearly half of Friday's drop.
Valley National Corp. reported a third-quarter net loss of $72.2 million, or $3.65 a share, and suspended its quarterly dividend because of potential losses on its Arizona real estate holdings. The Phoenix-based holding company for Arizona's largest bank said it added $121 million to its allowance for losses on loans and for real estate owned.The company earned $18.7 million, or 95 cents a share, a year earlier. For the nine months, Valley National posted a net loss of $136.4 million, or $6.90 a share.It had profit of $48.6 million, or $2.46 a share, in the 1988 period.Valley National had been paying a quarterly dividend of 36 cents a share. "The Arizona real estate market continues to be depressed, and there is still uncertainty as to when values will recover," James P. Simmons, chairman, said.The decision to increase the loan-loss reserve and suspend the dividend is "both prudent and in the best long-term interest of the shareholders," he said. Valley National said it made the decision on the basis of an "overall assessment of the marketplace" and the condition of its loan portfolio and after reviewing it with federal regulators.The addition to reserves comes on top of a provision of $199.7 million that was announced in June. In July, Moody's downgraded $400 million of the company's debt, saying the bank holding company hadn't taken adequate write-offs against potential losses on real estate loans despite its second-quarter write-down.Richard M. Greenwood, Valley National's executive vice president, said then that the company believed the write-downs were "adequate" and didn't plan to increase its reserves again. Bruce Hoyt, a banking analyst with Boettcher & Co., a Denver brokerage firm, said Valley National "isn't out of the woods yet." The key will be whether Arizona real estate turns around or at least stabilizes, he said. "They've stepped up to the plate to take the write-downs, but when markets head down, a company is always exposed to further negative surprises," Mr. Hoyt said. Valley National closed yesterday at $24.25 a share, down $1, in national over-the-counter trading.
Two years of coddling, down the drain. That's the way a lot of brokers feel today on the second anniversary of the 1987 stock-market crash. Ever since that fearful Black Monday, they've been tirelessly wooing wary individual investors -- trying to convince them that Oct. 19, 1987, was a fluke and that the stock market really is a safe place for average Americans to put their hard-earned dollars. And until last Friday, it seemed those efforts were starting to pay off. "Some of those folks were coming back," says Leslie Quick Jr., chairman, of discount brokers Quick & Reilly Group Inc. "We had heard from people who hadn't been active" for a long time. Then came the frightening 190-point plunge in the Dow Jones Industrial Average and a new wave of stock-market volatility.All of a sudden, it was back to square one. "It's going to set things back for a period, because it reinforces the concern of volatility," says Jeffrey B. Lane, president of Shearson Lehman Hutton Inc. "I think it will shake confidence one more time, and a lot of this business is based on client confidence." Brokers around the country say the reaction from individual investors this week has been almost eerie.Customers and potential customers are suddenly complaining about the stock market in the exact way they did in post-crash 1987. "The kinds of questions you had before have resurfaced," says Raymond A. "Chip" Mason, chairman of regional brokerage firm Legg Mason Inc., Baltimore. "I can just tell the questions are right back where they were: `What's going on?,' `Can't anything be done about program trading?,' `Doesn't the exchange understand?,' `Where is the SEC on this? '" Mr. Mason says he's convinced the public still wants to invest in common stocks, even though they believe the deck is stacked against them.But "these wide swings scare them to death." All of this is bad news for the big brokerage firms such as Shearson and Merrill Lynch & Co. that have big "retail," or individual-investor, businesses.After expanding rapidly during the bull-market years up to the 1987 crash, retail brokerage operations these days are getting barely enough business to pay the overhead. True, the amount of money investors are willing to entrust to their brokers has been growing lately.But those dollars have been going into such "safe" products as money market funds, which don't generate much in the way of commissions for the brokerage firms.At discount brokerage Charles Schwab & Co., such "cash-equivalent" investments recently accounted for a record $8 billion of the firm's $25 billion of client's assets. The brokers' hope has been that they could soon coax investors into shifting some of their hoard into the stock market.And before last Friday, they were actually making modest progress. A slightly higher percentage of New York Stock Exchange volume has been attributed to retail investors in recent months compared with post-crash 1988, according to Securities Industry Association data.In 1987, an average 19.7% of Big Board volume was retail business, with the monthly level never more than 21.4%.The retail participation dropped to an average 18.2% in 1988, and shriveled to barely 14% some months during the year. Yet in 1989, retail participation has been more than 20% in every month, and was 23.5% in August, the latest month for which figures are available. Jeffrey Schaefer, the SIA's research director, says that all of his group's retail-volume statistics could be overstated by as much as five percentage points because corporate buy-backs are sometimes inadvertently included in Big Board data.But there did seem to be a retail activity pickup. But "Friday didn't help things," says Mr. Schaefer. With the gyrations of recent days, says Hugo Quackenbush, senior vice president at Charles Schwab, many small investors are absolutely convinced that "they shouldn't play in the stock market." Joseph Grano, president of retail sales and marketing at PaineWebber Group Inc., still thinks that individual investors will eventually go back into the stock market.Investors will develop "thicker skins," and their confidence will return, he says.Friday's plunge, he is telling PaineWebber brokers, was nothing more than a "tremendous reaction to leveraged buy-out stocks." Meanwhile, PaineWebber remains among the leaders in efforts to simply persuade investors to keep giving Wall Street their money. "It's more of an important issue to keep control of those assets, rather than push the investor to move into (specific) products such as equities," Mr. Grano says. "The equity decision will come when the client is ready and when there's a semblance of confidence." It could be a long wait, say some industry observers. "Some investors will tiptoe back in," says Richard Ross, a market research director for Elrick & Lavidge in Chicago. "Then there'll be another swing.Given enough of these, this will drive everyone out except the most hardy," he adds. Mr. Ross, who has been studying retail investors' perception of risks in the brokerage industry, said a market plunge like Friday's "shatters investors' confidence in their ability to make any judgments on the market." The long-term outlook for the retail brokerage business is "miserable," Mr. Ross declares.
The following were among yesterday's offerings and pricings in the U.S. and non-U.S. capital markets, with terms and syndicate manager, as compiled by Dow Jones Capital Markets Report: Washington, D.C. -- $200 million of general obligation tax revenue anticipation notes, Series 1990, due Sept. 28, 1990.About $190 million were offered through Shearson Lehman Hutton Inc. Shearson is offering the notes as 6 3/4% securities priced to yield 6.15%.J.P. Morgan Securities Inc. is offering the remaining $10 million of notes.The notes are rated MIG-1 by Moody's Investors Service Inc. Standard & Poor's Corp. has them under review. Federal National Mortgage Association -- $400 million of Remic mortgage securities being offered in 16 classes by Bear, Stearns & Co.The offering, Series 1989-83, is backed by Fannie Mae 9% securities.The offering used at-market pricing.Separately, Fannie Mae issued $400 million of Remic mortgage securities in 12 classes through First Boston Corp.The offering, Series 1989-84, is backed by Fannie Mae 9% securities.Pricing details weren't available.The two offerings bring Fannie Mae's 1989 Remic issuance to $31 billion and its total volume to $43.3 billion since the program began in April 1987. Societa per Azioni Finanziaria Industria Manaifatturiera (Italy) -- $150 million of 9% depository receipts due Nov. 27, 1994, priced at 101.60 to yield 9.07% less fees, via Bankers Trust International Ltd. Fees 1 7/8.Mitsubishi Corp. Finance (Japanese parent) -- $100 million of 8 5/8% bonds due Nov. 1, 1993 priced at 101 1/4 to yield 8.74% annually less full fees, via Yamaichi International (Europe) Ltd. Fees 1 5/8. Indian Oil Corp. (India) -- $200 million of floating-rate notes due November 1994, paying six-month London interbank offered rate plus 3/16 point and priced at par via Credit Suisse First Boston Ltd. Guaranteed by India.Fees 0.36.Notes offered at a fixed level of 99.75. National Westminster Bank PLC (U.K.) -- #200 million of undated variable-rate notes priced at par via Merill Lynch International Ltd. Initial interest rate set at 0.375 point over three-month Libor.Subsequent margins set by agreement between NatWest and Merrill.If no margin agreed, there is a fallback rate of Libor plus 0.75 point in years one to 15, and Libor plus 1.25 point thereafter. Keihin Electric Express Railway Co. (Japan) -- $150 million of bonds due Nov. 9, 1993, with equity-purchase warrants, indicating a 4% coupon at par via Yamaichi International (Europe) Ltd.Each $5,000 bond carries one warrant, exercisable from Dec. 1, 1989, through Nov. 2, 1993, to buy company shares at an expected premium of 2 1/2% to the closing share price when terms are fixed Oct. 24. Seiren Co. (Japan) -- 110 million Swiss francs of privately placed convertible notes due March 31, 1994, with an indicated 0.25% coupon at par, via Bank Leu Ltd. Put option on March 31, 1992, at an indicated 109 to yield 3.865%.Callable on March 31, 1992, at 109, also beginning Sept. 30, 1992, from 101 1/2 and declining half a point semiannually to par.Each 50,000 Swiss franc note is convertible from Nov. 20, 1989, to March 17, 1994, at an indicated 5% premium over the closing share price Oct. 25, when terms are scheduled to be fixed. N. Nomura & Co. (Japan) -- 50 million Swiss francs of privately placed convertible notes due March 31, 1994, with an indicated 0.5% coupon at par, via Bank Julius Baer.Put option on March 31, 1992, at an indicated 108 1/4 to yield 3.846%.Each 50,000 Swiss franc note is convertible from Nov. 20, 1989, to March 17, 1994, at a 5% premium over the closing share price Oct. 21, when terms are scheduled to be fixed. Aegon N.V. (Netherlands) -- 250 million Dutch guilders of 7 3/4% bonds due Nov. 15, 1999, priced at 101 1/4 to yield 7.57% at issue price and 7.86% less full fees, via AMRO Bank.Fees 2. Continental Airlines -- a four-part, $71 million issue of secured equipment certificates priced through Drexel Burnham Lambert Inc.The size of the issue was decreased from an originally planned $95.2 million.In addition, a planned two-part offering of $58 million in unsecured notes wasn't offered.The first part, consisting of $2.5 million of 11 1/4% secured equipment certificates due June 15, 1990, was priced at 98.481 with a yield to maturity of 13.75%.The second part, consisting of $28 million of 11 3/4% secured equipment certificates due June 15, 1995, was priced at 87.026 with a yield to maturity of 15.25%.The third part, consisting of $18.5 million of 12 1/8% secured equipment certificates due April 15, 1996, was priced at 85.60 with a yield to maturity of 15.75%.The fourth part, consisting of $22 million of 12 1/2% secured equipment certificates due April 15, 1999, was priced at 85.339 with a yield to maturity of 15.50%.The issue was rated single-B-2 by Moody's and single-B by S&P.All parts of the issue are callable at any time at par.Continental Airlines is a unit of Texas Air Corp.
John V. Holmes, an investment-newsletter publisher, and three venture-capital firms he organized were enjoined from violating the registration provisions of the securities laws governing investment companies. As part of an agreement that settled charges brought by the Securities and Exchange Commission, a receiver was also appointed for the three venture-capital firms. Mr. Holmes was the subject of a page one profile in The Wall Street Journal in 1984, after the SEC questioned him about ties between him and companies he touted in a newsletter.In 1986, in another consent agreement with the SEC, Mr. Holmes was enjoined from violating the stock-registration and anti-fraud provisions of the securities laws.Without any admission or denial of guilt by Mr. Holmes, that agreement settled SEC charges that Mr. Holmes sold unregistered securities and misled investors. In charges filed last week in federal district court in Charlotte, N.C., the SEC alleged that Venture Capitalists Inc., Venture Finance Corp. and New Ventures Fund Inc., all of Charlotte, failed repeatedly to file proper documents.The SEC also charged that Mr. Holmes acted as an officer or director of New Ventures, in violation of his previous consent agreement. "Some companies were delinquent in filings and other actions, all of which cost money," Mr. Holmes said. Two of Mr. Holmes's business associates who worked for Venture Capitalists, Kimberly Ann Smith and Frederick Byrum, also consented to being enjoined from violations of registration provisions of the securities laws.Ms. Smith also agreed to a permanent injunction barring her from acting as an officer, director or investment adviser of any mutual fund, unit investment trust or face-amount certificate company. Mr. Byrum and Ms. Smith couldn't be reached for comment.In consenting to the injunctions, none of the individuals or companies admitted or denied the allegations.
Senate Republicans have settled on a proposal that would cut the capital-gains tax for individuals and corporations. At the same time, a small group of Senate Democrats are working on a similar plan and may introduce it soon. Sen. Bob Packwood (R., Ore.), the lead sponsor of the GOP proposal, said he intends to unveil the plan today and to offer it as an amendment to whatever legislation comes along, particularly this month's bill to raise the federal borrowing limit. He gave 10-to-1 odds that a capital-gains tax cut of some sort would be approved this year, though it probably won't be included in the pending deficit-reduction bill.He added that he expects to talk to the Democrats who also wanted to cut the gains tax about drafting a joint proposal. For individuals, the Packwood plan would exclude from income 5% of the gain from the sale of a capital asset held for more than one year.The exclusion would rise five percentage points for each year the asset was held until it reached a maximum of 35%.The exclusion would apply to assets sold after Oct. 1, 1989.As an alternative, he said, taxpayers could chose to reduce their gains by an inflation index. For corporations, the top tax rate on the sale of assets held for more than three years would be cut to 33% from the current top rate of 34%.That rate would gradually decline to as little as 29% for corporate assets held for 15 years. The Packwood plan would also include a proposal, designed by Sen. William Roth (R., Del.), that would expand and alter the deduction for individual retirement accounts.The Roth plan would create a new, non-deductible IRA from which money could be withdrawn tax-free not only for retirement, but also for the purchase of a first home and to pay education and medical expenses.Current IRAs could be rolled over into the new IRAs but would be subject to tax. For their part, the group of Democrats are working on a plan that, like the Packwood proposal, would grant larger exclusions to assets the longer they were held by individuals and companies.Newly acquired assets would get a bigger break than those currently held.An extra exclusion would be given to long-held stock in small and medium-size corporations just starting up. No one in the Senate is considering the capital-gains plan passed by the House.That plan would provide a 30% exclusion to assets sold over a 2 1/2-year period ending Dec. 31, 1991.After then, the House measure would boost the tax rate to 28% and exclude from tax the gain attributable to inflation.Senators are focusing on making a capital-gains differential permanent. Separately, Chairman Dan Rostenkowski (D., Ill.) of the House Ways and Means Committee said he didn't want the capital-gains tax cut or any other amendments attached to the pending bill raising the federal borrowing limit.The current debt limit expires Oct. 31. He also urged House and Senate negotiators to rid the deficit-reduction bill of all provisions that increase the budget deficit, including the House-passed capital-gains provision.
From a helicopter a thousand feet above Oakland after the second-deadliest earthquake in U.S. history, a scene of devastation emerges: a freeway crumbled into a concrete sandwich, hoses pumping water into once-fashionable apartments, abandoned autos. But this quake wasn't the big one, the replay of 1906 that has been feared for so many years.Despite the tragic loss of more than 270 lives, and damage estimated in the billions, most businesses and their plants and offices in the Bay area weren't greatly affected. The economic life of the region is expected to revive in a day or two, although some transportation problems may last weeks or months.A main factor mitigating more widespread damage was the location of the quake's epicenter -- 20 miles from the heart of the Silicon Valley and more than 50 miles from downtown San Francisco and Oakland.Also, the region's insistence on strict building codes helped prevent wider damage. The tremendous energy of the quake was dissipated by the distance, so that most parts of the valley and the major cities suffered largely cosmetic damage -- broken windows, falling brick and cornices, buckled asphalt or sidewalks. Of course, the quake was the worst since the emergence of the computer era turned Silicon Valley into the nation's capital of high technology.Like other major American cities, the San Francisco -- Oakland area owes its current prosperity more to its infrastructure of fiber-optic cables linking thousands of computer terminals and telephones than to its location astride one of the world's great natural harbors. When the tremors struck, the region's largely unseen high-tech fabric held up surprisingly well despite the devastation visible from the air.Michael L. Bandler, vice president for network technology at Pacific Bell Telephone Co., says nearly all the network's computer switches, which move thousands of calls a minute from one location to another, changed to battery power when the city lost power.The battery packs have enough power for only three hours, but that gave emergency crews time to turn on an emergency system that runs primarily on diesel fuel.Of some 160 switches in Pacific Bell's network, only four went down.One of those was in Hollister, Calif., near the earthquake's epicenter. Few telephone lines snapped.That's because the widely used fiber-optic cable has been installed underground with 25 extra feet of cable between junction points.The slack absorbs the pulling strain generated by an earthquake. Nevertheless, phone service was sporadic; many computer terminals remained dark, and by late yesterday a third of San Francisco remained without power.Business in the nation's fourth-largest metropolitan region was nearly paralyzed; an estimated one million members of the work force stayed at home. The economic dislocation was as abrupt as the earthquake itself, as virtually all businesses shut down.The $125-billion-a-year Bay area economy represents one-fourth of the economy of the nation's most populous state and accounts for 2% to 3% of the nation's total output of goods and services, according to the Center for Continuing Study of the California Economy in Palo Alto.In high-tech, the Bay area accounts for 15% to 20% of the U.S. computer-related industry. "This has been a major disruption for the Bay area economy," says Pauline Sweezey, the chief economist at the California Department of Finance. "Obviously, things are going to have to go on hold for many companies." The damage to the Bay area's roadways could cause significant economic hardship.A quarter of a million people cross the Bay Bridge every day, far more than the 100,000 that use the Bay Area Rapid Transit system (BART) -- which was working but wasn't stopping in the city's Financial District yesterday afternoon because electricity was shut off and the area was being checked for gas leaks. California state transportation officials interviewed by telephone say they nevertheless don't expect serious problems for commerce in and out of the Bay area.All major roadways except Interstate 880, known as the Nimitz Freeway, and the Bay Bridge were open by 1 p.m. yesterday. Officials expect difficulty routing traffic through downtown San Francisco.The earthquake caused many streets to buckle and crack, making them impassible.Other roads were obstructed by collapsed buildings and damaged water and power lines, an emergency relief spokesman says.San Francisco Mayor Art Agnos estimated the damage to his city alone at $2 billion. But many predicted that the commercial disruption would be short-lived.Of the scores of companies contacted by this newspaper, few reported any damage that they didn't expect to have remedied within a day or two.It is possible, of course, that some of the most seriously damaged companies couldn't be reached, particularly in areas nearest the epicenter. Typical, perhaps, was the situation at New United Motor Manufacturing Inc., the General Motors Corp.-Toyota joint-venture auto plant in Fremont, about 35 miles south of Oakland.Ten of the plant's workers were injured when the quake hit about a half-hour into the afternoon shift; seven were hospitalized.Metal racks on the plant floor fell over, and water mains ruptured, a spokeswoman says.The plant was evacuated and workers sent home. But the plant was able to resume limited production of its Toyota Corollas and Geo Prizms by 6 a.m. yesterday, and absenteeism was only 7% of the work force, about twice normal. Computer maker Hewlett-Packard Co., based in Palo Alto, says one of its buildings sustained severe damage when it was knocked off its foundation.Other buildings had broken glass, dangling light fixtures and broken pipes, a spokesperson says, estimating the cost of reconstruction "in the millions." Most banks were closed but were expected to reopen today with few problems anticipated.At the Federal Reserve Bank of San Francisco, Vice President Robert Fienberg says operations were "steaming along as usual" yesterday afternoon. `When the quake hit, we turned on our emergency generator and brought our computers up," he says.The Fed serves as a middleman for banks, taking checks from one bank and sending them to another, an operation that it handled smoothly Tuesday night after the quake. "The volume we received from the banks was a lot lower than usual," he says.A disaster-contingency plan in which the Los Angeles Fed would come to San Francisco's aid wasn't needed, he adds. Most of the telephone problems in the immediate aftermath stemmed from congestion.The telephone network simply couldn't handle the large number of people seeking to make a call at the same time.The volume resulted in dial-tone delays that were as short as 15 seconds and as long as five minutes.Mr. Bandler puts traffic volume at 10 to 50 times normal. American Telephone & Telegraph Co., MCI Communications Inc. and United Telecommunications' U S Sprint unit were blocking phone calls into the Bay area to alleviate congestion.The companies block traffic much as highway on-ramps are blocked when traffic backs up.William E. Downing, Pacific Bell's vice president of customer services for the Bay area, says most long-distance companies were blocking about 50% of all calls.Pacific Telesis says its Pacific Bell unit also was blocking about 50% of its calls locally. Ironically, the long-term effect of the earthquake may be to bolster the Bay area's economic fortunes and, indeed, the nation's gross national product.It may also lead to new safeguards in major construction projects such as double-deck highways. "It would in the near-term give a boost to the San Francisco economy because there will be an influx of people to help," says Beth Burnham Mace, a regional economist at DRI/McGraw Hill, a Lexington, Mass., forecasting firm. The construction industry is sure to feel increased demand. "There will be a big influx of federal dollars and gains in state, federal and local employment," Ms. Mace says.Adds Stacy Kotman, an economist at Georgia State University, "There's nothing positive about an earthquake, but it will probably generate more construction activity." Wall Street reacted swiftly yesterday to the disaster by bidding up stocks of construction and related companies.Shares of Lone Star Industries Inc., a cement maker, rose sharply in anticipation of stepped-up demand.In Greenwich, Conn., Lone Star spokesman Michael London says, "Obviously with an earthquake of this size, there are likely to be construction projects that wouldn't otherwise have been anticipated.But any increase isn't likely to be any kind of a surge.It's something likely to be spread out over a long period of time.There will be a lot of repair work that won't require the quantities of cement or concrete that new constructon would." Lone Star's San Francisco facilities weren't damaged in the quake. The earthquake is likely to reduce GNP negligibly in the near term and then could raise it a bit as rebuilding begins.The first effects are, of course, negative as work is disrupted and people lose income and cut spending.Corporate profits may also dip initially.Many of the lost tourism dollars won't be recovered; many trips delayed never take place. Subsequently, however, the ill effects are likely to be offset, at least in economic terms, as construction activity begins.Because of the way the government keeps its books, the damage to the Bay Bridge, however costly, won't be counted as a minus.The money spent on repairs will be counted as a plus. "It's very difficult to model the long-term impact of this," says Andrew Goldberg, who studies the public-policy and crisis-management aspects of earthquakes at the Center for Strategic International Studies in Washington, D.C. "You certainly can say it's going to be extremely severe.We really are talking about shutting down a major American city for a number of days, maybe for a few weeks." Mr. Goldberg says the cost of the earthquake will definitely top $1 billion and could reach $4 billion.He cautions that early damage estimates are often low; the damage totals in Hurricane Hugo increased tenfold as more information was received.The earthquake damage, of course, would have been far greater if the epicenter had been in downtown San Francisco.A direct hit on a major city, Mr. Goldberg figures, would cause $20 billion to $40 billion of damage. Experts caution that it is far too soon for reliable estimates of the quake's total damage, but it's clear that insurers are likely to pay out enormous sums. Jack Byrne, the chairman of Fireman's Fund Corp., which is based in Novato, Calif., estimates insured losses resulting the earthquake could total $2 billion.The impact on the insurance industry "will be big and harsh, but less than {Hurricane} Hugo," says Mr. Byrne, who toured the Bay area by car yesterday afternoon to get a sense of the company's exposure to the earthquake. Mr. Byrne says Fireman's Fund will probably pay hundreds of millions in primary claims, but, after taxes and use of its reinsurance lines, the company's fourthquarter charge against earnings shouldn't top $50 million.The company was able to assess its damage liability quickly because it has computerized maps of Northern California showing the exact locations of all the property it insures. Fireman's Fund had claims adjusters on the streets of San Francisco right after sunrise yesterday and was paying as many claims as it could right on the spot.Fireman's Fund insures 37,300 homes and autos and 35,000 businesses in the Bay area.In addition to paying for earthquake and fire damage, the insurer must cover worker-compensation claims and also losses due to businesses being shut down by lack of power or phone service. But many Californians may not have adequate insurance coverage to pay for damages to their property.The Independent Insurance Agents of America says fewer than one of every five California homeowners has earthquake insurance.A somewhat higher percentage of people living in the Bay area have bought the additional insurance protection, but the great majority aren't covered. Earthquake insurance typically runs $200 or more a year for a small house. Whatever the long-term economic effect, the scene from the helicopter above Oakland is one of tragedy.Gargantuan sections of a double-decker freeway have been heaved about like plastic building blocks.Atop them sit cars and trucks abandoned in a terrifying scramble to safety the day before.In areas where the freeway made giant concrete sandwiches of itself lie cars that police say have been flattened into foot-thick slabs. On the periphery, rescue workers seem, from the air, to move in slow motion.They peck away at the 1 1/2-mile section of rubble, searching for more of the 250 people thought to have died here.About 20 other deaths were also attributed to the earthquake. The heart of the earthquake, 6.9 on the Richter scale, was 50 miles to the south, near Santa Cruz, but its terrible fist struck here on the Nimitz Freeway, a major artery serving the Bay Bridge between Oakland and San Francisco.Along the way, the quake toppled a mall in Santa Cruz, knocked down buildings in San Francisco's fashionable Marina District and sent a wall of bricks crashing on motorists in the city's Financial District. Just a short span across the bay to the west, the quake also showed its mettle: A four-square-block area of the Marina District lies smoldering under a steady stream of seawater being pumped onto rubble to prevent it from blazing anew.Many of the buildings, mostly condominiums and apartments, were flattened almost instantly as the underlying soil -- much of it landfill -- was literally turned to ooze by the quake's intensive shaking, rupturing gas lines. Onlookers say three persons died when one of the buildings exploded into a fireball shortly after the quake struck.Efforts to fight the blaze were hampered because water mains were severed as well.From the air, ribbons of yellow fire hose carry water from the bay to high-pressure nozzles trained on the site.As onlookers stand behind barricades, helmeted firemen and building inspectors survey rows of nearby buildings that were twisted from their foundations and seem on the verge of collapse. In the Marina District, residents spent yesterday assessing damage, cleaning up and trying to find friends and neighbors.Evelyn Boccone, 85 years old, has lived in the district most of her life.Her parents lost everything in the 1906 earthquake. "Now, we realize what our mothers must have gone through," she says. "We always heard about the earthquake, but as children we didn't always listen."
Bond prices rambled yesterday as investors kept close watch on the stock market and worried about a wave of new supply. Early yesterday, bonds rose as investors rushed to buy Treasury securities on the prospect that stocks would plummet in the aftermath of the massive California earthquake.For example, some securities analysts warned that stocks of certain insurance companies, which face massive damage claims, would get hit hard.But when the Dow Jones Industrial Average rose instead, bonds drifted lower. With stocks not a major focus, "we're waiting for the next guiding light," said Brian J. Fabbri, chief economist at Midland Montagu Securities Inc. "If the stock market tremors are behind us, then the bond market will go back to looking at the next batch of economic numbers to determine" where interest rates are heading. The Treasury's benchmark 30-year bond, which jumped 3/8 point, or about $3.75 for each $1,000 face amount, during the first hour of trading, ended little changed.Interest rates barely budged from Tuesday's levels. Most junk bonds, which have been battered in recent weeks, continued a slow recuperation and ended unchanged to slightly higher.But some so-called high-quality junk issues fell as some mutual funds sold their most liquid issues to raise cash.RJR Holdings Capital Corp. 's 14.7% bonds due 2009 fell one point.Other RJR issues fell between 1/2 point and 1 1/2 point. In the latest sign of how difficult it is to place certain junk bonds, Continental Airlines said it was forced to scale back the size of its latest offering. Continental, a unit of Texas Air Corp., slashed the size of its note offering from $150 million to $71 million.The move had been widely expected.In the multipart offering, the company sold a portion of secured notes but shelved all the unsecured notes. A Continental spokeswoman said the notes may be offered at a later date. "This was not a do-or-die deal," she said. "I think this is a market that required some level of security.It did not make sense to offer unsecured paper in an unsettling market." Investors have been speculating for weeks about the market's ability to place the $7 billion to $10 billion of new junk bonds scheduled to be sold by year end. Supply troubles were also on the minds of Treasury investors yesterday, who worried about the flood of new government securities coming next week. "We're being bombarded by new Treasury and agency debt offerings," said William Sullivan Jr., director of money-market research at Dean Witter Reynolds Inc. "The market is concerned about its ability to underwrite all this debt at current levels." In addition to the $15.6 billion of Treasury bills to be sold at next week's regular Monday auction, the government will sell $10 billion of new two-year Treasury notes.And Resolution Funding Corp. said late yesterday that it will sell $4.5 billion of 30-year bonds Wednesday.Refcorp is the financing unit of Resolution Trust Corp., a new government agency created to rescue the nation's troubled thrifts.Its securities have been dubbed "bailout bonds" by traders.In when-issued trading, the two-year Treasurys had a yield of about 7.88%. In the municipal market, all eyes were on California debt as investors tried to gauge the financial ramifications of Tuesday's earthquake. But traders said the quake had only a minor impact on the trading of California state and local municipal debt. "There are certain bonds traders refer to as `earthquake' bonds because the (issuers) are on top of the San Andreas fault," said Zane Mann, editor of the California Municipal Bond Advisor, a newsletter for investors.Since those bonds already pay a slightly higher yield, an extra premium for the earthquake risk, they weren't materially affected. But some bond market analysts said that could quickly change if property casualty insurance companies scramble to sell portions of their municipal portfolios to raise cash to pay damage claims. "Insurance companies will foot a substantial amount of the bill to reconstruct San Francisco," said Charles Lieberman, chief economist at Manufacturers Hanover Securities Corp.He also expects the performance of municipals to lag Treasurys as California is forced to issue new debt over time to repair public facilities. A report issued late yesterday by Standard & Poor's Corp. concluded the quake won't cause "wide-scale credit deterioration" for issuers and debt issues in the 12-county area of Northern California affected by the quake. Treasury Securities Treasury bonds ended narrowly mixed in quiet trading. The benchmark 30-year bond ended at a price of 100 29/32 to yield 8.03%, compared with 100 28/32 to yield 8.04% Tuesday.The latest 10-year notes were quoted late at a price of 99 26/32 to yield 8%, compared with 99 25/32 to yield 8.01%. Short-term rates were little changed. Corporate Issues Investment-grade corporate bonds ended 1/4 point lower. The Continental junk bond offering, underwritten by Drexel Burnham Lambert Inc., was the only new issue priced yesterday.In the four-part offering, the $71 million of secured equipment certificates was priced to yield 13.75% to 15.75%. Municipals Municipal bonds ended about 1/8 to 3/8 point lower, hurt by the circulation of two "bid-wanted" lists totaling $655 million. Chemical Securities Inc. is acting as agent for the seller. Meanwhile, some California issues were down a touch more than the broad market, but traders said there hadn't been much investor selling because of the quake. But New York City general obligation bonds came under selling pressure.Traders said a steady stream of bonds was put up for sale yesterday, pushing yields for longer maturities up 0.05 percentage point.Traders said investors were reacting to recent negative news on the city's finances and are nervous ahead of the Nov. 7 election. Washington, D.C., topped the competitive slate yesterday with a sale of $200 million of general obligation tax revenue anticipation notes. In late trading, New Jersey Turnpike Authority's 7.20% issue of 2018 was off 1/4 point at 98 bid.The yield was 7.35%, up 0.01 percentage point. Mortgage-Backed Securities Mortgage securities ended little changed after light dealings. There was no appreciable market impact from the California earthquake. Dealers said there was some concern that insurance companies might be forced to sell mortgage securities to help pay earthquake-related claims, but no selling materialized. The Federal Home Loan Mortgage Corp. and Federal National Mortgage Association, two dominant issuers of mortgage securities, have a sizable amount of California home loans in their mortgagebacked pools. But their potential quake exposure is seen as small given that they require a financial cushion on all the loans they purchase.And because Northern California home prices are so high, loans from the region often are too large to be included in Freddie Mac and Fannie Mae pools. Meanwhile, Government National Mortgage Association 9% securities for November delivery ended at 97 29/32, unchanged.Freddie Mac 9% securities were at 97 4/32, down 1/32. In derivative markets, Fannie Mae issued two $400 million real estate mortgage investment conduits backed by its 9% securities. Foreign Bonds British government bonds, or gilts, ended moderately lower as equities there recovered from Tuesday's drop. The Treasury's 11 3/4% bond due 2003/2007 fell 11/32 to 111 31/32 to yield 10.08%, while the 12% notes due 1995 were down 7/32 to 103 22/32 to yield 11.04%. Traders said today may be an anxious day for the market.Several key economic figures are due out and Chancellor of the Exchequer Nigel Lawson is scheduled to give the annual "Mansion House" address to the financial community. The chancellor sometimes has used the occasion to announce major economic policy changes.Economists don't expect any such changes in this year's address, given Mr. Lawson's apparent reluctance to adjust policy currently. Meanwhile, Japanese government bonds retreated in quiet trading, stymied by the dollar's resiliency.Japan's bellwether 4.6% bond due 1998 ended on brokers' screens at 95.75 to yield 5.315%. In West Germany, investors stayed on the sidelines as the bond market searched for direction.The government's 7% issue due October 1999 fell 0.05 point to 99.90 to yield 7.01%.
The Berlin Wall still stands.But the man who built it has fallen. East Germany yesterday removed Erich Honecker, one of the staunchest holdouts against the reform rumbling through the Communist world, in an effort to win back the confidence of its increasingly rebellious citizens.But while it was a move that stunned the East bloc, it hardly ushers in an era of reform -- at least anytime soon. For the Politburo replaced Mr. Honecker, who had led East Germany for 18 years and before that headed its security apparatus, with a man cut of the same cloth: Egon Krenz, the most recent internal-security chief and a longtime Honecker protege.East Germany, it is clear, is no Poland, where the Communist Party now shares power with the democratically elected Solidarity union.Nor is it a Hungary, where yesterday the parliament approved constitutional changes meant to help turn the Communist nation into a multiparty democracy. Still, any change in East Germany has enormous implications, for both East and West.It raises the long-cherished hopes of many Germans for reunification -- a prospect that almost equally alarms political leaders in Moscow, Washington and Western Europe. Mr. Krenz, 52, was named the new party chief just minutes after the Party's 163-member Central Committee convened in East Berlin.Although the East German news agency ADN claimed Mr. Honecker had asked to be relieved of his duties for "health reasons," West German government sources said the 26-man Politburo had asked for his resignation at a separate meeting late Tuesday. (Mr.Honecker was twice hospitalized this summer for a gall bladder ailment and his physical condition has been the subject of intense speculation in the Western media.) ADN said Mr. Honecker, a hard-line Stalinist who in 1961 supervised the construction of the Berlin Wall, also was relieved of his title as head of state and his position as chief of the military.Mr. Krenz is expected to be formally named to all three positions once the nation's parliament convenes later this week. Mr. Honecker's ignoble fall culminates nearly two decades of iron-handed leadership during which Mr. Honecker, now 77 years old, built East Germany into the most economically advanced nation in the Soviet bloc.His grip on power unraveled this summer as thousands of his countrymen, dissatisfied by the harshness of his rule, fled to the West.Thousands more have taken to the streets in the last month in East Germany's largest wave of domestic unrest since a workers' uprising in 1953. In Washington, the Bush administration took a characteristically cautious and skeptical view of the leadership change.The official line was to offer warmer ties to Mr. Krenz, provided he is willing to institute reforms.But U.S. officials have strong doubts that he is a reformer. President Bush told reporters: "Whether that {the leadership change} reflects a change in East-West relations, I don't think so.Because Mr. Krenz has been very much in accord with the policies of Honecker." One top U.S. expert on East Germany added: "There is no clear-cut champion of reform, that we know of, in the East German leadership." Indeed, Mr. Krenz said on East German television last night that there will be no sharing of power with pro-democracy groups.He said, while dialogue is important, enough forums already exist "in which different interests" can express themselves. The removal of Mr. Honecker was apparently the result of bitter infighting within the top ranks of the Communist party.According to West German government sources, Mr. Honecker and several senior Politburo members fought over the last week to delay any decisions about a leadership change.But, with public demonstrations in the country growing in size and intensity, Mr. Honecker and several key allies lost out in this battle, officials say.Those allies included Politburo members Guenter Mittag, who has long headed economic affairs, and Joachim Hermann, chief of information policy.Both men were also relieved of their duties yesterday. Although other resignations may follow, it's still not clear to what extent the change in party personnel will alter the government's resistance to fundamental change.Clearly, the central figure in this process is Egon Krenz.Born in 1937 in a Baltic Sea town now part of Poland, he was eight years old when World War II ended.Like West German Chancellor Helmut Kohl, he represents the postwar generation that has grown up during Germany's division. Since joining the Politburo in 1983 as its youngest member, Mr. Krenz had acquired the nickname "crown prince," a reference to the widely held view that he was the hand-picked successor to Mr. Honecker.In fact, the two men have had strikingly similar career paths, both having served as chief of internal security before their rise to the top party position. Moreover, both men have hewn to a similar hard-line philosophy.Notably, one of Mr. Krenz's few official visits overseas came a few months ago, when he visited China after the massacre in Beijing.He later defended the Chinese government's response during a separate visit to West Germany.East German Protestantism in particular fears Mr. Krenz, in part because of an incident in January 1988 when he was believed to have ordered the arrest of hundreds of dissidents who had sought refuge in the Church. However, Mr. Krenz also has a reputation for being politically savvy.His shrewd ability to read the shifting popular mood in East Germany is best illustrated by his apparent break with his old mentor, Mr. Honecker.Indeed, according to West German government sources, he was one of the leaders in the power struggle that toppled Mr. Honecker.In recent days, Mr. Krenz has sought to project a kinder image.According to a report widely circulating in East Berlin, it was Mr. Krenz who ordered police to stop using excessive force against demonstrators in Leipzig. "He doesn't want to have the image of the gun man," says Fred Oldenburg, an expert at the Bonn-sponsored Institute of East European and International Studies in Cologne. "He's not a reformer -- he wants to have the image of a reformer." As part of his image polishing, Mr. Krenz is expected to take modest steps toward reform to rebuild confidence among the people and reassert the party's authority.Besides sacking other senior Politburo officials who allied themselves with Mr. Honecker, Mr. Krenz could loosen controls on the news media, free up travel restrictions, and establish a dialogue with various dissident groups. But will it be enough?West German government officials and Western analysts are doubtful. "He doesn't signify what people want, so the unrest will go on," Mr. Oldenburg predicts. At the same time, the expectations of the East German people are great and will continue to grow.Says one West German official: "What's necessary now is the process of democratization.Not just that people are being heard but that their interests are being taken seriously." Chancellor Kohl, meanwhile, has invited Mr. Krenz to open discussions with Bonn on a wide range of subjects.Reports in the West German press, citing sources in East Germany, suggest Mr. Krenz may serve only as a bridge between Mr. Honecker and a genuine reform leader.Adding to that speculation is Mr. Krenz's reputation as a heavy drinker, who is said to also suffer from diabetes. "This is a dynamic process and we're experiencing the first step," the Bonn official adds.The selection of Mr. Krenz may also disappoint Moscow.Soviet leader Mikhail Gorbachev has pressed hard for a change in East Germany's rigid stance.Two reform-minded party leaders favored by Moscow as possible successors to Mr. Honecker, Dresden party secretary Hans Modrow and Politburo member Guenter Schabowski, were passed over.If Mr. Krenz sticks to rigid policies the pressure from the Soviet Union could intensify. In Moscow, Mr. Gorbachev sent Mr. Krenz a congratulatory telegram that appeared to urge the new leadership to heed growing calls for change.According to the Soviet news agency Tass, "Gorbachev expressed the conviction that the leadership of the Socialist Unity Party of {East} Germany, being sensitive to the demands of the time, . . . will find solutions to complicated problems the GDR {German Democratic Republic} encountered." A force of younger pro-Gorbachev members in the East German bureaucracy has for some time been pushing for relaxation within their country.The older generation has been torn between a fear of tampering with the status quo and a fear of what might happen if they didn't. From the perspective of East Germany's old guard, reforms that smack of capitalism and Western-style democracy could eliminate their country's reason for being.Unlike the other nations of the bloc, East Germany is a creature of the Cold War.Erasing the differences still dividing Europe, and the vast international reordering that implies, won't endanger the statehood of a Poland or a Hungary.But it could ultimately lead to German reunification and the disappearance of East Germany from the map.Which is what the Old Guard fears. "I'm sure they'll formulate a reform that will be a recipe for the GDR's future as a separately identifiable state," says Michael Simmons, a British journalist whose book on East Germany, entitled "The Unloved Country," was published this month. Up to now, that recipe has consisted of a dogged effort by former leader Walter Ulbricht to establish the country's international legitimacy, followed by Mr. Honecker's campaign to build the East bloc's only successful Stalinist economy into a consumer paradise.Neither man achieved perfection. Early in 1987, Mr. Honecker and his team stopped paying thin compliments to Mr. Gorbachev and joined with Romania in rejecting any necessity for adjustments in their systems.The less-self-confident Czechoslovaks and Bulgarians, in contrast, declared their intentions to reform, while doing nothing concrete about it. The East German media soon began presenting Mr. Gorbachev's speeches only as sketchy summaries, and giving space to his opponents.By late 1988, they were banning Soviet publications. The country abandoned its former devotion to socialist unity and took to insisting instead that each country in the bloc ought to travel its own road.Mr. Honecker spoke of "generally valid objective laws of socialism" and left no room for debate. With this year's dislocations in China and the Soviet Union, and the drive to democracy in Poland and Hungary, the East German leadership grew still more defensive.Politburo member Joachim Herrman confessed to a "grave concern" over Hungarian democracy. "Under the banner that proclaims the `renewal of socialism, '" he said, "forces are at work that are striving to eliminate socialism." Some loyal voices, in and out of the East German Communist party, saw the nation's unrest coming.The first signs were economic.Despite heavily subsidized consumer industries, East Germans have for years watched the West pull farther out ahead.In 1988, for the first time, economic growth came to a dead stop. Gingerly, some economists began to blame central planning.Some writers in theoretical journals even raised the notion of introducing democracy, at least in the workplace.By summer, an independent reform movement was saying out loud what it had only whispered before. But they are stalwart socialists.Their proclaimed purpose is to cleanse East Germany of its Stalinist muck, not to merge with the West.One of their pastors has envisioned a "new utopia" of "creative socialism." Meanwhile, the man Mr. Krenz replaces has left an indelible mark on East German society.Imprisoned by the Nazis during World War II for his political beliefs, Mr. Honecker typified the postwar generation of committed Communist leaders in Eastern Europe who took their cues from Moscow. He was a "socialist warrior" who felt rankled by West Germany's enormous postwar prosperity and the Bonn government's steadfast refusal to recognize the legitimacy of his state.Finally, during his first and only state visit to Bonn two years ago, he won some measure of the recognition he had long sought.But ultimately he was undone by forces unleashed by his own comrade, Mr. Gorbachev. Mr. Honecker's removal "was bound to happen," says one aide to Chancellor Kohl. "It was only a matter of time." The European Community Commission increased its forecast for economic growth in the EC in 1989 to 3.5%, slightly higher than its June projection of 3.25%. In its annual economic report for 1989-1990, the commission also projected 1990 gross domestic product growth for the 12 EC members at 3%.EC inflation was seen at 4.8% in 1989, higher than 1988's 3.6% price rise.However, inflation for 1990 was seen slowing to 4.5%. Leading EC growth forecasts in 1989 was Ireland, seen growing 5% at constant prices.Slower growth countries included Greece, at 2.5%, the U.K., at 2.25%, and Denmark, at 1.75%. Inflation is expected to be highest in Greece, where it is projected at 14.25%, and Portugal, at 13%.At the other end of the spectrum, West German inflation was forecast at 3% in 1989 and 2.75% in 1990. Nestle Korea Ltd. opened a coffee and non-dairy-creamer plant in Chongju, South Korea.An official at Nestle Korea, a 50-50 joint venture between Nestle S.A. and the Doosan Group, said the new facility will manufacture all types of soluble, roasted and ground coffee, coffee mix and nondairy coffee creamer.The South Korean coffee market, consisting mostly of instant coffee, was estimated at about 100 billion won ($150.7 million) last year.Brands made by the Kraft General Foods unit of Philip Morris Cos. had about 95% of the market share.Nestle currently has only about a 2% share with its Taster's Choice coffee. Poland plans to start negotiations soon on purchasing natural gas from Iran, the official Islamic Republic News Agency reported.The agency said Polish Prime Minister Tadeusz Mazowiecki told Iranian Deputy Foreign Minister Mahmoud Vaezi of Poland's willingess to purchase the gas during Mr. Vaezi's current visit to Warsaw.The agency didn't mention possible quantities and didn't say how the gas would be delivered. A Chinese official harshly criticized plans to close a British naval base in downtown Hong Kong.Hong Kong officials announced last week that the base will be relocated to a small island to allow downtown redevelopment.But Beijing wants to use the base for the People's Liberation Army after 1997, when the territory returns to Chinese sovereignty.Ke Zaishuo, head of China's delegation to a Chinese-British Liaison Committee on Hong Kong, accused Britain of trying to impose a fait accompli and said, "This is something we cannot accept." The Israeli and Soviet national airlines have reached preliminary agreement for launching the first direct flights between Tel Aviv and Moscow, a spokesman for the Israeli airline, El Al, said.El Al director Rafi Har-Lev and top officials of the Soviet Union's Aeroflot negotiated a preliminary pact in Moscow this week, the spokesman said.He added that concluding the deal requires approval by the governments of both countries, which have never had direct air links. The chairman and a director of one of the Republic of Singapore's leading property companies, City Development Ltd., or CDL, were charged yesterday with criminal breach of trust of some 800,000 Singapore dollars (about US$409,000). Kwek Hong Png, chairman of CDL, and director Quek Leng Chye were arrested by the republic's Corrupt Practices Investigation Bureau Tuesday night.In addition to abetting in the alleged criminal breach of trust, Kwek Hong Png was also charged with dishonestly receiving S$500,000 that had been stolen.Both men were charged in a subordinate court and released on bail of S$1 million. The charges are the culmination of weeks of rumors concerning CDL that have depressed the company's share price and to a lesser extent the shares of all companies owned by CDL's controlling Quek family, brokers in Singapore say.The Queks control the Hong Leong Group, which has widespread interests in manufacturing, property and finance in both Malaysia and Singapore. News of the arrest and charging of the two men helped to push prices on the Singapore Stock market sharply lower in early trading yesterday, but brokers said that the market and CDL shares recovered once it became apparent the charges were limited to the two men personally. One of the two British companies still making hard toilet paper stopped production of it.British Tissues decided to do away with its hard paper after a major customer, British Rail, switched to softer tissues for train bathrooms. . . . Peasants in Inner Mongolia have partly dismantled a 20-mile section of China's famed Great Wall, the official People's Daily said.The paper said the bricks were used to build homes and furnaces and, as a result, the wall "is in terrible shape."
Wednesday, October 18, 1989 The key U.S. and foreign annual interest rates below are a guide to general levels but don't always represent actual transactions. PRIME RATE: 10 1/2%.The base rate on corporate loans at large U.S. money center commercial banks. FEDERAL FUNDS: 8 15/16% high, 8 5/8% low, 8 3/4% near closing bid, 8 7/8% offered.Reserves traded among commercial banks for overnight use in amounts of $1 million or more.Source: Fulton Prebon (U.S.A.) Inc. DISCOUNT RATE: 7%.The charge on loans to depository institutions by the New York Federal Reserve Bank. CALL MONEY: 9 3/4% to 10%.The charge on loans to brokers on stock exchange collateral. COMMERCIAL PAPER placed directly by General Motors Acceptance Corp.: 8.45% 30 to 44 days; 8.25% 45 to 74 days; 8.30% 75 to 99 days; 7.75% 100 to 179 days; 7.50% 180 to 270 days. COMMERCIAL PAPER: High-grade unsecured notes sold through dealers by major corporations in multiples of $1,000: 8.55% 30 days; 8.45% 60 days; 8.375% 90 days. CERTIFICATES OF DEPOSIT: 8.05% one month; 8.02% two months; 8% three months; 7.98% six months; 7.95% one year.Average of top rates paid by major New York banks on primary new issues of negotiable C.D.s, usually on amounts of $1 million and more.The minimum unit is $100,000.Typical rates in the secondary market: 8.53% one month; 8.48% three months; 8.40% six months. BANKERS ACCEPTANCES: 8.42% 30 days; 8.30% 60 days; 8.28% 90 days; 8.15% 120 days; 8.05% 150 days; 7.95% 180 days.Negotiable, bank-backed business credit instruments typically financing an import order. LONDON LATE EURODOLLARS: 8 11/16% to 8 9/16% one month; 8 5/8% to 8 1/2% two months; 8 5/8% to 8 1/2% three months; 8 9/16% to 8 7/16% four months; 8 1/2% to 8 3/8% five months; 8 1/2% to 8 3/8% six months. LONDON INTERBANK OFFERED RATES (LIBOR): 8 11/16% one month; 8 11/16% three months; 8 1/2% six months; 8 1/2% one year.The average of interbank offered rates for dollar deposits in the London market based on quotations at five major banks. FOREIGN PRIME RATES: Canada 13.50%; Germany 8.50%; Japan 4.875%; Switzerland 8.50%; Britain 15%.These rate indications aren't directly comparable; lending practices vary widely by location. TREASURY BILLS: Results of the Monday, October 16, 1989, auction of short-term U.S. government bills, sold at a discount from face value in units of $10,000 to $1 million: 7.37% 13 weeks; 7.42% 26 weeks. FEDERAL HOME LOAN MORTGAGE CORP. (Freddie Mac): Posted yields on 30-year mortgage commitments for delivery within 30 days. 9.88%, standard conventional fixed-rate mortgages; 7.875%, 2% rate capped one-year adjustable rate mortgages.Source: Telerate Systems Inc. FEDERAL NATIONAL MORTGAGE ASSOCIATION (Fannie Mae): Posted yields on 30 year mortgage commitments for delivery within 30 days (priced at par) 9.83%, standard conventional fixed-rate mortgages; 8.70%, 6/2 rate capped one-year adjustable rate mortgages.Source: Telerate Systems Inc. MERRILL LYNCH READY ASSETS TRUST: 8.50%.Annualized average rate of return after expenses for the past 30 days; not a forecast of future returns.
As the citizens of San Francisco and surrounding communities began assessing the damage from Tuesday's devastating earthquake, NBC News began assessing the damage from what some said was a failure to provide comprehensive coverage in the earthquake's initial moments. "In terms of coverage, it was a disaster equal to the earthquakes," said Eric Premner, president for broadcasting of King Broadcasting Co., which owns the NBC affiliate in Seattle, Wash. While rival ABC News outstripped the competition in live coverage of the event by sheer luck -- the network was broadcasting the World Series from Candlestick Park when the quake struck -- NBC News was unable to get its signal out of San Francisco for the first hour after the quake. "I have to attribute the lackluster performance to a natural disaster," said Mr. Premner. "So before I start to be really critical of NBC, I would like to know more about what happened." There were no complaints from affiliates of CBS Inc. and Cable News Network, a unit of Turner Broadcasting System Inc. But that was not the case at NBC News, which has been dogged with the image of not being aggressive on major breaking stories.Last summer, the affiliates bitterly complained to network executives about the poor coverage of the student uprising in China. "I was not pleased with the slow start, and neither was NBC News," said Guy Hempel, general manager of NBC affiliate WAVE in Louisville, Ky. A spokesman for National Broadcasting Co., a unit of General Electric Co., said the network was "looking into what happened." The stations said they were pleased with the extended coverage yesterday, including a special five-hour edition of "Today." Don Browne, director of news at NBC News, said in an interview that "we couldn't get a signal out of San Francisco.We were out of the box.It was horrible.The comment we're hearing is that we were slow out of the box, but beat everyone else in the stretch." NBC broadcast throughout the entire night and did not go off the air until noon yesterday. The quake postponed the third and fourth games of the World Series.In place of the games, ABC said it planned to broadcast next week's episodes of its prime-time Wednesday and Thursday lineups, except for a one-hour special on the earthquake at 10 p.m. last night.The series is scheduled to resume Tuesday evening in San Francisco. "There are no commercials to make up for since we're going to eventually broadcast the World Series," said a network spokesman.
Pinnacle West Capital Corp. said it suspended indefinitely its common stock dividend and reported a 91% plunge in third-quarter net income. The announcement, made after the close of trading, caught analysts by surprise.The company closed at $12 a share, down 62.5 cents, in composite trading on the New York Stock Exchange. Pinnacle West slashed its quarterly dividend to 40 cents per share from 70 cents in December, saying at the time that it believed the new, lower dividend was "sustainable." A company spokesman said the decision to eliminate the dividend resulted from a quarterly appraisal and that circumstances had changed since the December announcement.He declined to elaborate. Edward J. Tirello Jr., an analyst at Shearson Lehman Hutton Inc., speculated that the sudden dividend elimination presages an expensive agreement with thrift regulators over the company's insolvent MeraBank savings and loan unit. Analysts have estimated that Pinnacle West may have to inject between $300 million and $400 million into the MeraBank unit before turning the thrift over to federal regulators. The latest financial results at the troubled utility and thrift holding company, based in Phoenix, Ariz., reflect continuing problems at MeraBank and losses in real-estate, venture-capital and uranium-mining operations. Third-quarter net income slid to $5.1 million, or six cents a share, from $56 million, or 65 cents, a year earlier. Utility operations, the only company unit operating in the black in the latest period, had a 26% drop in profit, to $86.3 million, largely as a result of outages at the company's huge Palo Verde nuclear facility and the cost of purchased replacement power. In other operations, losses at MeraBank totaled $85.7 million in the latest quarter, compared with a $2.5 million profit a year earlier.The latest quarter includes a $42.7 million addition to loan-loss reserves.As recently as August, the company said it didn't foresee a need for substantial additions to reserves. Pinnacle's SunCor Development Co. real-estate unit's loss narrowed to $13.8 million from $78.4 million.The latest period included a $9 million write-down on undeveloped land, while the year-earlier period included a $46 million reserve for real-estate losses. Losses at its Malapai Resources Co. uranium-mining unit narrowed to $3.4 million from $18 million a year ago, which included a $9 million write-down of utility inventories. Losses at El Dorado Investment Co., the venture-capital operation, widened to $6.8 million from $425,000 a year earlier.The latest quarter included a $6.6 million write-down of investments.
With airline deals in a tailspin, legendary Wall Street trader Michael Steinhardt could have trouble parachuting out of USAir Group, traders say. Only a week ago, when airline buy-out fever was already winding down, Mr. Steinhardt was engaged in a duel with USAir.He was threatening to take over the carrier, after spending an estimated $167 million to build an 8.4% USAir stake for his investment clients.The would-be raider even hired an investment banker to give teeth to his takeover threat, which was widely interpreted as an effort to flush out an acquirer for USAir, or for his own stake. In fighting USAir, Mr. Steinhardt was pitted against another investor, billionnaire Warren Buffett, who bought into USAir to help fend off Mr. Steinhardt.Mr. Buffett's firm, Berkshire Hathaway, holds a much bigger stake in the carrier than Mr. Steinhardt's firm, Steinhardt Partners. Now, in the wake of UAL's troubles in financing its buy-out, the airline raiding game has been grounded.Instead of hoping to sell his USAir stake at analysts' estimated buy-out price of $80 a share, Mr. Steinhardt is stuck with roughly 3.7 million USAir shares that cost him $45, on average, but yesterday closed at 40 1/2, up 1/4, in New York Stock Exchange composite trading. "It doesn't make sense to parachute out at this price," Mr. Steinhardt says, though he has stopped his takeover talk and now commends USAir managers' "operating skills." At the current price, the USAir holding represents 9% of all the assets that Mr. Steinhardt manages.A week ago, USAir stock briefly soared above 52 after a report in USA Today that Mr. Steinhardt might launch a hostile bid for the carrier, though takeover speculators say they were skeptical. "If USAir is worth 80 as a takeover and the stock went to 52, the market was saying Steinhardt's presence wasn't worth anything, in terms of getting a deal done," says a veteran takeover speculator. Traders say this all goes to show that even the smartest money manager can get infected with crowd passions.In trying to raid USAir, Mr. Steinhardt abandoned his usual role as a passive investor, and ran into snags.Moreover, unlike Mr. Buffett, who often holds big stakes in companies for years, Mr. Steinhardt hasn't in the past done much long-term investing. Mr. Steinhardt, who runs about $1.7 billion for Steinhardt Partners, made his name as a gunslinging trader, moving in and out of stocks with agility -- enriching himself and his investment clients.Meanwhile, his big losses, for instance in 1987's crash, generally have been trading losses. So, some see a special irony in the fact that Mr. Steinhardt, the trader, now is encumbered with a massive, illiquid airline holding.Analysts say USAir stock might lose four or five points if the Steinhardt stake was dumped all at once.As a result, Mr. Steinhardt must reconcile himself to selling USAir at a loss, or to holding the shares as an old-fashioned investment. "Long-term investing -- that's not Steinhardt's style," chuckles an investor who once worked at Steinhardt Partners. "He doesn't usually risk that much unless he thinks he has an ace in the hole," adds another Steinhardt Partners alumnus. In recent days, traders say USAir has been buying its own shares, as part of a program to retire about eight million USAir shares, though the carrier won't discuss its buy-back program. If USAir stepped up its share purchases, that might be a way for Mr. Steinhardt to get out, says Timothy Pettee, a Merrill Lynch analyst.But USAir might not want to help Mr. Steinhardt, he adds. In 1987, USAir Chairman Edwin Colodny stonewalled when Trans World Airlines Chairman Carl Icahn threatened to take over the carrier.Mr. Icahn, a much more practiced raider than Mr. Steinhardt, eventually sold a big USAir stake at a tiny profit through Bear, Stearns.Mr. Steinhardt also could take that route.He confers big trading commissions on Wall Street firms.However, with airline stocks cratering, he might not get a very good price for his shares, traders say. Especially galling for Mr. Steinhardt, say people close to him, is that USAir's Mr. Colodny won't even take his telephone calls.While USAir isn't considered absolutely takeover-proof, its defenses, including the sale in August of a 12% stake in the company to Mr. Buffett's Berkshire Hathaway, are pretty strong. USAir's deal with Mr. Buffett "wasn't exactly a shining example of shareholder democracy," Mr. Steinhardt says.Since last April, the investor has made seven so-called 13D filings in USAir, as he bought and sold the company's stock.Such disclosures of big holdings often are used by raiders to try to scare a company's managers, and to stir interest in the stock.But of course it would be highly unusual for an investment fund such as Steinhardt Partners to take over a company. USAir and Mr. Buffett won't talk about Mr. Steinhardt at all. Analysts say USAir has great promise.By the second half of 1990, USAir stock could hit 60, says Helane Becker of Shearson Lehman Hutton.She thinks traders should buy the stock if it tumbles to 35. But meanwhile, USAir is expected to show losses or lackluster profit for several quarters as it tries to digest Piedmont Airlines, which it acquired.Moreover, some investors think a recession or renewed airfare wars will pummel airline stocks in coming months. However, Mr. Steinhardt says he's "comfortable holding USAir as an investment." While he has bought and sold some USAir shares in recent days, he says that contrary to rumors, he hasn't tried to unload his holding.Mr. Steinhardt adds that he bought USAir stock earlier this year as "part of a fundamental investment in the airline group." In 1989, Mr. Steinhardt says he made money trading in Texas Air, AMR and UAL. Overall, his investments so far this year are showing gains of about 20%, he adds. Does Mr. Steinhardt regret his incursion into the takeover-threat game?People close to the investor say that was an experiment he is unlikely to repeat. "I don't think you'll find I'm making a radical change in my traditional investment style," Mr. Steinhardt says.
Commodore International Ltd. said it will report a loss for the first quarter ended Sept. 30 because sales of personal computers for the home market remained weak in some major countries. That will mark the second consecutive quarterly loss for Commodore and will raise additional questions about whether it can sustain the turnaround it had seemed to be engineering.Commodore, West Chester, Pa., had said in August that it was consolidating manufacturing to cut costs and expected to be profitable in the fiscal first quarter. Commodore said that its announcement is based on preliminary information and that the situation could look different by the time final results are announced early next month.In fact, Commodore's fiscal fourth-quarter loss was $2 million narrower than Commodore had expected a few weeks after the quarter closed.Still, even results approaching break-even would mark a sharp weakening compared with fiscal 1989 first-quarter earnings of $9.6 million, or 30 cents a share, on sales of $200.2 million. Reflecting concerns about Commodore's outlook, its stock has plunged more than 50% since May, closing yesterday unchanged at $8.875 a share in composite trading on the New York Stock Exchange.The price can be expected to erode further, because the loss estimate came after the market closed. Commodore has seemed to be setting the stage recently for progress in the U.S., where its personal-computer sales have been so dismal for years that Commodore is close to dropping off research firms' market-share charts. Commodore has assembled an experienced management team, it has persuaded many more dealers to carry its products and it has unleashed a slick advertising campaign.But those represent long-term strategies that probably won't succeed quickly, even if they turn out to be the right ones.In the meantime, the strategies will increase expenses. Commodore had been counting on its consumer business to stay sufficiently healthy to support its efforts in other areas -- mainly in getting schools and businesses to use its Amiga, which has slick graphics yet has been slow to catch on because it isn't compatible with Apple Computer Inc. or International Business Machines Corp. hardware.But sales to consumers have become difficult during the past several months, even in West Germany, which has been by far Commodore's strongest market. The Commodore 64 and 128, mainly used for children's educational software and games, had surprised market researchers by continuing to produce strong sales even though other low-profit personal computers now operate several times as fast and have much more memory.Commodore has said it expects sales to rebound, but market researchers have said that sales of the low-end products may finally be trailing off.
Stock prices closed slightly higher in the first routine trading day since Friday's big plunge.Some issues were affected by Tuesday's devastating earthquake in the San Francisco area. Activity continued to slow from the hectic pace set during the market's plunge late Friday and its rebound Monday, as players began to set their sights on events coming later this week. The Dow Jones Industrial Average drifted through the session within a trading range of about 30 points before closing with a gain of 4.92 at 2643.65. Broader averages also posted modest gains.Standard & Poor's 500-Stock Index rose 0.60 to 341.76, the Dow Jones Equity Market Index rose 0.71 to 320.54 and the New York Stock Exchange Composite Index gained 0.43 to 189.32.Some 822 New York Stock Exchange issues advanced in price, while 668 declined. But the Dow Jones Transportation Average went down for the seventh consecutive session, due largely to further selling in UAL.The average dropped 6.40 to 1247.87 and has now lost 21.7% of its value since the losing streak began Oct. 10. Big Board volume dropped to 166,900,000 shares, in line with the level of trading over the past few weeks, from 224.1 million Tuesday.Traders cited anticipation of the consumer price report for September, due today, and tomorrow's expiration of October stock-index futures and options as major factors in the slowdown. In addition, activity at a number of San Francisco-based brokerage houses was curtailed as a result of the earthquake, which knocked out power lines and telephone service throughout the Bay area. Stocks retreated to session lows just after the opening amid worries about the market impact of the quake, but quickly snapped back to higher levels with the help of futures-related program buying.The early move essentially established the day's trading range, and traders said they saw little of the program activity that has battered the market recently. "I didn't expect it to be this quiet.I expected to see more volatility as some of the institutions who were spooked last Friday did some selling," said Raymond F. DeVoe, a market strategist at Legg Mason Wood Walker, Baltimore. Mr. DeVoe said he expects prices to show some renewed instability over the next few sessions as institutions re-evaluate their stance toward the market in light of its decline. "I would suspect that a lot of investment committees are looking into whether (they) want to be in stocks at all," he said. Insurance stocks were sold at the opening amid concerns about the level of damage claims the companies would receive as a result of the earthquake.But those issues recovered quickly and turned higher because of expectations that the quake and the recent Hurricane Hugo would set the stage for an increase in premium rates. Issues of insurance brokers were especially strong.Marsh & McLennan advanced 3 1/8 to 75 7/8, Alexander & Alexander Services climbed 2 to 32 and Corroon & Black firmed 1 7/8 to 37 1/2. Elsewhere in the group, General Re rose 2 3/4 to 86 1/2, American International Group gained 3 1/4 to 102 5/8, Aetna Life & Casualty added 2 3/8 to 59 1/2 and Cigna advanced 7/8 to 62 1/2.Loews, the parent of CNA Financial, rose 1 3/8 to 123 1/8. Companies in the construction, engineering and building-products sectors were among other beneficiaries of earthquake-related buying.The heavy-construction sector was the session's best performer among Dow Jones industry groups; Fluor rose 3/4 to 33 3/8, Morrison Knudsen gained 2 1/4 to 44 1/8, Foster Wheeler added 3/8 to 18 1/4 and Ameron climbed 2 3/8 to 39 3/4. Among engineering firms, CRS Sirrine rose 5/8 to 34 1/4 on the Big Board and four others rallied on the American Stock Exchange: Jacobs Engineering Group, which gained 1 1/8 to 25 3/8, Greiner Engineering, which rose 3 1/2 to 22 1/2; Michael Baker, which added 1 1/4 to 15 1/4, and American Science & Engineering, up 1/2 to 8 1/2. Within the building-materials group, Georgia-Pacific climbed 1 1/4 to 58 and Louisiana-Pacific added 1 to 40 3/4 after Merrill Lynch recommended the forest-products issues.CalMat advanced 2 3/4 to 28 3/4, Lone Star Industries gained 1 3/4 to 29 1/4, Lafarge rose 1 to 19 1/2, Southdown added 5/8 to 24 5/8 and Eljer Industries rose 1 1/4 to 24 7/8. Pacific Gas & Electric fell 3/8 to 19 5/8 in Big Board composite trading of 1.7 million shares and Pacific Telesis Group slipped 5/8 to 44 5/8 as the companies worked to restore service to areas affected by the quake. Chevron added 1 to 65.The company, based in San Francisco, said it had to shut down a crude-oil pipeline in the Bay area to check for leaks but added that its refinery in nearby Richmond, Calif., was undamaged. Other companies based in the area include Hewlett-Packard, which rose 1/4 to 49; National Semiconductor, which went up 1/4 to 7 5/8, and Genentech, which eased 1/4 to 19 5/8.None of the firms reported any major damage to facilities as a result of the quake. BankAmerica eased 1/2 to 31 7/8 and Wells Fargo lost 1/2 to 81 1/2; the two bank holding companies, based in San Francisco, were forced to curtail some operations due to the temblor.Among California savings-and-loan stocks, H.F. Ahmanson eased 3/8 to 22 1/4, CalFed slid 3/4 to 24 1/8, Great Western Financial dropped 1/2 to 21 1/4 and Golden West Financial fell 5/8 to 29 1/4. UAL, the parent company of United Airlines, swung within a 14-point range during the course of the session before closing at 191 3/4, down 6 1/4, on 2.3 million shares. British Airways, a member of the group that had offered $300 a share for UAL in a leveraged buy-out, said it had yet to receive a revised proposal and it was "in no way committed" to the completion of a bid.Separately, investor Marvin Davis withdrew his backup $300-a-share takeover offer. While UAL faltered, AMR, the parent of American Airlines, pulled out of its recent nosedive by rising 3/4 to 74.The stock had been on the decline since the financing for the UAL buy-out fell through on Friday and developer Donald Trump subsequently withdrew a takeover offer of $120 a share for AMR. Also, AMR was the most active Big Board issue; 2.8 million shares changed hands. GTE added 1 1/4 to 65 3/8.PaineWebber repeated a buy recommendation on the stock and raised its 1990 earnings estimate by 35 cents a share, to $5.10. Colgate-Palmolive advanced 1 5/8 to 63 after saying it was comfortable with analysts' projections that third-quarter net income from continuing operations would be between 95 cents and $1.05 a share, up from 69 cents a year ago. Springs Industries dropped 1 3/8 to 36.Analysts at several brokerage firms lowered their 1989 and 1990 earnings estimates on the company after its third-quarter results proved disappointing. Trinova third-quarter loss after a charge for a planned restructuring, which will include the closing or downsizing of about 25% of its plants and a work force cut of about 1,500 over three years. The Amex Market Value Index snapped a five-session losing streak by rising 2.91 to 378.07.Volume totaled 12,500,000 shares. Carnival Cruise Lines Class A rose 1 1/4 to 22 3/8.The company, citing market conditions, postponed a $200 million debt offer.
Dale Lang, who this week completed the acquisition of the publisher of Ms. and Sassy, is candid about the challenge he is taking on. Mr. Lang admits that Ms. is "in dire straits" and that Sassy needs big promotional dollars to keep it alive.But the 57-year-old publisher has moved quickly and boldly to deal with the magazines' problems. Last Friday, he told the staff of Ms. that the magazine in January would begin publishing without advertising.Mr. Lang will do away with expensive circulation drives, not to mention sales staff, and attempt to publish the 17-year-old magazine supported by circulation revenue alone. "Any fool can publish a money-losing magazine.I want to publish one that succeeds," said Mr. Lang. "For Ms., it's time to publish for the reader, not the advertiser." As for Sassy, which competes directly with News Corp. 's Seventeen magazine, Mr. Lang says that in the next two years he will spend $6 million promoting and improving the magazine. Though Sassy has grown quickly since its debut in March 1988, it has been the target of conservative lobbyists and skittish advertisers who bristled at its frank editorial matter on teen-age problems. Mr. Lang said the former Australian owners of Sassy were "blind-sided by the Moral Majority. . . . Their reaction was to do nothing and ride it out." He said Sassy will keep its irreverent tone, but added, "We will keep a close watch on the editorial content of the magazine." Sassy already has recovered; circulation has quickly passed the 500,000 mark and advertising pages have stabilized this year at more than 300.What's more, Mr. Lang says he has what all publishers wish for: a bona fide niche. "Seventeen is written more for mothers, not their daughters," said Mr. Lang. "But Sassy has a different spirit.It gets more mail in a month than McCall's got in a year, and it's not from mothers.I feel about Sassy like I did about Working Woman 10 years ago." Mr. Lang took on Ms. and Sassy with the acquisition of Matilda Publications Inc. by his newly formed Lang Communications.Lang owns 70% of Matilda, while Citicorp owns the rest through its Citicorp Venture Capital Partners.Two weeks ago, Citicorp and Mr. Lang pumped $800,000 into Matilda just to keep the doors open. Industry observers have congratulated Mr. Lang on what some call his "courageous" handling of Ms., but his track record in magazine publishing in general has gotten mixed reviews. Besides Ms. and Sassy, closely held Lang Communications includes Success, a magazine for entrepreneurs and small businesses, and Working Woman and Working Mother, two monthly magazines.Working Woman, with circulation near one million, and Working Mother, with 625,000 circulation, are legitimate magazine success stories.The magazine Success, however, was for years lackluster and unfocused.Only recently has it been attractively redesigned and its editorial product improved.Success is expected to gain at least because of the recent folding of rival Venture, another magazine for growing companies. Working Woman and Working Mother have operated as part of Working Woman/McCall's Group, a less-than-successful joint venture between Mr. Lang and Time Warner Inc.The joint venture is being undone, with McCall's magazine being sold last summer to the New York Times Co. 's Magazine Group for about $80 million, and Time Warner agreeing to sell back its 50% interest in Working Woman and Working Mother to Mr. Lang. Executives at Time Inc. Magazine Co., a subsidiary of Time Warner, have said the joint venture with Mr. Lang wasn't a good one.The venture, formed in 1986, was supposed to be Time's low-cost, safe entry into women's magazines.Mr. Lang surprised Time soon after joining forces when he said he would negotiate rates individually with advertisers, a practice common in broadcasting but considered taboo by magazine publishers. In addition, McCall's put in a less than stellar performance.Until a recent comeback, it saw steep losses in ad pages and circulation.Time executives complained about the shoddy editorial quality, and in the end, one Time executive who asked not to be identified said, "Frankly, McCall's and the joint venture were an embarrassment." Mr. Lang feels that Time's priorities changed. "Their management changed right after {the venture was formed}, and I don't think they were comfortable getting into the competitive wars of women's service magazines." Today, Mr. Lang believes his magazines will offer what many women's magazines don't. "We write straight for women on their level," he said. "We don't have passive readers." Mr. Lang points out that even Success, in part, fits the company's image, since about 30% of its readership is female. Mr. Lang has named Carol Taber, 43, as group publisher of New York-based Lang Communications.She will oversee Working Woman, Working Mother and Success magazines, and retain her post as publisher of Working Woman. The sale price of McCall's -- twice what Mr. Lang originally paid for it -- will finance Lang Communications' buy-back of Time Warner's 50% interest in Working Woman and Working Mother.Mr. Lang says he isn't scouting new acquisitions, at least for now. "We would have to go outside to banks to get the money and I am not ready to do that," he said. "Besides, we have enough on our plate.There is plenty of work to be done on what we have."
The House Ethics Committee officially cited Rep. Jim Bates (D., Calif.) for sexually harassing two female employees, but didn't recommend formal disciplinary action. Rep. Bates said he accepted the finding, but one of the victims, Dorena Bertussi, denounced the ethics panel's action as "absurd." Acting more than a year after Ms. Bertussi filed a complaint, the panel issued a "letter of reproval" saying Rep. Bates had admitted conduct that violated a House rule forbidding discrimination against employees on account of their sex.It ordered Rep. Bates to write letters of apology to Ms. Bertussi and to a second complainant, Karen Dryden. Rep. Bates said he would write the letters as ordered. "I accept the resolution of the matter by the Ethics Committee," he said. The panel also warned Rep. Bates that any further violations "may result in a recommendation that disciplinary action be considered." But Ms. Bertussi asked, "Who in their right mind is going to file another complaint with the Ethics Committee?" Rep. Bates has publicly begged for forgiveness from voters and was re-elected with 60% of the vote last November.
Democrat Gene Taylor won a special election to fill the congressional seat vacated by the death of Republican Larkin Smith, taking back the GOP's lone redoubt in Mississippi's House delegation. Mr. Taylor's overwhelming victory against Republican Tom Anderson reclaims a seat the Republicans had held for 17 years and gives the Democrats their fifth victory in the seven special House elections held this year.Mr. Taylor, a 36-year-old state senator from Bay St. Louis, won 65% of the vote in a district that has voted Republican in the past five presidential elections and that was once represented by Republican U.S. Sen. Trent Lott. Mr. Taylor's victory was an embarrassment for both state and national Republicans.Mr. Anderson, a former Lott aide, received campaign assistance from the senator and from President Bush, who visited the district last week. Even so, Mr. Taylor carried all but one of the district's dozen counties.Rep. Smith died in a plane crash on Aug. 13.
Wall Street Journal reporters called companies with headquarters or facilities in the Bay area in a bid to assess the damage to their operations caused by Tuesday's earthquake.The calls reached many, but certainly not all, of the publicly held companies with operations in the area.In most cases damage to company facilities and operations was minimal. ADIA SERVICES INC., Menlo Park, temporary personnel agency, annual sales of $504 million, OTC, said all 30 offices in Bay area were working, but in various states of disarray.Business was slow because many companies were closed yesterday. ADVANCED MICRO DEVICES INC., Sunnyvale, integrated circuit maker, annual sales of $1.12 billion, NYSE, had only minor structural damage.Most of its 4,500 workers were at work yesterday, and no production slowdown was anticipated as long as electricity remains available. AMDAHL CORP., Sunnyvale, computer maker, annual sales of $1.8 billion, Amex, was closed yesterday and no damage estimates were available. AMERICAN BUILDING MAINTENANCE INDUSTRIES Inc., San Francisco, provider of maintenance services, annual revenue of $582 million, NYSE, had some damage to headquarters and lost phone service, but operations were moved to a branch office and are running smoothly thanks to a decentralized computer system the company had developed before the quake. AMERICAN PRESIDENT COS., Oakland, shipping concern, annual sales of $2.2 billion, NYSE, had little damage to the cranes, dock or rail track at its container-ship facility near the collapsed Route 880 overpass.The company expects to work a ship due in today with minimal delays, despite sporadic power. ANACOMP INC., Indianapolis, NYSE, said its Xidex Corp. unit, a Sunnyvale maker of computer disks and microfilm with annual sales of $637 million, had only minor damage and is fully operational. ANTHEM ELECTRONICS INC., San Jose, distributor of electronic parts, annual sales of about $300 million, NYSE, sustained very little damage, anticipated being "in 100% operating condition" by midday. APPLE COMPUTER CO., Cupertino, computer maker, annual sales of $4.07 billion, OTC, sustained some structural damage.Offices were closed yesterday. APPLIED MATERIALS INC., Santa Clara, maker of computer-chip machine systems, annual sales of $490 million, OTC, had slight damage to headquarters, no damage to manufacturing plants.Company, with 1,750 workers in area, is fully functional. ATARI CORP., Sunnyvale, maker of personal computers and software, annual sales of $700 million, Amex, had minor damage and expects to be fully operational by tomorrow. BANKAMERICA Corp., San Francisco, bank holding company, annual revenue of $10.2 billion, NYSE, yesterday had no power at its headquarters, 80 of its 433 Northern California branches were closed and 250 of 750 automatic teller machines were closed in the area.Securities trading was conducted in a backup facility in Concord. BECHTEL CORP., San Francisco, engineering and construction concern, annual sales of $4 billion, had only minor structural damage at its three buildings in the city, but its computers were knocked out.Backup computer tapes were hand-carried to an IBM office in Philadelphia, and the company expects its mainframe to be up in a few days.Workers, except for senior management, were asked not to report for work yesterday. BIO-RAD LABORATORIES INC., Hercules, biological research and clinical-products leader, $200 million in annual sales, Amex, said its Richmond warehouse north of San Francisco was closed because of debris and fallen shelves.It expects to be fully operational by next week. BORLAND INTERNATIONAL, Scotts Valley, personal computer and software designer, annual sales of $72 million, had heavy damage to its headquarters and was conducting business from its parking lot.The company doesn't expect any shipping delays. BUSINESSLAND INC., San Jose, computer retail company, annual sales of $1.1 billion, NYSE, said all 16 corporate office and stores in the area were open with the exception of a retail center in San Francisco's business district.That facility should reopen today. CARTER HAWLEY HALE STORES Inc., Los Angeles, retailer, annual sales of $2.79 billion, NYSE, said nine of its 22 Emporium stores in the area were closed because of water damage, broken windows and fallen displays.A spokesman said sales are expected to be hurt, but the losses are covered by insurance. CHEVRON CORP., San Francisco, oil company, annual sales of $25.2 billion, NYSE, had minor damage to downtown headquarters, but structural damage closed two of its seven buildings in San Ramone industrial park.Company expects to be fully operational by next week. CLOROX Co., Oakland, consumer products, annual sales of $1.36 billion, NYSE, was closed yesterday but plans to reopen today or tomorrow.Meanwhile, orders are being routed through Kingsford Products unit in Louisville, Ky., but computer problems mean they must be processed manually.Expects to be fully operational early next week. COHERENT INC., Palo Alto, laser maker, annual sales of $159 million, was closed yesterday but expects to reopen today. CONSOLIDATED FREIGHTWAYS INC., Menlo Park, trucking company, $2.69 billion in annual sales, NYSE, had structural damage to CF Motor Freight subsidiary's office in Palo Alto, no damage in Menlo Park. COOPER COMPANIES INC., Palo Alto, medical products maker, annual sales of $628 million, NYSE, had little damage and was in full operation yesterday. DAYTON HUDSON CORP., Minneapolis, retailer, annual sales of $12.2 billion, NYSE, closed seven of its 13 Bay-area Target discount stores and nine of its 20 Mervyn's department stores because of pending reviews by structural engineers or requests from authorities, who were trying to keep shoppers off the freeways.The company expects to reopen three Target stores and all but two Mervyn's today or tomorrow. DIASONICS INC., South San Francisco, maker of magnetic resonance imaging equipment, annual sales of $281 million, Amex, had minor damage, mostly in a stockroom.The company plans to be fully operational today. DIGITAL EQUIPMENT CORP., Maynard, Mass., computer maker, annual sales of $12.7 billion, NYSE, had structural damage at its San Francisco sales office but no appreciable damage elsewhere in the area, including its Cupertino plant. DREYER'S GRAND ICE CREAM INC., Oakland, ice cream maker, annual sales of $225 million, OTC, said it is delivering ice cream wherever roads are passable. EVEREX SYSTEMS INC., Fremont, maker of personal computers and peripherals, annual sales of $377 million, OTC, had minor damage and was almost fully operational yesterday.EXXON Corp., New York, oil company, NYSE, said its refinery northeast of San Francisco was operating at a slightly reduced rate as a precaution in case of aftershocks. FORD MOTOR CO., Dearborn, Mich., auto maker, annual sales of $92.4 billion, NYSE, said its three Ford Aerospace unit facilities in the Bay area, including a satellite-assembly operation in Palo Alto, had no major damage. GAP Inc., San Bruno, clothing retailer, annual sales of $1.25 billion, NYSE, expects most of its stores to return to full operation and all 2,500 of its Bay-area workers to be back at work by today. GENENTECH INC., South San Francisco, biotechnology company, annual sales of $334.8 million, NYSE, sustained no major damage and expects to be fully operational today. GENERAL ELECTRIC CO., Fairfield, Conn., consumer, industrial products and broadcasting concern, annual sales of $50 billion, NYSE, said its GE Nuclear Energy unit, with 1,600 Bay-area employees, had only minor damage at its San Jose headquarters.Business wasn't disrupted. GENERAL MOTORS CORP., Detroit, auto maker, annual sales of $123.6 billion, NYSE, sustained about 10 injuries to workers and some ruptured water mains at its New United Motor Manufacturing Inc. facility in Fremont, a joint venture with Toyota Motor Corp.There was limited production of some models yesterday, but it wasn't clear when the normal 750-car-a-day pace will resume.Plant officials are still assessing damage to parts suppliers and Port of Oakland facilities that handle shipments to the plant. GOLDEN WEST FINANCIAL CORP., Oakland, savings and loan, annual revenue of $1.4 billion, NYSE, had only minor damage to a few branches and no injured employees. HEWLETT-PACKARD Co., Palo Alto, personal computer and electronic equipment maker, annual sales of $9.8 billion, NYSE, said there will be a "minimal suspension" of manufacturing for an undefined period.The computer system was operating, so orders could be taken.The company has 18,000 employees and more than 70 buildings in the Bay area.One building in Palo Alto may be damaged beyond repair.Others had lesser damage and there were no injuries among workers.Damage will be "easily in the millions," the company said. HEXCEL Corp., Dublin, manufacturer of engineered parts, annual sales of $399 million, NYSE, had little damage beyond some phone trouble. HOMESTAKE MINING CO., San Francisco, gold and general miner, annual sales of $432.6 million, NYSE, said its headquarters was closed yesterday because of power failures and lack of water, but that it may reopen today.It expects any impact on its business to be slight. HOMESTEAD FINANCIAL CORP., Millbrae, financial services concern, annual revenue of $562 million, OTC, said three of its 17 Bay-area branches were closed yesterday.The company expects all branches to reopen today. INMAC CORP., Santa Clara, maker of computer accessories, annual sales of $250 million, OTC, said telephones were out at its headquarters but service should be restored by today.The company said it was doing a brisk business in computer power-surge protectors, cables and uninterruptable power sources. INTEL Corp., Santa Clara, semiconductor maker, annual sales of $2.87 billion, OTC, had some damage and few people were at work yesterday. INTERNATIONAL BUSINESS MACHINES Corp, Armonk, N.Y., maker of business machines, NYSE, said flooding caused by broken water pipes closed its San Jose plant, which makes high-end data-storage devices.The plant and its 8,500 employees gradually will resume operations over the next several days, the company said.Also closed yesterday were the company's Santa Teresa software-development lab and the Almaden research center.The concern's National Service Division opened a center for emergency service in Walnut Creek as part of its disaster-recovery plan. KAISER ALUMINUM & CHEMICAL, Oakland, metal and chemical maker, annual sales of $2.22 billion, had slight structural damage to its 28-story headquarters building and employees stayed home yesterday to allow crews to clean up. LOCKHEED CORP., Calabasas, aerospace and defense concern, annual sales of $10.59 billion, NYSE, said its Lockheed Missiles & Space division closed its Santa Cruz test facility because of power outages and landslides.The closing, affecting 266 employees, will continue at least until roads are cleared.It wasn't known to what extent, if any, the facility was damaged.It also wasn't known what the impact will be on the division's work, which includes the Navy's Trident submarine-based missile program and the Air Force's Strategic Defense Initiative.The division had only minor damage at its Sunnyvale headquarters and plant in Palo Altos, and no delays in deliveries are expected. LONGS DRUG STORES INC., Walnut Creek, drugstore chain, annual sales of $1.9 billion, NYSE, had only minor damage and only four of its 75 Bay-area stores, all in the Santa Cruz area, were closed.All are expected to reopen soon. LSI LOGIC CORP., Milpitas, maker of customized integrated circuits, annual sales of $550 million, NYSE, has halted manufacturing at its three plants in the area while they are inspected for structural damage.The company expects to resume full operations by today. R.H. MACY & Co., New York, retailer, annual sales of $7 billion, said there was minor damage to its 24 Macy stores and nine I. Magnin stores in the Bay area. MEASUREX CORP., Cupertino, maker of computer integrated manufacturing processes, annual sales of $265 million, NYSE, had only minor damage but workers spent most of yesterday cleaning up. NATIONAL SEMICONDUCTOR CORP., Santa Clara, semiconductor maker, annual sales of $1.65 billion, NYSE, said it had no major structural damage at its 30 Bay-area buildings, but two workers were injured.Production resumed yesterday.Piping in a waste-treatment plant needed immediate repairs. NORDSTROM INC., Seattle, retailer, annual sales $2.33 billion, OTC, five of this 59-store chain's nine stores in the Bay Area were closed yesterday, damage appears primarily cosmetic, hopes to reopen four of the stores by today and the fifth by Saturday. ORACLE SYSTEMS CORP., Belmont, provider of computer programming and software services, annual sales $584 million, four of 12 offices and buildings in the Belmont and San Mateo areas were closed, 95% of computer and telephone systems are operating, expects to be back to full operation by the end of the week. PACIFIC GAS & ELECTRIC CO., San Francisco, electric, gas and water supplier, annual sales $7.6 billion, some minor damage to headquarters, undetermined damage to four nearby substations, severe structural damage to a major power plant at Moss Landing, extensive damage to gas lines and electric lines, 400,000 residences without electricity and 69,000 without gas, cannot reconnect electricity until it is certain there are no gas leaks, no predictions on when this will happen. PACIFIC TELESIS GROUP, San Francisco, telecommunications holding company, annual sales of $9.5 billion, no damage to headquarters, but no power, the power failure has caused a delay in the release of the company's earnings report, major concern is subsidiaries, Pacific Bell and Pacific Telesis Cellular, both of which sustained damage to buildings, structural damage to several cellular sites in Santa Cruz, volume of calls on cellular phones 10 times the usual, causing a big slowdown. PROCTER & GAMBLE CO., Cincinnati-based company's Folgers Coffee plant in South San Francisco was closed following the earthquake, no injuries or major damage, other plants around country can make up for any lost production. QUANTUM CORP., Milpitas, manufactures rigid disc drives for small business computers, word processors, annual sales $120.8 million, OTC, open for business, minor structural damage. RAYCHEM CORP., Menlo Park, plastics manufacturer, annual sales $1 billion, no major damage and no production slowdown is anticipated. ROSS STORES INC., Newark, discount apparel chain, annual sales $576 million, two of 28 stores in Bay Area closed, both could open as early as today. SAFEWAY STORES INC., Oakland, retail food chain, annual sales of $13.6 billion, some structural damage to headquarters and no power; major problems transporting products to those stores that remained open; no numbers on how many stores closed. CHARLES SCHWAB & CO., San Francisco, discount brokerage firm, annual sales of $392 million, had only minor damage to headquarters building and was up and running for yesterday's market open.Firm will not, however, resume 24-hour service until power in city is restored.Office closed yesterday at 4:30 p.m. EDT. SEAGATE TECHNOLOGY, Scotts Valley, maker of hard disk drives for computers, annual sales of $1.37 billion, OTC, closed to assess what appeared to be minor damage to some of its 20 buildings. SOUTHERN PACIFIC TRANSPORTATION CO., San Francisco, railroad, annual sales of $2.41 billion, had only minor damage to headquarters and tracks, and expects to be fully operational tomorrow.St. Louis Southwestern Railway Co. unit halted all service Tuesday night but has since restored some freight lines and limited commuter service between San Francisco and San Jose. SUN MICROSYSTEMS INC., Mountain View, maker of desktop computers, annual sales $1.77 billion, OTC, no injured employees and very little damage to buildings.Closed yesterday due to power difficulties. TANDEM COMPUTERS INC., Cupertino, computer maker, annual sales of $1.6 billion, NYSE, said it had no significant damage and should be fully operational within a week.Many employees stayed home yesterday, but customer service was being maintained. TRANSAMERICA CORP., San Francisco, financial services and insurance company, annual sales of $7.9 billion, NYSE, said its headquarters, the well-known downtown pyramid-shaped building, was intact but closed yesterday. VARIAN ASSOCIATES INC., Palo Alto, instrumentation and semiconductor equipment company, annual sales of $1.3 billion, had only minor damage and no slowdowns were anticipated.VLSI TECHNOLOGY INC., San Jose, maker of semiconductor products, annual sales $171.9 million, OTC, minimal damage to facilities, no injuries, expected operations to return to normal late yesterday. WATKINS-JOHNSON CO., defense-oriented electronics manufacturer, annual sales $292 million, NYSE, minor damage to headquarters and plant in Palo Alto, no damage to San Jose plant, "still assessing" damage at Scotts Valley plant, where main product is furnaces for semiconductor production. WELLS FARGO & CO., San Francisco, bank holding company, annual revenue $4.9 billion, NYSE, minor damage at headquarters, 12 branches out of 170 in Northern California sustained structural damage that will preclude them from opening in the near future, 45 locations with at least one automatic teller machine inoperable, central computer systems are operating, no injuries. WYSE TECHNOLOGY INC., San Jose, maker of video display terminals and workstations and IBM/PC compatible computers, annual sales of $452 million, slight structural damage at headquarters, no injuries, expects to be back to full operation today. 3COM CORP., Santa Clara, maker of computer communications systems, annual sales of $386 million, OTC, slight structural damage to headquarters, communications systems already fully operational.
Could the collapse of I-880 have been prevented? That was the question structural engineers and California transportation officials were asking themselves yesterday as rescue workers began the gruesome task of trying to extract as many as 250 victims from beneath the concrete slabs of the double-deck Nimitz Freeway in Oakland that caved in during Tuesday's temblor. After touring the area, California Gov. George Deukmejian late yesterday called for an inquiry into the freeway's collapse, blaming the disaster on substandard construction, the Associated Press reported. The impact of the destruction of this 2.5-mile stretch of highway was tragically measured in lost lives.But there are other long-term effects that raise serious questions about the ability of California's infrastructure to withstand a major temblor. It could easily be two years before the well-traveled artery that helps connect Oakland with San Francisco is reopened, and the cost to build a new stretch of highway could soar to more than $250 million, said Charles J. O'Connell, deputy district director in Los Angeles of the California Department of Transportation, nicknamed Caltrans.Caltrans in Sacramento said total damage from the collapsed highway is estimated at around $500 million. The aftershocks of the highway tragedy are reverberating in Los Angeles as well, as local politicians spoke yesterday against plans to bring double-decking to Los Angeles freeways by 1994.Caltrans plans to add a second deck for buses and car pools above the median of a 2.5-mile stretch of the Harbor Freeway just south of Los Angeles, near the Memorial Coliseum.Los Angeles County Supervisor Kenneth Hahn yesterday vowed to fight the introduction of double-decking in the area. Caltrans abandoned double-decking in the early 1970s, following the 1971 Sylmar earthquake that destroyed freeway sections just north of Los Angeles, Mr. O'Connell explained.That temblor measured 6.1 on the Richter scale; Tuesday's was So why even consider stacking freeways now? "We've run out of places to build freeways in L.A., and the only place to go is up," Mr. O'Connell said, although he acknowledges there are many obstacles, including cost.But as for safety, he says double-deck freeways built today with the heavily reinforced concrete and thicker columns required after the Sylmar quake should withstand a calamitous temblor of 7.5 to 8 on the Richter scale. Reasons for the collapse of the Nimitz Freeway were sketchy yesterday.But most structural engineers attributed the destruction to improper reinforcement of the columns that supported the decks, and the fact that the ground beneath the highway is largely landfill and can become unstable, or "liquefy," in a major quake. The two-story roadway, designed in the mid-1940s and completed in 1957, was supported by columns that apparently lacked the kind of steel reinforcement used in highways today.While the pillars did have long metal bars running vertically through them for reinforcement, they apparently lacked an adequate number of metal "ties" that run horizontally through the column, said Leo Parker, a structural engineer in Los Angeles.Caltrans today uses a variation of the design Mr. Parker describes, with spiraling steel rods inside. But in the case of the Nimitz Freeway, the lack of such support caused the core of the columns to crumble and buckle under the weight of the second deck, crushing motorists who were lined up in bumper-to-bumper rush-hour traffic on the lower deck nearly 15 feet below. Officials of the state agency didn't have any immediate explanation why the reinforcement didn't hold up. Caltrans reinforced the highway in 1977 as part of a $55 million statewide project, using steel cables to tie the decks of the freeway to the columns and prevent the structure from swaying in a quake.Caltrans spokesman Jim Drago in Sacramento declined to identify the engineering firm that did the reinforcement work. Liability in the bridge and road collapses will revolve around whether government took "reasonable care" to build and maintain the structures, says John Messina, a Tacoma, Wash., personal-injury attorney who specializes in highway design and maintenance cases.The firm brought in to strengthen the structure could be liable as well. The results of the quake certainly raise questions about whether reasonable care was taken, Mr. Messina says.Given the seismic history of the Bay Area, "it seems to me that a 6.9 earthquake is a foreseeable event." Caltrans' Mr. Drago defended the agency's work on the Nimitz Freeway. "The work was done properly," he said. "Basically, we had a severe earthquake of significant duration and it was just something the structure couldn't withstand." Ironically, Caltrans this year began working on a second round of seismic reinforcements of freeways around the state, this time wrapping freeway columns in "steel blankets" to reinforce them.But only bridges supported with single rows of columns were top priority, and the Nimitz Freeway, supported by double rows, was left out, Mr. Drago explained. "The reason is that the technology is such that we're not able to retrofit multi-column structures," he said. Charles McCoy in San Francisco and John R. Emshwiller in Los Angeles contributed to this article.
United Merchants & Manufacturers Inc. said its president, Uzi Ruskin, withdrew his proposal to acquire control of the New York textile and clothing company. Last month, Mr. Ruskin proposed, among other things, to buy 3.5 million shares, or 38%, for $4 apiece.Coupled with his current 1.2 million shares and 4% held by an associate, the stake would have given him control of 55% of the concern. In a Securities and Exchange Commission filing, Mr. Ruskin had said that holders of the other 45% of United Merchants would receive one-half share of a new preferred stock for each of their shares. A special committee of United Merchants directors said that in view of uncertainties regarding various legal and financial considerations, it couldn't recommend the plan to the full board. The company is exploring, with a major financial institution, the development of a plan to boost the value of the company for its holders, Mr. Ruskin said. In a separate SEC filing, Albert Safer, who holds 6.46% of United Merchants, said he retained investment bank Lazard Freres & Co. for advice as he evaluates the possibility of making a bid for the textile maker.On Friday, Mr. Safer, a Newark, N.J., textile businessman, signed a confidentiality agreement under which United Merchants would provide him with nonpublic information.
The White House is making sure nobody will accuse it of taking this crisis lightly. In the aftermath of the California earthquake, President Bush and his aides flew into a whirlwind of earthquake-related activity yesterday morning.Some of it was necessary to get federal help flowing to victims, but some seemed designed mostly to project an image of a White House in action. Mr. Bush and his aides were accused of responding too slowly after the Exxon Valdez oil tanker split open in Alaskan waters and Hurricane Hugo struck the Carolina coast, and they clearly don't want a repeat of those charges now.So the White House announced that Mr. Bush got his first earthquake briefing of the day at 6:30 a.m. from chief of staff John Sununu. By noon, Mr. Bush had taken two phone calls from Vice President Dan Quayle, who was in California; made a televised statement of concern; signed a disaster proclamation; received a written report from the Federal Emergency Management Agency; and visited FEMA headquarters. Mr. Bush himself essentially acknowledged that he and his aides were trying to head off criticism.On his FEMA visit, Mr. Bush said that he hoped there would be "less carping" about the emergency office's performance this time, adding that the agency "took a hit" for its reaction to Hurricane Hugo. The White House already is talking of Mr. Bush visiting the California earthquake site this weekend.He visited the Hugo devastation but not until after local leaders urged him to do so.
The lethal shudders that wracked the San Francisco Bay Area -- rated a 6.9 on the Richter scale -- didn't match the great earthquake of 1906, rated at 8.25. The difference of just 1.35 points on the scale, designed by Charles Richter of CalTech in the 1930s, means the older quake was "10 to 20 times stronger," says Lane Johnson, director of the University of California Berkeley Seismographic Station. The ground ruptured along a 20-to-30-mile stretch of the San Andreas Fault on Tuesday, Mr. Johnson added.In 1906, the rupture was 300 miles long and a couple feet wide. Though the epicenter of Tuesday's temblor was located 10 miles north of the town of Santa Cruz, and 50 miles south of San Francisco, its havoc hopscotched up the coast in seemingly random fashion.But the greatest damage was visited on buildings and roadways perched upon landfill, as were the Marina District of San Francisco and the Bay Bridge -- two areas of maximum devastation. "Landfill -- loose and unconsolidated earth -- may feel like rock but it behaves like liquid when you shake it," said Douglas Segar, professor of geosciences at San Francisco State University in a televised interview. "It liquefies in a patchwork quilt pattern.Our quake behaved much like the Mexico City earthquake, where great damage was miles from the epicenter." Mr. Johnson, of the Berkeley seismographic station, said: "Landfill can be done if it's properly compacted.You can drive piles on it and build on it." He cited the example of San Francisco's financial district, where many new glass towers survived almost unscathed. But the public policy issues raised by earthquake damage will be difficult to address, Mr. Johnson predicted. "The attention span of the public is short," he said. "We've known for years and years we've got lots of old {pre-1950s} unreinforced brick and masonry buildings." One old building, the Golden State Bank Building on Front Street, had its yellow brick facade sheared off by the shock of the quake, leaving a wedge of its third floor open to the air, while piles of dusty bricks tumbled to the street below narrowly missing rush-hour pedestrians and cars.Reinforcing such old building stock, Mr. Johnson said, "comes down to money.It's a danger.We know it's there.And sooner or later, we have to do something about it." The urgency is heightened because this week's earthquake -- while major and followed by hundreds of aftershocks -- didn't release enough pent-up energy tension along the faultlines to preclude more and bigger quakes soon. "The big one is still due," Mr. Johnson predicted in an interview. "The Bay Area has three very dangerous faults, the San Andreas, the Hayward fault and the Calaveras fault.It {Tuesday's quake} hasn't solved our problem.In California, this is the reality."
CALIFORNIA STRUGGLED with the aftermath of a Bay area earthquake. As aftershocks shook the San Francisco Bay area, rescuers searched through rubble for survivors of Tuesday's temblor, and residents picked their way through glass-strewn streets.In Oakland, hopes faded for finding any more survivors within the concrete and steel from the collapse of an interstate highway.At least 270 people were reported killed and 1,400 injured in the rush-hour tremor that caused billions of dollars of damage along 100 miles of the San Andreas fault.Bush declared the region a major disaster area and the military was mobilized to prevent looting. The baseball commissioner said the third game of the World Series between the Giants and the Athletics would be played Tuesday in Candlestick Park. HONECKER WAS OUSTED as leader of East Germany amid growing unrest. The 77-year-old official, who oversaw the building of the Berlin Wall, was removed during a meeting of the 163-member Communist Party Central Committee in East Berlin.Honecker, who was reported ill following gall-bladder surgery in August, said he was resigning for health reasons.He was succeeded by internal-security chief Egon Krenz, 52, a hard-liner who quickly ruled out any sharing of power with pro-democracy groups. Honecker's departure came after weeks of street protests and an exodus to the West of East Germans who had become disenchanted with his rule. HUNGARY ADOPTED constitutional changes to form a democratic system. At a nationally televised legislative session in Budapest, the Parliament overwhelmingly approved changes formally ending one-party domination in the country, regulating free elections by next summer and establishing the office of state president to replace a 21-member council.The country was renamed the Republic of Hungary.Like other Soviet bloc nations, it had been known as a "people's republic" since The voting for new laws followed dissolution of Hungary's Communist Party this month and its replacement by a Western-style Socialist Party. The space shuttle Atlantis blasted into orbit from Cape Canaveral, Fla., and its crew of five astronauts launched the nuclear-powered Galileo space probe on a flight to the planet Jupiter.The $1.4 billion robot spacecraft's exploratory mission is to take six years.The shuttle is slated to return Monday to California. South Korea's President Roh addressed a joint House-Senate meeting and urged patience over U.S. demands for the opening of Seoul's markets to more American goods, saying trade issues would be "resolved to mutual satisfaction." He also said tragic results could follow any "hint of weakening" of the U.S. defense commitment to Seoul. The Census Bureau reported that 13.1% of the U.S. population, or 31.9 million people, were living in poverty in 1988.Last year's figure was down from 13.4% in 1987 and marked the fifth consecutive annual decline in the poverty rate.Per capita income rose 1.7% to $13,120, but median family income fell 0.2%. The Bush administration accused Israeli Prime Minister Shamir of hindering peace efforts in the Mideast with "unhelpful" and disappointing statements.Shamir said Tuesday that he was prepared to risk a policy conflict with the U.S. over an Egyptian plan to hold direct Israeli-Palestinian talks, which the premier's Likud bloc opposes. Cuba was elected to the U.N. Security Council for the first time since its Castro-led revolution 30 years ago.The election was by secret ballot in the General Assembly.The U.S. didn't openly oppose Cuba's seating as the Latin American council delegate. Britain's Prime Minister Thatcher told a Commonwealth summit in Kuala Lumpur, Malaysia, that sanctions against South Africa were "utterly irresponsible," officials said.But other nations at the opening of the 49-nation meeting of Britain and its former colonies pressed for continued or stronger embargoes in an effort to end apartheid. Arab officials in Saudi Arabia said three-week-old talks by Lebanese lawmakers aimed at ending Lebanon's civil war appeared about to collapse.Christian legislators are insisting on a Syrian troop pullout from Lebanon before agreeing to political changes giving the nation's Moslems a greater role in Beirut's government. Colombia's judges launched a 72-hour strike to press security demands following Tuesday's murder of a High Court justice in Medellin.The country's narcotics traffickers claimed responsibility for the slaying.Most of the country's 20,000 judges and judicial employees joined the work stoppage.
Dow Chemical Co. said third-quarter net income slipped 6.8% from a record year-ago quarter.The decline broke a streak of 10 quarters in which Dow posted earnings increases. Dow's third-quarter net fell to $589 million, or $3.29 a share, from $632 million, or $3.36 a share, a year ago.Sales in the latest quarter rose 2% to $4.25 billion from $4.15 billion a year earlier. Dow closed at $94.625 a share, up 75 cents, in New York Stock Exchange composite trading. A spokeswoman said Dow is comfortable with Wall Street expectations that full-year earnings will total about $14.60 a share, compared with last year's record net of $2.4 billion, or $12.76 a share.But that signal on full-year profit casts doubt on whether Dow will improve on its year-ago fourth-quarter net of $3.44 a share, or $635 million.Dow would earn $14.85 a share for the year if it equaled that year-ago fourth-quarter performance. Dow officials were signaling that the company would earn less than $15 a share this year even before they announced in July a plan to acquire 67% of Marion Laboratories Inc.That acquisition could further dilute earnings per share this year, the company spokeswoman said.Dow hasn't said exactly what impact the Marion acquisition will have on 1989 earnings. Dow blamed the third-quarter earnings drop on several factors, including softer prices for polyethylene and other basic chemicals, a slower U.S. economy and a stronger dollar, which made Dow's exports from the U.S. more expensive to overseas customers.Another problem was a 7% increase in operating costs at a time when revenue was rising by only 2%. For the first nine months of the year, Dow earned $2.06 billion, or $11.41 a share, up 17% from $1.76 billion, or $9.32 a share, a year ago.Sales for the latest nine months rose 7.7% to $13.34 billion from $12.38 billion in the year-ago period.
Whether or not "great cases make bad-law" -- as Justice Holmes asserted -- who can doubt that when great confirmation hearings turn on the nominee's response to these great cases they make bad judicial history? Ethan Bronner's "Battle for Justice: How the Bork Nomination Shook America" (Norton, 399 pages, $22.50) is a spirited narrative of the nastiest of these hearings, done with journalistic verve, but with a flawed legal philosophy.While the book amply justifies its subtitle, the title itself is dubious.What shook America was not a battle for justice but for naked power, in which an army of judicial activists rolled over a judge they had demonized. In its basic structure and style the book is novelistic, with piquant character portrayal, hard-wire action and devious intrigue of the sort more likely to be encountered in a Washington docudrama than in a constitutional history. Mr. Bronner seems to believe that the hearings could have gone either way.I doubt that.Given Democratic frustration with the Reagan victories and Court appointments, the contingency plans in place, and Mr. Bork's paper trail of vulnerable writings, it was pretty clear that Judge Bork never stood much chance of being confirmed.As Mr. Bronner himself says, the smell of "raw meat" was in the air. Perhaps because they won, Mr. Bork's attackers come through more vividly than his defenders.Ralph Neas was the organizing genius, whipping a conglomerate of pressure groups into an irresistible attacking force.Harvard's Laurence Tribe was the constitutional heavy, laying out legal strategies for the senators and witnesses to follow.But it was Ted Kennedy who scored most effectively with his searing portrayal of "Robert Bork's America" -- the parade of imaginary horribles that would follow logically, he claimed, from the positions Mr. Bork had taken over the space of two decades.Sen. Kennedy, never mind his dubious credentials for the moral high ground, emoted brilliantly. I add two others.Republican Sen. Arlen Specter of Pennsylvania engaged the nominee in a verbal contest aimed at showing that Mr. Bork was willing to stretch the Constitution in one area (free speech) while remaining rigid in all the others.It achieved a good media play, and enabled Sen. Specter and others to vote against Mr. Bork out of "conscience." Further ammunition came from left legal theorist Ronald Dworkin, who in the New York Review of Books painted a picture of a constitutional zombie willfully reading his personal prejudices into the Constitution, particularly in the area of "original intent." The charge of being "outside the mainstream" of legal thought gravely undercut Mr. Bork's scholarly standing, leaving him bleeding on the platform. The nomination still might have been salvaged if a number of Democratic moderates in the South and Southwest had broken party lines.But Democratic Sen. Bennett Johnson of Louisiana reminded the little band that anti-Bork blacks and women could furnish the margin to punish them in their next Senate elections.Demographics converged with "mainstream" and demonizing to seal Robert Bork's fate. The upshot?Mr. Bork's opponents chose the battlefield, held it and kept it.Yet with the smooth confirmation of Anthony Kennedy, an "80 percenter" only slightly less supportive of judicial restraint than Mr. Bork, the Democrats may have won the battle but lost the war. Another upshot, however, was the chilling message the Bork hearings sent into the judicial culture from which the Supreme Court draws its talent.The word went forth to every law school that those with federal court ambitions must travel a safe constitutional journey, with no paper trail and no bite to their tongue or pen. Unfortunately, the author simply doesn't supply the philosophical frame to sustain his reportorial talents.He has too readily swallowed the case for the activist law school culture.Probing more deeply into the doctrine of "judicial restraint," he would have found a long history going back to the great decisions of Justice Holmes.He would discover it also in Alexander Bickel, a subtle constitutional scholar, Mr. Bork's closest friend at Yale, whose influence on the judge goes well beyond Mr. Bronner's reporting. Still, the long view of Robert Bork as constitutional thinker must be a spotty one.His strength lies in his majoritarian doctrine, which keeps the Court clear of transient group pressures and leaves most decisions in a democracy to elected legislatures and executives.Unfortunately, Mr. Bork failed to distinguish between such pressures and the emergence of great issues critical to a society that must be settled judicially if it is to cohere. The question of segregated schools, in Brown vs.Board of Education, was such an issue.In our time abortion has become another, best left to a line of Supreme Court decisions rather than to the chaos of 50 state legislatures.A reflective and growing consensus of Americans clearly wishes to apply the right to privacy in contraceptive matters (decided in the Griswold case) to abortion as well.One can understand Mr. Bork's fear that the new right to privacy will become intolerably stretched, though a Supreme Court composed of men and women with realism, guts and a sense of limits should be able to manage it.What is certain is that if Americans allow another happening like the degrading Bork confirmation circus, it will be at their peril. Mr. Lerner is a writer and historian living in New York.
Sotheby's Inc., the world's biggest auction house, is taking a huge Wall Street-style risk on the outcome of the sale of art from the estate of John T. Dorrance Jr., the Campbell Soup Co. heir. The Financial Services division has guaranteed the Dorrance family that it will receive a minimum of $100 million for the collection, regardless of what the bids for the art works total, people close to the transaction say.The collection, which includes two early Picassos, a van Gogh, a Monet, other paintings, furniture and porcelains, went on sale last night in the first of six auctions. What Sotheby's is doing closely resembles an underwriting by an investment bank.A corporation that wants to sell stock or bonds goes to a Wall Street firm, which purchases the securities outright, accepting the financial risk of finding buyers.If the investment bank can sell the securities at a higher price than it paid the issuer, it makes a profit. At the initial sale last night, for example -- the sale featuring the Impressionists masters -- bids totaled $116 million.That was slightly above Sotheby's presale estimate of $111 million.Normally, Sotheby's would have earned 20% of the total in commissions.Instead, people familiar with the transaction said, the auction house opted to forgo that percentage in order to obtain the collection and in exchange for taking a bigger chunk of proceeds exceeding $100 million. Art dealers say that while auction houses occasionally guarantee the seller of a highly desirable work of art a minimum price, a financial commitment of this size is unprecedented. Diana D. Brooks, president of Sotheby's North America division, vehemently denies it offered the Dorrance heirs a money-back guarantee, calling such reports "inaccurate." Buried in the glossy hardbound catalog for the sale, however, appears the statement, "Sotheby's has an interest in the property in this catalog." Explains a Sotheby's spokeswoman, the statement "means exactly what it says.We have some level of financial interest" in the collection. "We don't disclose specifics." Frank Mirabello, a lawyer for the Dorrance estate with the Philadelphia law firm of Morgan, Lewis & Bockius, declines to comment on the financial arrangements. Sotheby's made the $100 million guarantee to keep the Dorrance collection away from its archrival, auction house Christie's International PLC; Christie's has handled smaller sales for the Dorrance family over the years. When Christie's officials asked why the firm wasn't picked to sell the Dorrance collection, representatives of the Dorrance family "told us it was a question of financial considerations," said Michael Findlay, Christie's head of impressionist and modern paintings. Collectors who have made their money on Wall Street have become an increasingly important part of the art business and their money has helped fuel the art boom, but recently it appears Sotheby's has been returning the compliment. In November 1987, Sotheby's essentially offered a Wall Street-style "bridge loan" of about $27 million to Australian businessman Alan Bond to enable him to purchase Vincent van Gogh's "Irises" for $53.9 million.It was the highest bid in history for a work of art.But two weeks ago, Sotheby's said that it has the painting under lock and key because the loan had not been fully repaid. Sotheby's is offering such deals because it's an art sellers' market, at least where the best works are concerned, says Ralph Lerner, an attorney and author of the book "Art Law." "There seems to be a lot of art for sale, but there's more competition.The competition gives the seller the ability to cut a better deal," he says. The Dorrance family will still receive a substantial portion of the auction proceeds above $100 million, people familiar with the transaction said.But it's likely that Sotheby's will take a higher than usual commission, called an override, on the amount exceeding the guarantee. Sotheby's has been aggressively promoting the Dorrance sale.At a news conference last May announcing plans for the auction, Sotheby's estimated its value in excess of $100 million.More recently, Sotheby's has predicted the collection will fetch $140 million.That's the highest estimate for a single collection in auction history. The decision to put the entire collection on the block stunned many, since Mr. Dorrance had served as chairman of the Philadelphia Museum of Art, and it had been assumed many of the works would be donated to the institution. At last night's sale, 13 of 44 works that sold were purchased by Aska International Gallery, the art-acquisition unit of Aichi Financial, a Japanese conglomerate that owns 7.5% of Christie's. Meanwhile, Sotheby's guarantee is raising eyebrows in the art world. "The consumer has to throw out the idea that the auction house is a disinterested middleman," says New York art dealer David Tunick.While he adds that he has no problem with auction houses who sell works in which they have a financial interest, "It ought not to be hidden in some small print." In such situations, he says, the house "is going to put the best light on things." For example, an auction house's comments on the condition of a work of art that is up for sale should be looked at with "very open eyes," he says. "There's more and more of this cash-up-front going on at every level," says Bruce Miller, president of Art Funding Corp., an art lender.Dealers and auction houses "know if they don't lay out a half a million for this, another one will; it's that competitive." In January, two small New York galleries, the Coe Kerr Gallery and Beadleston Fine Arts, snatched a major art collection owned by the Askin family away from rival auction-house bidders with an up-front payment of about $25 million. A Christie's spokeswoman said that while the auction house sometimes waives its seller's commission to attract art works -- it still gets a commission from the buyer -- Christie's won't offer financial guarantees because "Christie's believes its primary role is as an auction house, and therefore as an agent {for buyer and seller}, not as a bank."
Egon Krenz, the man tapped yesterday to become East Germany's new leader, faces the same task that has fallen to neighboring socialist colleagues: reforming a country in crisis.But unlike the other new leaders in the East Bloc, Mr. Krenz will face an immediate threat to his nation's very existence: German reunification. Mr. Krenz, age 52, is known as an old-guard ironfist, one likely to continue the method of running a country that the Berlin Wall made famous.Even if he were to change his stripes and become another Milton Friedman, however, he would still stand a good chance of losing a country. Mr. Krenz almost certainly will be a younger version of Erich Honecker, his rigid predecessor as dictator.Mr. Krenz has followed much the same career path as Mr. Honecker: Both spent years overseeing the Freie Deutsche Jugend, the youth group that is the communist regime's principal tool for stamping young Germans into socialist citizens.More recently, Mr. Krenz has been in charge of East German security, and is the youngest member of the ruling Politburo. Faced with another Mr. Honecker, so many despairing East Germans are likely to flee that the two German peoples will get their reunification, de facto, on West German ground.But if East Germany's arthritic Politburo does loosen up enough to permit Mr. Krenz to make serious efforts at reform, he will face a challenge just as fundamental.Abandoning socialism means abandoning the East German state's reason for existence, and with it the justification for its watchdogs and its Wall.In this scenario it's hard to imagine that a pale imitation of the Federal Republic could avoid being pulled into some kind of tie -- economic, federal or stronger -- with West Germany. Mr. Krenz may need a bit of time to consolidate his empire, which would do a lot to promote Reunification Scenario One.Cartoonists in West Germany have already mocked the exodus by imagining an advertisement placed by Mr. Honecker: "Wanted: one people." The West German embassies in Prague, Budapest and Warsaw are continuing to find refugees at their gates. Of course East Germany, true to its tradition, could tighten its borders yet further.Two of the last gestures of the Honecker regime were to close the border to Czechoslovakia and install halogen lights in some spots along the frontier.But with world-wide opinion -- even, apparently in Moscow -- against East Germany, the country would have to turn itself into an Albania to clamp down further on refugees. There have been some reports that Mr. Krenz is moving to "soften" his reputation, notably rumors that it was he who kept East Germany's state police off protesters' backs at the country's dismal 40th anniversary celebrations earlier this month.But even if he effects a Hyde-to-Jekyll transformation, he will face a serious ideological crisis and Reunification Scenario Two. The problem is one that East Germany shares with other half-states, such as North Korea, but one it must shoulder alone in the East Bloc.When Poland moves to reform, it can at least lean on its past: However flawed and short-lived Joseph Pilsudski's interwar republic, it was a nonsocialist democracy.Czech reformers can recall the Wilsonian ideals of the same period in their country.Even the Soviet Union has Peter the Great to rediscover, should it choose to.But East Germany is merely "the land of truly existing socialism." Beyond that, it has to compete with West Germany for a claim to the German identity.Up to now, the main weapon of the "worker and peasant state" has been the ideology of socialism. With talk today of a second economic miracle in West Germany, East Germany no longer can content itself with being the economic star in a loser league.Without Moscow's military and party behind it, East Germany runs the risk of disintegrating.If it goes capitalist, and increases trade with West Germany, it will convert itself, willy-nilly, into an economic annex of the Federal Republic.There's a certain cruel logic at work here: It's particularly appropriate -- and tragic -- that the land that produced Karl Marx should prove socialism's failure in an experiment that uses its own people as controls. There may be forces that would delay this scenario.Ideologues are the last to surrender, and Germans are an ideological people.The protesters who greeted Mikhail Gorbachev at East Berlin's airport earlier this month weren't shouting "Go U.S.A" -- they were chanting "Gorby, Help Us." Ideologues on the other side of the border can also slow the process.Helmut Kohl's governing conservative coalition is proving admirably true to the West German constitution by making more than 500,000 people of German descent automatic citizens this year alone.But within the government and in the think tanks outside it, many West Germans maintain that they don't want immediate reunification.Politically, this currently is wisdom -- particularly given a nervous neighboring France.But it would be ironic if Germany's reunification, just like its division, eventually were the result of actions in centers of power other than Bonn and Berlin. In a statement that was as close as East Germany gets to practicing "glasnost", Otto Reinhold, an East German party theorist, actually acknowledged the reunification dilemma. "The main problem," Mr. Reinhold said in an East German radio interview monitored by Radio Free Europe in Munich, stems from the fact that "the GDR is different" from other East European states. "What kind of right to exist," he asked, "would a capitalist German Democratic Republic have alongside a capitalist Federal Republic?" That's a question East Germany can't answer easily, no matter what its new leader does. Miss Shlaes is editorial features editor of The Wall Street Journal/Europe.
INSURERS ARE FACING billions of dollars in damage claims from the California quake.But most businesses in the Bay area, including Silicon Valley, weren't greatly affected.Computer and software companies in the region are expecting virtually no long-term disruption in shipments.Also, investors quickly singled out stocks of companies expected to profit or suffer from the disaster. Leveraged buy-outs may be curbed by two rules in pending congressional legislation.The provisions, in deficit-reduction bills recently passed by the House and Senate, could raise the price tags of such deals by up to 10% and cool the takeover boom. A bill giving the Transportation Department the power to block airline leveraged buy-outs cleared a House panel.But Secretary Skinner said he would urge Bush to veto the bill. Housing starts sank 5.2% in September to a seven-year low.The drop, following a 6.2% decline in August, indicates the industry is still being hurt by the Fed's anti-inflation battle. IBM plans to buy back $1 billion of its common shares, a move likely to help the computer giant's battered stock.The buy-back, which wasn't a complete surprise, was announced after the stock market had closed. A capital-gains tax cut plan has been worked out by Senate Republicans.A similar proposal may be introduced soon by Senate Democrats. British Airways said it is seeking improved terms and a sharply lower price in any revised bid for United Air's parent.The British carrier also confirmed it isn't committed to going forward with any new bid.UAL's stock fell $6.25, to $191.75. Stock prices rose slightly as trading slowed, while bonds ended little changed despite a slumping dollar.The Dow Jones industrials gained 4.92, to 2643.65.But investors remain wary about stocks, partly because of turmoil in the junk-bond market. B.A.T Industries may delay part of its defensive restructuring plan, including the sale of its Saks Fifth Avenue and Marshall Field units.The British conglomerate cited the recent turmoil in financial markets. WCRS Group announced a major restructuring that largely removes it from the advertising business.The London-based concern will sell most of its ad unit to France's Eurocom. Commodore International expects to post its second consecutive quarterly loss because of weak personal computer sales in some markets. Jaguar hopes to reach a friendly accord with General Motors within a month that may involve producing a cheaper executive model. Sears is negotiating to refinance its Sears Tower for close to $850 million, sources said.The retailer was unable to find a buyer for the building. Whitbread of Britain put its spirits division up for sale, setting off a scramble among distillers.The business includes Beefeater gin. Markets -- Stocks: Volume 166,900,000 shares.Dow Jones industrials 2643.65, up 4.92; transportation 1247.87, off 6.40; utilities 213.97, off 0.57. Bonds: Shearson Lehman Hutton Treasury index 3371.36, off Commodities: Dow Jones futures index 129.90, up 0.18; spot index 130.36, up 0.39. Dollar: 141.45 yen, off 1.30; 1.8485 marks, off 0.0182.
The dollar finished softer yesterday, tilted lower by continued concern about the stock market. "We're trading with a very wary eye on Wall Street," said Trevor Woodland, chief corporate trader at Harris Trust & Savings Bank in New York. "No one is willing to place a firm bet that the stock market won't take another tumultuous ride." News of the major earthquake in California Tuesday triggered a round of dollar sales in early Asian trade, but most foreign-exchange dealers said they expect the impact of the quake on financial markets to be short-lived. Despite the dollar's lackluster performance, some foreign-exchange traders maintain that the U.S. unit remains relatively well bid. Harris Trust's Mr. Woodland noted that the unit continues to show resilience in the face of a barrage of "headline negatives" in recent weeks, including rate increases in Europe and Japan, aggressive central bank intervention, a 190-point plunge in New York stock prices, an unexpectedly poor U.S. trade report and action by the Federal Reserve to nudge U.S. rates lower. While Mr. Woodland doesn't predict a significant climb for the U.S. unit in light of recent moves in interest rates around the world, he noted that "its downside potential is surprisingly and -- for dollar bulls -- "impressively" limited. In late New York trading yesterday, the dollar was quoted at 1.8485 marks, down from 1.8667 marks late Tuesday, and at 141.45 yen, down from 142.75 yen late Tuesday.Sterling was quoted at $1.5920, up from $1.5753 late Tuesday. In Tokyo Thursday, the U.S. currency opened for trading at 140.97 yen, down from Wednesday's Tokyo close of 142.10 yen. Since Friday's dive in stock market prices, the Fed has injected reserves into the banking system in an effort to calm the markets and avert a repeat of 1987's stock market debacle. Some analysts note that after last week's stock market tailspin and Tuesday's California earthquake, it's hard to gauge where the central bank wants the key federal funds rate. They say that the earthquake, by preventing many banks from operating at full capacity, has given the Fed an additional reason to keep liquidity at a high level.The Fed did, in fact, execute $1.5 billion of liquidity-enhancing customer repurchase agreements, the third set of repurchase orders in three days.Analysts said the additional liquidity should tend to reduce the federal funds rate. For now, traders say the foreign exchange market is scrutinizing both federal funds and events on Wall Street.They note that the dollar remains extremely vulnerable to the slightest bad news from the stock exchange. Indeed, the U.S. unit edged lower as the Dow Jones Industrial Average dropped about 13 points in early trading.A slight recovery in the stock market gave currency traders confidence to push the dollar higher before the unit dropped back by day's end. Some dealers noted that nervousness over the recent sharp dive in stock prices could intensify following suggestions by Bank of Japan Governor Satoshi Sumita that appeared to advise Japanese investors to be very careful in investing in U.S. leveraged buy-outs. Dealers suggest that the only positive news on the horizon that could detract attention from equities transactions is September's U.S. consumer price data.The figures, due for release Friday, are expected to show an uptick in inflation to 4.8% from 4.7% in August. If the figures show a hefty rise in inflation, they could militate against easing by the Fed. On the Commodity Exchange in New York, gold for current delivery rose $1.30 to $368.70 an ounce in moderate trading.Estimated volume was three million ounces. In early trading in Hong Kong Thursday, gold was at $368.15 an ounce.
Crude prices spurted upward in brisk trading on the assumption that heavy earthquake damage occurred to San Francisco area refinery complexes, but the rise quickly fizzled when it became apparent that oil operations weren't severely curtailed. Trading on little specific information, market players overnight in Tokyo began bidding up oil prices.The rally spread into European markets, where traders were still betting that the earthquake disrupted the San Francisco area's large oil refining plants. By yesterday morning, much of the world was still unable to reach San Francisco by telephone.West Texas Intermediate was bid up more than 20 cents a barrel in many overseas markets.At the opening of the New York Mercantile Exchange, West Texas Intermediate for November delivery shot up 10 cents a barrel, to $20.85, still on the belief that the refineries were damaged. In the San Francisco area, roughly 800,000 barrels a day of crude, about a third of all the refining capacity in California, is processed daily, according to industry data.For more than the past year, even the rumor of a major West Coast refinery shutdown has been enough to spark a futures rally because the gasoline market is so tight. But yesterday, as the morning wore on, some major West Coast refinery operators -- including Chevron Corp., Exxon Corp. and the Shell Oil Co. unit of Royal Dutch/Shell Group -- said their refineries weren't damaged and were continuing to operate normally.Most said they shut down their petroleum pipeline operations as a precaution but didn't see any immediate damage.Gasoline terminals were also largely unhurt, they said. "It's hard to imagine how the markets were speculating, given that nobody could get through to San Francisco," said one amazed oil company executive. As the news spread that the refineries were intact, crude prices plunged, ending the day at $20.56 a barrel, down 19 cents.Gasoline for November delivery was off 1.26 cents a gallon to 54.58 cents.Heating oil finished at 60.6 cents, down 0.45 cent. "The market was basically acting on two contradictory forces," said Nauman Barakat of Shearson Lehman Hutton Inc. "One is the panic, the earthquake in San Francisco, which is positive." But once that factor was eliminated, traders took profits and focused on crude oil inventories, Mr. Barakat said.After the market closed Tuesday, the American Petroleum Institute had reported that crude stocks increased by 5.7 million barrels in the week ended Friday, which traders viewed as bearish. But some market players still think earthquake speculation could have more impact on the oil markets. "The problem is that while on the surface everything is all right, the question is," said Mr. Barakat, "was there any structural damage to the pipelines or anything else." In other commodity markets yesterday: COPPER: Futures prices eased on indications of improvement in the industry's labor situation.The December contract declined 1.85 cents a pound to $1.2645.According to one analyst, workers at the Cananea copper mine in Mexico, which hasn't been operating since it was declared bankrupt by the Mexican government in late August, are set to return to work.The analyst said it will take about two to three months before the mine begins to produce copper in significant quantities.He added that, while there hasn't been any official announcement as yet, the Highland Valley mine strike in British Columbia, which has lasted more than three months, is regarded as settled.Another analyst said the Cananea return to operation may not be as near as some expect. "There are still negotiations taking place on whether there will be a loss of jobs, which has been a critical issue all along," he said.Nevertheless, the increasing likelihood that these two major supply disruptions will be resolved weighed on the market, the analysts agreed.Both of these mines are normally major suppliers of copper to Japan, which has been buying copper on the world market.The first analyst said that the Japanese, as well as the Chinese, bought copper earlier in the week in London, but that this purchasing has since slackened as the supply situation, at least over the long term, appears to have improved. "The focus for some time has been on the copper supply, and good demand has been taken for granted," he said. "Now that the supply situation seems to be improving, it would be best for traders to switch their concentration to the demand side." He noted the Commerce Department report yesterday that housing starts in September dropped 5.2% from August to 1.26 million units on an annualized basis, the lowest level in seven years. "Along with these factors, other economic reports suggest a slowing of the economy, which could mean reduced copper usage," he said. SUGAR: Futures prices extended Tuesday's gains.The March delivery ended with an advance of 0.16 cent a pound to 14.27 cents, for a two-day gain of 0.3 cent.According to one dealer, Japan said it has only 40,000 tons of sugar remaining to be shipped to it this year by Cuba under current commitments.The announcement was made because of reports Tuesday that Cuba would delay shipments to Japan scheduled for later this year, into early next year.The dealer said the quantity mentioned in the Japanese announcement is so small that it's meaningless.One analyst said he thought the market continued to be supported to some degree by a delay in the Cuban sugar harvest caused by adverse weather.The dealer said India might be the real factor that is keeping futures prices firm.That country recently bought 200,000 tons of sugar and had been expected to seek a like quantity last week but didn't. "It's known they need the sugar, and the expectation that they will come in is apparently giving the market its principal support," the dealer said. LIVESTOCK AND MEATS: The Agriculture Department is expected to announce tomorrow that the number of cattle in the 13 major ranch states slipped 4% to 8.21 million on Oct. 1 compared with the level a year earlier, said Tom Morgan, president of Sterling Research Corp., Arlington Heights, Ill.Cattle prices have risen in recent weeks on speculation that the government's quarterly report will signal tighter supplies of beef.Among other things, the government is expected to report that the number of young cattle placed on feedlots during the quarter slipped 3%.Feedlots fatten cattle for slaughter, so a drop indicates that the production of beef will dip this winter.Indeed, some analysts expect the government to report that the movement of young cattle onto feedlots in the month of September in seven big ranch states dropped 8% compared with the level for September 1988.
A new drug to prevent the rejection of transplanted organs has been successfully used on more than 100 patients at the University of Pittsburgh, according to researchers. The drug, which is still in the experimental phase, hasn't been approved yet by the Food and Drug Admistration, and its long-term effects are unknown.But researchers say the drug, called FK-506, could revolutionize the transplantation field by reducing harmful side effects and by lowering rejection rates.Rejection has been the major obstacle in the approximately 30,000 organ transplants performed world-wide each year. Researchers began using the drug in February on patients who had received kidney, liver, heart and pancreas transplants.Only two of 111 transplants have been rejected. The drug, discovered in 1984, is metabolized from soil fungus found in Japan.The Pittsburgh patients are the first humans to be given the drug, which is made by Fujisawa Pharmaceutical Co. "We're shocked by it, because it's worked so fast," said Dr. Thomas E. Starzl, director of the University of Pittsburgh Transplantation Program, at a news conference here yesterday. "We consider it a life-saving drug, like one for AIDS," said Dr. John Fung, an immunologist at the University of Pittsburgh. Researchers say they believe FK-506 is 100 times more effective than the traditional anti-rejection drug, cyclosporine, made by Swiss pharmaceutical giant Sandoz Ltd.They are also encouraged by the relatively mild side effects of FK-506, compared with cyclosporine, which can cause renal failure, morbidity, nausea and other problems. "The side effects {of cyclosporine} have made the penalty for its success rather high," Dr. Starzl said. Dr. Fung said that FK-506 would not be available in the market for at least a year, and that the FDA approval process usually takes three years to five years.There are no firm plans to expand the experimental program beyond the University of Pittsburgh, whose hospital performs the most transplants in the world. Researchers couldn't estimate the cost of the drug when it reaches the market, but they said FK-506 will enable patients to cut hospital stays by 50% and reduce the number of blood tests used to monitor the dosage of cyclosporine and other drugs among transplant recipients. Dr. Starzl said the research has been largely financed by the National Institute of Health and by university funds, and that Fujisawa didn't give the hospital any grants.He said that the research team had no financial stake in the drug. "We've known for six months the effect of this drug, and our advice to our people has been not to buy the company's stock," Dr. Starzl said, adding that profiting from FK-506 wouldn't be ethical.
Economist David N. Laband's Sept. 27 editorial-page article, "In Hugo's Path, a Man-Made Disaster," decries the control of price gouging, swiftly ordered by South Carolina's governor after Hurricane Hugo.According to Mr. Laband, "screaming" for price controls occurs when income redistribution "threatens to hit home." To be sure, the threat has hit home down here. Yet in Mr. Laband's rehash of free-market logic, human greed and self-interest are the only permissible psychological reactions.Allowing uncontrolled prices for necessities would indeed shorten the lines at stores, as he contends.But not because resources are going to their most efficient use, leaving scarce goods "allocated to those buyers who place the highest value on them." Rather, lines would diminish because at higher prices many victims could not afford necessities such as food and medical supplies. It is inhumane to imply that a poor, unemployed woman cannot receive immediate relief for her family at fair prices because she does not have as much to protect as a rich family.Moreover, essential relief supplies such as ice must be distributed throughout the population because of potential health problems from spoiled food and possible outbreak of disease.Such spillover effects give the state a right to intervene in the marketplace and temporarily coordinate allocation of resources. Fortunately, volunteers and charities are not motivated by self-interest, but by altruism.Why should they have to co-exist with opportunists rushing in to turn a quick profit?These latter-day scalawags would be ill-advised to take advantage of the situation, if they ever expect to face the people of South Carolina again.The government is actually protecting avaricious ice-baggers and other profiteers who cannot see beyond their own short-term gain. South Carolina deserves an A for its quick and timely relief efforts.Mr. Laband, meanwhile, gets an A for his rote recital of economic-efficiency arguments.Give him an F for his failure to understand the ethics of economic equity. Signed by 25 students Of Douglas Woodward's Honors Economics Class, University of South Carolina Columbia, S.C. Mr. Laband gives us an idea why economists' predictions are usually wrong.They set up absurd situations, detached from reality, and then try to reason from them.I'm surprised he didn't advocate letting people loot, since that behavior can also be foreseen in a disaster and "every individual has an incentive to alter the distribution of income in his favor." Price controls were "so fervently embraced by Charleston" because price gouging in this situation is equivalent to looting. Suzanne Foster Galax, Va. Mr. Laband described one of the more insidious threats we face when dealing with disasters such as Hugo -- anti-profiteering ordinances such as that by the Charleston City Council as it thrashed about trying to Do Something. Since he concentrated on the economic folly of such ordinances, he didn't mention certain other of their effects.They divert law-enforcement resources at a time they are most needed for protecting lives and property.Also, rather than increase supplies, they reduce them and encourage hoarding.And they, or even the prospect of them, discourage disaster preparedness in the form of speculative advance stocking of supplies by merchants. N. Joseph Potts Miami Lakes, Fla. Would Mr. Laband also suggest that the Red Cross, Salvation Army, military units, police, fire departments, rescue units and individual citizens cease their efforts to assist Hugo's victims because they interfere with his concept of the "free market"? What about those caring people all over the country who are donating food, water and other necessities of life to these people who could be any of us?Should they, too, stop "messing with" his free market?Maybe he thinks they should also sell to the highest bidder. And what about insurance firms?Should they be required to pay claims based on exorbitant costs for labor and materials?Mr. Laband should beware, since he lives in South Carolina.In a free market, his insurance rates can be raised to recover insurance-company losses. John W. Rush Marietta, Ga. Having been through several tornadoes and hurricanes, I have a different perspective.Mine comes from seeing thriving communities devastated -- but only temporarily.Their recovery came surprisingly fast, and always with the help of neighbors.The shock of seeing homes destroyed and city services disrupted may cause some to confuse priorities such as the true economic value of a freezer full of meat. In Texas after Hurricane Alicia, major grocery chains used their truck fleets to ship essential goods to Houston, no gouging, just good will. Tom Mongan Victoria, Texas We here in the affected areas were dazzled by Mr. Laband's analysis of time values and his comparisons of effectiveness concerning research and development.His theoretical approach and its publication in this venerable paper are no doubt a noteworthy accomplishment for him.Too bad theory fails in practice. We consumers tend to have long memories.The businesses subscribing to Mr. Laband's effective price system will be remembered when normalcy returns.Perhaps, considering the value of our time, we will be unable to patronize their establishments in the post-Hugo era. I have a question for Mr. Laband: How do I explain to the single mother of three standing in line next to me for the past three hours that the two bags of ice she needs to keep her children's food edible will take her last $20?I'm sure she'll appreciate what an efficient reaction to her problems the price system has created. Chris Edgar Myrtle Beach, S.C.
This seems to be the season for revivals in Chicago.Though the Cubs' championship season ended with the National League playoffs, a revival of the Organic Theater's production of "Bleacher Bums," a play in nine innings set in the Wrigley Field bleachers, continues within spitting distance of the ballpark. Revivals of a different sort also are being offered by our two major theater troupes, the Goodman and Steppenwolf.Each is more problematic than an unexpected divisional baseball championship, but both help explain why Chicago remains a vital center of this country's regional theater movement. The Goodman is offering a modernized version of Moliere's "The Misanthrope" through Nov. 4.The original is a comedy about Alceste, a man who sees falseness and vanity in everyone except himself.He is the jealous friend of Philinte, and the jealous lover of Celimene.The play is filled with intrigue, dishonesty and injustice. Twenty-five years ago the poet Richard Wilbur modernized this 17th-century comedy merely by avoiding "the zounds sort of thing," as he wrote in his introduction.Otherwise, the scene remained Celimene's house in 1666.Assuming modern audiences readily understand that Moliere's social indictment covers their world as well as 17th-century Paris, Mr. Wilbur concentrated his formidable artistry on rendering the Alexandrine French verse into sprightly and theatrical English iambic pentameter.The Wilbur translation is remarkable -- well worth a read and even better seen in the theater if you ever have the opportunity. But if you happen to be coming to Chicago in the next few weeks, don't fail to have a look at Robert Falls's "The Misanthrope" at the Goodman.If Mr. Wilbur's translation is a finely ground lens through which we see the pettiness and corruption of 17th-century Paris, Mr. Falls's production is a mirror in which we see ourselves. Mr. Falls, the Goodman's artistic director, took a recent adaptation by Neil Bartlett and significantly adapted it.Mr. Bartlett had slimmed Moliere's cast of characters to six and set them in the London media world of Thatcherite Britain.Mr. Falls transfers the setting to Hollywood, and transforms the characters into what passes for aristocracy there -- agents, producers, actors, writers and sycophants. It works.Mr. Bartlett managed to more or less maintain Moliere's Alexandrine verse form, 12 syllable lines in rhyming couplets.Mr. Falls kept the form, but Americanized it with Mr. Bartlett's further help.With a splendid cast led by David Darlow as Alceste, Christina Haag as Celimene and, especially, William Brown as a Philinte who plays the Hollywood game but harbors authentic values and feelings, the Goodman production barrels through an all-night Hollywood party with exuberance and wit.If this version, with its references to Steven Spielberg, Spago and "thirtysomething" attracts younger audiences who might stay away from the classical version, then Messrs.Bartlett and Falls are justified in abandoning Mr. Wilbur. A 300-year-old play may be easier to revive than one merely 25.The Steppenwolf Theatre Company, back from a critical and box office success in London with its adaptation of Steinbeck's "The Grapes of Wrath," opened the new season with Harold Pinter's "The Homecoming," first produced by the Royal Shakespeare Company in 1965. Back then, Mr. Pinter was not only the angry young British playwright, but also the first to use silences and sentence fragments and menacing stares, almost to the exclusion of what we previously understood to be theatrical dialogue.When "The Homecoming" was first produced on this side of the Atlantic, actors and directors were reverential.Silences were lengthy -- nobody moved or gestured.Nobody smiled onstage, and nobody in the audience was encouraged to laugh.This kind of theater was new to us.Also, it was not a funny time over here, what with the Vietnam War, the '68 Democratic convention, assassinations and riots. But under Jerry Perry's direction the current Steppenwolf production, scheduled to play through Nov. 19, breaks through the flat and boring ritual that "The Homecoming" had become.Led by a near-perfect performance by Alan Wilder as Max, the father, the play is at once an appalling and hilarious dissection of a family's rage, bitterness, fear and isolation.Encouraged by Mr. Wilder's sly grins, embarrassed grimaces and sputtering rages, the audience gets the joke and begins to laugh before the end of the first act. Three of the family members, Max and his two sons, Lenny and Joey, live off the flesh: Max is a retired butcher, Lenny a pimp and Joey an aspiring boxer.Sam, Max's brother, has escaped the flesh by working as a liveried chauffeur and never seeking a wife.Teddy, the eldest of Max's sons, has made the most dramatic escape by becoming a professor of philosophy at an American university. Though it's clearly Max's wife who held sway here until her death, now none of the other male residents of this misbegotten household can challenge Max.The play concerns Teddy's homecoming with his wife of six years, Ruth.Curiously, Randall Arney as Teddy seems the only cast member unable to get beyond the zombie approach to a Pinter character.As Ruth, Moira Harris, a large and beautiful woman who may be our next Colleen Dewhurst, begins almost immediately to overpower each of the men.In the end, Teddy returns alone to America, leaving Ruth in Max's chair.We have seen her develop within a few hours from a shy and unknown in-law to a goddess of the flesh who will replace the dead mother, and then some. While Steppenwolf was in London with "The Grapes of Wrath," Bruce Sagan, the president of its board of directors, quietly returned to Chicago to buy a piece of real estate in the city's rapidly reviving North Halsted Street restaurant and theater district.Within a year he hopes Steppenwolf will move into a new 500-seat theater on that site.The troupe currently performs in a converted dairy that seats 211 and provides little capacity for staging anything beyond a simple one-set production. "If we wanted to stage `Death of a Salesman, ' " Mr. Sagan says, "Willie Loman would have to live in a ranch house because of the low ceiling." Steppenwolf needs the extra seats even more than the fly space.It's currently forced to turn away many potential subscribers beyond the 13,000 who can be accommodated in its present digs.For all the attention that Chicago theater has received during the past decade, not one new building has been devoted to it.Mr. Sagan, a former publisher and real estate developer, has put together an $8 million financial package that includes approximately $4 million of tax exempt bonds issued by the State of Illinois (the first time that a state has used its educational facilities authority to support construction of a theater), and approximately $1 million in grants from the National Endowment for the Arts, the MacArthur Foundation, and a few other deep pockets.The rest, he is confident, can be raised.His board members alone have pledged $800,000 and he is just beginning to massage local foundations and corporations. Mr. Sagan compares the importance of Steppenwolf with Orson Welles's Mercury Theater in the '30s.But Welles's theater company turned out to have a brief -- one might say a mercurial -- existence.What will Mr. Sagan do with his new theater building if the allure of Hollywood and Broadway proves too much for such Steppenwolf stalwarts as John Malkovich ("Dangerous Liaisons"), Joan Allen ("The Heidi Chronicles"), and Glenne Headly ("Lonesome Dove"), and the company crumbles? "That's OK," Mr. Sagan replies. "Let this building be Steppenwolf's legacy to Chicago theater." Mr. Henning is a Chicago-based law firm management consultant and a writer.
After enduring three days of heavy selling, the beleaguered Nasdaq over-the-counter market finally rebounded, rising sharply in hearty trading. The Nasdaq Composite Index jumped 0.7%, or 3.35, to 463.28.It rose more than the New York Stock Exchange Composite, which improved 0.2%.Among bigger stocks, the Nasdaq 100 Index rose 1%, or 4.56, to 453.05, while the Dow Jones Industrial Average was up 0.2%. Richard Bruno, head of OTC trading at PaineWebber, said the OTC market has a habit of lagging big moves on the New York Stock Exchange.While the industrial average rallied on Monday following last Friday's collapse, the OTC market, which didn't suffer too badly during the correction, tumbled. "Our market got hit a lot harder on Monday than the listed market," Mr. Bruno said. "We're just recovering and getting back to business as usual.I'm encouraged by the action." The trading pace was busy, with 4,343 issues and 147.6 million shares changing hands.Advancing issues beat declining ones, 1,271 to 811. Much of the jockeying by OTC traders and investors centered on shares of companies that might be financially affected by damage from the devastating earthquake in northern California.As investors speculated about the long- and short-term implications, shares of a number of companies that might either profit or face problems because of the disaster were actively traded.Heading the list: insurance, construction and technology companies located in the San Francisco Bay Area. Insurance-related stocks were mixed as investors tried to figure out how to assess the impact of the property damage and deaths on those concerns.Traders said property-casualty companies with the heaviest exposure in the San Francisco area include the OTC's Safeco and Ohio Casualty. Frank Gilmartin, a trader who follows insurance stocks for Fox-Pitt Kelton, said his strategy was to sell early. Then, if the stocks fell sharply, he planned to begin buying them aggressively, on the theory that the companies that insure against property damage and accidents will have to raise rates eventually to compensate for the claims they will pay to earthquake victims and victims of last month's Hurricane Hugo.As well, reinsurers and insurance brokerage companies will have improved profits. Many investors expected damage from the hurricane to be the catalyst for higher rates in the industry, which has been depressed because of low rates arising from intense competition.But Mr. Gilmartin said the hurricane damage wasn't extensive enough to prompt premium boosts. "The companies just gave back what they had reserved for," he said. "Now, they'll have to increase their coffers to protect for the future and that means rate increases." Overall OTC insurance issues were mixed.Safeco fell 1/8 to 32 5/8 on 462,900 shares.Ohio Casualty rose 1/4 to 51 3/4 on 137,200 shares.St. Paul Cos. jumped 2 to 59 3/4 on 517,500 shares.Academy Insurance fell 1/32 to 1 3/16; but volume totaled 1.2 million shares.The Nasdaq Insurance Index jumped 4.15 to 529.32 on the day, while the barometer of big insurance and banking issues climbed 1.72 to 455.29. Investors expect SunGard Data Systems, a company that provides disaster recovery services for computer-dependent businesses, to profit from the earthquake.SunGard's stock rose 1 3/4 to 21 1/4 on 194,000 shares. Shares of Kasler, a California road and bridge builder, were heavily traded, jumping 2 1/8 to 9 7/8 on 1.3 million shares. Guy F. Atkinson added 7/8 to 16 7/8, on 335,700 shares.The company, based in San Francisco, provides industrial infrastructure engineering and construction services. Traders were initially nervous about shares of companies, including many leading OTC computer companies, such as Apple Computer with offices in the vicinity of the area damaged by the quake.But most of those stocks fared well.Apple Computer gained 1 to 48 1/4; Ashton-Tate rose 3/8 to 10 3/8.Intel also added 3/8 to 33 7/8.But Sun Microsystems slipped 1/4 to 17 1/4.Shares of biotechnology companies in the area were also higher.Chiron was up 1/2 to 27 and Cetus gained 1/2 to 16 3/8. The stocks of computer-related companies located outside California improved, too.Microsoft advanced 1 7/8 to 80 1/2 and Lotus Development added 1 1/4 to 32 1/2. In other earthquake-related news, Hambrecht & Quist's OTC market makers were excused from trading yesterday and its positions were frozen for the day by the National Association of Securities Dealers.Power couldn't be restored at the company's San Francisco headquarters to allow trading yesterday morning.In New York, Roger Killion, a Hambrecht executive vice president, said he expects OTC trading at the company to resume this morning, either in New York or in San Francisco. In other trading, Medco Containment Services gained 7/8 to 15 on 1.9 million shares after reporting a loss for the first quarter, which ended Sept. 30.The company earned $6.6 million in the year-earlier quarter. Jaguar's American depositary receipts added 3/8 to 10 3/4 on volume of 1.1 million.Analysts in London believe investors, despite their stampede to dump takeover stocks, should hold on tight to their Jaguar shares, this newspaper's Heard on the Street column said yesterday. Amgen rose 1 1/2 to 50 3/4 in heavy trading.Analysts figure Amgen could benefit as a result of troubles facing its competitor, Genetics Institute, over the anti-anemia drug EPO. Genetics Institute disclosed recently that it is embroiled in a dispute with Boehringer Mannheim, which distributes the drug, regarding the usability of some batches.
Within minutes after the stock market closed Friday, I called Sen. Bill Bradley of New Jersey, advised him that the Dow Jones Industrial Average had declined by 190 points late that afternoon, and cheerfully informed him that he and his fellow Democrats were to blame. They had dealt a major setback that afternoon to President Bush's capital-gains tax cut proposal, which had seemed in the bag after it passed the House overwhelmingly earlier in the month.Sen. Bradley has it in his mind that such a tax cut would unravel the tax reform he helped engineer in 1986.But he knows that as many as 20 of his fellow Democrats are disposed to vote for the cut, popular among their constituents. As a result, he took the lead in arguing that the cut should be blocked on procedural grounds.He helped persuade 10 of these senators to support him and Majority Leader George Mitchell on these grounds.The budget reconciliation had to be dealt with by the Oct. 15 deadline, and these Senate Democrats refused to agree to allow a vote to append capital gains to the budget bill, knowing it would pass. Denied a vote on substance, the GOP leadership in the Senate on Friday morning was confronted with a hard choice.It could throw in the towel and hope to win on capital gains late this month, or it could follow the White House strategy, to veto reconciliation unless capital gains was appended. The U.S. Chamber of Commerce has been in the forefront in supporting the Bush proposal.It endorsed the White House strategy, believing it to be the surest way to victory.At noon Friday, a senior White House official advised Richard Rahn, the Chamber's chief economist, that the White House would not agree to a budget reconciliation bill unless it had firm assurances that a vote on substance would be permitted in the Senate. Two hours later, the first word emerged on Capitol Hill that the administration had agreed to reconciliation with no such assurances from Senate Democrats.Mr. Rahn was shocked, telephoning the office of Richard Darman, director of the Office of Management and Budget, and the administration's chief strategist on this issue.He left a message accusing Mr. Darman of selling out.It was the Senate Republicans, though, who had edged away from the veto strategy. The stock market reacted as Mr. Rahn did, crumbling as it absorbed the news that Mr. Darman's strategy had been abandoned.The stock market, after all, represents the collective expectations about the value of the future income stream of the nation's capital stock, discounted to present value. Why should it be so surprising that a 30% cut in the capital-gains tax would have such an enormous impact on the value of the nation's capital stock?The total value of privately held assets is easily more than $15 trillion.The value traded on the exchanges is close to $3 trillion. If the tax on any gain to those assets was doubled, wouldn't the value fall to the owners of the assets?Isn't it reasonable to assume that the asset you own would be worth more if the government suddenly announced that if you sold it, you would be able to keep 30% more of its gain than you previously believed?Indeed, the stock market's steady advance this year tracked with President Bush's success in advancing his capital-gains proposal.A 30% cut in this year's capital gains alone amounts to roughly $50 billion.We're talking real money. When Richard Rahn advised the financial press that the market crash was caused by the setback to capital gains, he was generally ignored and mildly ridiculed.Instead, the press corps readily accepted the notion that a snag in the takeover financing of United Airlines instantly knocked 7% off the value of the nation's capital stock and caused convulsions around the world.Mr. Rahn was pointing out an elephant rumbling through Wall Street while conventional wisdom had fastened on the UAL flea. Why is this happening?For one thing, quite a number of the leading spokesmen on Wall Street are not portfolio managers, who understand that the value of assets is greatly affected by how government taxes those assets.They are economists and financial reporters who sympathize with the view that a capital-gains tax cut benefits the rich.Yet they somehow think that Wall Street is indifferent to losing the tax cut that seemed so close Friday morning and is now problematic.The market rebound Monday followed weekend assurances from Mr. Darman that the administration has other plans to win the cut, which is alive and well. Sen. Bradley's argument is that a capital-gains tax cut would be bad for the economy in the longer run.It would inevitably lead to an increase in marginal income-tax rates in 1990, he thinks, when the White House is forced to ask for higher taxes to meet budget targets.That is, with capital gains cut, the glue of the 1986 accord will be gone, and political realities will push up income-tax rates.The counter-argument, which he has heard, is that if he and his fellow Democrats are successful in killing the president's proposal, the revenue gap will open up tremendously in 1990 because of the weakened economy.In this atmosphere, there would be no serious consideration of tax increases.If Sen. Bradley would permit a vote on capital gains, though, it would pass, Christmas retail sales would be strong instead of burdened by a falling stock market, the 1990 economy would be robust, and the revenue gains at every level of government, including New Jersey's, would be surprisingly high.No tax increases would be necessary. The struggle over capital gains is the most important game in town.In Washington and on Wall Street. Mr. Wanniski is president of Polyconomics Inc., of Morristown, N.J.
Mutual-fund czar John M. Templeton has put his money where his moniker is, pouring $1.4 million into one of his own funds, the Templeton Value Fund. Mr. Templeton owns shares in several of the 33 funds that his firm manages, but only in three of the 10 available to U.S. investors, according to filings with the Securities and Exchange Commission.Those are Templeton Global Income, Templeton Emerging Markets and now the Value Fund. Why did he add the Value Fund to the list?Because he's very bullish on the emerging growth stocks that make up the fund's portfolio, Mr. Templeton said from his Bahamas hideaway. "Emerging growth stocks haven't been popular in America for years, they've been neglected," he said, and their prices often trail the market as a whole. Mr. Templeton's 147,300-share purchase in the closed-end fund came before the U.S. stock market's plunge last Friday, but still proved slightly profitable. Mr. Templeton bought his shares in several separate purchases between Aug. 30 and Sept. 28, according to reports with the SEC.He bought at share prices ranging from $9.375 to $9.625.The fund closed yesterday in New York Stock Exchange composite trading at $9.625, up 12.5 cents. In addition, Mr. Templeton received a dividend of 22 cents a share Oct. 5. RIVER RUN: A senior vice president and a vice president at James River Corp. sold the majority of their shares in the Richmond, Va., paper-products concern in late August and early September, reports filed with the SEC show. The executives, who got $30.88 a share for the stock, showed good timing.In Big Board trading yesterday, James River shares closed at $28.375, down 12.5 cents. On Sept. 6, Robert Joseph Sherry, the firm's senior vice president of employee and public relations, sold 4,000 shares, leaving himself with 1,062 shares of James River.Including a sale of stock last February, Mr. Sherry has sold 88% of his stake in the company this year, according to SEC filings.Mr. Sherry declined to comment when asked about the sales. James A. Toney, a vice president, sold 1,500 shares Aug. 28.He still has 1,143 shares, according to SEC files.Mr. Toney also declined to comment. INTEREST-RATE PLAYER: Cincinnati Gas & Electric Co. tops the companies portion of the accompanying Insider Trading table this week.Three of the utility's directors have at least doubled their holdings in the company since July. The largest purchase was by Dudley Taft, who bought 4,400 shares for $125,075.Mr. Taft, who is also president of Taft Broadcasting Co., said he bought the shares because he keeps a utility account at the brokerage firm of Salomon Brothers Inc., which had recommended the stock as a good buy.Salomon Brothers confirmed that it has had a buy recommendation on the stock for about two years. "Cincinnati Gas & Electric is in good shape," Mr. Taft said, and utilities are "a good investment because interest rates are going down." Mr. Taft paid an average of $28.43 for each share.The stock closed yesterday on the Big Board at $28.75, down 12.5 cents. The two other directors bought 1,000 and 1,900 shares, respectively, at prices between $28.15 a share and $28.75 a share, filings with the SEC show.The two couldn't be reached for comment.A company spokesman said he couldn't explain their sudden bullishness. "I don't know of any news or anything unusual happening here," said Bruce Stoecklin, director of media services. Peter Pae in Pittsburgh contributed to this article.
In one of the first indoor air-pollution cases to go to trial, a state-court jury decided in favor of the defendant, Burlington Industries Inc. The verdict, reached late last week in Cincinnati, may end an eight-year legal battle for the Greensboro, N.C., carpet maker. Glenn and Sharon Beebe of Cincinnati had sued the com- pany in 1981 after installing Burlington carpets in their office.The Beebes alleged that toxic fumes from the carpets made them sick.As a result of their illness, the Beebes said, they lost $1.8 million in wages and earnings.In addition, they said that months of exposure to the chemicals has left them sensitive to a wide range of commonly used substances. The case had been closely watched because attorneys anticipate increasing litigation nationally over the so-called sick-building syndrome.Plaintiffs' lawyers say that buildings become "sick" when inadequate fresh air and poor ventilation systems lead pollutants to build up inside. Anthony J. Iaciofano, a lawyer for Burlington, said the company believes the Beebes' symptoms were not related to the carpeting.He said that ill effects from new carpets manifest themselves immediately but that the Beebes' symptoms appeared months later. Catherine Adams, the Beebes' lawyer, said the verdict would not discourage other plaintiffs from filing such suits.Scientists are only beginning to understand what causes sick-building syndrome and much of that research was unavailable when the Beebes filed the case, she said. The Beebes now believe that a prime culprit for their injuries was fumes from an adhesive used in the carpeting.But the Beebes didn't come to that conclusion until time limits had elapsed for adding the adhesives maker as a defendant in the case, Ms. Adams said. The Beebes have not yet decided whether to appeal. TIMES SQUARE development opponents are dealt setback. The Appellate Division of New York State Supreme Court dismissed six lawsuits attempting to block a $2.5 billion project planned for 42nd Street in Manhattan. Opponents of the project had claimed that the city and the state of New York, which are co-sponsoring the project, had failed to adhere to environmental guidelines. All but two of the 40 or so lawsuits that have been filed since the project's 1984 approval have been dismissed before the trial stage.The two that remain haven't yet reached the pre-trial fact-finding stage. State officials said the court's ruling clears the way for proceedings to condemn buildings in the area. "This project is ready to move," said State Urban Development Corp. Chairman Vincent Tese. But developers of four planned office towers cautioned that obstacles still remain.As part of the agreement with the state, the developers -- a partnership of Park Tower Realty and Prudential Insurance Co. of America -- said they would not proceed with condemnation proceedings while there was "significant litigation" pending. Park Tower General Counsel Matthew Mayer said the development team will have to review two additional lawsuits before putting up a $155 million letter of credit to cover condemnation costs.Also, he said, the partnership is waiting to see whether the appellate division's ruling will be appealed. The plan, which has been plagued with delays and business-related setbacks, seeks to transform the area from a seedy thoroughfare to a more wholesome office and theater district. State and city officials are still negotiating with developers to renovate historic theaters and build and operate a merchandise mart and hotel. FEDERAL JUDGE EXPANDS role of U.S. courts in extradition decisions. U.S. District Judge Jack B. Weinstein of Brooklyn, N.Y., ruled that a man implicated in an attack on an Israeli passenger bus in 1986 can be extradited to Israel for trial. A magistrate had initially refused the request, ruling that the attack had been a political act for which the man, Mahmoud El-Abed Ahmad, would be exempt from extradition.However, Judge Weinstein wrote in his opinion late last month that terrorism and acts of war against civilians cannot be defined as political acts. Judge Weinstein also ruled that judges must consider prior to extradition whether the defendant will be treated fairly in a foreign court.To do so, the judge said, the U.S. courts must review the judicial process in the foreign country independently of the State Department's assessment.He said that in this case he concurred with the State Department's decision that Mr. Ahmad should be extradited.Mr. Ahmad's lawyer said he would appeal. Lawyers close to the case said they believed the ruling was unprecedented. "Up until now the courts have said it is not their role to supervise the foreign country's courts," said Jacques Semmelman, the assistant U.S. attorney on the case. FORMER CANADIAN AMBASSADOR to the U.S. Allan E. Gotlieb has joined the Philadelphia law firm of Pepper, Hamilton & Scheetz as a consultant.Mr. Gotlieb, who serves as a consultant to Stikeman, Elliott, one of Canada's biggest law firms, is advising Pepper Hamilton's Washington office on legal matters related to Canadian-U.S. investment, corporate finance and international transactions. QUOTABLE: In a speech prepared for delivery in New York yesterday, retired Justice Lewis Powell contested the notion that the last Supreme Court term marked a turn toward conservatism: "Commentators who agreed on little else unanimously proclaimed a `shift in direction' on the court. . . . I take these pronouncements, like many that have preceded them in past years, with a grain of salt.In an era of `sound bites' and instant opinion polls it is dangerous to apply broad labels to a single term."
(During its centennial year, The Wall Street Journal will report events of the past century that stand as milestones of American business history.) THE YOM KIPPUR WAR, WHEN EGYPT CRASHED into Israel on Oct. 6, 1973, the holiest day in the Jewish calendar, lasted barely a month.But one far-afield effect is still with us. The Arab states, always bitterly resentful of U.S. support toward Israel, realized they held an irresistable weapon -- oil.Early in October, six Arab nations in the Persian Gulf jacked up prices sharply.On Oct. 22, led by Saudi Arabia, the world's largest exporter, they embargoed oil shipments to the U.S. and to the Netherlands, Israel's staunchest European ally. The timing was perfect.The Arabs had tried embargos before.In 1956, when Britain, France and Israel invaded Egypt to seize the Suez Canal, Arab producers cut off supplies to Europe.Texas simply pumped harder. U.S. oil supplies, however, had peaked in 1970 and 1971 and by 1973 were declining.Imports, then six million barrels a day, came primarily from Venezuela and Canada.But Middle East supplies were growing in importance.By 1973, the U.S. was bringing in two million barrels of Arab oil a day, more than 10% of the 17.3 million barrels consumed daily. Politics and economics conspired.Japan and Europe, far more dependent on Mideast oil than the U.S., wouldn't offend the Arabs or trade off their precious supplies.The U.S. did manage to supply the Dutch with oil by relabeling supplies; once oil is shipped, no one can tell its source. But car-happy Americans panicked, and so did the U.S. and other oil-consuming governments. "Shortage" and "crisis" became buzz words, although neither really applied.The spot dislocations that showed up were largely the result of confusion (much of it in Washington), though that was cold comfort for drivers waiting in mile-long lines at the gas pumps. The embargo lasted only six months, but the price hikes became a fact of life.What the Arabs started, inflation finished.Once and for all, $5-a-barrel crude oil and 35-cents-a-gallon gasoline were history.
Times may be tough on Wall Street for some, but a few bosses are making as much as ever -- or more. At Bear Stearns Cos., for example, the 15 executive officers led by Chairman Alan "Ace" Greenberg got a pay increase to $35.9 million for the 14-month period ended June 30 from $22.9 million for the 12 months ended April 30, 1988.The figures don't include substantial dividends on holdings of Bear Stearns stock.Mr. Greenberg himself was paid $4.5 million, before an estimated $1.5 million in dividends, up from $2.4 million the year before. The increase is noted in the brokerage firm's latest proxy statement filed with the Securities and Exchange Commission.Because it operates on a fiscal year, Bear Stearns's yearly filings are available much earlier than those of other firms.The latest period includes 14 months instead of 12 because Bear Stearns changed to a fiscal year ending in June instead of April. Meanwhile, Bear Stearns's 650 stock and bond salesmen saw thinner paychecks over the past year, which the company says reflected lower commission revenue caused by a decline in investor activity in the markets.However, Bear Stearns on Monday reported improved earnings for its first quarter, ended Sept. 29, partly because of a 31% increase in commissions during the quarter. William J. Montgoris, chief financial officer, defended the lofty salaries at Bear Stearns. "All of us are on a base salary of $200,000 if the firm makes nothing -- and that's pretty low as far as Wall Street goes," Mr. Montgoris said.However, Bear Stearns has never had an unprofitable year since its founding 65 years ago. Four Bear Stearns executives besides the 62-year-old Mr. Greenberg were paid $3 million or more before dividends for the 14 months ended in June. According to the proxy statement, James E. Cayne, 55, Bear Stearns's president, made $3.9 million; an executive vice president, Michael L. Tarnopol, 53, made nearly $3.4 million; and two executive vice presidents, Vincent J. Mattone, 44, and William J. Michaelcheck, 42, made about $3.3 million each. Mr. Montgoris said the firm has a "straight mathematical formula" for determining compensation, based on the firm's earnings. "Just because a particular element of the firm is down," such as stockbrokerage, "doesn't mean the executive committee should be paid less," he said.
Morgan Grenfell Group PLC said John Craven, group chief executive officer, is taking over the chairmanship of the merchant banking group from Sir Peter Carey, who is retiring. Mr. Carey will remain a member of the merchant bank's board. Mr. Craven is widely credited with refocusing Morgan Grenfell's energies on its core corporate finance, fund management and banking activities over the past year.Last year, Morgan Grenfell shut down its ailing U.K. securities operations. Mr. Craven said his move to the chairmanship means he will take a less active role in the day-to-day management of the group, but he added that the merchant bank's strategic focus remains unchanged. Mr. Craven joined Morgan Grenfell as group chief executive in May 1987, a few months after the resignations of former Chief Executive Christopher Reeves and other top officials because of the merchant bank's role in Guinness PLC's controversial takeover of Distiller's Co. in 1986. Morgan Grenfell had advised Guinness on the bid, which was surrounded by allegations that Guinness used artificial means to support the bid's value. Morgan Grenfell said Michael Dobson, currently group deputy chief executive, will assume the chief executive position. The merchant bank also announced that finance director David Eward is taking early retirement for personal reasons.His duties will be taken over by Anthony Richmond-Watson, who has been elected deputy chairman. News of Mr. Eward's retirement comes one day after Morgan said that Christopher Whittington resigned as chairman of Morgan's banking subsidiary to join a financial services firm. Mr. Craven said both Messrs.Eward and Whittington had planned to leave the bank earlier, but Mr. Craven had persuaded them to remain until the bank was in a healthy position. "If there's any coincidence about the departures it's that they are leaving at a time when the business is in reasonably good shape and going forward very well." Last month, Morgan Grenfell announced its pretax profit rose 49.6% to #32.8 million in the first half, boosted by a healthy growth in its domestic and international corporate finance business.
The following were among yesterday's offerings and pricings in the U.S. and non-U.S. capital markets, with terms and syndicate manager, as compiled by Dow Jones Capital Markets Report: Lockheed Corp. -- $300 million of 9 3/8% notes due Oct. 15, 1999, priced at 99.90 to yield 9.39%.The issue was priced at a spread of 137.5 basis points above the Treasury's 10-year note.Rated single-A-3 by Moody's Investors Service Inc. and single-A by Standard & Poor's Corp., the issue will be sold through underwriters led by Goldman, Sachs & Co. California Health Facilities Financing Authority -- $144.35 million of revenue bonds for Kaiser Permanente, due 19931999, 2004, 2008, 2018 and 2019, tentatively priced by a PaineWebber Inc. group to yield from 6.25% in 1993 to 7.227% in 2018.Serial bonds were priced to yield to 6.80% in 1999.There are about $10 million of 7% bonds priced at 99 1/4 to yield 7.081% in 2004; about $15 million of 7% bonds priced at 98 1/2 to yield 7.145% in 2008; about $88.35 million of 7% bonds priced at 97 1/4 to yield 7.227% in 2018; and about $15 million of 6 3/4% bonds priced to yield 7.15% in 2019.The bonds are rated double-A-2 by Moody's and double-A by S&P, according to the lead underwriter. Pennsylvania Higher Education Facilities Authority -- approximately $117 million of revenue bonds for Hahnemann University, Series 1989, due 1990-2002, 2009 and 2019, priced late Monday by a Merrill Lynch Capital Markets group to yield from 6% in 1990 to 7.282% in 2019.Serial bonds were priced to yield from 6% in 1990 to 7.10% in 2002.There are about $25.6 million of 7.2% term bonds due 2009, priced to yield 7.25%, and about $66.8 million of 7.2% term bonds due 2019, priced at 99 to yield 7.282%.The bonds are insured and rated triple-A by Moody's and S&P. Connecticut -- $100.4 million of general obligation capital appreciation bonds, College Savings Plan, 1989 Series B, priced by a Prudential-Bache Capital Funding group.The zero-coupon bonds were priced to yield to maturity from 6.25% in 1994 to 6.90% in 2006, 2007 and 2009.The bonds have received a rating of double-A-1 from Moody's, and a double-A-plus rating is expected from S&P, the underwriter said. Oregon -- $100 million of general obligation veterans' tax notes, Series 1989, dated Nov. 1, 1989, and due Nov. 1, 1990, through a Chemical Securities Inc. group.The group is offering the notes priced as 6 3/4% securities to yield 6.25%.The notes are rated MIG-1 by Moody's and SP1-plus by S&P. University of Medicine and Dentistry of New Jersey -- $55.8 million of Series C bonds priced by a Prudential-Bache Capital Funding group.The bonds, rated single-A by Moody's and double-A by S&P, were priced to yield from 6.20% in 1992 to 7.26% in 2019.All serial bonds are being offered at par except those due 2002. Federal Home Loan Mortgage Corp. -- $500 million of Remic mortgage securities being offered in eight classes by Salomon Brothers Inc.The offering, Series 104, is backed by Freddie Mac 9% securities.The issue used at-market pricing. Federal National Mortgage Association -- $350 million of Remic mortgage securities being offered in 11 classes by Greenwich Capital Markets.The offering, Series 1989-82, is backed by Fannie Mae 9 1/2% securities and used at-market pricing.The issue brings Fannie Mae's 1989 Remic issuance to $30.2 billion and its total volume to $42.3 billion since the program began in April 1987. Hanshin Electric Railway Co. (Japan) -- $150 million of bonds due Nov. 2, 1993, with equity-purchase warrants, indicating a 4% coupon at par, via Nomura International Ltd.Each $5,000 bond carries one warrant, exercisable from Nov. 16, 1989, through Oct. 19, 1993, to buy company shares at an expected premium of 2 1/2% to the closing share price when terms are fixed Oct. 24. Toyobo Co. (Japan) -- $150 million of bonds due Nov. 1, 1993, with equity-purchase warrants, indicating a 4% coupon at par, via Daiwa Europe Ltd.Each $5000 bond carries one warrant, exercisable from Nov. 15, 1989, to Oct. 18, 1993, to buy company shares at an expected premium of 2 1/2% to the closing share price when terms are fixed Oct. 23. Sammi Steel Co. (Korea) -- $50 million of bonds due Nov. 8, 1994, with equity-purchase warrants, indicating a 1 1/4% to 1 3/4% coupon at par, via Merrill Lynch International Ltd. and Dong Suh Securities Co.Each $5,000 bond carries one warrant, exercisable from May 8, 1991, through Oct. 8, 1994, to buy company shares at an expected premium of 75% to 85% to the closing share price when terms are fixed Oct. 18. Redland International Funding PLC (U.K. parent) -- 150 million Australian dollars of 15 3/8% bonds due Nov. 8, 1996, priced at 101 3/4 to yield 15.44% less full fees, via JP Morgan Securities Ltd. Guaranteed by Redland PLC. Fees 2. Tennessee Valley Authority -- A $4 billion, three-part offering of power bonds priced through an underwriting group led by First Boston Corp.The size of the issue was increased from an originally planned $3 billion.The first part, consisting of $2 billion of bonds due Oct. 1, 2019, with a five-year non-call provision, was priced as 8 3/4% securities at 96.808 to yield 9.06%.The 30-year issue was priced at a spread of 105 basis points above the Treasury's 30-year bellwether bond.The second part, consisting of $1 billion of noncallable bonds due Oct. 1, 1999, was priced as 8 3/8% securities at 99.691 to yield 8.42%.The 10-year issue was priced at a spread of 43 basis points above the Treasury's 10-year note.The third part, consisting of $1 billion of noncallable bonds due Oct. 1, 1994, was priced as 8 1/4% securities at 99.672 to yield 8.33%.The five-year issue was priced at a spread of 43 basis points above the Treasury's comparable note.The issue is rated triple-A by Moody's and triple-A by S&P.
Par Pharmaceutical Inc. said it named its interim president and chief executive officer, Kenneth I. Sawyer, to those posts permanently, and elected him to the board. Par also said it was advised by the U.S. attorney for Maryland that it is one of a number of companies being investigated by a federal grand jury for alleged violations of the federal Food, Drug and Cosmetic Act.Par, a generic-drug maker that has been plagued by management problems, was already the subject of a federal criminal inquiry into the drug-approval process and a Food and Drug Administration investigation. A Par spokesman said he understood the criminal investigation in Maryland relates to matters Par disclosed in July, when Par said it filed false drug information with the FDA.At the time, the company said it was recalling one of its drugs and had stopped selling two others.The spokesman said he also understood that the inquiry related to the existence of an "off-the-record" production book.The book noted changes made at the manufacturing level that weren't disclosed to the FDA. Par said it is cooperating in the investigation. Also yesterday, Ashok Patel, a former Par official who pleaded guilty to providing an FDA employee an illegal gratuity of $3,000, was sentenced by a federal judge in Baltimore to one year of community service and a $150,000 fine.Mr. Patel also was placed on three years' probation.Mr. Patel resigned as senior vice president of Par in April.In July, Par and a 60%-owned unit agreed to plead guilty in that inquiry, as did another former Par official. Mr. Sawyer began running the company on an interim basis in late September.Par said it selected him for the posts of president and chief executive on a permanent basis because of his experience in the industry and his performance at Par.Perry Levine, chairman, said Mr. Sawyer had "taken significant steps" to restore the company's credibility and sense of professionalism and integrity.
Just after midnight Monday, federal spending started to drop by $16 billion.What do you say we all close down the poker game, go home and bank the $16 billion? That's essentially what budget director Richard Darman is suggesting, and we think he deserves as much support as he can get.If human beings can't cut federal spending honestly -- and they can't -- let the computers do it. Congress, with a measure of White House complicity, has been manipulating the spending accounts for years under the cover of omnibus appropriations bills. (Indeed without earlier manipulations, the current sequester of $16 billion would have been even larger.) We suspect voters are fed up with the finagling.Consider, for instance, that even yesterday's widely publicized sequester is likely to be traduced if business as usual is allowed to prevail. Under the law, Gramm-Rudman's across-the-board-cuts in federal programs are supposed to be permanent.Social Security and spending for poor people are exempted.However, the Associated Press's account of the Monday sequester order signed by President Bush neatly captured the contempt Congress shows toward the notion of a legally binding commitment: "Lawmakers have been saying for weeks that they plan to roll back the cuts as soon as they agree to a compromise on a deficit-cutting bill." Mr. Darman's inclination to save the sequester was backed up yesterday by White House Press Secretary Marlin Fitzwater: "There is some feeling here that the cuts are the way to go.It will reduce spending in a very effective fashion." This attitude is being waved away by sophisticates around Washington as little more than tough talk.It looks to us like a golden opportunity for George Bush to chop off at the knees all this talk about a timid, unserious presidency.Mr. Bush would be acting in the public interest if he let the Washington elites who manipulate these budgets -- the bureaucrats, the lobbyists, the congressional staffers -- live for just one year on a restricted diet.Ask Tommy Lasorda; thin is in.Senator Phil Gramm pointed out Monday that in the 20 years before Gramm-Rudman was enacted in 1985, federal spending grew by about 11% a year; since the law, it's grown at under 5% annually.Another major factor in this positive trend was Ronald Reagan's decision early in his presidency to fight the budget war on the expenditure side rather than raising taxes. George Bush's continued support of the tax dam sustains this strategy of pressuring Congress to make choices among competing priorities, rather than just saying yes to all the grateful special-interest constituencies that fill the PAC trough.If Washington's elites ever succeed in bursting the tax dam, Americans will be engulfed in a red sea of new spending programs, such as federalized child care. Child care was one of the many "extraneous" bills pulled out of the Senate's reconciliation bill last Friday.Others were the capital-gains cut, Section 89 repeal, the disabled workers bill, and the unprecedented reconsideration of the catastrophic health act.All this stuff still is in the House's 1,878-page reconciliation bill, and many Members say they're reluctant to pull out cherished bills, just to see them die.Republicans especially want a guarantee from the House leadership that they'll get an up-or-down vote on the bills. House Speaker Foley ought to deliver that promise.This is the way government is supposed to work, with politicians taking responsibility for votes that their constituents can identify, instead of concealing them in the great reconciliation garbage truck. We have as much nostalgia as anyone for those leafy, breezy days in Washington when honorable men and women dickered over budgets and even log-rolled a bit to see that the bridges got build, roads paved, soldiers paid or that the desperately poor were cared for.Those days are gone.Nor do we see any reason to believe that a metropolitan Washington that has gotten fat and rich and lazy in the shadow of the federal colossus will change much on its own initiative. Save the sequester, and let Washington scream.
Japanese investors, reassured by Monday's strong rally on Wall Street, erased most of that day's losses on the Tokyo Stock Exchange.But analysts said the rebound didn't remove the cautious mood from the market. In London, stocks closed lower in volatile trading as an opening rally was obliterated by worse-than-expected U.S. trade figures.Paris shares had a similar reaction, but most other European bourses posted gains, as did all major Asian and Pacific stock markets. Tokyo's Nikkei Index of 225 stocks jumped 527.39 points to close at 34996.08.The rise came a day after the year's biggest drop on Monday, when the Nikkei fell 647.33, or 1.8%, in response to Friday's 6.9% plunge on Wall Street. In early trading Wednesday in Tokyo, the Nikkei index rose 19.30 points to 35015.38. On Tuesday, the broader-based Tokyo Stock Price Index of issues listed in the first section, which fell 45.66 Monday, rose 41.76, or 1.61%, to 2642.64.Trading was relatively thin at an estimated 650 million shares, though brisker than Monday's 526 million.Advancing issues outnumbered decliners 821-201, with 103 unchanged. "We're back to square one," said Simon Smithson, an analyst in Japan for Kleinwort Benson International Inc. Japanese domestic institutions, including trust banks and investment management firms, that had been on the sidelines during Monday's fall were back in the market, analysts said.Foreign investors reportedly started off selling but later joined in the buying. The Tokyo rally seemed to confirm the view, frequently expressed in Japan in the past few days, that the drop in New York was a local problem related to merger and acquisition activity in the U.S. "This time we don't really have to worry about Tokyo," said an official at Daiwa Securities Co. "Nothing has changed fundamentally in the Tokyo market." But even though Tokyo appears unharmed by recent market volatility, analysts and traders say there are still a few concerns on the horizon.In particular, Japanese investors will be keeping a wary eye on Wall Street to see whether Monday's 88.12-point rally holds up as fresh U.S. economic data are released. "People are placing small bets.There's no huge buying," said Stephen Hill, head of equity sales at Jardine Fleming Securities Ltd. in Tokyo. "Really brave views right now would be foolhardy." Yesterday's buyers favored real estate, construction and other large-capitalization issues, reflecting the fact that many Tokyo investors now feel safer with domestically oriented stocks, analysts said. They also are concerned about the persistent strength of the dollar against the yen, as a weaker yen leads to higher import prices in Japan and adds to domestic inflationary pressures. Currency concerns also weigh heavily on interest rate-sensitive stocks such as banking and other financial issues because of fears that Japanese interest rates might have to rise to keep the dollar in check. Among steel shares, NKK rose 19 to 705 yen ($4.97) a share, and Nippon Steel gained 17 to 735.Construction shares that gained included Shimizu, which rose 130 to 2,080.In the real estate sector, Mitsui Real Estate Development was up 100 at 2,760, and Mitsubishi Estate gained 80 to 2,360. London's Financial Times-Stock Exchange 100-share index fell 27.9 points to 2135.5.It was down more than 40 points a half-hour before the close, marking a 61.5-point turnaround from its high, reached in the first 15 minutes of trading.The narrower Financial Times 30-share index fell 29.6 to 1730.7.Volume was an active 643.3 million shares, about double the recent levels but down from 959.3 million the previous day, which U.K. traders have dubbed "Manic Monday." Prices opened strongly on the basis of Monday's Wall Street rally and yesterday's gains in Tokyo.But the advance faltered as index-options traders and investors jittery about the U.K. economic outlook took over.The unexpectedly wide U.S. August trade deficit of $10.77 billion hit an already jittery U.K. market in midafternoon. Michael Hicks, who manages sales and trading for brokerage concern Societe Generale Strauss Turnbull, said: "It's a nervous market.It was all over the place.If you bought, you wish you hadn't, and if you sold, you wish you hadn't." He said the current market "is all about sentiment, and the sentiment in London is 90% anxiety and worry." Britain's economic fundamentals, he said, "don't look very bright." Dealers said London showed signs of calming in midafternoon after Wall Street avoided sharp losses despite the trade report, but a wave of futures-related selling later in the session sent buyers back to the sidelines.Still, some sectors found buying interest after being actively sold in recent weeks. Merchant banks were stronger across the board.Morgan Grenfell, which has been mentioned in takeover rumors, rose 20 to 392 pence ($6.18) a share.S.G. Warburg, a rumored target of some European banking concerns, finished 22 higher at 400.Hambros rose 5 to 204, and Schroders rose 25 to #12.75. On the corporate front, Ford Motor announced that it raised its stake in U.K. luxury car maker Jaguar to 10.4% from 5%.Jaguar shares jumped 23 before easing to close at 654, up 6. Amstrad, a British computer hardware and communications equipment maker, eased 4 to 47.It announced a 52% plunge in pretax profit for the latest year. Brewery stocks were firm to higher on talk of early bargain-hunting, but most ended below their peaks.Bass ended up 3 higher at 966, Guinness closed at 589, down 7, and Scottish & Newcastle dropped 11 to 359, but Whitbread Class A shares rose 17 to 363.Dealers said there was late talk of a Whitbread sale of brewing operations to Scottish & Newcastle. The most active shares were major blue-chips, particularly oils and utilities such as British Gas and British Telecommunications.Traders attributed the action in them largely to defensive positioning in a volatile market.British Gas finished at 197, down 2, on 13 million shares, British Petroleum fell 8 to 291 on 9.4 million shares, and British Telecom was 4 lower at 261 on turnover of 10 million shares.Cable & Wireless fell 20 to 478. Also in active trading, British Steel fell 1 to 124 as 20 million shares changed hands.Racal Electric, which traded 11 million shares, declined 12 to 218. In other European markets, share prices closed sharply higher in Frankfurt and Zurich and posted moderate rises in Stockholm, Amsterdam and Milan.Paris closed lower, and most Brussels shares were unable to trade for a second consecutive day because of technical problems.South African gold stocks closed higher. Elsewhere, share prices rebounded in Hong Kong, Sydney, Singapore, Wellington, Taipei, Manila and Seoul.In Hong Kong, Sydney and Singapore -- the largest of those exchanges -- stocks recovered one-third to one-half of the ground they lost in Monday's plunge, with major market indexes posting gains of 3.6% to 4.4%. Here are price trends on the world's major stock markets, as calculated by Morgan Stanley Capital International Perspective, Geneva.To make them directly comparable, each index is based on the close of 1969 equaling 100.The percentage change is since year-end.
The stock market's dizzying gyrations during the past few days have made a lot of individual investors wish they could buy some sort of insurance. After all, they won't soon forget the stock bargains that became available after the October 1987 crash.But while they want to be on the alert for similar buying opportunities now, they're afraid of being hammered by another terrifying plunge. The solution, at least for some investors, may be a hedging technique that's well known to players in the stock-options market.Called a "married put," the technique is carried out by purchasing a stock and simultaneously buying a put option on that stock. It's like "fire insurance," says Harrison Roth, the senior options strategist at Cowen & Co.Because a put option gives its owner the right, but not the obligation, to sell a fixed number of shares of the stock at a stated price on or before the option's expiration date, the investor is protected against a sudden drop in the stock's price. But most investment advisers don't recommend using married puts all the time.That's because the cost of buying put options eats into an investor's profit when stock prices rise. "This is the type of fire insurance you only buy when the nearby woods are on fire," says Mr. Roth. "You always want your house insured, but you don't always feel the need for your investments to be insured." In addition to hedging new stock purchases, the married-put technique can be used to protect stocks that an investor already owns.In either case, the investor faces three possible outcomes: -- If the stock goes up in price between now and the put's expiration date, the put will probably expire worthless.The investor will be out the cost of the put, which is called the "premium," and this loss will reduce the stock-market profit. -- If the stock stays at the same price between now and the put's expiration date, the investor's loss will be limited to the cost of the put, less any amount realized from a closing sale of the put.The worst-case scenario would be if the put expires worthless. -- If the price of the stock declines, the put will increase in value.Once the stock price is less than the exercise price, or "strike price," of the put, the gain will match the loss on the stock dollar for dollar.The put establishes a minimum selling price for the stock during its life. When a stock falls below the put's strike price, the investor simply sells the stock at a loss and simultaneously sells the put at a profit.Or, the investor can exercise the put, by tendering the stock to his or her broker in return for payment from another investor who has sold a put on the same stock.Brokers handle such transactions through the Options Clearing Corp., which guarantees all option trades. The accompanying table shows how this strategy would work for three stocks.Though not reflected in the table, an investor should know that the cost of the option insurance can be partially offset by any dividends that the stock pays. For example, Tenneco Inc. pays a quarterly dividend of 76 cents, which would be received before the February option expires and, thus, reduce the cost of using the technique by that amount.In this case, the investor's risk wouldn't exceed 3.6% of the total investment.To simplify the calculations, commissions on the option and underlying stock aren't included in the table. There are more than 650 stocks on which options may be bought and sold, including some over-the-counter stocks.But some investors might prefer a simpler strategy then hedging their individual holdings. They can do this by purchasing "index puts," which are simply put options on indexes that match broad baskets of stocks.For instance, the most popular index option is the S&P 100 option, commonly called the OEX.It is based on the stocks that make up Standard & Poor's 100-stock index.Unlike options on individual issues, index options are settled only in cash, and no stock is ever tendered. But while index options are convenient, they have several disadvantages.For one thing, an investor's portfolio might not closely match the S&P 100.As a result, the OEX insurance may or may not fully protect an investor's holdings in the event of a market decline. In addition, OEX options were suspended from trading last Friday afternoon, after the stock-market sell-off got under way and trading in the S&P-500 futures contract was halted.So an investor who wanted to realize a profit on OEX puts after the trading suspension would have been out of luck.On the other hand, only a handful of individual issues were suspended from trading on Friday.Normally, once the underlying investment is suspended from trading, the options on those investments also don't trade. Ultimately, whether the insurance provided by purchasing puts is worthwhile depends on the cost of the options.That cost rises in times of high market volatility.But it still might be cheaper than taking a major hit. The protection from using married puts is clearly superior to that afforded by another options strategy some investors consider using during troubled times: selling call options on stocks the investor owns.A call option is similar to a put, except that it gives its owner the right to buy shares at a stated price until expiration. Selling a call option gives an investor a small buffer against a stock-market decline.That's because it reduces the cost of the stock by the amount of premium received from the sale of the call.But if the price of the stock rises above the strike price of the option, the stock is almost certain to be called away.And in that case, the investor misses out on any major upside gain. These calculations exclude the effect of commissions paid and dividends received from the stock.All prices are as of Monday's close.
A surprising surge in the U.S. trade deficit raised fears that the nation's export drive has stalled, and caused new turmoil in financial markets. The merchandise trade deficit widened in August to $10.77 billion, the Commerce Department reported, a sharp deterioration from July's $8.24 billion and the largest deficit of any month this year.Exports fell for the second month in a row, while imports rose to a record. "This is one of the worst trade releases we've had since the dollar troughed out in 1987," said Geoffrey Dennis, chief international economist at James Capel Inc. Like most analysts, Mr. Dennis was hesitant to read too much into one month's numbers; but he said, "It indicates perhaps that the balance in the U.S. economy is not as good as we've been led to believe." The number had a troubling effect on Wall Street, suggesting that more fundamental economic problems may underlie last Friday's stock market slide.The Dow Jones Industrial Average tumbled more than 60 points after the report's release, before recovering to close 18.65 points lower at 2638.73. "This bad trade number raises some deeper issues about the market decline," said Norman Robertson, chief economist for Mellon Bank. "It raises questions about more deep-seated problems, the budget deficit and the trade deficit and the seeming lack of ability to come to grips with them." The trade report drew yet another unsettling parallel to October 1987.On Oct. 14 of that year, the announcement of an unusually large August trade deficit helped trigger a steep market decline.The slide continued until the record 508-point market drop on Oct. 19.In 1987, however, the news was the latest in a string of disappointments on trade, while the current report comes after a period of improvement. The bleak trade report was played down by the Bush administration.Commerce Secretary Robert Mosbacher called the worsening trade figures "disappointing after two very good months." And White House spokesman Marlin Fitzwater said the deficit was "an unwelcome increase," adding that "we're hopeful that it simply is a one-month situation and will turn around." But the figures reinforced the view of many private analysts that the improvement in the U.S. trade deficit has run out of steam. "The figures today add further evidence to support the view that the improvement in the U.S. trade deficit has essentially stalled out at a level of about a $110 billion annual rate," said Jeffrey Scott, a research fellow at the Institute for International Economics here. "That's still an improvement over last year, but it leads one to conclude that basically we've gotten all the mileage we can out of past dollar depreciation and past marginal cuts in the federal budget deficit." Exports declined for the second consecutive month in August, slipping 0.2% to $30.41 billion, the Commerce Department reported.Imports, on the other hand, leaped 6.4% to a record $41.18 billion. Not only was August's deficit far worse than July's, but the government revised the July figure substantially from the $7.58 billion deficit it had initially reported last month. Many economists contend that deep cuts in the U.S. budget deficit are needed before further trade improvement can occur.That's because the budget deficit feeds an enormous appetite in this country for both foreign goods and foreign capital, overwhelming the nation's capacity to export. "People are sick and tired of hearing about these deficits, but the imbalances are still there and they are still a problem," said Mr. Robertson. In addition, the rise in the value of the dollar against foreign currencies over the past several months has increased the price of U.S. products in overseas markets and hurt the country's competitiveness.Since March, exports have been virtually flat.At the same time, William T. Archey, international vice president at the U.S. Chamber of Commerce, notes: "Clearly the stronger dollar has made imports more attractive" by causing their prices to decline. Most economists expect the slowing U.S. economy to curb demand for imports.But they foresee little substantial progress in exports unless the dollar and the federal budget deficit come down. "The best result we could get from these numbers would be to see the administration and Congress get serious about putting the U.S. on an internationally competitive economic footing," said Howard Lewis, vice president of international economic affairs at the National Association of Manufacturers. "That must start with cutting the federal budget deficit." August's decline in exports reflected decreases in sales of industrial supplies, capital goods and food abroad and increases in sales of motor vehicles, parts and engines.The jump in imports stemmed from across-the-board increases in purchases of foreign goods. The numbers were adjusted for usual seasonal fluctuations. Alan Murray contributed to this article. (In billions of U.S. dollars, not seasonally adjusted) *Newly industrialized countries: Singapore, Hong Kong, Taiwan, South Korea Source: Commerce Department
Steve Jobs took a step back from the frontier of personal-computer technology in an effort to spur sales of Next Inc. 's new machine. Mr. Jobs moved to remedy a couple of his computer's drawbacks yesterday by lowering the entry-level price for a Next machine by $1,500, or 23%, if the buyer chooses a hard-disk drive as an alternative to Next's optical-storage device.The hard drive, which is the storage device of choice for virtually every desktop computer user, also now will supplement Next's futuristic optical device if buyers pay full price. Mr. Jobs, co-founder of Apple Computer Inc., founded Next four years ago in the hopes of fomenting a revolution in the way desktop computers are designed and used.His Next computer, introduced about a year ago and aimed primarily at university computer users, sports snazzy graphics, digital sound, built-in networking and a sleek black design.But the computer was proving a hard sell because of its high price, a lack of software and an optical data-storage device that was too slow. The machine began shipping at the end of last year.The closely held company hasn't disclosed sales.However, most universities that have bought the machines say they are buying small numbers for evaluation purposes. Universities can now buy a Next computer without an optical storage device for $4,995.A computer with the optical device will still cost $6,495, but from now on Next will outfit every computer with a hard drive and supply one at no cost to those who have already bought Next machines. Commercial customers can purchase the same system through Businessland Inc., a computer retailer based in San Jose, Calif., for roughly $3,000 more. Mr. Jobs said the changes were prompted by requests from customers who are frustrated with the performance of the optical device, which isn't offered as standard equipment by any rivals.Another factor was that customers were asking, "Why don't you give us a cheaper system?" Mr. Jobs said at a conference on university computing here.Optical-storage devices can handle very large amounts of data and make it far easier to edit film clips or audio recordings with a computer.But the technology, while reliable, is far slower than the widely used hard drives. To get around the delays caused by the optical device, Businessland, which is Next's exclusive dealer to corporations, has for months been advising customers to purchase hard drives with the machines. Next's decision to rely on the more-established hard drive in every Next computer doesn't signal a retreat from optical storage, said Mr. Jobs, who for years has said this technology will play a crucial role in the next decade. "We're extremely committed to optical storage technology" he said. "We think everything will go this way in a few years." He said that the next generation of optical drives will be as fast as hard drives, but he depends on outside suppliers for the devices. But university computer specialists, who welcomed the move, called it a necessary retreat from the cutting edge of technology and one that's likely to increase Next's sales on campuses. "From the standpoint of being on the forefront of technology, this is a step backward," said Jerry W. Sprecher, a senior computing manager for the California state university system. "But it will definitely boost Next's sales." Universities, however, say Next's prices must go even lower before large numbers of students purchase the machine. "We'd still like to see a student model," priced at about $3,500, said Ronald Johnson, director of academic computing at Minnesota's Gustavus Adolphus College, which has bought eight Next machines. Broad acceptance of Next's computer also is hindered by difficulty in distributing software for it.Most software is distributed on cheap floppy disks, but the Next computer doesn't come with a device that reads them. Next's computer also needs more software applications, but Mr. Jobs said he expects more soon.He said he expects Lotus Development Corp. to introduce a Next version of its popular 1-2-3 spreadsheet program in 1990. Educators added that Next needs to soon offer a color version of its computer.Every major maker offers computers with color displays.Next won't comment on when it will do the same, but is believed to have a color model under development.
Ashton-Tate Corp. reported a net loss of $19.4 million, or 74 cents a share, for the third quarter, which was burdened by severance costs and the expense of upgrading its database software inventories. The software company said revenue slid 28% to $53.9 million.This contrasts with the year-ago quarter, when the company had net income of $11.7 million, or 45 cents a share, on revenue of $75.7 million. For the nine months, Ashton-Tate had a loss of $27.6 million, or $1.05 a share.In the year-ago period, the company had profit of $34.3 million, or $1.32 a share.Revenue in the period slid almost 8% to $203.2 million from about $220 million last year. Edward M. Esber, chairman, president and chief executive officer, attributed the decline to reduced domestic revenue because of $4.9 million spent to upgrade existing software inventories to the new database IV Version 1.1, and $1.8 million spent on the recent reduction in work force.He said the company was "encouraged by feedback" it received from selected customers now testing Version 1.1. The red ink came as no surprise to Wall Street, but analysts said they saw ominous hints of a further delay in volume shipments of Version 1.1, a harbinger of continued losses in the fourth quarter. "The loss is in line with our expectations," said John C. Maxwell III, an analyst with Dillon, Read & Co. in New York.He added gross margins and operating profit "eroded quite dramatically" from the prior quarter, along with sales of existing software product lines like Multimate and Framework. "The success of a new product in the database line is needed.And while the company hasn't made a definite statement, it now looks like that's not going to be anytime soon," Mr. Maxwell said.The company said in a statement that it expects to ship new products "during the next two quarters." "It now looks like database IV Version 1.1 isn't going to be {widely} available until the first quarter of 1990," said David Bayer, an analyst with Montgomery Securities in San Francisco. "This is the second delay now in getting the product out the door.It does prolong the pain somewhat." Mr. Maxwell said unless the company can start shipments of the new product sometime this quarter, the fourth-quarter loss is likely to be "comparable to the third quarter's." If the company can start to ship during this quarter, it could stem some, if not all of the red ink, he said. In national over-the-counter trading, Ashton-Tate closed yesterday at $10 a share, up 62.5 cents.
Tuesday, October 17, 1989 The key U.S. and foreign annual interest rates below are a guide to general levels but don't always represent actual transactions. PRIME RATE: 10 1/2%.The base rate on corporate loans at large U.S. money center commercial banks. FEDERAL FUNDS: 8 11/16% high, 8 5/8% low, 8 5/8% near closing bid, 8 11/16% offered.Reserves traded among commercial banks for overnight use in amounts of $1 million or more.Source: Fulton Prebon (U.S.A.) Inc. DISCOUNT RATE: 7%.The charge on loans to depository institutions by the New York Federal Reserve Bank. CALL MONEY: 9 3/4% to 10%.The charge on loans to brokers on stock exchange collateral. COMMERCIAL PAPER placed directly by General Motors Acceptance Corp.: 8.40% 30 to 44 days; 8.325% 45 to 59 days; 8.10% 60 to 89 days; 8% 90 to 119 days; 7.85% 120 to 149 days; 7.70% 150 to 179 days; 7.375% 180 to 270 days. COMMERCIAL PAPER: High-grade unsecured notes sold through dealers by major corporations in multiples of $1,000: 8.50% 30 days; 8.40% 60 days; 8.375% 90 days. CERTIFICATES OF DEPOSIT: 8.05% one month; 8.02% two months; 8% three months; 7.98% six months; 7.95% one year.Average of top rates paid by major New York banks on primary new issues of negotiable C.D.s, usually on amounts of $1 million and more.The minimum unit is $100,000.Typical rates in the secondary market: 8.50% one month; 8.50% three months; 8.45% six months. BANKERS ACCEPTANCES: 8.38% 30 days; 8.28% 60 days; 8.23% 90 days; 8.13% 120 days; 8.03% 150 days; 7.93% 180 days.Negotiable, bank-backed business credit instruments typically financing an import order. LONDON LATE EURODOLLARS: 8 5/8% to 8 1/2% one month; 8 9/16% to 8 7/16% two months; 8 9/16% to 8 7/16% three months; 8 1/2% to 8 3/8% four months; 8 7/16% to 8 5/ 16% five months; 8 7/16% to 8 5/16% six months. LONDON INTERBANK OFFERED RATES (LIBOR): 8 5/8% one month; 8 9/16% three months; 8 7/16% six months; 8 7/16% one year.The average of interbank offered rates for dollar deposits in the London market based on quotations at five major banks. FOREIGN PRIME RATES: Canada 13.50%; Germany 8.50%; Japan 4.875%; Switzerland 8.50%; Britain 15%.These rate indications aren't directly comparable; lending practices vary widely by location. TREASURY BILLS: Results of the Monday, October 16, 1989, auction of short-term U.S. government bills, sold at a discount from face value in units of $10,000 to $1 million: 7.37% 13 weeks; 7.42% 26 weeks. FEDERAL HOME LOAN MORTGAGE CORP. (Freddie Mac): Posted yields on 30-year mortgage commitments for delivery within 30 days. 9.88%, standard conventional fixed-rate mortgages; 7.875%, 2% rate capped one-year adjustable rate mortgages.Source: Telerate Systems Inc. FEDERAL NATIONAL MORTGAGE ASSOCIATION (Fannie Mae): Posted yields on 30 year mortgage commitments for delivery within 30 days (priced at par) 9.80%, standard conventional fixed-rate mortgages; 8.70%, 6/2 rate capped one-year adjustable rate mortgages.Source: Telerate Systems Inc. MERRILL LYNCH READY ASSETS TRUST: 8.50%.Annualized average rate of return after expenses for the past 30 days; not a forecast of future returns.
Prospect Group Inc., whose recent hostile tender offer for Recognition Equipment Inc. failed for lack of financing, apparently has gained a measure of control over the troubled company anyway. As part of what a Recognition spokeswoman termed an "amiable agreement," Prospect Group will wind up with control of top management posts and an increased stake in the maker of data management equipment. In a management restructuring, Thomas L. Ringer resigned as chairman, chief executive and a director, while Israel Sheinberg resigned as a director.Mr. Sheinberg remains as executive vice president.Thomas M. Hurley and Robert A. Vanourek, who had been designated to take over Recognition's top spots had Prospect's tender offer succeeded, were named co-chief executives and directors.Mr. Hurley was formerly a vice president and general manager of an Avery International division; Mr. Vanourek was a former group vice president of Pitney Bowes Inc. In addition, the agreement calls for Gilbert H. Lamphere, chairman of Prospect Group's executive committee, to be named chairman of a restructured board that will include four new independent directors.Also named to the revised board was Thomas A. Loose, Recognition's senior vice president and general counsel. Prospect, a New York-based leveraged buy-out firm, also agreed to invest $15 million in Recognition, which in turn agreed to repurchase as much as $20 million of its stock.That would increase Prospect's ownership of the company's fully-diluted shares outstanding to 20% from 14.1%.Under the agreement, Prospect is permitted to increase its stake in Recognition to 30%.Beyond that, Prospect said it wouldn't offer to acquire additional shares for less than $11.25 a share during the next year or less than $14.06 a share during the subsequent two years. Recognition also said it obtained a commitment from Chemical Bank and Bank of Boston to convert an estimated $18 million in bank debt to a new, 24-month secured term loan to be repaid through the sale of certain assets. In August, Recognition said it was in violation of certain terms of its debt agreements with bank lenders because of a $3.9 million loss for the third quarter ended July 31.The company attributed the loss to declining revenue and litigation costs relating to criminal charges against the company and two former executives, William G. Moore Jr. and Robert W. Reedy.The former executives were indicted last October on charges of fraud, theft and conspiracy related to efforts by the company to win $400 million in Postal Service contracts. Recognition Equipment said it expected to put the agreement with Prospect to a vote of its stockholders at a special meeting in January. In New York Stock Exchange composite trading, Recognition rose 87.5 cents to $6.625.Prospect slipped 25 cents to $10.50 in national over-the-counter trading.
I approached "Mastergate," Larry Gelbart's new comedy at the Criterion Center, with considerable trepidation.Nothing, I assumed, would be more hopelessly dated than a political satire on the Iran-Contra affair.I had underestimated, however, both Mr. Gelbart's wit and the persistence of scandal in Washington.Though the play clearly is framed around the events of Iran-Contra, it takes in the wide sweep of scandals over the past 30 years.In fact, at one point Merry Chase (Melinda Mullins), a cool, carefully coiffed television announcer, recites a list of a dozen or more scandals of recent years, concluding with those affecting the Department of Housing and Urban Development and the savings and loan industry. Onstage, a congressional hearing is in progress, complete with elegant crystal chandelier overhead and a lifesize reproduction of the signing of the Constitution in the background.The witness table is center stage and below it, the paraphernalia for the ever-present media, in this case TNN, the Total News Network.Not only are there camera operators on all sides, but the proceedings are shown on monitors throughout the theater. The metaphor of theater is not entirely coincidental.Mr. Gelbart clearly feels that all the participants in a congressional hearing -- the witnesses, the lawyers, the interrogators and the news media -- are performers. As the story of "Mastergate" unfolds, we learn that the Internal Revenue Service confiscated one of the properties of a foreign financier who owes the government millions in taxes.The man, it seems, has a Lichtenstein corporation, licensed in Libya and sheltered in the Bahamas.He himself lives in a "consecutive series of unnumbered houses in a town in Switzerland." The property seized by the IRS is a Hollywood film studio, Master Pictures Incorporated (MPI).Supposedly the IRS will sell off the assets of MPI, but before it can, a lowly IRS agent is called into the hospital room of Wylie Slaughter, the dying head of the Central Intelligence Agency. The lowly agent, Abel Lamb, who as you might guess, is being led to the slaughter, is ordered to take over the studio.Soon the studio is producing a $40 million picture called "Tet, the Motion Picture," to distinguish it from "Tet, the Offensive," as well as "Tet, the Book" and "Tet, the Album." The picture, to be made in the Central American country of San Elvador, is a cover for sending $800 million of arms to Los Otros, the rebel group attempting to regain neighboring Ambigua, which has been taken over by the leftist dictator Dr. Overtega, a former podiatrist, who leads a revolutionary band of foot soldiers.The man handling all this for the now-deceased Slaughter is Major Manley Battle, Mr. Gelbart's stand in for Col. Oliver North. Director Michael Engler has assembled a top-flight cast to carry out the impersonations of well-known political figures and to play the stock characters who invariably show up at congressional hearings.Daniel von Bargen is ramrod-stiff but totally assured as Major Battle, mixing just the right brand of self-righteousness and patriotism; Jeff Weiss is fire, brimstone and teary-eyed emotionalism as the far-right senator who serves as a friendly interrogator of Major Battle; Zach Grenier is maddeningly officious playing a succession of lawyers; Joseph Daly has the perfect "aw, shucks" demeanor of George Bush in his portrayal of the vice president; and Ann McDonough is first-rate as a succession of witnesses' wives.With one she is pregnant, with Major Battle she is knitting an American flag, and as the vice president's wife she rushes in with white hair, wearing a tailored suit and pearls, imitating Barbara Bush's gestures down to the last detail. Though it's clear that Mr. Gelbart's sympathies do not lie with the far right, it's also true that he is evenhanded in dispensing his satirical jabs, taking sharp aim at senators and congressmen of all stripes and particularly at the media.Mr. Gelbart also has fun with language. "Mastergate" is subtitled "a play on words," and Mr. Gelbart plays that game as well as anyone.He describes a Mastergate flunky as one who experienced a "meteoric disappearance" and found himself "handling blanket appeals at the Bureau of Indian Affairs." This interest in words goes beyond puns and playfulness, however.Mr. Gelbart deplores the obfuscation, the circumlocution and the debasement of language he sees on all sides.As the hearings begin, the self-important Sen. Bowman (Jerome Kilty) announces: "Let me emphaticize one thing at the outset: We are not looking for hides to skin nor goats to scape." Major Battle himself speaks in pure Pentagonese: "Without further monetary-stroke-military aid, scores of Ambiguan freedom lovers, who had gone way out on their life and limbs for us, were literally cut off at the knees without a paddle." At another point he intones: "Publicity is a small price to pay for secrecy." The evening is short -- 95 minutes without an intermission -- but even so, as the play progresses the thrust of Mr. Gelbart's satire loses its sharpness as his targets pop up ever more predictably.Most of the evening, though, is filled with rare and welcome wit.In "Mastergate," Mr. Gelbart has provided us not just one but two commodities that have all but disappeared from the Broadway theater: sharp political satire and an even sharper appreciation of the value of language.
The Federal National Mortgage Association set up a three-member office of the chairman and elected James A. Johnson as vice chairman, effective Jan. 1. Mr. Johnson has been a managing director at Shearson Lehman Hutton since 1985, and before that was president of Public Strategies, a Washington consulting firm.He is well-known in Democratic circles, having been executive assistant to Vice President Walter Mondale and chairman of Mr. Mondale's 1984 presidential campaign. At Fannie Mae, he will take responsibility for the corporation's financial and legal areas and will work with David Maxwell, chairman and chief executive officer, and Roger Birk, president and chief operating officer, on strategic planning. Mr. Johnson, 45 years old, has been a consultant on strategy to Fannie Mae for the past 3 1/2 years.In an interview, he said Fannie Mae faces a number of challenges with the restructuring of the thrift industry and the push to broaden its activities overseas. "There's no shortage of major things to do," he said. Fannie Mae also said James A. Aliber, chairman of First Federal of Michigan and a director since 1985, moved up the date of his retirement from the board to accommodate Mr. Johnson's election as a director.The board has 13 members elected by holders and five presidential appointees. Fannie Mae, a federally chartered, shareholder-owned corporation, operates a secondary market for mortgage loans, buying loans from lenders, packaging some into securities for sale to investors and keeping the rest in its portfolio.
"The New Crowd" by Judith Ramsey Ehrlich and Barry J. Rehfeld (Little, Brown, 444 pages, $19.95), describes the displacing of the old "our crowd" Jewish Wall Street banking grandees by such new business barons as Saul Steinberg, Carl Icahn, Sanford Weill and Bruce Wasserstein.Its many lively stories include the Gutfreund-Postel holiday cheer imbroglio.These two New Crowd families lived in the same apartment building, with the Postel penthouse perched on top of the Gutfreund duplex.The penthouse elevator started up from the Gutfreund landing, and Susan Gutfreund used to turn off its light, to give the impression that there was no higher floor.Eventually, Mr. Postel broke his toe in the dark. Then the Gutfreunds determined to put up a 22-foot Christmas tree, weighing a quarter of a ton, to amaze their holiday guests.For this, a crane needed to be mounted on the Postels' terrace.The Postels did not give permission.But the Gutfreund workers went ahead anyway, only to be captured "in flagrante" by Joan Postel, who called the police. Before the Gutfreunds finally left this unfriendly environment for a prodigious duplex on Fifth Avenue and an 18th-century mansion with a specially excavated $1 million garage in Paris, the Postels had obtained an injunction to prevent any future hoisting of trees, and in a neighborly spirit hit both the Gutfreunds and the building with a $35 million lawsuit.Nothing less, it seemed, could console them for their traumas. Where had all the money come from?The young John Gutfreund had been discovered by Billy Salomon of Salomon Bros. when he was still a bearded liberal, and put to work as a trader, and then as a rough-and-tumble syndicator. " `Get off your . . .,' he would bellow," say the authors.Rising in the firm, he became powerful and bland, though his new wife, Susan, made him shine in the gossip columns with her profligate spending habits and flamboyant frocks.After he had been head of the company for 3 1/2 years, he and his partners sold it to Phibro, a powerful commodity trading outfit, for $550 million in Phibro stock.Limited partner Billy Salomon, whose family name had been on the firm's door for 70 years and who had hoped it would be there forever, was not consulted.Mr. Gutfreund collected $32 million, while Billy Salomon got $10 million, much less than if he had conducted the sale. "I felt betrayed," he later said.Worse, Salomon's timing had been off.Its profits, unlike Phibro's, soared over the next two years, and had it held out, Salomon could have gotten an even bigger bundle. The book also recounts the not dissimilar maneuvers surrounding the changing of the guard at Lehman Bros. and other grand old firms.Often the genteel, conservative, long-term-oriented investment bankers were displaced by crude traders: "When angered, he cursed so forcefully that his face reddened and his pale-blue eyes narrowed into tiny slits," the authors say of Lehman's Lewis Glucksman. The earlier generation of "our crowd" bankers -- Belmonts, Warburgs, Lehmans, Baches and Schiffs -- had stressed above all probity, tradition, continuity and reputation.They were old-fashioned elegant gentlemen, who happened to be of German Jewish extraction.But in the harsh world of today's Wall Street they have lost out to more aggressive and sometimes less scrupulous successors.The cuckoo prefers the nests of other birds and heaves out their eggs.But the old guard hired the New Crowd people: It brought in its own cuckoos.So, as the Old Crowd toppled from the branch, it shouldn't have been too surprised. The old guard had every right, however, to disdain the newcomers' new ways of making money, such as greenmail. (A Fortune article on Saul Steinberg was entitled, "Fear and Loathing in the Corporate Boardrooms.") Their other staple has been corporate takeovers, often hostile and financed by junk bonds.Hostile takeovers are quite a new phenomenon.Sometimes they are constructive, but often not.First, by making management focus on short-term results, they inhibit building for the future -- just the opposite of Japan.Second, a long-term shareholder of a good company needn't worry too much when the stock price drops temporarily: It will bounce back.But if a raider takes over when the stock is weak, the shareholder never gets his recovery. The raiders, meanwhile, have evolved their own pattern for spending their new millions.As described in "The New Crowd," they take on ambitious new wives, move to Greenwich, Conn., or Bedford, N.Y., buy OK pictures, and let their wives share the wealth with decorators.Having donated heavily to museums, they demand a place on their boards. The book is patronizing about this nouveau riche struggle for respectability, which has its tawdry aspects.However, on balance, the charity game helps America.If those who have the money don't get involved with the museums and the charities, then City Hall will do it, badly.It has been rightly observed that the main thing wrong with tainted money is, t'aint enough of it. A handful of the New Crowd operators have crossed the line from the immoral to the illegal, and have ended up in the slammer or paying huge fines: Ivan Boesky, Dennis Levine, Martin Siegel, Victor and Steven Posner, and now Michael Milken and perhaps Leona Helmsley.The glitzy office that Ivan Boesky vacated for a prison cell had previously contained commodity operators Marc Rich and "Pinky" Green, today fugitives from a potential century apiece of jail sentences. The Old Crowd is deeply concerned by the backlash from all this.However, the phenomenon is not specifically Jewish.It has always been true that those outside the club want to climb in, and that a few will cut corners in the process.Some pretty seamy stuff built the turn-of-the-century families' Fifth Avenue and Newport palazzi and endowed their daughters' weddings to foreign noblemen.Mr. Boesky was a piker compared to Jay Gould and Jim Fiske, and Commodore Vanderbilt thought nothing of bribing judges and legislators.So who knows?In a generation or two some of the New Crowd may attain true respectability, perhaps to be displaced in turn by a later flock of unscrupulous raptors.Or perhaps Wall Street, when it has suffered enough, will realize that finance is a service industry, and change its ethos. Mr. Train is president of Train, Smith Investment Counsel, New York.
The former president of FirstSouth F.A., a defunct Arkansas thrift, pleaded guilty to conspiring to inflate the institution's earnings by concealing worthless loan guarantees. Roderick D. Reed III, who was also chief operating officer of FirstSouth, could receive a maximum sentence of five years in federal prison and a $250,000 fine.A sentencing date hasn't been set. Mr. Reed admitted he conspired to conceal an agreement not to enforce loan guarantees executed by Dallas real-estate developers A. Starke Taylor III and George S. Watson, both of whom were FirstSouth stockholders.Neither Mr. Taylor nor Mr. Watson have been charged with criminal wrongdoing. By concealing the non-enforcement agreement, certain transactions with Messrs.Taylor and Watson were entered on FirstSouth's books as loans, allowing the thrift to report fees and interest as current income, according to the U.S. attorney's office in Little Rock, Ark. The conspiracy was part of an effort by Mr. Reed to hide FirstSouth's shaky financial condition from federal regulators, according to federal prosecutors and regulators.The $1.68 billion thrift was declared insolvent and closed in December 1986. FirstSouth's former chairman and chief executive officer, Howard Weichern, is also charged with conspiring to conceal the agreements with Messrs.Watson and Taylor.Mr. Weichern is scheduled for trial Jan. 3 before federal Judge Stephen Reasoner of Little Rock.
Dallas investor Harold C. Simmons said he raised his stake in Lockheed Corp. to 10.62% from 10.43% of the aerospace and electronics concern's common shares. In a Securities and Exchange Commission filing, Mr. Simmons said he and companies he controls, NL Industries Inc. and NL Chemicals Inc., hold 6,744,600 shares of Lockheed, of Calabasas, Calif.They include 122,700 shares bought Friday for between $47.125 and $48 each. In composite trading on the New York Stock Exchange, Lockheed closed at $46.125 a share, down 12.5 cents. Earlier this week, Mr. Simmons objected to published reports quoting him as saying he planned to sell his Lockheed stake because "the defense industry seems to be getting more uncertain." Valhi Inc., another of Mr. Simmons' companies, responded to an article Monday in The Wall Street Journal, which credited a story in the Sunday Los Angeles Daily News.Valhi said the articles didn't accurately reflect Valhi and its affiliates' intentions toward Lockheed.Instead, Valhi said, they may increase, decrease or retain their Lockheed holdings, depending on a number of conditions.
Canada, which is preparing to speed up tariff cuts with the U.S., recorded a 47% narrowing in its trade surplus with the U.S. in August, Statistics Canada, a federal agency, reported. U.S. exports to Canada jumped 11.2% in August from July while U.S. imports from Canada rose only 2.7%.As a result, Canada's trade surplus with the U.S. narrowed to C$656.5 million (US$558 million) in August from C$1.23 billion (US$1.04 billion) in July. U.S. exports benefited in August from heavy Canadian spending on new plant and equipment and a pickup in Canadian auto demand, Canadian officials said. The U.S. and Canada, which do more trade than any other pair of nations, are to meet next month to arrange an acceleration of planned tariff cuts under the U.S.-Canada free trade agreement. Industries in both countries have requested a speedup of tariff cuts on hundreds of products.Some tariffs were eliminated when the trade pact took effect Jan. 1.The remainder were to be phased out in five or 10 annual installments, with all tariffs eliminated by January 1998. The two countries aim to reach an agreement by early December on a package of accelerated tariff cuts that would take effect early next year. Canadian officials said the trade pact has kindled an export interest among many small Canadian companies that previously had little or no foreign sales. For such businessmen, the Canadian government is organizing 55 missions this year to U.S. states bordering on Canada.The businessmen are introduced to potential agents and distributors and instructed in trade procedures.The U.S. Commerce Department is planning to try out similar trips on U.S. businessmen in coming months under its Canada First! Outreach Program.Participants in the U.S. missions to Canada are to be assisted by members of the Service Corps of Retired Executives, a volunteer group, in dealing with their export challenges. The Canadian government also has recently opened new trade offices in San Diego; San Juan, Puerto Rico; Miami; Princeton, N.J., and Denver, bringing the total number of such Canadian offices in the U.S. to 27.The U.S. has six trade promotion offices in Canada. Canada's export effort has been blunted by robust home market demand and by an 18% appreciation of the Canadian dollar against its U.S. counterpart in the past three years that has made Canadian goods more costly in the U.S. Canada's trade surplus with all countries narrowed to C$203.5 million in August from C$528.3 million in July, Statistics Canada said.
Bank of New England Corp., seeking to streamline its business after a year of weak earnings and mounting loan problems, said it will sell some operations and lay off 4% of its work force. The bank holding company also reported that third-quarter profit dropped 41%, to $42.7 million, or 61 cents a share, from the year-earlier $72.3 million, or $1.04 a share. Among its restructuring measures, the company said it plans to sell 53 of its 453 branch offices and to lay off 800 employees.Altogether, employment is expected to decline to less than 16,000 from the current level of about 18,000. Walter Connolly, chairman, said in an interview that the company expects to record pretax gains of $100 million to $125 million from the sale of its leasing operations and of certain financial processing services.In a prepared statement, the company said it expects to realize those gains before year end. Nonperforming assets continued to pile up in the latest quarter, rising to $900 million, or 3.52% of loans and leases, from $667 million, or 2.68%, at the end of the second quarter.Some $170 million of the $233 million increase in nonperforming loans was related to real estate, and roughly three-quarters of that was in the troubled New England market, according to Richard Driscoll, vice chairman. Mr. Driscoll said that, despite continued weakness in the region's real estate market, Bank of New England expects the rate of increase in nonperforming assets to slow in coming quarters.Mr. Connolly noted that net third-quarter charge-offs, at $63 million, improved slightly from the $67 million in the second quarter.And he indicated that more substantial improvement is expected in the next couple of quarters. The company increased its loan loss reserve to $354 million from $342 million at the end of the second quarter.Total assets slipped to $31.4 billion, from $32 billion as of June 30. Among other restructuring measures, the bank said it will close its loan production offices in Chicago, New York and Philadelphia.The Chicago office figured prominently in the bank's problems earlier this year, when $65 million in loans to Chicago businessman William Stoecker went sour. In an internal memorandum to employees, Messrs.Connolly and Driscoll described the restructuring as an effort to continue rationalizing operations assembled during a series of mergers over the past five years.
In August, soon after Wang Laboratories Inc. reported a staggering $424.3 million loss and replaced its president, two Boston sales representatives sent customers a letter saying: "We fully expect that you will soon be reading stories in the press reporting the `Amazing Comeback at Wang. '" How soon Wang will stage a comeback, or if it will at all, are still matters of debate.But Wang salespeople are trying to cope with the biggest challenge any marketer can face: selling the products of a company that is on the ropes. "If your prospect is feeling risk the whole time and you're not feeling as if you're backed up by a stable company, you've lost it before you've begun," says Mary Ann Cluggish, a Wellesley, Mass., sales trainer and consultant who works with high technology companies. It can happen in any industry.Consider the difficulties faced by Audi salespeople when the car was tainted by false charges of sudden acceleration, or Exxon dealers' problems in the wake of the Valdez oil spill. Like thousands of salespeople before them, Wang's are finding ways to combat the bad news. "It's very important that we exude confidence, even though within the family we know there's a lot of hard work ahead," said Richard Miller, the Lowell, Mass., computer concern's new president, in a video message to salespeople a month after he took over. Wang got into financial trouble because of bloated overhead and overly optimistic sales forecasts.Its mainline minicomputers and word processors have lost ground to cheaper personal computers.Last year it funded its high employment by heavy borrowing, and it suffered huge losses when sales turned down instead of rising. After the company reported red ink for the fiscal third quarter, Wang's marketing department provided the sales force answers to questions such as "How could you not have known you were going to lose $55 million?" and "Is Wang still a viable company?" Salespeople try to push their products and avoid discussions of finances.Responding to such questions is "defensive," says Kenneth Olissa, Wang's vice president, marketing. "That's antithetical to the art of selling." Moreover, he notes that analyzing financial results "poses a problem for a salesman who isn't particularly familiar with a balance sheet." At one sales strategy meeting, an executive suggested ordering salespeople to become experts on the annual report.Mr. Miller vetoed that: "Even I can't understand all the footnotes," he says.Instead, he says, if the salespeople can get the customers to consider Wang's products on their merits, he or a top financial officer will try to assuage the fears about finances. Mike Metschan, a salesman in Wang's Austin, Texas, office, has a breezier method: "We tell them $3 billion companies don't go out of business.We tell them all the major companies are having financial difficulties." Numerous computer companies are having sales slumps and earnings declines, but very few have had losses comparable to Wang's or are carrying such a large debt load. Mr. Miller says that after a sharp sales slump in July and August, sales stabilized in September.Although Wang will report a loss for the first quarter ended Sept. 30 and the full fiscal year, Mr. Miller says he expects the company will return to profitability by the fourth quarter. Experts on sales technique say anyone representing a troubled company must walk a fine line. "If a salesman jeopardizes his credibility in this time of trouble, it will be a problem for the long run," says George Palmatier, a Minden, Nev., sales consultant and author of "The Marketing Edge." Still, says John Sullivan, a management recruiter with Daniel Roberts Inc. of Boston, who has held senior sales positions at Polaroid and Atari: "The customer will react to strength.Ignore the present condition.Show it's business as usual." That isn't easy.Wang's customers are data processing managers who want to be sure that their suppliers are stable, wellrun companies that will be around to fix bugs and upgrade computers for years to come. For buyers, "these are career-risking decisions," says Jean Conlin, who supervises a network of Wang computers in the admissions department at Boston University.The university is considering installing a $250,000 system to store applications electronically. "Before the really bad news, we were looking at Wang fairly seriously," she says.But "their present financial condition means I'd have a hard time convincing the vice president in charge of purchasing." Ms. Conlin adds: "At some point we'd have to ask, `How do we know that in three years you won't be in Chapter 11? '" During the past year, Wang has developed new products and a new strategy and hired a new president.Wang's overall product line is "still not as good as other vendors, but they've come a long way," says Steven Wendler, a consultant with market researcher Gartner Group, Stamford, Conn. "They were on the road to recovery in terms of customer attitudes until this bad quarter happened." The first priority for Wang's sales force is to make sure it holds on to existing customers.Wang's installed base is one of its greatest assets, and many of those customers remain extremely loyal. But even before Wang's latest financial troubles surfaced, some customers "were trying to wall off their Wang installations" so other departments wouldn't add Wang, says Chris Christiansen, a former Wang marketer who is now a market analyst with Meta Group, a market research firm in Stamford, Conn. One Wang salesman who left the company in July recalls that when he tried to sell products to Eastman Kodak, he worked "to muster support from internal allies," but "those allies became skeptical as they saw the downtrend.The more recent losses were really devastating." New customers, the source of higher commissions for salespeople and the key to Wang's long-term viability, are even tougher.Rick Lynch, a former top salesman in Wang's Boston office, referring to Wang's mainstay computer line, says: "You can't sell a VS to a new customer." Mr. Lynch left Wang this summer for Oracle Systems Inc., a software vendor. The financial problems are particularly frustrating for salespeople pushing Wang's image systems, which convert paper forms to electronic documents.Consultants say that Wang's technology is among the best available in the image market. But salespeople often found that news of Wang's problems superseded their sales efforts.William Tait, a former sales manager in Indianapolis, says that his office had all but sold a $1.5 million image system to pharmaceutical maker Eli Lilly & Co. "When they were making the decision, all hell broke loose with the finances." He says the Lilly executives told him they couldn't take the risk with Wang. Mr. Tait say he doesn't blame Lilly.Buyers have to rely on a supplier "continually upgrading and replacing the product," he says. "When a company realizes that, it's hard to go with Wang." For Mr. Tait, who says he used to earn as much as $150,000 a year at Wang, it was one more reason to quit.He is now president of Eastate Homes Inc., an Indianapolis contractor. It can be hard for a salesperson to fight off feelings of discouragement.Brian Petre, a former Wang salesman in upstate New York, says: "You have pride in your job.You think you can go out and turn things around.It's a tough thing when you can't.The reason doesn't relate to your selling skills." Discouragement feeds on itself. "The problem is, if people get down in the dumps, they stop selling," says Mike Durcan, a laid-off sales manager in Wang's Austin office. One key for salespeople is to boost their own morale.Paul Hellman, a Framingham, Mass., sales and management consultant and author of "Ready, Aim, You're Hired," says: "The bad news is, you'll be rejected more.The good news is, it's not your fault." So, he advises, make goals achievable.For instance, he suggests that salespeople making telephone calls should say to themselves: "All I want to do today is get 50 rejections." But Mr. Miller, Wang's new president, recently warned his salespeople about negativism. "Our customers watch us for the hidden message," he said. "Look a customer right in the eye and say, `I'm glad to be at Wang. '"
GTE Corp. and MCI Communications Corp. reported strong earnings gains to record levels for the third quarter.Southwestern Bell Corp. and Cincinnati Bell posted slight declines. GTE Corp. GTE said net income rose 18%, aided by higher long-distance calling volumes and an increase in telephone lines in service.Pretax operating profit from telephone operations rose 8.2% but profits from telecommunications products and electrical products were flat. Revenues rose 8.8% to $4.35 billion from $4.0 billion. The company said the quarter included a 10% increase in local-exchange usage for long-distance calling and a 5% increase in the number of access lines in service.Earlier rate reductions in Texas and California reduced the quarter's revenue and operating profit $55 million; a year earlier, operating profit in telephone operations was reduced by a similar amount as a result of a provision for a reorganization. Revenue in the telecommunications products and services unit rose 27% to $728.8 million, but operating profit was unchanged at $26.3 million, partly because of start-up expenses.Electrical products' sales fell to $496.7 million from $504.5 million with higher world-wide lighting volume offset by lower domestic prices and the impact of weaker currencies in Europe and South America.Operating profit of $37.2 million was unchanged. In composite trading on the New York Stock Exchange, GTE rose $1.25 to $64.125.MCI Communications Corp. MCI, which stepped up efforts to sell long-distance telephone service to residential customers, reported a 59% jump in earnings.Revenue rose 23% to $1.67 billion from $1.36 billion. Operating profit grew 57% to $269 million from $171 million, while operating margins rose to 16.1% from 15.9% the previous quarter and 12.6% a year ago.Daniel Akerson, MCI chief financial officer, said the company sees further improvements in operating margins. "We think we can take it to the 18% range over next 18 to 24 months," he said. In national over-the-counter trading, MCI fell $2.625 to $42.375.Charles Schellke, an analyst with Smith Barney, Harris Upham & Co., said some investors apparently expected slightly better revenue growth. The company said that residential traffic grew faster than business traffic and attributed that to its new PrimeTime calling plan that competes with American Telephone & Telegraph's Reach Out America plan.MCI claims about 12% of the overall long-distance telephone market but just under 10% of the $23 billion residential market.It has been trying to improve its share of the residential market.The company wants its business mix to more closely match that of AT&T -- a step it says will help prevent cross subsidization. Mr. Akerson said MCI recorded "another solid cash positive quarter," its fourth in a row, but declined to comment on whether the company is considering a dividend or is planning any acquisition.The current quarter, he said, "looks fine.We think revenue will continue to grow and that we can control costs and thus improve profitability." Southwestern Bell Corp. Southwestern Bell Corp. said net dropped 8.7%, mainly the result of four extraordinary items: a franchise tax refund that its Southwestern Bell Telephone Co. unit received last year; a production shift of several Yellow Pages directories to the fourth quarter from the third; a rate refund in Missouri and a one-time adjustment to phone company revenues. Revenue slipped 1.2% to $2.21 billion from $2.23 billion. The earnings drop had been expected.Chairman Zane E. Barnes said Southwestern Bell's "businesses are healthy and are continuing to grow." The company reported a 3.1% increase in the number of access lines in service, and also said its Southwestern Bell Mobile Systems unit added 30,000 new customers, with a current total of about 333,000. Southwestern shares fell 50 cents to $55.875 in composite trading on the New York Stock Exchange. Cincinnati Bell Inc. Cincinnati Bell Inc. said net declined 1.8%.The company noted that the year-ago period was particularly strong, with an increase of nearly 70%.Revenue jumped nearly 17% to $223.3 million from $191.4 million.In composite trading on the New York Stock Exchange, Cincinnati Bell fell 25 cents to $29. The company said that the number of access lines dropped slightly in the quarter, a decline attributed to seasonal fluctuations.For the year, however, access lines in service have increased 5.5%. Chairman D.H. Hibbard said the company has set a new five year goal of doubling revenues to about $1.8 billion while steadily increasing net.
Arbitragers weren't the only big losers in the collapse of UAL Corp. stock.Look at what happened to UAL's chairman, Stephen M. Wolf, and its chief financial officer, John C. Pope. On a day some United Airlines employees wanted Mr. Wolf fired and takeover stock speculators wanted his scalp, Messrs.Wolf and Pope saw their prospective personal fortunes continue to plummet as shares of UAL, United's parent company, dived $24.875 on the Big Board to close at $198. Including Monday's plunge, that has given the two executives paper losses of $49.5 million, based on what they would have realized had the pilots and management-led buy-out of UAL gone through at $300 a share. When bank financing for the buy-out collapsed last week, so did UAL's stock.Even if the banks resurrect a financing package at $250 a share, the two executives would still get about $25 million less than they stood to gain in the initial transaction. Mr. Wolf owns 75,000 UAL shares and has options to buy another 250,000 at $83.3125 each.In the $300-a-share buyout, that totaled about $76.7 million.By yesterday's close of trading, it was good for a paltry $43.5 million. Of course, Mr. Wolf, 48 years old, has some savings.He left his last two jobs at Republic Airlines and Flying Tiger with combined stock-option gains of about $22 million, and UAL gave him a $15 million bonus when it hired him.His 1988 salary was $575,000, with a $575,000 bonus. The 40-year old Mr. Pope hasn't changed jobs enough -- at least the right ones -- to stash away that kind of money.United paid him a $375,000 bonus to lure him away from American Airlines, and he was paid a salary of $342,122 last year with a $280,000 bonus. Mr. Pope owns 10,000 UAL shares and has options to buy another 150,000 at $69 each.That came to a combined $37.7 million under the $300-a-share buy-out, but just $21.3 million at yesterday's close. Of the combined $114.4 million the two men were scheduled to reap under the buy-out, they agreed to invest in the buy-out just $15 million, angering many of the thousands of workers asked to make pay concessions so the buy-out would be a success. United's directors voted themselves, and their spouses, lifetime access to the Friendly Skies -- free first-class travel, and $20,000 a year for life as well.Conceivably, in a scaled-back buy-out, they could be bumped back to coach seats for life.
Three leading drug companies reported robust third-quarter earnings, bolstered by strong sales of newer, big-selling prescriptions drugs that provide hefty profit margins. Merck & Co. reported a 25% increase in earnings; Warner-Lambert Co. 's profit rose 22% and Eli Lilly & Co. 's net income rose 24%.The results were in line with analysts' expectations. Merck & Co. Merck, Rahway, N.J., continued to lead the industry with a strong sales performance in the human and animal health-products segment.A stronger U.S. dollar reduced third-quarter and first-nine-month sales growth 2% and 3%, respectively.International sales accounted for 47% of total company sales for the nine months, compared with 50% a year earlier.Sales for the quarter rose to $1.63 billion from $1.47 billion. Mevacor, Merck's new cholesterol-lowering drug, had higher sales than any other prescription medicine has ever achieved in the U.S. in the year following introduction, the company said.The drug was introduced in West Germany this year.Intense competition, however, led to unit sales declines for a group of Merck's established human and animal-health products, including Aldomet and Indocin. In New York Stock Exchange composite trading yesterday, Merck shares closed at $75.25, up 50 cents. Warner-Lambert Co. Warner-Lambert, Morris Plains, N.J., reported sales that were a record for any quarter and the eighth quarter in a row of 20% or more per-share earnings growth.Spurred by growth in world-wide sales of the company's prescription drugs, Warner-Lambert said 1989 will be the best year in its history, with per-share earnings expected to increase more than 20% to about $6.10.Sales for the quarter rose to $1.11 billion from $1.03 billion. Prescription-drug world-wide sales rose 9% in the quarter to $340 million; U.S. sales rose 15%.The segment's growth was led by sales of the cardiovascular drugs Lopid, a lipid regulator, and Dilzem, a calcium channel blocker. World-wide sales of Warner-Lambert's non-prescription health-care products, such as Halls cough tablets, Rolaids antacid, and Lubriderm skin lotion, increased 3% to $362 million in the third quarter; U.S. sales rose 5%. Confectionery products sales also had strong growth in the quarter.World-wide sales of Trident gum, Certs breath mints, and Clorets gum and breath mints, increased 12% to $277 million. Warner-Lambert shares closed at $109.50 a share, up $1.50, in Big Board composite trading yesterday. Eli Lilly & Co. Lilly attributed record third-quarter and nine-month results to world-wide gains for pharmaceuticals, medical instruments and plant-science products despite poor exchange rates for the dollar that slowed sales abroad. Earnings continued to pace sales because of a lower tax rate, profit from the renegotiation of the debt instrument received from Faberge Inc. in connection with Lilly's sale of Elizabeth Arden Inc. in 1987, and net proceeds from the settlement of patent litigation at Lilly's Hybritech Inc. unit. Third-quarter sales of the Indianapolis, Ind., company rose 11% to $1.045 billion from $940.6 million.Nine-month sales grew 12% to $3.39 billion from $3.03 billion a year earlier. Sales of Prozac, an anti-depressant, led drug-sales increases.Higher sales of pesticides and other plant-science products more than offset a slight decline in the sales of animal-health products to fuel the increase in world-wide agricultural product sales, Lilly said. Advanced Cardiovascular Systems Inc. and Cardiac Pacemakers Inc. units led growth in the medical-instrument systems division. Lilly shares closed yesterday in composite trading on the Big Board at $62.25, down 12.5 cents.
US Facilities Corp. said Robert J. Percival agreed to step down as vice chairman of the insurance holding company. "There was a difference of opinion as to the future direction of the company," a spokeswoman said.Mr. Percival declined to comment. In a statement, US Facilities said Mr. Percival's employment contract calls for him to act as a consultant to the company for two years.He will also remain a director, US Facilities said, but won't serve on any board committees. Mr. Percival will be succeeded on an interim basis by George Kadonada, US Facilities chairman and president. In the same statement, US Facilities also said it had bought back 112,000 of its common shares in a private transaction.Terms weren't disclosed.The buy-back represents about 3% of the company's shares, based on the 3.7 million shares outstanding as of Sept. 30. In national over-the-counter trading yesterday, US Facilities closed at $3.625, unchanged.
Reuben Mark, chairman of Colgate-Palmolive Co., said he is "comfortable" with analysts' estimates that third-quarter earnings rose to between 95 cents and $1.05 a share.That compares with per-share earnings from continuing operations of 69 cents the year earlier; including discontinued operations, per-share was 88 cents a year ago. The per-share estimates mean the consumer-products company's net income, increased to between $69.5 million and $76 million, from $47.1 million the year-before period.Analysts estimate Colgate's world-wide third-quarter sales rose about 8% to $1.29 billion. Mr. Mark attributed the earnings growth to strong sales in Latin America, Asia and Europe.Results were also bolstered by "a very meaningful" increase in operating profit by Colgate's U.S. business, Mr. Mark said. Operating profit at Colgate's U.S. household products and personal-care businesses jumped 25% in the quarter, Mr. Mark added.He said the improvement was a result of cost savings achieved by consolidating manufacturing operations, blending two sales organizations and focusing more carefully the company's promotional activities. The estimated improvement in Colgate's U.S. operations took some analysts by surprise.Colgate's household products business, which includes such brands as Fab laundry detergent and Ajax cleanser, has been a weak performer.Analysts estimate Colgate's sales of household products in the U.S. were flat for the quarter, and they estimated operating margins at only 1% to 3%. "If you could say their business in the U.S. was mediocre, but great everywhere else, that would be fine," says Bonita Austin, an analyst with Wertheim Schroder & Co. "But it's not mediocre, it's a real problem." Mr. Mark conceded that Colgate's domestic business, apart from its highly profitable Hill's Pet Products unit, has lagged. "We've done a lot to improve {U.S.} results, and a lot more will be done," Mr. Mark said. "Improving profitability of U.S. operations is an extremely high priority in the company." To focus on its global consumer-products business, Colgate sold its Kendall health-care business in 1988.
The Boston Globe says its newly redesigned pages have a "crisper" look with revamped fixtures aimed at making the paper "more consistent" and "easier to read." Maybe so -- if you can find where your favorite writer went.Beantown scribes, who spare no invective when taking on local luminaries such as Michael "Pee Wee" Dukakis, or New England Patriots Coach Raymond "Rev.Ray" Berry, yesterday poured ridicule on new drawings of Globe columnists that replaced old photos in the revamped pages this week.By late last night, Globe Managing Editor Thomas Mulvoy, bending to the will of his troops, scrapped the new drawings.For a few days at least, he says, no pictures or drawings of any kind will adorn the columns. Trouble was, nobody thought they looked right.Globe columnist Mike Barnicle -- in the second attack on his employer in as many weeks -- averred that his shadowy countenance was so bad, it looked "like a face you'd find on a bottle of miracle elixir that promises to do away with diarrhea in our lifetime." Mr. Barnicle reminded readers that he still hasn't forgiven Globe management for questioning a $20 expense chit he submitted for parking his car while chasing a story. "I thought {the drawing} a cross between someone you'd spot whipping open his trench coat . . . or a guy who boasted he'd been Charles Manson's roommate for the last 19 years," he said.Mr. Barnicle was hardly kinder to the renderings of colleagues Michael Madden ("appears to be a pervert"), Will McDonough ("looks as if he drove for Abe Lincoln") or Bella English, whose "little girl now screams hysterically every time she sees a newspaper." Lynn Staley, the Globe's assistant managing editor for design, acknowledges that the visages were "on the low end of the likeness spectrum." Rival Boston Herald columnist Howie Carr, who usually rails at Statehouse "hacks" and nepotism, argued that the new drawings were designed to hide Mr. Madden's "rapidly growing forehead" and the facial defects of "chinless" Dan Shaughnessy, a Globe sports columnist. "But think of the money you, the reader, will save on Halloween," said Mr. Barnicle. "Instead of buying masks for your kids, just cut out the columnists' pictures. . . ."
The Internal Revenue Service plans to restructure itself more like a private corporation. In addition, the tax-collecting agency says that it will take the unusual step of looking to the private sector to fill two new high-level positions to guide the 120,000-employee agency: a comptroller to oversee daily finances and a chief information officer to update the information system, which includes probably the largest computer data base in the world. The IRS also said that it would create the position of chief financial officer, who will be hired from within the agency. IRS Commissioner Fred T. Goldberg said the changes are intended to bring "accountability" to the agency, which has an annual budget of more than $5 billion and collects about $1 trillion a year. "My assessment and everyone's assessment is that we do not have the kinds of information that let us responsibly and effectively formulate and execute our budget," Mr. Goldberg said. "And we don't have internal controls and discipline that we need to have to spend $5 billion properly." Mr. Goldberg, who took over as head of the IRS in July, has been disturbed by what he considers the inefficiency, waste and lack of coordination among the branches of the vast federal agency. The IRS operates on a computer system designed in 1961, which it has been trying to modernize for years.And the agency, which operated throughout fiscal 1989 with a $360 million budget shortfall, has been under a hiring freeze since last fall. The new commissioner says that closer scrutiny of how the agency uses its resources will go a long way toward enhancing its ability to collect more tax revenue. "I think that you will see a significant improvement in the budget formulation and execution process which, in turn, I believe will result in a significant increase in revenue," he said. The IRS hopes to fill the new positions soon.Customarily, it would appoint career civil servants from within the agency, but Mr. Goldberg said he plans to "scour the world" for the chief information officer and the comptroller. Although the jobs will probably pay between $70,000 and $80,000 a year, IRS officials are confident that they can attract top-notch candidates from the private sector. "You're telling someone they can spend the next three or four or five or six years of their life bringing about the most difficult and costly modernization of an information system on the civil side ever," Mr. Goldberg said. "On the comptroller side, you're developing and making work financial controls governing a $6 billion budget."
When Maj. Moises Giroldi, the leader of the abortive coup in Panama, was buried, his body bore several gunshot wounds, a cracked skull and broken legs and ribs.They were the signature of his adversary, Panamanian leader Manuel Antonio Noriega. The rebel officer's slow and painful death, at the headquarters of Panama's Battalion-2000 squad, was personally supervised by Gen. Noriega, says a U.S. official with access to intelligence reports.Leaping into rages, sinking into bouts of drunkenness and mistrust, Mr. Noriega has put to death some 70 of his troops involved in the coup, according to U.S. officials monitoring crematoriums and funeral parlors in Panama City. He is now changing the place he sleeps every night, sometimes more than once a night.His meals are most often prepared by women he trusts -- his full-time mistress, Vicky Amado, and her mother, Norma.And he is collecting the names of those who telephoned the coup-makers to congratulate them during their brief time in control of his headquarters.More enemies to be dealt with. In the two weeks since the rebellion, which the U.S. hesitantly backed, Mr. Noriega has been at his most brutal-and efficient-in maintaining power.Yet, while the failed coup is a major U.S. foreign policy embarrassment, it is merely the latest chapter in a byzantine relationship between Mr. Noriega and Washington that stretches back three decades.America's war on the dictator over the past two years, following his indictment on drug charges in February 1988, is the legacy of that relationship.Before American foreign policy set out to destroy Noriega, it helped create him out of the crucible of Panama's long history of conspirators and pirates. For most of the past 30 years, the marriage was one of convenience.In 1960, for example, when Mr. Noriega was both a cadet at an elite military academy in Peru and a spy-in-training for the U.S. Defense Intelligence Agency, he was detained by Lima authorities for allegedly raping and savagely beating a prostitute, according to a U.S. Embassy cable from that period.The woman had nearly died.But U.S. intelligence, rather than rein in or cut loose its new spy, merely filed the report away.Mr. Noriega's tips on emerging leftists at his school were deemed more important to U.S. interests.From that point on, the U.S. would make a practice of overlooking the Panamanian's misadventures. The U.S. has befriended and later turned against many dictators, but none quite so resourceful.The 55-year-old Mr. Noriega isn't as smooth as the shah of Iran, as well-born as Nicaragua's Anastasio Somoza, as imperial as Ferdinand Marcos of the Philippines or as bloody as Haiti's Baby Doc Duvalier.Yet he has proved more resilient than any of them.And out of necessity: The U.S. can make mistakes and still hope to remove him from power, but a single error on his part could cost him his life. "The U.S. underestimated Noriega all along," says Ambler Moss, a former Ambassador to Panama. "He has mastered the art of survival." In keeping with America's long history of propping up Mr. Noriega, recent U.S. actions have extended rather than shortened his survival.Mr. Noriega might have fallen of his own weight in 1988 because of Panama's dire economic situation, says Mr. Moss, but increasing external pressure has only given him additional excuses for repression, and a scapegoat for his own mismanagement. "If the U.S. had sat back and done nothing, he might not have made it through 1988," Mr. Moss contends. Perhaps most important, Mr. Noriega's allies have intervened to encourage -- in some cases, to demand -- that the dictator maintain his grip of the throne.One Colombian drug boss, upon hearing in 1987 that Gen. Noriega was negotiating with the U.S. to abandon his command for a comfortable exile, sent him a hand-sized mahogany coffin engraved with his name. "He is cornered," says the Rev. Fernando Guardia, who has led Catholic Church opposition against Noriega. "The Americans have left him without a way out.It is easy to fight when you don't have any other option." His chief advantage in the fight: his intimate knowledge of American ways and weaknesses.Mr. Noriega often tells friends that patience is the best weapon against the gringos, who have a short attention span and little stomach for lasting confrontation. The U.S. discovered the young Tony Noriega in late 1959, when he was in his second year at the Chorrillos Military Academy in Lima, according to former U.S. intelligence officials.The contact occurred through Mr. Noriega's half-brother, a Panamanian diplomat based in Peru named Luis Carlos Noriega Hurtado.Luis Carlos, knowing that helping the Americans could advance the career of any Panamanian officer, relayed Tony's reports on the leftist tendencies he observed among his fellow students and, more important, among his officers and instructors.A spy was born. It was a heady experience for the pockmarked and slightly built Mr. Noriega, who was known to his friends as Cara la Pina -- pineapple face.Born the illegitimate son of his father's maid, he was raised on the mean streets of the central market district of Panama City.Tony was four years older than most of his fellow cadets, and gained admission to the academy because his brother had falsified his birth certificate.He considered himself intellectually superior to his Peruvian peers, many of whom were wayward sons sent by their well-off families to the highly disciplined, French-modeled academy as a sort of reform school. In his peaked military cap and neatly pressed, French-made uniform, Noriega felt more respected and powerful than ever in his underprivileged life, friends from the period say. "He had an elegant uniform with gold buttons in a country where there was a cult of militarism, where officers were the elite with special privileges," recalls Darien Ayala, a fellow student in Peru and a lifelong friend. Mr. Noriega's relationship to American intelligence agencies became contractual in either 1966 or 1967, intelligence officials say.His commanding officer at the Chiriqui Province garrison, Major Omar Torrijos, gave him an intriguing assignment: Mr. Noriega would organize the province's first intelligence service. The spy network would serve two clients: the Panamanian government, by monitoring political opponents in the region, and the U.S., by tracking the growing Communist influence in the unions organized at United Fruit Co. 's banana plantations in Bocas del Toros and Puerto Armuelles.United Fruit was one of the two largest contributors to Panama's national income.Satisfying its interests was a priority for any Panamanian leader. Mr. Noriega's initial retainer was only $50 to $100 a month, plus occasional gifts of liquor or groceries from the American PX, a former intelligence official says.It was modest pay by American standards, but a healthy boost to his small military salary, which fellow officers remember as having been $300 to $400 monthly. "He did it very well," recalls Boris Martinez, a former Panamanian colonel who managed Mr. Noriega and his operation. "He started building the files that helped him gain power." A National Guard job assumed by Capt. Noriega in 1964 -- as chief of the transit police in David City, capital of the Chiriqui Province -- was tailor-made for an aspiring super-spy.By pressuring taxi and bus drivers who needed licenses, he gained a ready cache of information.He knew which local luminaries had been caught driving drunk, which had been found with their mistresses. This proved particularly valuable to the Panamanian government in 1967, when union leaders were planning a May Day march that the government feared could turn violent.Mr. Noriega had learned that a local union leader was sleeping with the wife of his deputy.So he splashed the information on handbills that he distributed throughout the banana-exporting city of Puerto Armuelles, which was ruled by United Fruit Co.The campaign so divided union leaders that the government found them far easier to control. "It was like a play on Broadway," recalls Mr. Martinez. "Noriega managed the whole thing.He was superb.Noriega was an expert at bribing and blackmailing people." During his years in Chiriqui, however, Mr. Noriega also revealed himself as an officer as perverse as he was ingenious.Rodrigo Miranda, a local lawyer and human-rights monitor, recalls an intoxicated Noriega visiting prisoners in their cells at the 5th Zone Garrison headquarters in David, where he had his offices.Mr. Noriega would order them all to take off their clothes and run around the courtyard naked, laughing at them and then retreating to his office. "People started wondering if something was wrong with him," Mr. Miranda recalls. But through this period, so far as the U.S. military was concerned, Mr. Noriega was a model recruit.He signed up for intelligence and counter-intelligence training under American officers at Fort Gulick in Panama in July 1967, according to a copy of a 1983 resume with details Mr. Noriega has since classified as secret.He flew to Fort Bragg, N.C., in September of that year for a course in psychological operations, returning to the School of the Americas in Panama for a two-month course called "military intelligence for officers." Some American officers interpreted his eagerness and studiousness as a sign of loyalty, but they did so falsely.He rose to chief of intelligence in Panama's socalled G-2 in 1970 after providing populist dictator Torrijos the critical support to defeat a coup attempt against him a year earlier.He became Gen. Torrijos's inseparable shadow, and the holder of all Panama's secrets.Mr. Noriega, by now a lieutenant colonel, expanded his contacts to include the Cubans -- not to mention the Israelis, the Taiwanese and any other intelligence service that came knocking.When U.S. diplomats complained to the CIA of Col. Noriega's moonlighting, intelligence experts always insisted that his allegiance was first to the Americans. "Early on in the State Department, we took to calling him the rent-a-colonel, in tribute to his ability to simultaneously milk the antagonistic intelligence services of Cuba and the United States," recalls Francis J. McNeil, who, as deputy assistant secretary of state for inter-American affairs, first ran across reports about Mr. Noriega in 1977. "Some of us wondered how our intelligence people could put so much stock in his information when he was just as close to the Cubans." Even at this early stage, drugs caused additional concerns.During the Nixon administration, the Drug Enforcement Administration became dismayed at the extent of the G-2's connections to arrested drug traffickers.One DEA agent drew up a list of five options for dealing with Col. Noriega, one of which was assassination. The head of the DEA at the time, John Ingersoll, scotched the assassination plan.But he did fly to Panama to scold dictator Torrijos on the drug ties of Panamanian officials, including Mr. Noriega.Mr. Ingersoll later recalled that Gen. Torrijos seemed afraid to act on the concerns of the U.S. "Everybody was afraid of him," Mr. Ingersoll says. Mr. Noriega became an even greater threat in 1976, when U.S. intelligence services discovered that he had been buying recordings of electronically monitored conversations from three sergeants working for the U.S. Army's 470th Military Intelligence Group.The tapes included wiretaps of Gen. Torrijos's own phone, according to American intelligence officials. "We caught him with his hands on our cookie jar," says former CIA Director Stansfield Turner. For the first time, the U.S. considered cutting Mr. Noriega from its intelligence payroll -- and the deliberations were intense, Mr. Turner says. "In the world of intelligence, if you want to get information, you get it from seedy characters.The question is how much you get tied in with seedy characters so they can extort you." Intelligence officials to this day worry whether Mr. Noriega sold sensitive information on the recordings to the Cubans or others.Mr. Turner was troubled enough to cancel the U.S. contract with the rent-a-colonel at the beginning of the Carter administration. The U.S. soon found new cause for concern: gun-running.Prosecutors in Southern Florida indicted five Panamanians on charges of illegally running arms to Sandinista rebels trying to overthrow the Nicaraguan government of Mr. Somoza.They included one of Mr. Noriega's closest friends and business partners, Carlos Wittgreen.And the investigators were quickly closing in on Mr. Noriega himself. At the time, though, in 1979, the U.S. was once again flirting with its longtime Latin American spy.Mr. Noriega made plans to fly to Washington for a meeting with his counterpart at the Pentagon.Dade County and federal authorities, learning that he intended to fly through Miami, made plans to arrest him on the gun-running charges as soon as he hit U.S. soil.It was a Friday in June. The Pentagon foiled the plan.According to military officers at the time, word was passed to Mr. Noriega by his American hosts that the police would be waiting.On Monday, U.S. officials received a routine, unclassified message from the military group commander in Panama. "Due to health reasons, Lt. Col. Noriega has elected to postpone his visit to Washington," it read. Prosecutors in Miami received yet another setback.Their original indictment against Mr. Wittgreen, the friend of Mr. Noriega, and the other four was dismissed on a technicality.But now, along with reindicting Mr. Noriega's pal, they intended to charge Mr. Noriega himself, on allegations that he was involved in the illegal trading of some $2 million in arms. In January 1980, Jerome Sanford, as assistant U.S. attorney, was summoned to a meeting with a Federal Bureau of Investigation agent assigned to the Bureau of Alcohol, Tobacco and Firearms in Miami.Panamanian dictator Torrijos, he was told, had granted the shah of Iran asylum in Panama as a favor to Washington.Mr. Sanford was told Mr. Noriega's friend, Mr. Wittgreen, would be handling the shah's security.It wouldn't be a good idea to indict him -- much less Mr. Noriega, the prosecutor was told. After prodding from Mr. Sanford, U.S. Attorney Jack Eskenazi pleaded with Justice Department officials in Washington to let the indictment proceed. "Unfortunately," Mr. Eskenazi wrote in a letter, "those of us in law enforcement in Miami find ourselves frequently attempting to enforce the laws of the United States but simultaneously being caught between foreign policy considerations over which we have no control." The letter, along with a detailed prosecution memo, sat on the desks of Justice officials for months before the case died a quiet death. "I think if we had been allowed to go ahead then we wouldn't have the problems we have now," Mr. Sanford says. "If he had been found guilty, we could have stopped him." In August 1983, Mr. Noriega took over as General and de-facto dictator of Panama, having maneuvered his way to the top only two years after the mysterious death in a plane crash of his old boss Omar Torrijos.Soon, the military became a veritable mafia controlling legal and illegal businesses.The Reagan administration also put Mr. Noriega's G-2 back on the U.S. payroll.Payments averaged nearly $200,000 a year from the U.S. Defense Intelligence Agency and the CIA. Although working for U.S. intelligence, Mr. Noriega was hardly helping the U.S. exclusively.During the Reagan years he expanded his business and intelligence contacts with the Cubans and the Sandinistas.He allegedly entered into Panama's first formal business arrangement with Colombian drug bosses, according to Floyd Carlton, a pilot who once worked for Mr. Noriega and who testified before the U.S. grand jury in Miami that would ultimately indict the Panamanian on drug charges. But Mr. Noriega was convinced the Reagan White House wouldn't act against him, recalls his close ally Jose Blandon, because he had an insurance policy: his involvement with the Contra rebels in Nicaragua.Mr. Blandon says the general allowed the Contras to set up a secret training center in Panama.Mr. Noriega also conveyed intelligence from his spy operation inside the Nicaraguan capital of Managua.And on at least one occasion, in the spring of 1985, he helped arrange a sabotage attack on a Sandinista arsenal in Nicaragua.Although, his help for the Contra cause was limited, it was enough to win him important protectors in the Reagan administration, says Sen. Patrick Leahy, a Vermont Democrat who then served on the Senate Intelligence Committee. "Noriega played U.S. intelligence agencies and the U.S. government like a violin," he says. An incident in 1984 suggested one additional means by which Mr. Noriega might have maintained such influence with Washington -- by compromising U.S. officials.Curtin Windsor, then the ambassador to Costa Rica, recalls being invited to Panama by Mr. Noriega's brother Luis Carlos for a weekend of deep sea fishing and "quiet, serious conversation" on the Aswara Peninsula.Mr. Windsor notified Everett E. Briggs, the U.S. ambassador to Panama, of the invitation. "Briggs screamed," Mr. Windsor recalls.He says Mr. Briggs told him he was being set up for a "honey trap," in which Mr. Noriega would try to involve him in an orgy and then record the event "with sound and video." Mr. Briggs, on vacation after resigning his position at the National Security Council, couldn't be reached for comment. As Mr. Noriega's political troubles grew, so did his offers of assistance to the Contras, an apparent attempt to curry more favor in Washington.For instance, he helped steal the May 1984 Panamanian elections for the ruling party.But just one month later, he also contributed $100,000 to a Contra leader, according to documents released for Oliver North's criminal trial in Washington, D.C. Yet, his political setbacks mounted.Mr. Noriega was accused of ordering in 1985 the beheading of Hugo Spadafora, his most outspoken political opponent and the first man to publicly finger Mr. Noriega on drug trafficking charges.He then ousted President Nicholas Ardito Barletta, a former World Bank official with close ties to the U.S., after Mr. Barletta tried to create a commission to investigate the murder.And, all the while, Panama's debt problems continued to grow.Mr. Noriega was growing desperate. In late 1986, he made an offer he thought the U.S. couldn't refuse.As recounted in a stipulation that summarized government documents released for the North trial, Mr. Noriega offered to assassinate the Sandinista leadership in exchange "for a promise to help clean up Noriega's image and a commitment to lift the {U.S.} ban on military sales to the Panamanian Defense Forces." "North," the document went on, referring to Oliver North, "has told Noriega's representative that U.S. law forbade such actions.The representative responded that Noriega had numerous assets in place in Nicaragua and could accomplish many essential things, just as Noriega had helped {the U.S.} the previous year in blowing up a Sandinista arsenal." Col. North conveyed the request to his superiors and to Assistant Secretary of State Elliot Abrams, who relayed it to Secretary of State George Shultz.Mr. Noriega's proposal was turned down.And Mr. Shultz curtly told Mr. Abrams that the general should be told that only he could repair his tarnished image. The end of the marriage was at hand.Within weeks the unfolding Iran-Contra scandal took away Mr. Noriega's insurance policy.The death of CIA Director William Casey and resignation of Oliver North allowed anti-Noriega political forces to gain influence.Public protests against him were triggered in June 1987 due to charges by Diaz Herrera, his former chief of staff, that Mr. Noriega had stolen the 1984 election and had ordered the killing of Messrs.Spadafora and Torrijos.Few American officials were willing any longer to defend him. Lawyers in Miami -- this time working virtually without impediment -- prepared to have him indicted on drug charges in February 1988.During negotiations with American officials in May 1988 over proposals to drop the U.S. indictments in exchange for his resignation, Mr. Noriega often asked almost plaintively how the Americans, whom he had helped for so many years, could turn against him. Now, neither side -- the U.S. nor Mr. Noriega -- has an easy out.President Bush has sworn to bring him to justice.Mr. Noriega believes he hasn't any alternative but to continue clutching to power.It is a knock-out battle -- perhaps to the death. In the end, is Mr. Noriega the political equivalent of Frankenstein's monster, created by a well-intentioned but misguided foreign power?Not quite, Sen. Leahy contends. "For short-term gains, people were willing to put up with him.That allowed him to get stronger and stronger," he says. "I don't think we created him as much as we fed him, nurtured him and let him grow up to be big and strong."
Industrial production declined 0.1% in September, reinforcing other signs that the manufacturing sector continues its slowing trend. The Federal Reserve Board said output of the nation's factories, mines and utilities expanded at an annual rate of 1.3% in the third quarter, substantially slower than the 3.3% annual rate in the second quarter. "Capital spending and exports, which have been the driving force in this expansion, are showing clear signs of having the steam taken out of them," said Robert Dederick, economist for Northern Trust Co. in Chicago. The new reports of sluggishness, which were foreshadowed by an earlier Labor Department report that manufacturing payrolls dropped by 105,000 in September, give the Fed another reason to further ease its grip on credit and lower interest rates. "They need to do something about this," said Maury Harris, economist at PaineWebber Group Inc. The Fed also said U.S. industry operated at 83.6% of capacity last month, down from 83.8% in August. Measures of manufacturing activity fell more than the overall measures.Factory output dropped 0.2%, its first decline since February, after having been unchanged in October.Factories operated at 83.7% of capacity, the lowest rate in more than a year and down from 84.1% in September. The declines mainly reflected widespread weakness in durable goods, those intended to last more than three years.The biggest drop was recorded by primary metals producers, a category that includes the steel industry. Output of business equipment was unchanged in September.Production of factory equipment, one indication of the strength of manufacturers' investment spending, fell 0.3%. Some economists expect further declines in investment spending. "Whenever corporate profits are weak that means capital spending is going to soften subsequently," Mr. Harris said. "You haven't seen the full effect of that yet." A decline in truck production more than offset a sharp rise in auto assemblies, the Fed noted.Analysts don't expect the September surge in auto production to be repeated in the coming months. Here is a summary of the Federal Reserve Board's report on industrial production in September.The figures are seasonally adjusted. 142.3% of the 1977 average.
Lung-cancer mortality rates for people under 45 years of age have begun to decline, federal researchers report. The drop is particularly large for white males, although black males and white and black women also show lower mortality rates. A report in this week's issue of the Journal of the National Cancer Institute also projects that overall U.S. mortality rates from lung cancer, the leading cause of cancer death, should begin to drop in several years if cigarette smoking continues to abate. The report, which comes 25 years after the U.S. Surgeon General issued a report warning against the dangers of smoking, is the strongest indication to date that the reduction in smoking is leading to lower death rates from lung cancer. "What this is saying is that the surgeon general's message is having an impact," said Melvyn Tockman, an epidemiologist at the Johns Hopkins School of Hygiene and Public Health in Baltimore. The National Cancer Institute report compares mortality rates of two groups of people between the ages of 35 and 44 a decade apart.The death rate from lung cancer of white males aged 35 to 44 in the mid-1970s was 13.4 per 100,000, but the mortality rate of the same age group in the mid-1980s was 9.6, a decline of 28.7%.Measured the same way, the decline for black males was 14.2%.The drop in mortality rates for women was less steep -- 8.9% for blacks and 5.3% for whites. The study, by Susan Devesa, William Blot and Joseph Fraumeni of the institute's staff, also shows that the incidence of lung cancer as well as the death rate declined over the decade for all groups in the 35-44 age bracket, except black men. Although lung-cancer mortality rates are increasing for the nation as a whole, the report projects that death rates will begin to decline in the 1990s for men and after the year 2000 for women. Lung-cancer mortality rates increase with age and are continuing to rise for all age groups over 55, with sharp increases for everybody but white men.But Dr. Fraumeni, one of the authors of the report, said "the declining rates we're seeing for younger people we believe may be a harbinger of declining mortality in the future." However, he stressed that the improvement depends on a continued reduction in smoking. "Even though these favorable trends in lung-cancer mortality affect all sex and race groups, they can't be taken for granted," the report says. "Smoking prevention programs should reach larger segments of the population, especially children, adolescents and minorities." An editorial in the NCI Journal says the report of declining lung-cancer mortality "among young men and women in the U.S. indicates that we finally may be winning the battle -- this even in a country where the tobacco industry spends over $2 billion a year for promotion of the addictive habit of smoking." But the editorial, by Jan Stjernsward of the World Health Organization, notes that tobacco consumption and lung-cancer mortality rates are rising in developing countries. "Non-smoking should be established as the norm of social behavior" around the world, the editorial says, through the enactment of laws that limit advertising, boost tobacco prices and promote anti-smoking education. Asked for comment, Walker Merryman, a vice president of the Tobacco Institute, said new efforts to restrict tobacco advertising in the U.S. could violate the First Amendment protection of free speech. According to the American Cancer Society, smoking is responsible for 85% of the lung-cancer cases among men and 75% among women.The NCI report attributes the differences in mortality rates by race to different smoking patterns.A higher proportion of black men smoke than white men.While nearly equal percentages of black and white women currently smoke, in both sexes more whites have given up smoking than blacks. In comparing changes in mortality rates over the past decade, the NCI study looked only at blacks and whites.Asians and native Americans weren't studied; Hispanics were included with whites. Recent changes in average annual age-specific lung-cancer rates per 100,000 population by race and sex. White Males White Females Black Males Black Females Source: Journal of the National Cancer Institute
Traders trying to profit from the recent volatility in financial markets invaded the Nasdaq over-the-counter market, prompting even more swings in stock prices. After gaining strength during a brief run-up when trading began, the Nasdaq Composite Index weakened under selling pressure.The forces at work included computer-guided trading, as well as profit-driven market makers and institutional investors who had bought stock on the cheap during the recent correction.During the last two hours of trading, the composite almost drew even on the day before slipping again.The Nasdaq Composite closed down 1.05, or 0.2%, to 459.93. The action was confined to Nasdaq's biggest and most liquid stocks, traders said.The Nasdaq 100 Index began the day at 449.89, lost 2% at one point, and was up 0.4% at another.The barometer of the biggest nonfinancial stocks settled at 448.49, off 1.40. Its counterpart, the Nasdaq Financial Index, was weak for most of the day, sliding 2.51 to 453.57 by the end of trading. The volatility was dizzying for traders. "The market must have turned up and down 15 different times," commented Lance Zipper, head of OTC trading at Kidder Peabody. "Every time you thought it was going into a rally it gave up, and every time you thought it would rally it came down.This is a tough market." Mr. Zipper said the market is still settling down after the recent correction.Most of trading action now is from professional traders who are trying to take advantage of the price swings to turn a quick profit, he and other traders said. "Everybody's confused and no one has an opinion that lasts longer than 30 seconds," said Mr. Zipper. "A lot of the professional traders are just going back and forth.They're just as confused." William Rothe, head of OTC trading at Alex.Brown & Sons, in Baltimore, said program trading is keeping the markets unsettled.He believes that the volatile conditions created by program trading has "thoroughly confused" investors about where the market is headed.Program trading is "benefiting a few to the detriment of many and I wish someone would do something about it," he complained. Trading activity cooled off from Monday's sizzling pace.Share turnover subsided to 161.5 million.Advancing and declining issues finished about even.Of the 4,345 stocks that changed hands, 1,174 declined and 1,040 advanced. One big technology issue, Novell, rode the roller coaster.The stock, which finished Monday at 29 1/2, traded as high as 29 3/4 and as low as 28 3/4 before closing at 29 1/4, down 1/4. It was a jarring day for investors in Genetics Institute.The stock tumbled 2 3/4 on news that it might have to take a charge against earnings if it can't successfully resolve a dispute with its European licensee, Boehringer Mannheim, over its anti-anemia drug, EPO.The stock recovered somewhat to finish 1 1/4 lower at 26 1/4. In a statement, Genetics Institute said the dispute with Boehringer centers on questions of the usability of certain batches of EPO material valued at $13.6 million.Earlier this week, Genetics Institute reported wider losses in its fiscal third quarter ended Aug. 31. Price Co. jumped 2 1/4 to 44 on 1.7 million shares.The wholesaler of cash and carry merchandise reported fiscal fourthquarter earnings that were better than analysts had expected.The company also pleased analysts by announcing four new store openings planned for fiscal 1990, ending next August.That will bring the total for the year to 10, from five during fiscal 1989. "Every year we've been waiting for stepped-up expansion from the company.The news couldn't have been better," said Linda Kristiansen, a Dean Witter Reynolds analyst, in an interview. Intermec, a maker of optical character-recognition devices, also reported higher third-quarter earnings.Its shares added 3/4 to 30 3/4. But favorable earnings wasn't a guarantee that a stock's price would improve yesterday.MCI Communications tumbled 2 5/8 to 42 3/8 on 4.7 million shares even though the telecommunications giant reported a 63% increase in third-quarter profit. CoreStates Financial slipped 3/8 to 43 1/8 in active trading after reporting that third-quarter earnings improved to $1.27 a share from $1.15 a share a year earlier.However, the bank holding company's loan-loss reserves rose to $177.3 million from $154 million a year earlier. A&W Brands lost 1/4 to 27.But its thirdquarter earnings rose to 26 cents a share from 18 cents a share last year. Capital Associates dropped 1 to 5 3/8.The company, which leases technology equipment, reported substantially lower net income for its fiscal first quarter, which ended Aug. 31.
Certainly conservative environmentalists can defend their limited government position by differentiating between Old Environmentalism and New Environmentalism ("Journalists and Others for Saving the Planet," by David Brooks, editorial page, Oct. 5). Old Environmentalism involved microbe hunters and sanitationists.It started with improvements in hygiene made possible by affordable soap and washable underwear during the Industrial Revolution.Then cast-iron sewer pipe and the flush toilet were followed by sewage- and water-treatment plants toward the end of the 19th century.Medicine in the 19th century was dedicated mostly to combating sepsis and diagnostic analysis.Then the 20th century saw the evolution of private-sector wonder drugs, which promulgated medical therapy.The process dramatically increased our average life expectancy, eliminated much pain and constantly improved health and well-being.Most public-health measures were handled at the local level. New Environmentalism probably started in 1962 with the publication of Rachel Carson's book "Silent Spring." Shortly thereafter, hysterical articles began to appear predicting that advanced industrial societies would produce a blackened, uninhabitable planet possibly by the turn of the century.These apocalyptic predictions were advanced by such stalwarts as Paul Ehrlich, Barry Commoner, Rene Dubois and George Wald.Writing in the 1960s Ms. Carson suggested that the human race could be eliminated in 20 years, and Mr. Wald suggested that life on earth might end by 1985.Mr. Ehrlich predicted unprecedented famine by 1980.There were many more.Thousands of chemical products were categorized as carcinogenic, with recommendations that they be banned from industrial use because they produced malignant tumors in overdosed rats.Unknown before 1960 were the inconclusive effects of acid rain, greenhouse warming and ozone depletion, all of which required burgeoning political power and gargantuan expense. Meanwhile, the New Environmentalists systematically opposed the methods of the Old Environmentalists.Local pollution problems require cheap energy and capital for their solution.But the New Environmentalists oppose private wealth creation (which, they claim, depletes natural resources) and nuclear power (even though it would counteract the greenhouse effect).They are in the forefront of opposing the search for new landfills and methods of incineration and even oppose new methods of research such as genetic engineering. New Environmentalism is an emotional attack on proven methods of improving our quality of life and a bid for political power.Let's rationalize our priorities by solving pollution problems at the local level as heretofore. Harry Lee Smith Alpharetta, Ga. Your story missed some essential points of the conference on "The Global Environment: Are We Overreacting?" First and foremost, the vignettes presented by the various scientists represent a general consensus among specialists working in the respective aspects of the global environment.Consider, for example, the greenhouse effect and climate change; numerous blue-ribbon scientific committees, including one from the National Academy of Science, judge there is a greater than 50% probability of a grave problem in the offing. The point was to answer the question in the conference title, not to try to create news stories for the event itself.Nor was it intended to dictate a set of prescriptive solutions, although various points were raised.Each speaker was asked to address a specific topic, not deliver a point of view.Each scientist independently concluded society and government are underreacting when it comes to substantive policy change.This leads to a very special sense of urgency.If the media decide to work harder at educating the public about these complex and technical issues, that hardly can be termed non-objective journalism. The environment can no longer be a normal issue, to be dealt with on a business-as-usual basis with comfortable increments of change.We have literally altered the chemistry and physics of our planet's atmosphere.This portends consequences from what we have already done that will be very destabilizing to social and economic systems.The problems of the environment are so interrelated, so inextricably entwined with our current way of life and so large that it is unlikely we will be able to address them effectively unless major changes are made in less than 10 years.The consensus from the scientific community is that there is sufficient evidence to advise major policy changes.No, we are not overreacting. Thomas E. Lovejoy Assistant Secretary for External Affairs Smithsonian Institution Washington
Coca-Cola Enterprises Inc., fulfilling its dismal earnings forecast for 1989, said its third-quarter net income fell 68% on flat revenue. Stung by higher marketing costs and slowing volume growth, the giant Coke bottling operation said net fell to $12.7 million, or six cents a share, from $39.9 million, or 26 cents a share, the year earlier.The results met estimates of analysts, who had already slashed their projections after the company said in late August that its 1989 earnings could tumble as much as 37%.A company spokesman said yesterday that Coca-Cola Enterprises sticks by its 1989 forecast. Third-quarter revenue was flat at $1.02 billion.The year-ago results, however, included the operations of a bottling business, which was sold last December. Excluding that bottling business, Coca-Cola Enterprises' volume, measured by cases of soda, rose only 1%.The volume is well below the industry's 4% to 5% growth rate of recent years, but in line with other soft-drink companies for the third quarter.The latest third-quarter volume also compares with a very strong 10% growth in the year-ago quarter. Coca-Cola Enterprises blamed the lower volume on its soft-drink prices, which were about 3% higher in the third quarter.Consumers have been accustomed to buying soft-drinks at discounted prices for several years.Coca-Cola Enterprises said it had to boost spending for trade and dealer incentives to try to keep volumes from slipping.The company said it expects consumers will adjust to higher-priced soft drinks. A spokesman attributed the bulk of a 14% increase in selling, administrative and general expenses -- to $324.9 million -- to marketing costs. "They're out there promoting like crazy, trying to get prices up by promotion," said Roy Burry, an analyst with Kidder, Peabody & Co. For the nine months, Coca-Cola Enterprises' net fell 31% to $65 million, or 39 cents a share, from $93.8 million, or 63 cents a share.Revenue was flat at about $2.97 billion. Coca-Cola Enterprises, which is 49%-owned by Coca-Cola Co., also said it repurchased about 1.2 million of its common shares during the third quarter.The buy-back is part of a 25-million-share repurchase plan, under which Coca-Cola Enterprises so far has acquired a total of 9.7 million shares. Separately, Purchase, N.Y.-based PepsiCo Inc., as expected, said fiscal third-quarter net rose 11% to $269.3 million, or $1.02 a share, from $241.6 million, or 91 cents a share.Sales rose 25% to $3.90 billion from $3.13 billion.The year-ago quarter's results include an after-tax charge of $5.9 million from the sale of a winery in Spain. In composite trading on the New York Stock Exchange, Coca-Cola Enterprises closed at $16.375 a share, down 62.5 cents.PepsiCo closed at $58.50 a share, up $1.375.
L.J. Hooker Corp. is expected to reach an agreement in principle this week to sell Merksamer Jewelers Inc. to management, say executives familiar with the talks. L.J. Hooker, based in Atlanta, filed for Chapter 11 bankruptcy protection earlier this year.Currently, its parent company, Hooker Corp. of Sydney, Australia, is being managed by a court-appointed liquidator. It is expected that GE Capital Corp., a financial-services subsidiary of General Electric Co., will provide much of the funding for the proposed leveraged buy-out of Merksamer, based in Sacramento, Calif.A spokesman for GE Capital declined to comment. GE Capital has a working relationship with L.J. Hooker.It is providing $50 million in emergency financing to the company and has agreed to buy as much as $75 million in receivables from B. Altman & Co. and Bonwit Teller, L.J. Hooker's two fully owned department-store chains. Sam Merksamer, chief executive officer of the nationwide jewelry chain, and Sanford Sigoloff, chief executive of L.J. Hooker Corp., both declined to comment. Currently, Mr. Merksamer owns 20% of the company; L.J. Hooker acquired its 80% interest in the firm in May 1986.At the time, the Merksamer chain had 11 stores in operation.Today, there are 77 units, all located in shopping malls. In recent weeks Mr. Merksamer has approached a number of his suppliers and asked them to provide letters of intent saying they will continue shipping merchandise to the chain following the buy-out, say those familiar with the situation.This year, a number of retail leveraged buyouts have failed, causing jitters among suppliers, and Mr. Merksamer apparently wanted assurances that he won't have delivery problems. For the year ended June 30, 1989, Merksamer Jewelers had $62 million of revenue and operating profit of $2.5 million. The jewelery chain was put up for sale in June.According to those familiar with the situation, other bidders included Ratners Group PLC of London and Kay Jewelers Inc. First Boston Corp. is advising L.J. Hooker on the sale of the Merksamer business. Merksamer was the first in a series of retail acquisitions made by L.J. Hooker.The company was founded in Sacramento in 1929 by two brothers, Ralph and Walter Merksamer, who operated as DeVon's Jewelers.In 1979, the pair split the company in half, with Walter and his son, Sam, agreeing to operate under the Merksamer Jewelery name. The sale of Merksamer Jewelers is subject to approval by Judge Tina Brozman of U.S. Bankruptcy Court. As earlier reported, L.J. Hooker this week received a $409 million bid for its three shopping malls, plus other properties from a consortium led by Honolulu real-estate investor Jay Shidler and A. Boyd Simpson, an Atlanta developer and former L.J. Hooker senior executive.The offer, which didn't include the Merksamer chain, is being reviewed by Mr. Sigoloff.
The days may be numbered for animated shows featuring Alf, the Karate Kid and the Chipmunks. NBC, a leader in morning, prime-time and late night programs but an also-ran on Saturday mornings, when children rule the TV set, is contemplating getting out of the cartoon business.Instead, network officials say, it may "counterprogram" with shows for an audience that is virtually ignored in that time period: adults. "There is talk of some revamping and we're certainly heading in the direction of less and less animation," said Joseph S. Cicero, vice president of finance and administration for National Broadcasting Co., a unit of General Electric Co. Mr. Cicero said that NBC Entertainment president Brandon Tartikoff, who declined to be interviewed, is "looking at options now and may put some things into the schedule by mid-season." He declined to elaborate. NBC's options could range from news-oriented programming to sports shows, although the network declined to comment. One major NBC affiliate, KCRA in Sacramento, plans to cancel the NBC Saturday morning line-up as of January and replace it with a local newscast.The one-hour program will be repeated with updates throughout Saturday mornings. "We feel there is an opportunity for an audience that is not being served by any network, so we want to take the lead," says KCRA's general manager, John Kueneke. "We don't need cartoons anymore.They only accounted for 5%, at best, of the station's total revenues." An NBC spokesman says the network will "closely monitor" the Sacramento situation, and says it is the only station to defect.Spokesmen for the television networks of CBS Inc. and Capital Cities/ABC Inc., say there are no plans to alter the children's line-up on Saturday mornings. The youthful audience for Saturday programming is no longer dependent on the networks.There has been a surge in syndicated children's shows to independent stations, as well as competition from videocassettes for kids and from cable outlets such as Nickelodeon and the Disney Channel. At the same time, there appears to be a market for news-oriented programming; Turner Broadcasting System Inc. 's Cable News Network has its highest ratings, outside of prime time, on Saturday mornings. NBC has on previous occasions considered replacing cartoons with a Saturday version of "Today," which is produced by NBC News.The network's own production company, NBC Productions, supplies a half-hour family-oriented show titled "Saved By The Bell." NBC Productions or NBC News could supply the network with other Saturday morning shows, a move that would control costs.Animated shows, which are made by outside production companies, cost the network about $300,000 per episode.
The oil and auto industries, united in their dislike of President Bush's proposal for cars that run on alternative fuels, announced a joint research program that could turn up a cleaner-burning gasoline. Officials of the Big Three auto makers and 14 petroleum companies said they are setting out to find the most cost-effective fuel for reducing cities' air-pollution problems, with no bias toward any fuel in particular. However, their search notably won't include natural gas or pure methanol -- the two front-running alternative fuels -- in tests to be completed by next summer.Instead, the tests will focus heavily on new blends of gasoline, which are still undeveloped but which the petroleum industry has been touting as a solution for automobile pollution that is choking urban areas. Environmentalists criticized the program as merely a public-relations attempt to head off a White House proposal to require a million cars a year that run on cleaner-burning fuels by 1997. While major oil companies have been experimenting with cleaner-burning gasoline blends for years, only Atlantic Richfield Co. is now marketing a lower-emission gasoline for older cars currently running on leaded fuel.The initial $11 million research program will conduct the most extensive testing to date of reformulated gasolines, said Joe Colucci, head of fuels and lubricants at General Motors Corp. research laboratories.It will compare 21 different blends of gasolines with three mixtures of up to 85% methanol. A second phase of research, which is still being planned, will test reformulated gasolines on newer engine technologies now being developed for use in 1992 or 1993 cars.There was no cost estimate for the second phase. "The whole idea here is the automobile and oil companies have joint customers," said Keith McHenry, a senior vice president of technology at Amoco Corp. "And we are looking for the most cost-effective way to clean up the air." But David Hawkins, an environmental lawyer with the Natural Resources Defense Council, said the research appears merely to be a way to promote reformulated gasoline. Oil and auto companies supported a move on Capitol Hill last week to gut Mr. Bush's plans to require auto makers to begin selling alternative-fueled cars by 1995.Instead, a House subcommittee adopted a clean-fuels program that specifically mentions reformulated gasoline as an alternative.The Bush administration has said it will try to resurrect its plan when the House Energy and Commerce Committee takes up a comprehensive clean-air bill.
William Seidman, chairman of the Federal Deposit Insurance Corp., said Lincoln Savings & Loan Association should have been seized by the government in 1986 to contain losses that he estimated will cost taxpayers as much as $2 billion. Mr. Seidman, who has been the nation's top bank regulator, inherited the problems of Lincoln, based in Irvine, Calif., after his regulatory role was expanded by the new savings-and-loan bailout law.He made his comments before House Banking Committee hearings to investigate what appears to be the biggest thrift disaster in a scandal-ridden industry.The inquiry also will cover the actions of Charles Keating Jr., who is chairman of American Continental Corp., Lincoln's parent, and who contributed heavily to several U.S. senators. Mr. Seidman told the committee that the Resolution Trust Corp., the agency created to sell sick thrifts, has studied Lincoln's examination reports by former regulators dating back to 1986. "My staff indicated that had we made such findings in one of our own institutions, we would have sought an immediate cease-and-desist order to stop the hazardous operations," Mr. Seidman said. When Lincoln was seized by the government, for example, 15% of its loans, or $250 million, were to borrowers who were buying real estate from one of American Continental's 50 other subsidiaries, according to Mr. Seidman. But the government didn't step in until six months ago, when thrift officials put Lincoln into conservatorship -- the day after American Continental filed for Chapter 11 bankruptcy protection from creditors.The bankruptcy filing, the government has charged in a $1.1 billion civil lawsuit, was part of a pattern to shift insured deposits to the parent company, which used the deposits as a cache for real-estate deals.The deposits that have been transferred to other subsidiaries are now under the jurisdiction of the bankruptcy court. "I think it's fairly clear {Mr.Keating} knew," that regulators were set to seize Lincoln, Mr. Seidman said. Further investigation, he said, may result in further actions against Lincoln's executives, said Mr. Seidman, "including fraud actions." Mr. Keating, for his part, has filed suit alleging that regulators unlawfully seized the thrift. Leonard Bickwit, an attorney in Washington for Mr. Keating, declined to comment on the hearings, except to say, "We will be responding comprehensively in several forums to each of these allegations at the appropriate time." Lincoln's treatment by former thrift regulators, in an agency disbanded by the new law, has proved embarrassing for five senators who received thousands of dollars in campaign contributions from Mr. Keating.Mr. Seidman said yesterday, for example, that Sen. Dennis DeConcini (D., Ariz.), who received $48,100 in contributions from Mr. Keating, phoned Mr. Seidman to request that he push for a sale of Lincoln before it would be seized. After the government lawsuit was filed against Lincoln, Sen. DeConcini returned the campaign contributions.The senator's spokesman said yesterday that he pushed for the sale of Lincoln because "hundreds of Arizona jobs {at Lincoln} were on the line." Senate Banking Committee Chairman Donald Riegle (D., Mich.) has also returned contributions he received from Mr. Keating a year ago.Sens.John Glenn (D., Ohio), John McCain, (R., Ariz.) and Alan Cranston (D., Calif.) also received substantial contributions from Mr. Keating and sought to intervene on behalf of Lincoln. House Banking Committee Chairman Henry Gonzalez (D., Texas) said Sen. Cranston volunteered to appear before the House committee, if necessary.But a committee staff member said the panel is unlikely to pursue closely the role of the senators. At the hearing, Mr. Seidman said the RTC has already pumped $729 million into Lincoln for liquidity.He also held out little hope of restitution for purchasers of $225 million in American Continental subordinated debt.Some of those debtholders have filed a suit, saying they believed they were buying government-insured certificates of deposit. "We have no plans at this time to pay off those notes," he said.
Eastern Airlines' creditors committee, unhappy with the carrier's plans for emerging from bankruptcy-law proceedings, asked its own experts to devise alternate approaches to a reorganization. Representatives of the accounting firm of Ernst & Young and the securities firm of Goldman, Sachs & Co., hired by creditors to consult on Eastern's financial plans, told the committee in a private meeting yesterday that Eastern's latest plan to emerge from bankruptcy-law protection is far riskier than an earlier one which won the creditors' approval. According to one person present at the meeting, Eastern's new plan is financially "overly optimistic." Asked about the consultants' reports, an Eastern spokeswoman said "we totally disagree." She said they have "oversimplified and made some erroneous assumptions that make their analysis completely off-base." At a later news conference here, Frank Lorenzo, chairman of Eastern's parent Texas Air Corp., said Eastern was exceeding its goals for getting back into operation and predicted it would emerge from Chapter 11 protection from creditors early next year, operating with more service than it originally had scheduled.He insisted, as he has before, that creditors would be paid in full under the plan. Mr. Lorenzo made no mention of creditors' negative response to his plan. "We're in the process of discussing an amended plan with the creditors and anticipate filing that amended plan shortly," Mr. Lorenzo told reporters. "We're meeting and surpassing our goals," he added. In July, Eastern and its creditors agreed on a reorganization plan that called for Eastern to sell $1.8 billion in assets and to emerge from bankruptcy-law protection at two-thirds its former size.But after selling off pieces such as its East Coast shuttle, its Philadelphia hub and various planes, Eastern hit a stumbling block.It couldn't sell its South American routes, one of the major assets marked for disposal. Those routes, valued by the creditors' professionals at about $400 million, were to be sold to AMR Corp. 's American Airlines.A last-minute snag in negotiations with AMR, over an unrelated lawsuit between American and another Texas Air unit, caused the deal to collapse. Eastern ultimately decided it would have to keep and operate the routes itself, which would leave it with less cash for its reorganization.It also would leave Eastern a bigger carrier than the scaled-down one proposed under the initial plan.Those changes in its condition meant the reorganization plan previously presented to creditors would have to be revamped. Since then, Eastern has been negotiating with creditors over revisions, but the creditors committee has been having problems with the revisions.The committee has two groups of experts it calls on to analyze Eastern's plans.Both said the new plan wouldn't work. Ernst & Young said Eastern's plans will miss its projections of earnings before interest, tax and depreciation by $100 million, and that Eastern's plan presented no comfort level, according to a source present at yesterday's session. Experts from Goldman Sachs estimated Eastern would miss the same mark by $120 million to $135 million, the source said. The experts said they expected Eastern would have to issue new debt to cover its costs, and that it would generate far less cash than anticipated.Other costs also would increase, including maintenance, because Eastern has an older fleet. At the news conference, Mr. Lorenzo and Eastern President Phil Bakes presented a far rosier assessment.Flanked by flight attendants, pilots and gate agents dressed in spiffy new blue uniforms, they said Eastern has exceeded its operational goals and is filling its seats.Starting next month, Eastern will begin flying 775 flights daily instead of the previously announced 700, they said. Mr. Bakes declined to give out Eastern's daily losses, but said he didn't expect Eastern would have to dip into the cash from asset sales currently held in escrow.These accounts hold several hundred million dollars, primarily from asset sales.The plan Eastern hopes to pursue, he said, calls for Eastern to have $390 million in cash by year's end.Both he and Mr. Lorenzo predicted that plan might be confirmed in January. As to negotiations with creditors, Mr. Lorenzo said in remarks after the conference "we'll have to see how they {talks} come along." However, he added, "it's not a requirement that the plan be accepted by creditors.It must be accepted by the court." Under bankruptcy law, Eastern has exclusive rights for a certain period to develop its own reorganization plan.That deadline has been extended once and could be extended again.If Eastern can get creditor support, court confirmation of its plan could be relatively swift.But creditors are free to press for court approval of their own plan, or the court could ignore both sides and draw its own.In any event, some people familiar with the case question whether the court will act by January as forecast by Mr. Lorenzo and Mr. Bakes.Eastern sought bankruptcy-law protection a few days after a crippling strike began March 4. Mr. Lorenzo told reporters the reorganization Eastern is pursuing would create a carrier 85% to 90% of the size of the pre-bankruptcy Eastern.He projected it would be operating about 1,000 flights a day by late spring, only slightly fewer than the carrier's old volume of 1,050 a day.
HOPES OF SIMPLIFYING the corporate minimum tax before 1990 are weakening. The method of calculating the 20% tax, paid if it exceeds tax figured the regular way, is due for a change in 1990, thanks to 1986's tax act.But most experts agree that the concept that is to be introduced drags in great complexity; they have been trying to head it off this year.Ways and Means Chairman Rostenkowski backed a simplification plan in the pending House tax bill, but the plan turns out to be a big revenue loser. Now the Senate's stripped-down bill omits any proposal to deal with the corporate tax.Proponents of simplification fear that the chances of getting it into the final bill are waning. "We hear it has low priority on the House side," says Samuel Starr of Coopers & Lybrand, CPAs.If the law isn't changed, he says, "we are left staring at rules that are almost impossible to implement, because there are so many complex depreciation calculations to do." But Congress still could resolve the issue with other legislation this year or next, Starr adds. HUGO'S RAVAGES may be offset by immediate claims for tax refunds. This law aids hurricane-wracked locales named by the president as disaster areas, as well as regions so designated after other 1989 disasters.It lets victims elect to deduct casualty losses on either 1989 or amended 1988 returns, whichever offers the larger tax benefit; they have until April 16 to choose.Amending a 1988 return to claim a refund brings cash faster; but for personal losses, there are other factors to consider, notes publisher Prentice Hall. A loss -- after insurance recoveries -- is deductible only to the extent that it exceeds $100 and that the year's total losses exceed 10% of adjusted gross income; victims may pick the year when income is lower and deductions higher.In filing an original (not amended) return, a couple should consider whether damaged property is owned jointly or separately and whether one spouse has larger income; that may determine whether they should file jointly or separately. THE IRS DELAYS several deadlines for Hugo's victims. Returns for 1988 from people with six-month filing extensions were due Monday, but the IRS says people in the disaster areas won't be penalized for late filing if their returns are marked "Hugo" and postmarked by Jan. 16.Interest will be imposed on unpaid taxes, but late-payment penalties on the returns will be waived if the balance due and paid is 10% or less of the liability.IRS Notice 89-136 describes this and other deadline relief for Hugo's victims. Among the provisions: Fiscal-year taxpayers with returns due last Monday won't be penalized if they file -- or request an extension -- and pay tax due by Nov. 15.Excise-tax returns due by Oct. 31 or Nov. 30 may be delayed to Jan. 16.Extensions can't be granted for filing employment-tax returns due Oct. 31 or for depositing withheld taxes, but late penalties will be abated for deposits made by Nov. 15. The notice also grants relief for certain estate-tax returns. ONE-DAY JAUNTS in a chartered boat were perks for permanent staffers of American Business Service Corp., a Costa Mesa, Calif., supplier of temporary workers.The IRS denied cost deductions because few of the temps got to go aboard.But the Tax Court said the limitations were reasonable and realistic and allowed the deductions. USED-CAR BUYERS who try to avoid sales tax by understating prices paid in private deals are the targets of a New York drive.Estimating that the state may lose $15 million a year, officials announced the filing of 15 criminal actions and "hundreds" of civil penalties. WHEN AN IRA OWNER dies, the trustee of the individual retirement account must file forms 5498 reporting market values relating to the decedent and each beneficiary, with copies to the executor and beneficiaries.IRS Revenue Procedure 89-52 describes the reporting requirements. BIGGER THAN A BREADBOX was this cash hoarder's reputation for honesty. People often cite frugality and distrust of banks to justify cash caches to the IRS. Gregory Damonne Brown of Fremont, Calif., a hardworking, reclusive young bachelor, told that story to the Tax Court.But judges usually find the real aim is to escape tax on hidden income; and the IRS said Brown must have had such income -- although it uncovered no source -- because he deposited $124,732 in a bank account in 1982-84 while reporting income of only $52,012. Brown's story: The deposits came from savings kept in a Tupperware breadbox; he saved $47,000 in 1974-81 by living with family members and pinching pennies and $45,000 of secret gifts from his remorseful father, who had abandoned the family in 1955.Brown had no proof; but testimony of his mother and stepmother about his father and of an ex-employer about his honesty and habits satisfied a judge that Brown was truthful and his tale of gifts was possible. The IRS offered no evidence of hidden sources of taxable income, so Judge Shields rejected its claims. BRIEFS: Asked how he made charitable gifts of $26,350 out of reported two-year income of $46,892, Thomas H. McFall of Bryan, Texas, told the Tax Court he had understated his income.The court rejected his incredible claims, denied his deductions, and imposed a negligence penalty. . . . Rep. Schaefer (R., Colo.) entered a bill to exempt from tax rewards for tips leading to the arrest of violent criminals.
Kay Peterson mounts her bicycle and grinds up yet another steep, rocky path seemingly suitable only for mountain goats.After a tortuous climb, she is rewarded by a picture-postcard vista: a glade of golden aspens under an azure Indian-summer sky. This place is 12 miles into the back country -- a day-long trudge for a hiker, but reached by Ms. Peterson and six others in a mere two hours of pedaling fat-tired mountain bikes. "This," says Ms. Peterson, "is what it's all about." Twelve hundred miles away, rangers at a Napa County, Calif., state park are among the many who don't quite share the enthusiasm.This summer, speeding bikers were blamed for an accident in the Napa County park, in which a horse -- spooked on a trail that was closed to bikers -- broke its leg.The animal had to be destroyed; the bikers fled and were never found. In numerous parks near San Francisco, rangers have been forced to close trails, set up speed traps and use radar guns to curb fast and reckless riding.They have even sent helicopters in pursuit of bikers after hikers and equestrians complained they were being driven from trails. "We were being overrun," says Steve Fiala, trails coordinator of the East Bay Regional Park District.Two years ago, the district decided to limit the bikes to fire roads in its 65,000 hilly acres. From about 200,000 six years ago, the number of mountain bikes in the U.S. is expected to grow to 10 million in 1990.At least half that growth will have come in the past three years alone.The controversy kicked up by the proliferation of these all-terrain bicycles is one of the most divisive storms to blow through the national conservation movement in recent memory. Bikers -- many of them ardent environmentalists -- proclaim their sport an efficient, safe, fitness-promoting way to get back to nature, while asserting a right, as taxpayers, to pedal on public lands.But the bikes' burgeoning numbers, safety concerns and fear that they damage fragile landscapes have prompted pleas, from the Sierras to the Eastern Seaboard, to ban them from the back country. Key to the issue is that the bikes, in skillful hands, can go virtually anywhere, and in reckless hands can become vehicles of terror.An adept bicyclist can leap from a dead stop to the top of a picnic table without losing balance.Such skills allow riders to fly down treacherous mountain grades at speeds of up to 40 miles an hour -- a thrill for the cyclist but a nightmare for unsuspecting hikers or equestrians. For harried public-land managers across the nation, the response is increasingly to shut the gates.The state of California, following the lead of some regional parks, recently adopted regulations that closed nearly all hiking paths in state parks to mountain bicycles.The move largely consigns them to roads used by motorized vehicles. Most other states have enacted similar bans.The bikes are unwelcome on trails in national parks.Even the U.S. Forest Service, whose lenient "multiple-use" philosophy permits motorized vehicles on thousands of miles of its trails across the U.S., has begun to close some lands to the bikes, including major portions of the popular Pacific Crest Trail, which stretches from California to Canada. Often these closings come after vigorous anti-bike lobbying by conservation organizations, the politically potent Sierra Club among them.Sierra has been instrumental in securing a number of the California bans.It has been waging an all-out campaign to beat back a proposal, pushed by Utah bike groups, to allow the cycles in federally designated wilderness areas, where they are now prohibited. Yet Sierra's hard-line stance has created something of a rift in the organization, which estimates that 17% of its 500,000 members own mountain bikes.Pressure from these members prompted the club recently to soften its anti-bike rhetoric; it no longer, for example, lumps the bikes into the same category as motorcycles and other terrain-marring off-road vehicles. But the club still insists that public lands ought to be closed to the bikes unless studies indicate the bikes won't injure the environment or other users. "I have a mountain bike, yet as a hiker I've been run off the road by kids careening down a fire trail on them," says Gene Coan, an official at Sierra's headquarters in San Francisco, echoing the concerns of many members. "People who feel that cyclists should be banned from an area aren't looking at the whole picture," complains Mark Langton, associate editor of Mountain and City Biking magazine in Canoga Park, Calif. Mr. Langton is among the legions of bikers who got their first taste of wilderness as hikers or backpackers.He says fellow bikers show the same concern for the land that they demonstrated as hikers; many are appalled that the conservation community would suddenly consider them the enemy. To fight back, activists such as Mr. Langton are forming groups to lobby land managers over access issues and undertake education programs to show that the bikes can responsibly share trails.Mr. Langton's group, Concerned Off-Road Bicyclists Association, mounted petition drives to help keep open certain Santa Monica Mountain trails designated for closing.Biking groups in Montana, Idaho, Michigan and Massachusetts have won similar concessions, says Tim Blumenthal, mountain bike editor of Bicycling magazine. These groups have been trying to improve the mountain biker's image; in the San Francisco-area park district where a ranger was clobbered by a cyclist this summer bikers have formed a volunteer patrol to help rangers enforce regulations, and to school riders in proper trail etiquette. Even staunch anti-bike Sierra members concede that 10% of all riders cause most of the problems.While some are renegade riders who simply scorn regulations, much bad riding simply reflects ignorance that can be corrected through "education and peer pressure," says Jim Hasenauer, a director of the International Mountain Biking Association. "I think we're making progress." Few would have foreseen such a furor when, a decade ago, some Marin County bicycle enthusiasts created a hybrid bike using fat tires, lightweight metallurgy and multi-gear technology.They wanted a machine that would allow them to pedal into rugged terrain then inaccessible to cycles.They got a machine more responsive, more stable and in many ways easier to ride than the thin-tired racing bikes that then were the rage. When the bikes first entered mass production in 1981, they were dismissed as a fad.Last year, 25% of the 10 million bicycles sold in the U.S. were mountain bikes.In California, a bellwether market, they accounted for more than 80% of all bike sales.The majority of the bikes never even make it into the high country.City dwellers love them because they shift smoothly in traffic, bounce easily over curbs and roll through road glass with far fewer flat tires than racing bikes. Crested Butte, population 1,200, is a bastion of the sport.By one estimate, everyone here under 50 owns at least one bike.The town is home to the Mountain Bike Hall of Fame and it hosts the annual Fat Tire Bike Week.This summer, the jamboree attracted more visitors than the busiest week of the town's winter ski season. David Lindsey, chairman of the Fat Tire Bike celebration, muses that the bike's popularity may be a combination of technology and nostalgia. "The mountain bike feels as comfortable as the `paperboy' bike you had as a kid, but it can do so much more," he says.
Stock-market tremors again shook bond prices, while the dollar turned in a mixed performance. Early yesterday, investors scrambled to buy Treasury bonds for safety as stock prices plummeted and fears mounted of a replay of Friday.But stocks later recovered, erasing most of their early declines.That cut short the rally in Treasury bonds and depressed prices moderately below late Monday's levels. The Dow Jones Industrial Average, down more than 60.25 points early in the day, finished 18.65 points lower at 2638.73.Long-term Treasury issues declined about half a point, or $5 for each $1,000 face amount. "The stock market clearly is leading the bond markets," said Jack Conlon, an executive vice president at Nikko Securities. "People are breathing a major sigh of relief that the world didn't end Monday morning" or yesterday. Gold, a closely watched barometer of investor anxiety, was little changed.The dollar initially fell against other major currencies on news that the U.S. trade deficit surged in August to $10.77 billion.But the dollar later rebounded, finishing slightly higher against the yen although slightly lower against the mark. Federal Reserve officials sent another signal of their determination to shore up investor confidence.In an apparent attempt to keep a lid on short-term interest rates, the Fed once again pumped money into the banking system.But the Fed move was a small gesture, traders said. Fed officials appear reluctant to ease their credit grip any further because a bold move doesn't appear necessary, several investment managers said.The Fed has allowed a key short-term interest rate to decline about one-quarter percentage point.The federal funds rate on overnight loans between banks has been hovering around 8 3/4%, down from 9% previously. Although stocks have led bonds this week, some traders predict that relationship will reverse during the next few weeks.Nikko's Mr. Conlon fears a huge wave of Treasury borrowing early next month will drive down Treasury bond prices.That, coupled with poor third-quarter corporate-earnings comparisons, "will make trouble for the equity market for the next two to three months," he says. But several other traders contend investors have overreacted to junk-bond jitters, and that stock prices will continue to recover. "They shot the whole orchestra just because the piano player hit a bad note," said Laszlo Birinyi, president of Birinyi Associates Inc., referring to the stock market's plunge Friday on news of trouble in financing the UAL Corp. buy-out. In major market activity: Treasury bond prices fell.The yield on 30-year Treasury bonds climbed back above 8%, ending the day at 8.03%. The dollar was mixed.Late yesterday in New York, the dollar rose to 142.75 yen from 141.80 yen Monday, but fell to 1.8667 marks from 1.8685 marks.
Bankers Trust New York Corp. became the latest major U.S. bank to increase reserves for its loans to less-developed countries, making a $1.6 billion third-quarter addition to its provision.The bank also said it expects to report a $1.42 billion loss for the third quarter and a loss for the full year. The new reserves bring the company's provision for loans to Third World countries to $2.6 billion, or 85% of Bankers Trust's medium and long-term loans to these countries. "Step up to the plate and take the big swing.Get the problem behind you and don't look back," said James J. McDermott, analyst at Keefe, Bruyette & Woods, in approving of the move.Bankers Trust "has had the capacity to do this for some time," the analyst said.He expects Citicorp to take a similar step this year. Citicorp yesterday reported a 9% third-quarter earnings drop, which analysts called a bit disappointing, while Manufacturers Hanover Corp. posted a $789 million loss for the quarter after adding $950 million to its reserve for loans to less-developed countries. Three other major U.S. banks posted earnings increases.Wells Fargo & Co. of San Francisco posted a 17% jump.PNC Financial Corp., the parent of Pittsburgh National Bank, reported net income climbed 9.8%, while net for Banc One Corp. of Columbus, Ohio, grew 3.8%. Citicorp Analysts were only slightly disappointed by Citicorp's numbers. "There's nothing in here that's horrible and nothing to make you think they're setting the world on fire," said Carole Berger, analyst for C.J. Lawrence, Morgan Grenfell Inc. Earnings from the bank's global consumer business grew 27%. "The consumer business continues to drive the earnings stream," said Mr. McDermott of Keefe, Bruyette & Woods. Corporate finance and trading results in member countries of the Organization for Economic Cooperation and Development were "relatively flat, sometimes choppy," the bank said, and profit for the area sank 27%. The cross-border loan portfolio reflected "adjustment problems and episodic payment patterns," the bank said no interest payments from Argentina in the nine months and none from Brazil in the third quarter, while Venezuela brought itself "substantially current." Overall, the portfolio narrowed its quarterly loss to $70 million from $80 million a year earlier. "People were waiting to see if we would take an additional provision" for medium-term and long-term loans to less-developed countries, a Citicorp spokesman said.But he reiterated the bank's position that it is comfortable with the current level of $2.6 billion, covering about 30% of the $8.9 billion of such loans outstanding. Ronald I. Mandle, analyst at Sanford C. Bernstein & Co., called Citicorp's venture-capital gains of $93 million before taxes "strong." A "concerning" item the analyst cited was the 10% jump in expenses, which the bank attributes to costs of expanding both its consumer credit-card operations and its overseas branch business.Citicorp's spokesman said, however, that the bank is maintaining those expenses in proportion to revenue growth. Wells Fargo Wells Fargo continued to generate one of the highest profit margins among major banks, minimizing a drop in net interest margin with 13% third-quarter growth in high-yielding business loans and similar growth in mortgages.Its margin fell only seven basis points, or 7/100ths of a percentage point, from a year ago, compared with a 13-point drop at Security Pacific Corp. and much larger declines among banks in other parts of the country. As a result, Wells Fargo's net interest income rose $36.3 million, or 7%, to $537 million for the quarter.Non-interest income fell slightly to $191.9 million from $193.3 million, while Wells Fargo continued to rigorously control non-interest expense, which was almost flat at $393.4 million. The combination of solid loan growth with tight expense control gave Wells Fargo a 1.25% return on average assets for the quarter, about 40% higher than Security Pacific's and a profit ratio matched by only two or three other major banks in the U.S. Wells Fargo's return on equity increased to 24.4% from 23.8%. Wells Fargo has sold all of its non-trade loans made to less-developed countries, and managed to partly reverse the sharp rise in domestic non-accrual loans, which fell 8% from the previous quarter to $806.8 million from $880.9 million.But the amount was still 39% higher than the year-ago level, and 25% higher as a percentage of total loans.That trend, and Wells Fargo's heavy exposure to leveraged buy-outs, are about the only worries analysts have about Wells Fargo's financial picture.Wells Fargo is rebuilding its loan-loss reserve, which increased to $711 million at Sept. 30 from $664 million the previous quarter but was down from $852 million a year ago, when the bank still had some shaky foreign loans. Manufacturers Hanover Manufacturers Hanover said that excluding the addition to its reserves, certain tax benefits, and a one-time $16 million gain on the sale of an interest in a foreign leasing company, third-quarter earnings were $75 million.The comparable year-earlier number was $56 million, a spokesman said. The bank's additional provisions brought reserves for loans to less-developed countries to $2.4 billion, covering 36% of its medium and long-term loans outstanding to these nations. The net interest margin-the difference between the bank's cost of funds and what it receives as interest payments -- improved in the quarter, as did certain areas of wholesale banking. Fees from syndicating loans dropped 48%, to $21 million. "We didn't take part in a lot of deals" in the quarter "because their credit quality was poor," the spokesman said.Expenses unrelated to interest rose 5.4%, to $541 million. PNC Financial PNC Financial cited higher income from sources unrelated to interest and said it continues to cut costs. Net interest income in the third quarter edged up 1.4%, to $317.7 million.Trust income grew 15%, to $49.9 million, while service charges, fees and commissions increased 22%, to $79.4 million. The bank's total allowance for credit losses was $502.1 million, or 1.82% of total loans.
Prime Minister Rajiv Gandhi set a date next month for general elections that some analysts say could cost him and his ruling Congress (I) Party control of the government. Other analysts say the Indian leader could retain control with a slim majority or be forced to rule as the dominant partner in a coalition with other parties. Elections in this large, diverse and passionate nation are always hard to predict.Much depends on the opposition, a loose group of regional and ideological parties led by former Gandhi cabinet minister Vishwanath Pratap Singh. The biggest certainty is that the elections will be a vote for or against Mr. Gandhi and his five years in power -- five years of ups and downs, promises and disappointments and wide fluctuations in popularity. Yesterday, four days after an unusual parliamentary defeat for the ruling party, Mr. Gandhi called elections for the lower house of Parliament on Nov. 22 and 24.The elections will be held in different states on one of the two days. (The lower house's five-year term expires in January; the Parliament's upper house is appointed.) The elections will be a rigorous test for the 45-year-old prime minister and Congress (I), which in various forms has ruled for 40 of India's 42 years of independence.After a landslide win in 1984 in polls held after the assassination of his mother, Indira Gandhi, Mr. Gandhi saw his popularity begin a roller coaster ride. His early promises to make India a modern nation remain bogged down in bloated bureaucracy.His pledge to clean up local administration and Indian politics, including his own party, went unfulfilled.His "Mr.Clean" image was muddied by an arms-kickback scandal, which will be a major campaign issue.Some analysts predict that disappointment in Mr. Gandhi's spent pledge to reduce corruption and heavy-handed local government will crest at the polls. "There's a wide feeling of indignation across the country," says Bhabani Sen Gupta of the Center for Policy Research, in New Delhi. "I think the people will be judging the regime by a petty policeman, by a corrupt revenue collector.This could be a big protest against an administrative failure." Even if the Congress (I) retains control of the government, Mr. Gandhi's ability to push through major initiatives might be hobbled by a thinner majority.Economic analysts call his trail-blazing liberalization of the Indian economy incomplete, and many are hoping for major new liberalizations if he is returned firmly to power. The Lok Sabha, or lower house of Parliament, has 542 elected and two appointed seats.In 1984, the Congress (I) captured 405 seats, the largest victory in the history of Indian democracy.The landslide was fueled by panic that prevailed in India at the time.Mrs. Gandhi had been assassinated by separatist Sikhs, and many Indians feared their country might split apart.In the previous three general elections, similar national issues clinched the vote.In 1971, the Congress Party won after India's victory in the Bangladesh war.In 1977, Mrs. Gandhi was thrown out of office after her 19-month emergency rule, and in 1980, after her successors made a mess of their three years in power, she was restored to office. Most political analysts say that if Mr. Gandhi's opposition unites to field single candidates in most precincts, the Congress (I) will lose big.But if the opposition remains fractured, the Congress (I) could win a small majority, or lead a coalition government.Chimanbhai Mehta, a parliamentarian and former Gandhi ally, predicts Congress (I) will win only 150 seats, a quarter of the house, if the opposition fields single candidates in 80% of the races.Analysts say the opposition will struggle this week to unite, and its success will be clear only when it announces its final list of parliamentary candidates. The arms-kickback scandal is likely to be one of the big talking points in the campaign, but it's unclear how it is viewed by average Indian voters.In 1986, India signed a $1.4 billion contract with AB Bofors, a unit of Nobel Industries Sweden AB, to purchase 400 artillery pieces.The contract was negotiated by the countries' two prime ministers, and was supposed to be free of commissions or agents' costs. In April 1987, evidence surfaced that commissions were paid.The opposition charged that the money was used to bribe Indian government officials, an allegation denied by Mr. Gandhi's administration.But many of his statements on the issue in Parliament subsequently were proven wrong by documentary evidence.The scandal has faded and flared, but recent disclosures propelled it back onto the front pages, and that has helped galvanize the opposition, which last week blocked passage of two constitutional amendment bills.It was the first time in 20 years that such government bills were defeated. In a country where a bribe is needed to get a phone, a job, and even into a school, the name Bofors has become a potent rallying cry against the government.That illustrates the kind of disappointment many Indians feel toward Mr. Gandhi, whom they zestfully elected and enthusiastically supported in his first two years in power.His term has produced no spectacular failures in politics, in the economy or on the military front, and has chalked up some successes.But the average Indian had tremendous hope in the youthful leader and his promise to make both government and the ruling party more effective and less corrupt.His failures in those two areas deeply, and sometimes bitterly, disappointed many Indians. "We don't like the Congress (I)," says Sooraji Jath, a farmer in the western state of Gujarat. "The Congress government is taking the farmers' bread and not giving us any support.When there are well problems, light problems, road problems, the government tells us to forget it." The greatest thing going for Mr. Gandhi and the Congress (I) Party is the poor reputation of the opposition.Even if it unites for the elections, its coherence is likely to be temporary.When the Congress (I) lost the 1977 election, following Mrs. Gandhi's hated emergency rule, a similar coalition took power and then disintegrated.Many Indians fear a repeat of that experience. March 24, 1986: AB Bofors, a unit of Nobel Industries Sweden AB, enters into a $1.4 billion contract with India's Defense Ministry to supply 400 Bofors FH-77B 155-mm field howitzer guns.In 1985, Prime Minister Rajiv Gandhi, in his talks with then Swedish Prime Minister Olof Palme, imposed the condition that the contract have no middlemen. April 16, 1987: Swedish National Radio reports that about $40 million -- nearly 3% of the total contract -- was paid by Bofors as commissions to middlemen. June 1, 1987: Sweden's National Audit Bureau releases its report confirming payment of about $40 million to unidentified Indians.The report says that investigations were severely hampered by lack of cooperation from Bofors.Bofors says it can't disclose the names of the middlemen because it would jeopardize industrial confidentiality.A portion of the report containing names of the middlemen is withheld by officials citing bank secrecy requirements. Aug. 6, 1987: Prime Minister Gandhi tells the Indian Parliament, ". . . neither I nor any member of my family has received any consideration in these transactions.That is the truth." Aug. 26, 1987: Bofors admits payments of $41 million to middlemen. April 22, 1988: The Hindu newspaper publishes facsimiles of bank documents for foreign-exchange remittances and letters between Bofors and certain private companies related to the sale of the guns to India. April 26, 1988: A parliamentary investigative committee dominated by the Congress (I) Party concludes that there were no middlemen in the deal and no payment to any Indian individual or company. July 18, 1989: The comptroller and auditor-general of India reports serious lapses in the government's technical and financial evaluation of the Bofors deal. Sept. 15, 1989: Retired army Chief of Staff Krishnaswami Sundarji discloses in an interview that he suggested in May 1987 that the government cancel the Bofors contract.According to Gen. Sundarji, that would have forced Bofors to disclose the names of the middlemen who received kickbacks from the company.His recommendation was rejected by the government. Oct. 9. 1989: The Hindu newspaper publishes the withheld portion of the Swedish National Audit Bureau's report.The disclosures state that commissions were paid by Bofors to an Indian agent of the arms company.
The inverse trading relationship between bonds and stocks was interrupted yesterday as bonds fell despite a modest decline in stock prices. But bond investors continue to keep a close watch on the jittery stock market.In early trading, investors were bidding bond prices higher as stocks tumbled and fears mounted that Friday's stock market debacle would be repeated. But a partial recovery in the Dow Jones Industrial Average, which had been down more than 60 points in midmorning, dashed those expectations.Treasury bonds also were hurt late in the day by a $4 billion offering by the Tennessee Valley Authority and the prospect of a huge amount of new agency debt. "Bond investors were hoping that stock prices would continue to fall," said Roger Early, a vice president at Federated Investors Inc., Pittsburgh. "When stocks stabilized, that was a disappointment." Meanwhile, for the second straight day, the bond market paid little attention to the Federal Reserve's open market operations.Fed officials injected more cash into the banking system by arranging $1.5 billion of repurchase agreements during the usual pre-noon intervention period.The move was meant to keep a lid on interest rates and to boost investor confidence. "The intervention has been friendly, meaning that they really didn't have to do it," said Maria Fiorini Ramirez, money-market economist at Drexel Burnham Lambert Inc.She said a more aggressive move wasn't needed. The Fed also appears reluctant to ease credit conditions further.It already has allowed the closely watched federal funds rate to decline 1/4 percentage point to about 8 3/4% from its previous target level of about 9%.The rate, which banks charge each other on overnight loans, is considered an early signal of changes in Fed policy.It ended at about 8 11/16% yesterday, but was as low as 8 1/2% Monday. The Treasury's benchmark 30-year bond fell more than 1/2 point, or over $5 for each $1,000 face amount, while the yield moved above 8% for the first time since Thursday.Investment-grade corporate, municipal and mortgage-backed securities also fell. But most junk bonds closed unchanged after opening slightly higher on bargain-hunting by institutional investors.Some so-called high-quality junk issues, such as R.H. Macy & Co. 's 14 1/2% subordinated debentures, rose.The Macy's issue closed up about one point at a bid price of 97. The TVA's public debt offering was its first in 15 years.Strong investor demand prompted it to boost the size of the issue from $3 billion. Traders said hedging related to the TVA pricing also pressured Treasury bonds. "Underwriters of the TVA bonds reduced their market risk by selling Treasurys to cover at least part of their {TVA} holdings," said James R. Capra, a senior vice president at Shearson Lehman Government Securities Inc. The TVA bonds also "served to remind the market that there will be even more new supply," said Lawrence N. Leuzzi, a managing director at S.G. Warburg Securities & Co. Today the Treasury will announce the size of its next two-year note sale and Resolution Funding Corp. will announce details of its first bond offering.Some traders estimate $9.75 billion of new two-year Treasurys will be sold next week, and they expect Refcorp to offer $4 billion to $6 billion of long-term "bailout" bonds.Refcorp was created to help fund the thrift bailout. Another agency issue came to market yesterday.The Office of Finance of the Federal Home Loan Banks said it priced a four-part $2.27 billion bond offering for the banks to yield from 8.125% to 8.375%. The release of several economic reports had little impact on the market, including a report that the U.S. trade deficit expanded to a surprisingly wide $10.77 billion in August, up from a revised $8.24 billion in July.The August gap was expected to have expanded to $9.1 billion. Treasury Securities Treasury securities were essentially flat to about 1/2 point lower. The benchmark 30-year bond was quoted late at 100 28/32 to yield 8.04%, compared with 101 19/32 to yield 7.97% Monday.The latest 10-year notes were quoted late at 99 25/32 to yield 8.01%, compared with 100 1/32 to yield 7.97%. Short-term rates increased.The discount rate on three-month bills rose to 7.52% for a bond-equivalent yield of 7.75%.The rate on six-month bills rose to 7.53% for a bond-equivalent yield of 7.92%. Corporate, Other Issues Investment-grade corporate bonds ended 1/4 to 1/2 point lower, while most junk bonds ended unchanged. The TVA's huge $4 billion offering dominated attention in the new-issue market.TVA offered $2 billion of 30-year bonds priced to yield 9.06%; $1 billion in 10-year notes priced to yield 8.42%; and $1 billion in five-year notes priced to yield 8.33%. The TVA, which operates one of the nation's largest electric power systems, is a corporation wholly owned by the U.S. government.Yesterday's bond sale was part of a $6.7 billion refinancing plan to pay off high-interest debt the TVA owes the Federal Financing Bank, an arm of the Treasury. Meanwhile, Lockheed Corp. priced a $300 million note offering to yield 9.39%. Mortgage-Backed Securities The derivative mortgage-backed market revived after a brief hiatus as two new Remics totaling $850 million were offered and talk circulated about two more issues that could be priced today. The revival of the real estate mortgage investment conduit market reflected the relative calm in the mortgage market after two days of volatile trading.Dealers noted that it's difficult to structure new Remics when prices are moving widely. The two Remics priced were a $500 million Federal Home Loan Mortgage Corp. issue underwritten by Salomon Brothers Inc. and a $350 million Federal National Mortgage Association deal underwritten by Greenwich Capital Markets. The Remic issuance supported prices of Freddie Mac and Fannie Mae securities, which held up better than Government National Mortgage Association securities during an afternoon sell-off. Ginnie Mae 9% securities for November delivery ended at 97 29/32, down 7/32; 9 1/2% securities at 99 31/32, down 6/32; and 10% securities at 101 29/32, down 5/32.Freddie Mac 9% securities were at 97 5/32, down 3/32. The Ginnie Mae 9% issue was yielding 9.43% to a 12-year average life assumption, as the spread above the Treasury 10-year note held at 1.42 percentage points. Municipals Confusion over the near-term trend for rates dominated the municipal arena, as gyrations in the stock market continued to buffet bonds. Long tax-exempt dollar bonds were mostly flat to 3/8 point lower after a whipsaw session of moving inversely to stocks in modest dealer-led trading. Prices of pre-refunded municipal bonds were capped by news that Chemical Securities Inc., as agent for a customer, will accept bids today for two large lists of bonds that include many such issues.The lists total $654.5 million.Pre-refunded bonds are called at their earliest call date with the escrowed proceeds of another bond issue. Meanwhile, several new issues were priced. Underwriters led by PaineWebber Inc. set preliminary pricing for $144.4 million of California Health Facilities Financing Authority revenue bonds for Kaiser Permanente.Tentative reoffering yields were set from 6.25% in 1993 to 7.227% in 2018. As part of its College Savings Plan, Connecticut offered $100.4 million of general obligation capital appreciation bonds priced to yield to maturity from 6.25% in 1994 to 6.90% in 2006, 2007 and 2009. A Chemical Securities group won a $100 million Oregon general obligation veterans' tax note issue due Nov. 1, 1990.The 6 3/4% notes yield 6.25%. Foreign Bonds West German government bond prices took a wild roller-coaster ride, pulled down by Monday's U.S. stock market gains then up by a wider-than-expected U.S. trade deficit and falling U.S. stock prices. West Germany's 7% bond due October 1999 was at 99.95 late yesterday, off 0.10 point from Monday, to yield 7.01%.The 6 3/4% notes due April 1994 were up 0.10 point to 97.85 to yield 7.31%. British government bonds surged on renewed volatility in the stock market.The Treasury 11 3/4% bond due 2003/2007 rose 23/32 to 112 10/32 to yield 10.03%. But Japanese bonds ended weaker.The benchmark No. 111 4.6% bond due 1998 ended on brokers' screens at a price of 96, off 0.15 point to yield 5.27%.
A House-Senate conference approved an estimated $67 billion fiscal 1990 spending bill that provides a 28% increase for space research and development and incorporates far-reaching provisions affecting the federal mortgage market. The current ceiling on home loans insured by the Federal Housing Administration would be increased to $124,875.Separately, the bill gives authority to the Bush administration to facilitate the refinancing of federally subsidized loans for low-income and moderate-income homeowners. The second provision, affecting so-called 235 mortgages, has met strong opposition from investment bankers represented by the Public Securities Association.And a squad of influential former Senate aides employed by the Wall Street firm Salomon Brothers came to the Capitol in a vain attempt to strip the provision.By an 11-2 margin, Senate negotiators voted to preserve the 235 mortgage refinancing plan, and despite powerful allies, the opposition found itself undercut by an unusual alliance of liberals and conservatives. The government currently is subsidizing an estimated 23,000 loans above 11% under the 235 program, and however disruptive to private investors, the refinancing is expected to yield at least $15 million in savings in fiscal 1990.This sum has been guarded jealously by appropriators anxious to offset spending elsewhere, and conservative Sen. Phil Gramm cast the fight as a populist stand against monied interests. "We are stewards here, not of the mortgage companies, but the taxpayers," said the Texas Republican. The action came as the administration won final congressional approval of $9 million in assistance for elections scheduled in Nicaragua in February.The bulk of the money would be funneled through the National Endowment for Democracy, but the legislation is so vaguely written that it has been dogged by questions regarding the money's true purpose and its ultimate destination. The Senate had refused late Friday to invoke cloture and limit debate, but behind the bipartisan leadership, a solid majority took shape yesterday and brushed aside amendments seeking to cut the total package or steer it away from direct aid to political parties.Final approval -- on a 64-35 roll call -- was never in doubt, but the opposition drew an unusual mix of senators, including Republicans Jesse Helms and Warren Rudman and Democrats Bill Bradley and John Glenn. The money will be applied for voter registration and election monitoring, but more than half is likely to go to the Union Nacional Opositora party.Critics warned such cash contributions may only undercut the opposition party's standing, and one irony is that under Nicaraguan law a major portion of the opposition party's funds must be shared with the government's Supreme Electoral Council. Within the appropriations conference yesterday, the $67 billion measure is the second largest of the annual domestic spending bills and covers a disparate collection of accounts for science, housing, veterans and the environment.The decision to raise the ceiling on FHA home loans still faces strong opposition in the House.But it is driven by the same fiscal pressures that have forced lawmakers to resort to various bookkeeping devices to juggle as much as $1 billion in spending that would otherwise put the bill over budget. These costs will complicate the budget picture in fiscal 1991, and the measure further commits Congress to a set of costly projects, including the first construction funds for the space station.The station is promised $1.8 billion within the $5.36 billion provided for research and development in the National Aeronautics and Space Administration, and the nation's high-speed aerospace plane -- cut by the Senate -- could receive as much as $60 million in new funds or transfers. Similarly, the House agreed to add back $62 million to continue work on the advanced communications technology satellite, being developed by General Electric Co.And while setting a statutory limit of $1.6 billion on the automated space probe, the conference appropriated $30 million for the start-up of the CRAF-Cassini mission, a successor to the Voyager space probe. Among major domestic agencies, the Environmental Protection Agency stands to receive increases significantly beyond those sought by the administration, with pollution abatement and control accounts growing by 14% to about $829.9 million.An estimated $1.57 billion is separately allocated for the National Science Foundation, and within the Housing and Urban Development Department, more than $9.2 billion is provided for federally assisted housing, including an expanded effort to modernize public housing units that serve the poorest families. To an unusual degree, the massive bill has become a vehicle for lawmakers to earmark funds for projects in home states.While the practice was discouraged in the past, the conference agreement is laced with veterans' hospitals, environmental projects and urban grants designated for specific communities.The most striking example yesterday may have been in community development funds, where the two houses had separately approved a total of 27 projects valued at $20 million, and the conference added 15 more valued at $8 million to ostensibly preserve "balance" between the House and Senate. Yesterday's conference agreement is the second major bill to emerge from negotiations this week, as appropriators approved a fiscal 1990 transportation bill late Monday that includes a sweeping ban on smoking on most domestic airline flights.An exemption will remain for flights longer than six hours to Hawaii and Alaska, but estimates by the tobacco industry yesterday indicate all but about 30 flights would be covered. Separately, a third conference report covering an $18.4 billion Treasury and Postal Service bill was sent to the Senate after passing the House on a 383-30 roll call yesterday.And after weeks of delay, the appropriations process is beginning to take some final shape.Defense and foreign aid are the two most critical areas remaining from the administration's standpoint.And among domestic programs, the most serious threat is White House opposition to abortion riders attached to separate bills funding the District of Columbia and Department of Health and Human Services.The same issue threatens to spill over to the foreign aid debate, and Mr. Bush also is threatening to veto any agreement that preserves Senate-passed provisions renewing U.S. support for the United Nations Fund for Population Activities. In a sharply written letter, Rep. David Obey, chairman of the House appropriations subcommittee for foreign operations, warned Mr. Bush that the result of his "ultimatum" could weaken efforts to accommodate the administration elsewhere. "As a result of your ultimatum," writes the Wisconsin Democrat, "I guess there is no longer any point in taking administration views into account on other items in conference, inasmuch regardless of their resolution you apparently intend to veto this bill."
Markets usually get noticed because they soar or plunge.Gold, which hasn't risen or fallen significantly in quite some time, yesterday achieved what may be a new level of impassiveness: The most actively traded futures contracts closed unchanged despite nervous fluctuations in both the dollar and the stock market. The settlement prices of the December, February and April gold contracts were even with Monday's final prices.The December 1989 contract, which has the greatest trading volume, ended at $371.20 an ounce.The other months posted advances of 10 cents to 20 cents an ounce. According to one analyst, Bernard Savaiko of PaineWebber, New York, the stock market's ability on Monday to rally from last Friday's decline -- which seemed to indicate that the economy wasn't going to fall either -- took the starch out of precious metals prices, and out of gold's, in particular. Yesterday, gold traded within a narrow range.Gold tried to rally on Monday but ran into the same situation that has subdued gold prices for more than a year: selling by gold producers, who want to fix the highest possible price for their gold. "December delivery gold is trading in a range of $365 to $375 {an ounce} and is having difficulty breaking out above that," Mr. Savaiko said. "Producers at the moment regard that area a good one in which to sell gold." Also, Mr. Savaiko noted, stock market investors seeking greater safety are veering toward buying bonds rather than precious metals because "we are tending more toward a disinflationary economy that doesn't make gold and precious metals attractive." Jeffrey Nichols, president of APMS Canada, Toronto precious metals advisers, said there is little to motivate gold traders to buy the metal. "Investors in the U.S. and Europe are comfortable with the actions of the {Federal Reserve} in its willingness to supply liquidity to financial system, which helped the stock market rebound on Monday," he said. There isn't any rush on the part of investors in the West to buy gold, he said. "They still bear the memory of October 1987, when they bought gold after the stock market crashed and ended up losing money because gold prices subsequently fell," Mr. Nichols said. "It's an experience they don't want to repeat." At the moment gold traders aren't concerned about inflation, he said, and as for the dollar, "gold's association with the currency has been diminishing recently so drops in the currency aren't having much impact on gold." Dinsa Mehta, chief bullion trader for Chase Manhattan Bank, said: "There is little incentive on the part of traders to sell gold because the stock market may go lower and gold may retain some of its `flight to safety' quality.There is little incentive to buy gold because if the stock market goes higher, it may be just a false alarm.This is keeping the gold traders handcuffed." The most remarkable feature about yesterday's action was that the price of roughly $370 an ounce was regarded as attractive enough by gold producers around the world to aggressively sell gold, Mr. Mehta said. "I don't know what it means over the long run, but for the short term, it appears that gold producers are grateful for the $10 or so that gold has risen over the past week or so," he said. Previously, he noted, gold producers tended to back off from a rising gold market, letting prices rise as much as possible before selling. Mr. Mehta observed that the U.S. merchandise trade deficit, which rose sharply in August, according to yesterday's report, has been having less and less impact on the gold market. "The dollar hasn't reacted much to it, so gold hasn't either," he said. In other commodity markets yesterday: ENERGY: Crude oil prices rose slightly in lackluster activity as traders in the pits tried to assess action in the stock market.Since stock market indexes plummeted last Friday, participants in all markets have been wary.When traders become confident that the stock market has stabilized, oil prices are expected to rise as supply and demand fundamentals once again become the major consideration.Crude oil for November delivery edged up by 16 cents a barrel to $20.75 a barrel.Heating oil prices also rose.November gasoline slipped slightly. SUGAR: Futures prices rose on a report that Cuba may seek to postpone some sugar shipments.The March contract advanced 0.14 cent a pound to 14.11 cents.According to an analyst, Cuba can't meet all its shipment commitments and has asked Japan to accept a delay of shipments scheduled for later this year, into early next year. "Japan is perceived as a wealthy nation that can turn elsewhere in the world market and buy the sugar," the analyst said.It was the possibility of this demand that helped firm prices, the analyst said.Another analyst noted that Cuba has been deferring shipments in recent years. "To the professionals in the trade it didn't cause much surprise.The March futures contract traded as high as 14.24 cents, but couldn't sustain the advance," he said. LIVESTOCK AND MEATS: The prices of cattle, hogs and pork belly futures contracts rebounded as livestock traders shook off fears that the Friday stock market plunge would chill consumer spending, which in turn would hurt retail sales of beef and pork.The prices of most livestock futures contracts had dropped sharply Monday.Cattle futures prices were also supported yesterday by signs that supermarket chains are making plans to increase their promotions concerning beef. GRAINS AND SOYBEANS: The prices of most soybean and soybean-meal futures contracts rose amid rumors that the Soviet Union is interested in buying from the U.S. or South America about 250,000 metric tons of soybeans and as many as 400,000 metric tons of soybean meal.Traders are especially sensitive to reports of possible U.S. soybean sales because U.S. exports are lagging.Since Sept. 1, about 13 million fewer bushels of U.S. soybeans have been sold overseas than for the same period last year.Corn futures prices rose slightly while wheat prices settled mixed.
HUGO'S BLAST generates pleas for aid from South Carolina small businesses. The Small Business Administration has received more than 5,000 formal requests for disaster loans because of the hurricane.About 45% of requests for SBA relief loans, which also are available to homeowners, come from small businesses, compared with a 25% business share after most disasters.The SBA expects to make about $1 billion in Hurricane Hugo loans.The disaster fund is replenished by loan repayments. Hardest hit by Hugo in South Carolina were small retailers tied to the tourist industry and businesses in agriculture and cultivated seafood.The State Development Board set up a Hugo Hotline to accept business-to-business help.After NBC weather man Willard Scott broadcast the hot-line number, it was flooded with 10,000 calls.Last week, the U.S. Chamber of Commerce began using its national TV show to seek help, such as equipment, for business owners. Local bankers and accountants help applicants fill out forms. "It helps us, and people feel better talking to someone who's gone through the same thing," an SBA official says. HEALTH BENEFITS remain a central lobbying effort, even as Section 89 fades. The Senate, after deleting Section 89 repeal from its deficit-reduction bill, still is expected to join the House in voting to kill the law, which forces companies to provide comparable benefits to laborers and executives alike.In lobbying on other health-coverage topics, the National Federation of Independent Business will press for legislation that would give self-employed people a 100% tax deduction for their own health plans, up from 25% currently.And the group will urge that the federal government pre-empt state rules on what must be covered by employers' health insurance. Small-business groups also will fight the medical-leave provision of legislation that would expand parental leaves.And they still oppose as too costly an employer-paid health insurance bill sponsored by Sen. Edward Kennedy (D., Mass.) despite his proposal to phase in small business only gradually.There is also worry that the Pepper Commission studying long-term health care will again push lawmakers toward employerpaid solutions.The Section 89 victory could have a downside by making it harder to oppose lawmakers on other health proposals. "With the repeal of Section 89, we can no longer say they're discouraging businesses from offering health plans," says Christine Russell, the Chamber of Commerce's small-business advocate. JUMPING THE GUN: Sen. Lloyd Bentsen (D., Texas) was outraged after a private word to John Motley, lobbyist for the National Federation of Independent Business, resulted in a news release saying that the Senate Finance Committee chairman would recommend repeal of Section 89.Even though the announcement was true in the end, it was issued without the senator's permission. "I blew it," Mr. Motley says apologetically. "It was a timing mistake." PRISON-SHOP BLUES: Sen. Strom Thurmond (R., S.C.) protests pending legislation to end the preference that the federal prison system gets in selling prisoner-made furniture and other goods to government agencies.Small-business suppliers want prisons to stop getting high priority, especially as prison production grows with swelling inmate populations.Last year, the prisons' sales to the Pentagon totaled $336 million. REPAIR SHOPS SCRAP for more access to work on auto-emissions systems. Groups representing some independent auto-repair shops join a compromise on the Clean Air legislation worked out between environmentalists and Rep. Henry Waxman (D., Calif.).The plan would increase the warranty on auto-emission systems to eight years or 80,000 miles from five years or 50,000 for major parts.But the warranty on simpler parts would be lowered to two years or 24,000 miles.The garage owners say they would benefit because car owners would be less likely to go back to dealers for the simpler repairs after two years. The repair shops aren't united, however.Shops represented by the Automotive Service Industry Association and the Motor Equipment Manufacturers Association oppose any increase in warranty length.They say the longer the warranty, the longer customers will automatically return to new-car dealers, which then find non-warranty work that might otherwise go to repair shops.The House Energy Committee will debate the issue later this month. Stan Hathcock, an Atlanta garage owner who opposes a longer warranty, estimates that the current plan costs him as much as $15,000 a year in lost business. SMALL TALK: Some 70% of graduates who recently earned an M.B.A. degree say they'd prefer to work in or own a small company, yet most take jobs with large concerns, says a survey by the Foster McKay Group, a New York recruiting firm. . . . Cardinal Scientific Inc. of Waldorf, Md., seeks a Small Business Innovation Research grant to produce a "nozzle assembly for an Army mass delousing outfit."
Banc One Corp. said Frank E. McKinney plans to retire as the bank holding company's president effective Jan. 12. Banc One said "it is contemplated" that John B. McCoy, chairman and chief executive officer, will assume the additional position of president upon Mr. McKinney's retirement. Mr. McKinney, 50 years old, was chairman and chief executive of American Fletcher Corp., Indianapolis, when that bank holding company merged into Banc One in January 1987.The company said Mr. McKinney plans to retire because the process of affiliating American Fletcher into Banc One "is considered completed." Mr. McKinney will continue as chairman of the board and chairman of the executive committee of Banc One Indiana Corp., the successor company to American Fletcher Corp., but will no longer be active in day-to-day management.He will remain on the Banc One board.
When the Soviets announced their last soldier had left Afghanistan in February, the voices of skepticism were all but drowned out by an international chorus of euphoria.It was "the Soviets' Vietnam." The Kabul regime would fall.Millions of refugees would rush home.A resistance government would walk into Kabul.Those who bought that illusion are now bewildered.Eight months after Gen. Boris Gromov walked across the bridge into the U.S.S.R., a Soviet-controlled regime remains in Kabul, the refugees sit in their camps, and the restoration of Afghan freedom seems as far off as ever. But there never was a chance that the Afghan resistance would overthrow the Kabul regime quickly and easily.Soviet leaders said they would support their Kabul clients by all means necessary -- and did.The U.S. said it would fully support the resistance -- and didn't. With the February 1987 U.N. accords "relating to Afghanistan," the Soviet Union got everything it needed to consolidate permanent control.The terms of the Geneva accords leave Moscow free to provide its clients in Kabul with assistance of any kind -- including the return of Soviet ground forces -- while requiring the U.S. and Pakistan to cut off aid.The only fly in the Soviet ointment was the last-minute addition of a unilateral American caveat, that U.S. aid to the resistance would continue as long as Soviet aid to Kabul did.But as soon as the accords were signed, American officials sharply reduced aid.In February 1989, when the Soviets said they had completed their pullout, the U.S. cut it further. Not so the Soviets.Gen. Gromov himself said Soviet troops expected to leave behind more than $1 billion of military equipment and installations for the Kabul regime.Since the troop withdrawal, Moscow has poured in an additional $200 to $300 million worth per month -- nearly $2 billion since February, equivalent to the total U.S. aid to the resistance in nine years.This includes what Deputy Foreign Minister Yuli Vorontsov fetchingly called "new peaceful long-range weapons," including more than 800 SCUD missiles.By early May, Moscow had delivered, for example, 1,000 trucks, about 100 tanks, artillery and hundreds of other combat vehicles.Later that month, it added an entire tank brigade, including 120 T-72 tanks and more than 40 BMP state-of-the-art infantry fighting vehicles.By September, a new Reinforced Motorized Rifle Brigade with an additional 300 combat vehicles, 1,000 more trucks and 10,000 Soviet-trained Afghan troops had arrived in Kandahar.In the last few weeks, Moscow has added FROG-7B missiles, the bomber version of the An-12, MiG-23BN high-altitude aircraft, MiG-29s, which can outfly Pakistan's U.S.-built F16s, and Sukhoi SU-27 fighter-bombers, which can outfly the MiG-29s. Moscow claims this is all needed to protect the Kabul regime against the guerrilla resistance.It is well-known that the regular Afghan infantry is filled with reluctant conscripts.But this is not the entire Afghan army, and it is no longer Kabul's only military force.Complete units have been trained and indoctrinated in the U.S.S.R. and other East bloc nations; 30,000 to 40,000 of these troops have returned. In addition, the regime has established well-paid paramilitary forces totaling more than 100,000, including 35,000 Soviet-trained troops of the Interior Ministry (KHAD/WAD), which still is directed by 1,500 Soviet KGB officers.Even if not all these forces are committed to the regime, they are now dependent on it.And thousands of Afghan children have been taken to the Soviet Union, where they are hostage for the behavior of their families. Since 1981, Indian military advisers have been assisting the Kabul regime.In preparation for the withdrawal, Moscow, Kabul and New Delhi signed two agreements for several hundred newly civilian Indian experts to replace some of the more visible Soviet military personnel.Cuban military personnel also have been active in Afghanistan since 1979.The Soviets cut a deal with Iran: a future Iranian role in Afghanistan in exchange for Iranian support of Soviet policy.The deal was symbolized by the restoration of the Shi'ite Sultan Ali Keshtmand to the Afghan prime ministry. Moreover, serious questions have been raised about the claimed withdrawal of Soviet forces.Before his assassination in 1988, President Zia of Pakistan repeatedly stated that fresh Soviet troops were being inserted into Afghanistan even as others were ostentatiously withdrawn.Rep. Bill McCollum (R., Fla.) reports that these included 20,000 to 30,000 Soviet Central Asian KGB Border Guards, ethnically indistinguishable from Afghans and wearing unmarked uniforms. Meanwhile, the Kabul regime is increasingly successful at portraying the resistance as bloody-minded fanatics.In this they are aided by years of American, European, Pakistani and Saudi support for the most extreme factions -- radical Islamic fanatics with leaders whose policies are anathema to the Afghan public.This heavy outside support for the worst has undermined better, moderate leaders. In autumn last year, for example, the regime garrison at Kandahar was prepared to surrender the city to resistance moderates.At the last minute, however, Pakistani officials sent in Gulbuddin Hekhmatyar, perhaps the most hated and feared of the extremists, with a demand that the surrender be made to his forces.The deal fell through, and Kandahar remains a major regime base. The resistance lacks not only air power, armor and expertise but often such essentials as maps, mine detectors, or even winter gloves.Experienced resistance commanders wanted to use guerrilla action and siege tactics to wear down the regime.Instead, they were pressured by Pakistan's ISI, the channel for their support, into attacking Jalalabad.They took more than 25% casualties; journalists report that they faced minefields without mine detectors.The wonder is not that the resistance has failed to topple the Kabul regime, but that it continues to exist and fight at all. Last summer, in response to congressional criticism, the State Department and the CIA said they had resumed military aid to the resistance months after it was cut off; but it is not clear how much is being sent or when it will arrive.For months the resistance has been defenseless against air attack.Thus far there is no indication that they have been re-supplied with Stingers or other anti-aircraft weapons.Indeed, U.S. officials have indicated to the press that the continuation of aid depends on what success the weakened resistance achieves by the end of this year.Moscow and Kabul must have found that information useful. For a decade U.S. policy has been incoherent, based on miscalculation and the defense of bureaucratic and political turf.No settlement negotiated by others can force the Afghan people to give up their struggle.A cutoff of U.S. military aid would merely abandon them to die in vain.Creation of a new, realistic U.S. policy is long overdue. Ms. Klass, editor and co-author of "Afghanistan: The Great Game Revisited" (Freedom House), directs the Freedom House program on Afghanistan/Southwest Asia.
Nothing stirred the soul of Ronald Reagan and his disciples as much as the crusade to aid Nicaragua's Contra rebels, or the dream of building a space-based defense shield to knock out Soviet nuclear missiles. Yet under Mr. Reagan's preferred successor, President Bush, those two cherished national-security causes are withering on the vine.And, surprisingly, little more than a whimper of protest is being heard, even though Reaganauts once breathed fire supporting the Contras and the Strategic Defense Initiative. "The programs have arthritis," says Rep. Henry Hyde, a conservative Republican from Illinois.Yet, he asserts, "you look around . . . and you say, `Who are the leaders?Who is going to carry the water? '" It isn't surprising that President Bush hasn't led a crusade to pump up the Contras or SDI. Though he nominally supports both programs, Mr. Bush hasn't been a passionate champion of either cause, as Mr. Reagan was. What's surprising is that there isn't more of a conservative outcry as the Bush administration lets the programs slip down the national-priority list.A combination of factors -- a weariness among some conservatives, a decline in the perception of a Soviet threat and a preoccupation with other issues -- seem to explain the strange tranquility. Above all, though, conservative Republicans who have championed both the Contras and SDI are reluctant to attack a Republican president for failing to do more -- though that reluctance may be receding. "We want to complain, we want to say something about it, and we're going to as it gets worse," says Rep. Dan Burton, an Indiana Republican who has been a staunch Contra backer. "But it's like kicking your father in the pants.You hate to do it because he's your father." Mr. Burton says conservatives' unhappiness with Mr. Bush's cautious handling of the recent unsuccessful coup in Panama will make them more willing to speak out. Of course, neither President Bush nor the Congress has actually abandoned the Contras or SDI. Mr. Bush has struck a deal with congressional leaders to provide nonlethal aid to the Contras until Nicaragua holds national elections next February. But the administration has dropped any effort to win military aid for the rebels.And the administration's deal with Congress gives several congressional committees the right to cut off even humanitarian aid next month, though the committees are likely to let aid continue until February. Most analysts think there's little prospect the Contras can be a significant fighting force without U.S. arms, and after the February election their future in any form will be murky at best.Instead of focusing on the Contras, Mr. Bush has switched to urging members of Congress -- most recently in a White House meeting yesterday -- to approve financing for the election campaign of political opponents of Nicaragua's Sandinista government. The administration continues to support SDI, or Star Wars, and it recently lobbied to persuade the Senate to restore some of the funds it planned to cut from the program.And just last week, Defense Secretary Dick Cheney gave a strong speech listing "compelling reasons" to push ahead with SDI and saying he'd urge President Bush to veto a defense bill with "inadequate" funding for the program. But the strong pitch by Mr. Cheney may be too little too late to prevent damage to SDI.The House has already voted for a deep cut in funding, and in the end the program's backers will be hard pressed to head off some reduction in spending next year. And while the defense secretary is speaking out, President Bush himself hasn't launched any high-visibility campaign to drum up support, as President Reagan did.The administration also acknowledges that it isn't pursuing Mr. Reagan's original vision of an "impenetrable shield" protecting the whole U.S., but rather a more modest version. More ominous to SDI supporters, the Bush administration appears to have tacitly accepted a new arms-control proposal from the Soviet Union that spells long-term trouble for Star Wars.The Soviets have agreed to complete a treaty cutting strategic weapons without including restrictions on space-based defenses.But the Soviets also are insisting that they will reserve the right to withdraw from the completed strategic-arms treaty later on if the U.S. does SDI testing or deployment that the Soviets think violates the existing anti-ballistic-missile treaty. It will be hard down the road to persuade Congress to approve money for SDI plans if lawmakers fear those plans could scuttle a completed treaty.As a result, Frank Gaffney, a former Reagan Pentagon aide who now heads the Center for Security Policy, charges that the administration's "professions of continued commitment to development and deployment of the SDI program strain credulity." Still, proponents may be shying away from more drumbeating because they sense political tides have turned against arming the Nicaraguan rebels or boosting spending on SDI -- particularly when the public perceives the Soviet threat is declining under Mikhail Gorbachev. In fact, because communism seems to be beating a global retreat, some conservatives may simply be so pleased that their anti-communist philosophy is prevailing that they don't have the fire at the moment to push controversial programs. "The short of it is that the most hard-bitten among us cannot get into too sour a mood with communism collapsing," says Mitchell Daniels, a former Reagan White House aide who now is president of the Hudson Institute. Some activists are toiling to raise the profile of the two causes.But they say they can't make much headway because of a lack of willing leaders in a position to turn the tide. One longtime champion of these programs in Congress, Republican whip Newt Gingrich of Georgia, is distracted by questions about his ethics, conservatives note.Other conservative champions, like Wyoming Republican Sen. Malcolm Wallop, a longtime SDI advocate, don't have the clout with the Bush White House that they enjoyed with President Reagan. Above all, though, proponents say neither the Contra nor the SDI cause can be pushed much further without more presidential support. "For there to be wind in the sails of any program, the chief executive has to be blowing in the sails," says Rep. Burton. All this causes Rep. Hyde to muse about an alternate way to drum up more enthusiasm. "What I'd like to see, if he is up to it, is for Reagan to take to the hustings to regenerate enthusiasm for SDI," the congressman says.
We're sorry to report that on Monday President Bush accepted the resignation of William Allen as chairman of the U.S. Civil Rights Commission.Mr. Allen, appointed by President Reagan, grew understandably tired of dealing with the guerrilla tactics of his enemies. His recent speech, provocatively titled "Blacks?Animals?Homosexuals?What is a Minority?" caused an uproar when its title leaked out.Mr. Allen's commissioners voted to call his unread speech "thoughtless, disgusting and unnecessarily inflammatory." Commissioner Mary Francis Berry said it was "another sad episode in the saga of the unguided missile who is chairman." Rep. Don Edwards, the California Democrat, warned Mr. Allen that the speech would be "outside the scope of the commission's jurisdiction." Thomas Stoddard, head of the Lambda Legal Defense Fund, called the prospect of the speech "frankly shocking." We've actually read the speech. Mr. Allen began it with a warning to his hosts, a California church group that opposes rights for homosexuals.He said that other participants in the conference "do not believe that the rights of Americans should be guaranteed to citizens who are homosexual," but that "I mean to persuade you to the opposite view." He recalled to the audience a "strange, infelicitous" analogy he once heard arguing "now that we have finally recognized that American blacks have rights, we need to do the same for animals." Mr. Allen objected to this analogy because it seems to "assimilate the status of blacks to that of animals -- as a mere project of charity, of humaneness." Rights on such a basis, whether for blacks or homosexuals, are "mere indulgences," he said, subject to being taken back. He says the title of his speech was to make his point that Americans have rights as individuals, not as members of certain select groups.His speech criticized the "idiocy of notions of protected groups in society" as opposed to individual equality or, as he put it, in "a common destiny as Americans." Instead of lobbying for special treatment, Mr. Allen said that homosexuals and others should try to ensure equal treatment under the law and not aim for special privileges that would risk "invidious retrenchment with government complicity." This hardly sounds like an anti-homosexual screed.What's really going on here? The three most important things to understand about Mr. Allen is that he is a black conservative intellectual -- a triple threat to the liberal establishment.Mr. Allen, who teaches government at prestigious Harvey Mudd College in California and will remain a member of the commission, has spent years arguing that civil rights are individuals' rights.He last made waves when he dared to defend an Indian girl who had been adopted by non-Indian parents off her reservation.Mr. Allen quickly ran up against the liberal establishment again, which somehow elevated the vague concept of "Indian rights" above the rights of individual Indians. There is a huge divide between Mr. Allen's we're-all-in-this-together view and the divisive litigation approach of the civil rights groups.Indeed, the gap is so large that Mr. Allen's critics refuse to engage the debate.Their ridicule of him is no substitute for argument.Their effort to run him out of Washington is an embarrassment to the original purpose of their own movement.We hope the next head of the Civil Rights Commission will be as brave as Mr. Allen in making the case for equality of civil rights.
Bearings Inc. said its chairman, John R. Cunin, will retire as an officer of the company on Jan. 2. George L. LaMore, president and chief executive officer, will become chairman and chief executive upon Mr. Cunin's retirement.John C. Dannemiller, executive vice president and chief operating officer, will become president and chief operating officer. Mr. Cunin, 65 years old, was chief executive of the distributor of bearings and power-transmission products from 1982 to 1988.He will continue as a director. Mr. LaMore, 63, a 48-year veteran at Bearings, has been president since 1983.Mr. Dannemiller, 51, joined Bearings in August 1988 from Leaseway Transportation Corp., where he was president and chief operating officer.He has been a Bearings director since 1985. The appointments are part of a planned succession at the company. Soviet leader Mikhail Gorbachev opened a major U.S. trade exhibition in Moscow and spent two hours touring some of the 150 stalls representing such blue-chip companies as General Motors Corp., International Business Machines Corp. and Johnson & Johnson.At the Archer-Daniels-Midland Co. stand, Mrs. Nelson Rockefeller, a board member, offered him a soy burger.He didn't bite. The exhibition by the U.S.-U.S.S.R.Trade and Economic Council underscores the growing U.S. interest in that nation's market, though trade between the two countries is a minuscule $3 billion. The Soviet president and his prime minister, Nikolai Ryzhkov, spent the longest time, about 15 minutes, at the IBM stand, where they got souvenir computer-chip key rings.At the GM stall, they barely looked at a gleaming Cadillac, preferring to talk about cooperation possibilities. In Beijing, meantime, China opened an international aviation show, but the West's embargo on military deals and uncertainty about the nation's stability kept many foreign exhibitors away.Officials said 91 companies from 14 countries, including the U.S., had displays, down from about 260 firms from more than 20 countries at the last show in Japanese air-conditioner maker Daikin Industries Ltd. was fined two million yen ($14,000) for exporting to the Soviet Union a chemical solution that could be used in missile-guidance systems.A Daikin executive in charge of exports when the high-purity halogenated hydrocarbon was sold to the Soviets in 1986 received a suspended 10-month jail sentence.Judge Masaaki Yoneyama told the Osaka District Court Daikin's "responsibility is heavy because illegal exports lowered international trust in Japan." Sale of the solution in concentrated form to Communist countries is prohibited by Japanese law and by international agreement. A Soviet legislative panel rejected as not radical enough a government proposal on decentralizing economic control.The newspaper Leninskoye Zamya said the committee decided the plan to parcel out economic powers previously exercised by Moscow to the country's 15 republics "doesn't reflect the radical changes in the Soviet federation." The committee gave the government until Nov. 15 to revise the proposal.The move reflected the growing confidence of the revamped Supreme Soviet. Scott Paper Co. said it is abandoning a proposed $650 million tree-farming project in Indonesia because it no longer expects to use as much eucalyptus pulp as previously anticipated.The eucalyptus plantation and pulp mill, which would have covered about 175,000 acres in the Irian Jaya region, had been approved by Indonesia's investment board.But it was opposed by some environmentalists as a threat to Irian Jaya's forests and a potential source of social unrest for the primitive tribes who inhabit them. Yaohan Departmentstore Co. of Japan is moving its international-operations headquarters and holding company to Hong Kong to gain from the British colony's economic advantages and tax structure.With funds of 5.56 billion Hong Kong dollars (US$712 million), the new company, Yaohan International Co., plans to acquire 10 of Hong Kong's top restaurants.It also intends to set up an international wholesale market with the Singapore government next May and to open a department store in Bangkok and shopping centers in Malaysia, Taiwan, Canada, Chicago and Seattle by December 1990.The chain currently has 90 retail outlets in Japan, seven in the U.S., three in Hong Kong and a dozen more scattered around the globe. Major European auction houses are turning increasingly to specialized sales. Christie's will soon have a sale of Dada and Symbolist art while Sotheby's is luring collectors with sales of Swiss, German, Spanish, Australian and Canadian paintings.In Brussels, Hotel de Ventes Horta auctioned pistols and sabers-along with paintings and jewels. Berlin's Villa Grisebach will auction art works with pre-sale estimates of less than $1,600 on Nov. 25.The auction house, known for its sales of top-drawer 19th and 20th century works, is providing "a service to clients who don't want to sell just their fabulous oil paintings," says Villa Grisebach's Vivien Reuter. Antwerp auctioneer Campo is less concerned with market niches than with Belgium's crushing tax and auction-fee burden. "Everything has to be the same between countries," says Campo's Stefan Campo, who is asking clients to sign protest petitions. "Then there'll be fair competition." Ending tax-free shopping in the European Community after 1992 could threaten more than 3,000 jobs, the International Duty Free Confederation said.Instead of banning such shopping, the confederation proposed amending controls to be sure the privilege isn't abused. . . . British and Argentine diplomats opened talks in Madrid aimed at restoring ties severed because of their 1982 war over the Falkland Islands.Britain's U.N. representative and delegation head Crispin Tickell called the first meeting "good, interesting and businesslike."
Polaroid Corp., benefiting from staff-reduction savings, reported a strong gain in third-quarter operating results and net income of $29.9 million, or 40 cents a share, after preferred-stock requirements. Analysts said the numbers were better than expectations, partly because of strong profit margins and a positive foreign-currency translation.However, they said the company's flat revenue was a disappointment, and an indication that sales of Polaroid's new conventional film in the U.S. have been sluggish.Revenue in the third quarter was $437.7 million, almost unchanged from $436.3 million a year earlier. Polaroid reported operating profit before taxes and interest costs of $63.1 million for the third quarter, more than double the year-before $24 million.Charges for staff cuts and other restructuring produced a net loss of $54.1 million, or 77 cents a share, in 1988's third quarter. "I'm somewhat skeptical about the underlying demand" for Polaroid products, said Michael Ellmann, an analyst with Wertheim Schroder & Co. "If you believe that a good performance next year is contingent on an acceleration of revenue, there isn't a lot here to base optimism on." Alex Henderson, an analyst with Prudential-Bache, says Polaroid officials told him yesterday that U.S. sales of the company's new conventional film product, introduced in the second quarter, have been "disappointing" after a promising start. Sam Yanes, a Polaroid spokesman, said "I don't know about disappointing," but added that the company hasn't been able to get the product on the shelves of some mass-merchandise, discount retailers that it had hoped would be carrying the product already.Mr. Yanes said the film, One Film, is currently carried at about 15,000 retail outlets, including drugstores and supermarkets. For the nine months, Polaroid reported earnings of $98.5 million, or $1.27 a share.Last year, the company had a nine-month loss of $15.1 million, or 23 cents a share. In New York Stock Exchange composite trading, Polaroid closed at $47, up $1.125.
Why is the stock market suddenly so volatile? Yesterday, the Dow Jones Industrial Average did a now familiar dance: It plunged 60.25 points before lunch, with most of the drop occurring in 25 minutes.Then, it rebounded to finish down only 18.65 points.And those swings paled beside Friday's 190.58-point plunge and Monday's 88.12-point recovery. "It's madness -- that in an hour you can whack off so much value," says Stanford Calderwood, chairman of Trinity Investment Management Corp., Boston. And, apparently, it is here to stay.Richard Bernstein, senior quantitative analyst at Merrill Lynch & Co, says, "My gut feel is that we'll live with those swings for a while." There are many reasons for the market's jumpiness: new trading vehicles such as stock-index futures and options; computer-driven strategies like program trading; and crowd psychology.But most are linked by a single theme: liquidity -- the ability to get in and out of the market quickly. Prices are moving up and down so fast because investors are employing ways to turn over shares at ever-faster rates and increasingly acting in concert. "Institutions are herding animals," says Peter Anderson, who heads the pension-fund management arm of IDS Financial Services Inc. "We watch the same indicators and listen to the same prognosticators.Like lemmings, we tend to move in the same direction at same time." And that, naturally, exacerbates price movements. Institutions -- who now account for most trading -- count on being able to buy and sell big blocks of stock at an eye-blink.But when they discover that markets aren't always as liquid as they supposed -- markets jump. On Monday, for instance, Howard Ward, a principal at Scudder, Stevens & Clark, found that "you couldn't buy blue-chips at quoted prices without paying up." And when many firms had to "pay up," Monday's sudden rally was sparked. Trading in futures and options, some people believe, can add to volatility.Investors believe they can can rely on such derivative securities to get in and out of the stock market without actually selling any stocks; that is, a way of staying liquid even when they own stocks. These and other modern trading methods "tend to promote dramatic shifts in assets," says George Douglas, first vice president at Drexel Burnham Lambert Inc. "It's the idea that what goes in easy can come out easy" -- so that bouts of higher volatility get built into the stock market. One new investment style called "asset allocation" shifts portfolio weightings between stocks, bonds and cash when computer models say one is more attractive. For instance, First Quadrant Corp., an asset allocator based in Morristown, N.J., said it quickly boosted stock positions in its "aggressive" accounts to 75% from 55% to take advantage of plunging prices Friday.It added another 5% Monday before stocks rallied.When they did, the firm reduced those stock holdings to about 70%. A classic example of institutions' hunger for liquidity is portfolio insurance, now widely discredited.Before the 1987 crash, an estimated $60 billion in institutional money was managed under this hedging technique.The idea was to "insure" the value of a portfolio by selling futures when stock prices dropped -- eliminating the need to sell the stocks themselves.But in October 1987, when portfolio insurers rushed to sell at the same time, they overwhelmed both the stock and futures markets. Yet even today, institutions are quietly practicing forms of portfolio insurance by nervously rushing to and fro in the markets.Others are doing "index arbitrage"a strategy of taking advantage of price discrepancies between stocks and futures. Unlike traditional buy-and-hold strategies, all of the above require that market makers be on hand to provide liquidity by buying and selling stocks in a crunch.But institutions say Wall Street brokerage firms are less willing to make markets. Brokers don't deny that.Wall Street traders say that, with institutional brokerage commissions far lower than in the 1970s, securities firms can't afford to take the risk of buying too much stock. "I think everyone's a little more leery," says Jack Baker, head of equity trading at Shearon Lehman Hutton Inc. "The institutions have driven (commission) rates down to the point where it makes no sense to commit capital," says Tom Gallagher, senior executive vice president in charge of institutional trading at Oppenheimer & Co. "Why should I risk money for a guy for who's paying me five cents a dance?All you get is risk." Lack of liquidity can also result from exchange "reforms." Many traders say that "circuit breakers" put in place to damp volatility after the 1987 crash actually added to volatility when the stock market plunged Friday.The circuit breakers caused a 30-minute shutdown in trading in Standard & Poor's 500-stock index futures contract as the markets were falling. "With the futures-trading halt, you could only sell stocks" to cut exposure to the market, says a money manager. "It was scary to people thinking that they couldn't get their trades off." "It was like they put you in a room with a gorilla and told you there were three doors to exit," said one Chicago-based futures trader. "Then they said, `By the way, two of the doors are locked. '" The takeover mania also adds to volatility.UAL Corp. is a good example.Valued as a buy-out target, the airline stock was trading at nearly $280 a share.When the deal ran into trouble, the stock tumbled; it closed at $198 yesterday.Presumably, UAL is now trading closer to its value based on earnings. By contrast, traditional buy-and-hold investors are unlikely to generate sudden price moves.Scott Black, a value-oriented money manager who heads Delphi Management Inc., points out that for those who invest on fundamentals, "the value of a stock from day to day doesn't change all that much." Some experts say markets aren't as volatile as widely assumed.Hans Stoll, finance professor at Vanderbilt University, says the current volatility in U.S. markets pales in comparison to the 1930s, decades before derivative instruments such as options and futures were introduced. "I just can't believe that the innovations in the financial market are causing any of this volatility," he says. And Robert D. Arnott, president of asset allocator First Quadrant, notes that before Friday's tailspin, daily volatility on the New York Stock Exchange in recent weeks had reached "historically low levels." Some people tend to ignore that a 50-point move is less in percentage terms than it was when the stock market was lower.John J. Phelan Jr., chairman of the Big Board, asserts that "1988 and 1989 have been two of the least volatile years in the last 30 or 40 years." But the low average volatility Mr. Phelan is talking about isn't any comfort in a period of rapid stock-market moves like the past week.In addition, Sanford Grossman, a Wharton School finance professor, says volatile jumps in stock prices will continue as long as liquidity falls short of the voracious demands of institutions "who can go out and say `I have a billion dollars of stocks to sell. '" Some people think the search for liquidity is fruitless.In 1936, John Maynard Keynes wrote that "of the maxims of orthodox finance none, surely, is more antisocial than the fetish of liquidity." It leads investors to focus on short-term price movements -- "a game of musical chairs," he called it -- rather than on long-term fundamental valuation. James A. White contributed to this article.
The National Aeronautics and Space Administration said a computer virus has infected one of its networks and is spreading anti-nuclear messages related to its Galileo space probe, which is to be launched today. Charles Redmond, a NASA spokesman, said the agency discovered the virus on Monday on the collection of computer networks collectively called Internet and expected 100 university centers to be infected by today.Although the network isn't connected to the computer systems that operate either Galileo or the shuttle, part of the network will carry analyses of Galileo data once the craft gets spaceborn. Mr. Redmond said the intruder hadn't yet done any harm but the agency feared "garbage data could be substituted for real data." He estimated it could take a day for a computer security manager to expunge the virus from a computer system. The intruder, among the broadest yet to hit a research network, appeared to affect only Digital Equipment Corp. hardware that uses Digital's VAX/VMS operating system.It is unrelated to the much-publicized virus that last year infected Arpanet, a much larger network used by researchers at universities, laboratories and government agencies around the world. In the lingo of computer security, the NASA intruder is technically a computer worm, Mr. Redmond said.A worm resides in the operating system of a computer and spreads by boring into other computers contacted through networks.The Galileo worm apparently was hatched on a computer in France hooked up to NASA's Space Physics Analysis Network, Mr. Redmond said. NASA said the Galileo worm hadn't affected its computers or the computers of other government agencies because they had modified their systems to reject worms.But Mr. Redmond said the worm hit universities that hadn't elected to make the changes. Michael Alexander, a senior editor at Computerworld, a trade publication, said he was told that the worm gets into a computer center by looking for obvious passwords -- such as ones that are the same as the user's name.If it finds one and gets into the system, it will display a screen when a user logs on that says, "Worms Against Nuclear Killers. . . . You talk of times of peace for all, and then prepare for war." In addition, Mr. Alexander said, the worm sends strange messages to other machines at the center -- such as, "George Orwell was an optimist," or "Don't feed the bats tonight." The worm also looks for elementary passwords that confer more privileges on the user.The passwords are included in the system software when it is installed but are supposed to be replaced as soon as the system is up and running.If it finds one of those passwords, Mr. Alexander said, the worm will do such things as change users' passwords to a series of random numbers, preventing them from signing on to the network. NASA estimated that, on Monday, about four computer centers were affected.Yesterday, the number grew to 40; today the number is expected to grow to 100.NASA said it will take about a week before it knows exactly how many centers of the 6,000 connected to Internet were affected and the extent of the damage, if any. Anti-nuclear activists have protested the launch of the Galileo space probe to Jupiter because it uses plutonium to generate the electricity needed to run the craft.Activists fear that if the shuttle carrying Galileo into orbit should explode, or if Galileo itself crashes into the Earth during the two times it flies close to the planet, fatal levels of plutonium would be released into the atmosphere. So far Galileo has been delayed twice, once because of a computer malfunction connected with a space-shuttle engine, and yesterday because of the weather.NASA said the Galileo worm had nothing to do with either delay. Mr. Alexander of Computerworld said hackers have gone after SPAN before.He said the Chaos Computer Club, of West Germany, once managed to invade SPAN and do such things as change the value of pi, messing up some calculations.
It is now a commonplace that prosecutors are bringing criminal indictments in cases where until a few years ago only a civil action at most would have been brought.Yet it is also axiomatic that the power to create new crimes belongs only to the legislature, and not to courts.Beginning in the early 19th century, with U.S. v.Hudson and Goodwin, the Supreme Court has repeatedly held that a judicial power to declare conduct to be against the public interest and hence criminal, while well established in British law, would usurp legislative authority under the doctrine of separation of powers. That's the conventional theory anyway.In practice, however, the line between interpretation and redefinition of the criminal law long ago began to blur.In particular, a common law of white-collar crime has developed with surprising rapidity over the past decade.For example, although insider trading has long been criminal, it has never been statutorily defined.In 1983, the Supreme Court tried to supply a workable definition in the Dirks v.SEC decision, which found that liability depended on whether the tipper had breached his fiduciary duty to the corporation in order to obtain "some personal gain" and whether the tippee knew or recklessly disregarded this fact. Gradually, however, lower courts and prosecutors have pushed this definition to its breaking point.Consider the facts underlying the 1989 conviction of Robert Chestman. Prior to a tender offer by A&P for Waldbaum Inc. in 1986, the founder of the Waldbaum's supermarket chain called an elderly relative to tell her to assemble her stock certificates for delivery.She called her daughter to take her to the bank, who, in turn, persuaded her husband, a Mr. Loeb, to run this errand.Hearing of this information, the husband discussed it with his broker, Mr. Chestman, and Mr. Chestman then bought for his own account and other clients.Basically, Mr. Chestman was a fourth-level tippee.Did Mr. Loeb, his tipper, breach a fiduciary duty (and, if so, to whom)?Did Mr. Loeb seek personal gain (and if so, how)?Or did Mr. Chestman only hear a market rumor (which one may lawfully trade upon)?The line seems awfully thin for criminal-law purposes. A second illustration is supplied by the recent guilty plea entered by Robert Freeman, formerly head of arbitrage at Goldman, Sachs & Co. Essentially, Mr. Freeman had invested heavily in the Beatrice leveraged buy-out, when he was told by another prominent trader, Bernard "Bunny" Lasker, that the deal was in trouble.After placing orders to sell, Mr. Freeman called Martin Siegel, an investment banker at Kidder, Peabody & Co., who was advising on the deal, to confirm these rumors.Mr. Siegel asked Mr. Freeman who his source was and, on hearing that it was Bunny Lasker, responded: "Well, your bunny has a good nose." The illegal "tip" of the bunny's good nose was then largely a confirmation of rumors already known to many in the market.Had the case gone to trial the same issues would have surfaced: Was there a fiduciary breach in order to obtain personal gain?Did Mr. Freeman have notice of this?Finally, was the information material?Yet, all these issues are subsidiary to a more central issue: Who is and who should be making the criminal law here? It is not my contention that either Mr. Chestman or Mr. Freeman was an innocent victim of prosecutorial overzealousness.Arguably, both were on notice that their behavior was at least risky.But even if they behaved recklessly, reasons still exist to fear and resist this steady process of case-by-case judicial extension of the law of insider trading. Courts and legislatures make decisions in very different ways and are each susceptible to very different kinds of errors.After-the-fact judicial examination of an actor's conduct has always been the common law's method.When only civil liability is involved, this method has the undeniable strengths of factual specificity and avoidance of overgeneralization.Still, case-by-case retrospective decision making of this sort is vulnerable to the tunnel vision caused by a fixation on ad hoc (and usually sleazy) examples.When a court decides that a particular actor's conduct was culpable and so extends the definition of insider trading to reach this conduct, it does not see the potentially enormous number of other cases that will be covered by the expanded rule. Thus, a court is poorly positioned to make judgments about the social utility of the expanded rule.For example, in focusing on Mr. Freeman's attempt to gain nonpublic information about a deal's collapse, one does not naturally think about the reverse side of the coin: What if the rumor had been false?Can a security analyst call an investment banker to make certain that a seemingly improbable rumor is in fact false?In the past, not only would reputable professionals have rushed to check out such rumors with the company, but companies listed on the major stock exchanges were encouraged by the exchanges to respond openly to such inquiries from securities analysts.Today, after Mr. Freeman's plea, there is an uncertainty that is both unfair and inefficient. In this light, the comparative advantages of legislative law-making become clear: (1) Before it acts, the legislature typically will hear the views of representatives of all those affected by its decision, not just the immediate parties before the court; and (2) the legislature can frame "bright line" standards that create less uncertainty than the fact-bound decisions of courts. Although legislative lines can result in under-inclusion (which explains why the SEC has long resisted a legislative definition of insider trading), judicial lawmaking inevitably creates uncertainty because of the shadowy outer edges and implications of most judicial decisions.At least when the stakes are high, uncertainty in turn results in overinclusion, as individuals do not dare to approach an uncertain line closely. The federal mail and wire fraud statutes provide even better illustrations of the rapid evolution of a federal common law of white-collar crime.In 1987, the Supreme Court attempted in McNally v.U.S. to halt the inexorable expansion of these statutes by adopting a rule of strict construction for ambiguous criminal statues.Yet, late last year, Congress effectively reversed this decision by enacting a one-sentence statute that defined fraud to include any scheme to deprive another of "the intangible right of honest services." At a stroke, this may criminalize all fiduciary breaches (and possibly all misrepresentations by an agent or employee). Such a statute illustrates the fundamental problem: Congress finds it is easier to pass sweepingly moralistic prohibitions, which the courts must thereafter interpret, than to engage in the difficult line-drawing distinctions that are inherently its responsibility.We are confronted less with a judicial power grab than with a legislative giveaway.Predictably, when confronted with morally dubious behavior, prosecutors will exploit the latitude such openended statutes give them.Over the long run, however, sleazy cases will make bad law. Mr. Coffee is a professor at Columbia Law School.
Corning Inc. posted a 38% decline in third-quarter net income to $76.5 million, or 80 cents a share, from $123.9 million, or $1.37 a share, a year earlier. The year-earlier figure included a one-time gain of $59.9 million from the sale of Corning's stakes in Japanese businesses.Without the gain, operating profit was $64 million, or 71 cents a share. The telecommunications, specialty glass, ceramic products and laboratory-services concern said the latest quarter included a tax-loss carry-forward of $600,000.A year earlier, net included a $700,000 taxlow carry-forward. Sales rose 14% to $715 million from $625.4 million. Corning's chairman and chief executive officer, James R. Houghton, said operating performance continued to be strong in the telecommunications and health and science segments.But the specialty-material segment slowed somewhat and consumer products continued below expectations. As for joint ventures, Mr. Houghton said profit was "essentially flat" due primarily to a slow recovery at Samsung-Corning Co. in Korea following a strike at a major customer and the disruption of shipments to China.Also, profit was hurt by the strength of the dollar overseas which negatively affected the company's currency-exchange rate. In New York Stock Exchange composite trading, Corning closed at $38.50, down 75 cents.
UAL, the hair-trigger stock that exploded Friday's market bombshell, briefly traumatized traders again yesterday. Within 10 minutes after an 11:13 a.m. trading halt in UAL, parent of United Airlines, the Dow Jones Industrial Average plunged nearly 27 points to a 60.25-point deficit.Computer-guided buying then kicked in, and the industrials regained 27 points in five minutes. The lightning moves show that the stock market remains fragile and volatile -- ready to jump at the slightest rumor -- a few days after its shocking 190.58-point plunge.Nervous investors continued to limit their buying to blue-chip stocks while dumping takeover-related issues. The industrial average closed down 18.65, to 2638.73.New York Stock Exchange volume was a heavy 224,070,000 shares.Decliners on the Big Board outnumbered advancers, 931 to 658. UAL was watched closely and traded heavily.The stock tumbled 24 7/8 to 198 on volume of 2.8 million shares. The market is still very touchy about rumors and news on pending takeovers.UAL, which is trying to reconstruct a buy-out bid that banks wouldn't finance, represents the future of one of the most powerful ingredients in the bull market-corporate restructuring.An important element of this phenomenon -- the now-shaky market for junk bonds, used often to finance restructurings and takeovers -- continued to cast a pall over stocks. "It was a very nervous day," said John Geary, partner of the Big Board specialist firm Ziebarth, Geary. The volatility won't end soon.This Friday brings the "double witching hour," Wall Street's nickname for the monthly simultaneous expiration of a variety of stock index futures, index options and options on individual stocks.Traders are already buckling their seat belts.Previous monthly expirations of the Major Market Index futures and Standard & Poor's 100-stock index options have produced spectacular volatility. "We are in one of those phases where you are going to get a lot of volatile expiration action," said Donald Selkin, head of stock-index research at Prudential-Bache Securities. Investors were buying yesterday, but they were running scared to premier blue chips such as Procter & Gamble, which jumped 3 3/8 to 127.Investors "are buying stocks that have predictable earnings," said Edward J. Laux, head of block trading at Kidder Peabody. Along the way, investors dumped takeover stocks and shares of banks that have leveraged-buy-out debt and risky real estate loans on their books. "These loans are more of a focus than lesser-developed-country debt now," said William Bee, senior block trader at Prudential-Bache Securities. Chase Manhattan, which sold 14 million additional shares at 40 1/8 Monday through an underwriting group led by Goldman Sachs, closed down 1/8 to 40.Citicorp fell 1/2 to 32, and Manufacturers Hanover slipped 3/8 to 40 1/4.Chase and Citicorp's Citibank are involved in the UAL buy-out financing.Both Citicorp and Manufacturers Hanover reported earnings yesterday. In the first hour of trading, about one million shares a minute changed hands on the Big Board as big stock-index arbitrage sell programs pushed prices lower. (In stock-index arbitrage, traders buy or sell big baskets of stocks against offsetting positions in futures.) Traders said many of the sell programs are positions being established ahead of this Friday's expiration. Aside from computer-guided selling, airline stocks took a beating as well.The Dow Jones Transportation Average fell 49.96 to close at 1254.27.AMR, the parent of American Airlines, continued to retreat in the wake of New York developer Donald Trump's decision to withdraw his $120-a-share takeover bid.The stock fell 3 1/4 to 73 1/4 on 3.4 million shares.Delta Air Lines fell 1 7/8 to 67 7/8, USAir Group dropped 3/4 to 40 1/4, Southwest Airlines dipped 1/2 to 25 and Alaska Air Group slid 3/8 to 24 1/4. But Texas Air, the owner of Continental and Eastern airlines, bucked the group's decline by rising 7/8 to 14 5/8 in American Stock Exchange trading.Eastern said it is ahead of schedule in resuming its operations after filing earlier this year for Chapter 11 bankruptcy protection, from which it expects to emerge early next year. Philip Morris, the most active Big Board issue for the second consecutive session, was unchanged at 43 1/4 on 3.9 million shares.Other blue-chip consumer issues also fared relatively well: PepsiCo rose 1 3/8 to 58 1/2; Coca-Cola Co. was unchanged at 66 3/4; McDonald's also closed unchanged at 30 1/2, and Merck rose 1/2 to 75 1/4. Broader averages also fell.Standard & Poor's 500-stock index fell 1.69 to 341.16, and the New York Stock Exchange Composite Index fell 0.88 to 188.89. Among the takeover-related stocks that sold off yesterday were Disney, which closed down 2 1/8 to 121 1/4.Philips Industries tumbled 3/8 to 22 7/8; Hilton Hotels fell 2 1/2 to 92 and Holiday Corp. fell 2 1/8 to 69 7/8. Among other blue chips, Exxon gained 1/8 to 45 1/2.International Paper fell 1 3/8 to 51 1/2, Union Carbide eased 7/8 to 25, Chevron gained 1/8 to 64, and Eastman Kodak closed down 3/4 to 44 1/4. The only industry group to show a gain from the industrial average's record high on Oct. 9 is restaurants.Among the three worst-performing groups, with declines of 10% to 20%, are airlines, casinos and securities brokers. Trading also was heavy in the over-the-counter market.The Nasdaq composite index closed down 1.05 to 459.93 on volume of 161.5 million shares. "The environment is a lot more trading-oriented," said Gary Rosenbach, manager of equity trading at the OTC stock firm Needham & Co. in New York. "Because there is a lot more volatility now, if guys see that they can make a quick 10% or 15% profit, they'll take it." Compaq Computer gained 2 1/8 to 103 3/4 on two million shares, reflecting market optimism about the prospects for its newly introduced notebook-sized computer. B.F. Goodrich dropped 1 3/8 to 49 1/8.The company's third-quarter earnings were below both analysts' forecasts and the year-earlier level. Blue Arrow added 1/2 to 17 1/4.The British company plans to change its name to Manpower, the name of its U.S. unit, and write off part of nearly $1.2 billion in good will as a possible prelude to reincorporating in the U.S. Dravo rose 5/8 to 16 1/8.Shearson Lehman Hutton began its coverage of the company with favorable ratings. Intertan jumped 2 1/4 to 56 7/8.The company reported that earnings from operations for the September quarter were up about 25% from a year earlier. Bay Financial, which said it may be forced to file under Chapter 11 if it can't reach an agreement with its lenders to relieve its debt burden, plunged 1 3/8 to 2 1/8. The Amex Market Value Index fell 1.25 to 375.16.Volume totaled 16,800,000 shares. Among active Amex issues, the American depositary receipts of B.A.T Industries fell 1/4 to 11 3/4 on turnover of 885,800.Investment bankers and retailers said the turmoil on Wall Street may benefit managers who plan to bid for U.S. retailing units of the British firm because takeover prices may not be as high as before the recent correction. Fruit of the Loom slipped 1/8 to 12 3/8 on 501,200 shares.DWG Corp. jumped 1 1/4 to 15 on 454,100 shares.Carnival Cruise Lines Class A dropped 1 to 21 1/8 on 331,400 shares. Amex issues with big percentage price gains included two Eastern Air Lines preferred stocks, reacting to the news about improved recovery in flight schedules after the company filed for bankruptcy protection.Eastern's Class F preferred rose 12%, or 1 1/4, to 11 3/4; the Class E preferred gained 7%, or 5/8, to 10 1/4. The biggest percentage gainer on the Amex was Enviropact, which jumped 23%, or 5/8, to 3 3/8 on volume of 29,000 shares.On Monday, the company, a provider of environmental consulting services, reported a wider fiscal fourth-quarter loss and predicted a loss for its fiscal 1990 first quarter, but said a profit is expected for all of fiscal 1990.But its auditor, Ernst & Young, said Enviropact's financial situation raises "substantial doubt about its ability to continue as a going concern." Mission Resource Partners advanced 8%, or 1 3/8, to 18 7/8. Sonja Steptoe and David Wilson contributed to this article.
Banks are continuing to go after individual investors, despite falling interest rates. Yields on small-denomination certificates of deposit fell at about half the rate of so-called jumbo CDs this week, according to Banxquote Money Markets, an information service based here.Investors can get slightly higher yields on deposits below $50,000 than they can on deposits of $90,000 and up. "Banks want to remain competitive," said Norberto Mehl, chairman of Banxquote. "October is a big rollover month and perhaps they anticipate greater demand . . . among people leaving the stock market." Some bankers are reporting more inquiries than usual about CDs since Friday. "Reports from branches are that there has been greater interest in the last day or so," said Steven Braitman, a vice president at Chemical Bank in New York.Chemical said deposits Monday were about $5 million higher than usual and it expects more activity as investors receive the proceeds from sales of stock. "This is no time to be playing in the street . . . the Dow has more ups and downs than an elevator," proclaimed an advertisement Monday in New York newspapers, touting Lincoln Savings Bank's one-year CD. Harold Jones, Lincoln's chief retail banking officer, said there hasn't yet been "a discernible response," although the ad included a coupon that could arrive later in the week. Friday's market rout came smack in the middle of the heaviest month for CD rollovers, when a number of banks and thrifts already have promotions under way.First National Bank of Boston, for example, is offering certain new depositors an extra quarter of a percentage point on six-month and 12-month CDs. Some banks actually boosted yields on the shortest term CDs in the latest week.New York's Citibank, for instance, increased the yield on small-denomination three-month CDs to 8% from 7.9%.On average, however, three-month CDs at major banks are yielding a tenth of a percentage point less than they were a week ago. Average yields on CDs aimed at individual investors fell less than half as much as yields on Treasury bills sold at Monday's auction.Six-month CDs of $50,000 and less yielded an average 8.02% in the week ended Tuesday, down from 8.10%, according to Banxquote.The yield on six-month T-bills fell to 7.82% on Monday, from 8.01% the week before. Meanwhile, the average yield on six-month CDs of more than $90,000 fell to 7.93% in the latest week, according to Banxquote, from 8.10% the week before.Mr. Mehl noted that actual rates are almost identical on small and large-denomination CDs, but yields on CDs aimed at the individual investor are boosted by more frequent compounding. CDs sold by major brokerage houses, which like jumbo CDs tend to closely follow interest rate trends, also posted larger drops in yields.A six-month, broker-sold CD, for example, was yielding an average 8.09% in the latest week, a fifth of a percentage point lower than the week before.In late April, when interest rates were at their recent highs, short-term CDs sold by brokers were offering yields half a percentage point or more higher than banks. CD yields are generally expected to fall further in coming weeks. "What happened in the stock market and the bigger trade deficit" reported yesterday "make it unlikely that short-term interest rates will rise" any time soon, said Mr. Mehl of Banxquote. "Even before the market drop, rates were down about half a percentage point," said Robert J. Hutchinson, senior vice president for retail marketing at Manufacturers Hanover Trust Co. in New York. "That puts pressure on CD rates."
Conservatives have an important decision to make this fall.At the recent meetings of the World Bank and International Monetary Fund, the Bush administration announced its intention to decide by yearend the size of the next increase in the IMF's capital base.While the U.S. share of the increase probably will not reach the $12 billion or more implicit in the IMF's request for a doubling of its $90 billion capital, the administration probably will agree to a multibillion-dollar increase.This would be consistent with its unwavering support for the Brady Plan and G-7 exchange-rate intervention, and with its financial commitment to Mexico, Poland and others. The IMF has several reasons for requesting the increase.Its role in the economies of developing countries has grown steadily since the 1970s.The size and pace of disbursements will accelerate further under the Brady Plan, which promises larger and earlier disbursements to approved countries. At least three other factors have encouraged the IMF to insist on increased capital.First, it argues that its capital base must be increased in order to maintain its size relative to world financial markets, for which it feels some responsibility.Second, the World Bank's recent $75 billion capital increase -- $14 billion from the U.S. -- has left the IMF feeling less than first fiddle among international financial institutions.Third, the IMF would like to meet Japan's request for increased ownership (currently 4.5%).Japan has supported a larger role for the IMF in developing-country debt issues, and is an important financial resource for IMF-guided programs in developing countries. While international politics may argue for the capital increase, there is a clear economic case against it.Opponents of the increase argue that the IMF practices central planning while supporting ineffective governments.They question whether the IMF has any role in developing countries, given its original mandate to assist industrial countries in balance-of-payments emergencies. Opponents show that there are already more funds available than commendable reform efforts.They worry that new IMF funding of developing countries will simply end up substituting IMF debt for reschedulable commercial bank debt, a bad trade all around.They believe microeconomics, which addresses the problems of markets, investment climate and management practices, is the key to developing-country growth, not the IMF's Keynesian focus on trade deficits, quarterly targets and government debt.They point at the numerous developing-country governments that have inflated, taxed and regulated themselves into despair under successive IMF programs. Decisions on increases in the IMF's capital base traditionally are made by the administration, with subsequent authorization by Congress.The last U.S. congressional authorization, in 1983, was a political donnybrook and carried a $6 billion housing program along with it to secure adequate votes. The politics of the 1990 congressional authorization are likely to be similar to those of previous authorizations.Liberals may support the stabilizing, quasi-governmental role of the IMF on two conditions: that the administration give assurances that liberal Democrats' support will not be used against them in congressional re-election campaigns; and that the legislation address -- with dollars -- social and environmental concerns.Conservative Republicans will be given the choice of supporting or fighting their party's popular president in an election year. A U.S. decision to refuse the IMF its capital increase, or limit it to 25%, would bring a major change in international economic policy, and could not be taken lightly.Commentators would fret over the implications for the G-7 coordination process and the stability of world financial markets.Because commercial banks and the developing-country governments believe they will get a piece of any capital increase, a scaled-down IMF mission would leave both feeling shortchanged.Furthermore, a U.S. rejection of the capital increase (and transfer of shares to Japan) would give Japan an argument against future calls for economic burden-sharing. On the other hand, a decision to increase the IMF's capital would reinforce the central economic role of multilateral institutions in developing countries.With the increase, even more developing-country energy and talent would be diverted from creating profitable economic systems to setting up economic planning ministries that generate IMF-approved economic plans.Upping the ante could slow economic development even further, as countries delay market-opening steps in anticipation of richer multilateral support. Conservatives should take a position prior to the administration's year-end deadline.The issues are too important to be left to the financial and budget ministries fighting over the size of the capital increase, rather than its purpose.If conservatives don't support an increase in the IMF's capital, then it is incumbent on them to speak up now and explain the alternative. Mr. Malpass directs the Republican staff of the Joint Economic Committee of Congress.
The Chicago Mercantile Exchange fined and suspended two commodities traders accused of making prearranged trades with each other that allegedly cheated a customer. Merc officials said Gary N. Roberts was disciplined following the exchange's investigation of his trading in several commodities pits from July to November 1988.The Merc said Mr. Roberts withheld from the market certain orders in cooperation with another trader, David Stein. The Merc fined Mr. Roberts $15,000 and suspended his trading membership for three years.Also, he and Mr. Stein were ordered to make restitution of $35,000 to a customer. Mr. Stein was fined $25,000 and suspended for three years. Messrs.Roberts and Stein couldn't be reached for comment.The Merc said that as part of the disciplinary settlement, neither man admitted, nor denied the alleged violations.Neither was among the 46 traders indicted last August in a federal investigation of traders at both the Merc and the Chicago Board of Trade.
In a move that could pose a new competitive challenge to Time Warner Inc. 's powerful Home Box Office, cable giant Tele-Communications Inc. agreed to buy half of Showtime Networks Inc. from Viacom Inc. for $225 million. The purchase comes after nearly three years of on-again off-again talks between TCI and Viacom, which has also discussed the sale of an interest in Showtime with other cable operators.Showtime is a distant No. 2 to Home Box Office, and in May filed a $2.5 billion antitrust suit against Time Warner, charging the company and its HBO and American Television cable units with conspiring to monopolize the pay TV business. HBO has close to 24 million subscribers to its HBO and Cinemax networks, while Showtime and its sister service, The Movie Channel, have only about 10 million, according to Paul Kagan Associates, a Carmel, Calif., research firm. For TCI, the investment in Showtime puts it in an unusual position; as the largest cable operator, with control of close to 12 million of the nation's 52 million cable subscribers, TCI is HBO's largest customer.But TCI President John Malone has long been concerned about HBO's dominance of the pay TV business, and has been eager to keep Showtime as a healthy competitor. "It is important to the cable industry that we have a vibrant and competitive pay-television marketplace," Mr. Malone said in a statement. In a telephone interview, Robert Thomson, TCI senior vice president, said Showtime's suit against HBO "doesn't involve us, and nothing we're doing here bears any relationship to that." He added, "We don't intend to be drawn into it," noting that TCI won't play any active role in the management of Showtime. Linking up Showtime with the largest cable operator in the U.S. could sharply boost its subscribers.TCI said it may bring in other cable operators as investors, a practice it has employed in the past with investments in other cable networks, such as The Discovery Channel.Additional cable partners could boost subscribers even further. Time Warner declined comment.In addition to owning HBO, Time Warner owns American Television & Communications Inc., the nation's second largest cable operator after TCI. Viacom also owns cable systems, but it is the 14th largest operator of such systems, with less than one million subscribers. The TCI investment is a big victory for Viacom's chief executive officer, Frank Biondi, and Winston H. Cox, president of the Showtime unit. "This takes any question of Showtime's viability and puts it away once and for all," Mr. Biondi said in a telephone interview. The fight between HBO and Showtime is particularly acrimonious because Mr. Biondi is the former chief executive of HBO, and Mr. Cox served as chief of marketing for the service.They were both hired by Sumner Redstone, the Boston billionaire who took control of Viacom three years ago in a leveraged buy-out. Time Warner has vigorously denied all of Viacom's allegations.
Investor Asher Edelman increased his stake in Intelogic Trace Inc. and cleared the way for additional purchases. It wasn't clear, however, whether the actions were related to a battle between the corporate raider and New York attorney Martin Ackerman for control of Datapoint Corp., a San Antonio, Texas-based data-processing systems maker. Intelogic Trace, a computer services company, was spun off to Datapoint holders in 1985, after Mr. Edelman gained control.After Mr. Ackerman announced he was soliciting consents from shareholders in order to wrest control of Datapoint from Mr. Edelman, the corporate raider purchased 30% of Datapoint's shares. In a Securities and Exchange Commission filing, Mr. Edelman said from Sept. 29 to Oct. 13, he acquired 309,500 shares of Intelogic common shares for $2.25 to $2.375 each.The purchases increased his stake to 16.2% of the shares outstanding. The filing also said certain provisions which apply to persons acquiring 20% or more of Intelogic common stock, were waived by Intelogic for Mr. Edelman, who is chairman of the company.Mr. Edelman couldn't be reached for comment.
An unexpectedly sharp widening in the U.S. trade gap for August dragged the dollar lower Tuesday, but profit-taking on short positions helped the currency rebound to close mixed against major counterparts. While the market kept careful tabs on Wall Street's gyrations, it shrugged off a modest downturn in equities to bid the dollar well above the day's lows. Soon after the release of the U.S. trade figures, the dollar plunged to an intraday low of 140.95 yen.It also declined against the mark but didn't reach its intraday low of 1.8435 marks until two hours later. The unit stabilized about midday New York time at around 1.85 marks and 141 yen, prompting unconfirmed rumors that the U.S. Federal Reserve had intervened to blunt the unit's tumble.The dollar finished at its intraday highs. Dealers noted that the foreign exchange market's initial bearish reaction to the U.S. trade figures was tempered later by a "calmer reassessment of the data." The U.S. Commerce Department reported a $10.77 billion deficit in August, compared with a revised July deficit of $8.24 billion.Economists had expected a $9.1 billion gap. The August figure reflected a 6.4% rise in imports and a 0.2% drop in exports. Marc M. Goloven, an economist with Manufacturers Hanover Trust in New York, said that while the figures appear to indicate a sadly deteriorating U.S. trade performance, there's still enough positive news in the data to justify buying dollars. He said that while the U.S. trade gap with Canada has widened significantly, the trade deficit with Western Europe and Japan continues to narrow.And he added that manufactured goods exports are still rising. The dollar's near-term path remains foggy, according to currencny analysts, who characterize the market as "bewildering." In late New York trading yesterday, the dollar was quoted at 1.8667 marks, down from 1.8685 marks late Monday, and at 142.75 yen, up from 141.85 yen late Monday.Sterling was unchanged at $1.5753. In Tokyo Wednesday, the U.S. currency opened for trading at 142.55 yen, unchanged from Tuesday's Tokyo close.Later, the U.S. currency fell to about 142.25 yen on news reports of the San Francisco earthquake. Some analysts remain bullish and point out that the dollar continues to be well bid despite key rate increases in Europe and Japan, several weeks of aggressive dollar sales by the world central banks -- some traders estimate that the barrage of sales topped $12 billion -- and a 190-point plunge on the New York Stock Exchange. They note that the U.S. unit is trading at the upper end of the presumed target zones established by the Group of Seven trading partners.The G-7 comprises West Germany, the U.S., France, the U.K., Italy, Canada and Japan. The so-called Louvre accord was seen to have set ranges of 1.70 marks to 1.90 marks and 120 yen to 140 yen. They say that the recent injection of liquidity into the U.S. banking system has been modest, and they don't anticipate significant easing by the U.S. Federal Reserve. The Fed arranged $1.5 billion of customer repurchase agreements Tuesday, the second repurchase agreement in two days. The move, which injects capital into the system, is seen as an effort to reassure the finanicial markets that the U.S. central bank is ready to provide the ample liquidity. But other analysts contend that while the Fed's move to loosen credit hasn't been aggressive, it nevertheless sends a clear signal that, at least for now, the Fed has relaxed its grip on credit. They add that the Fed has allowed the key federal funds interest rate to dip to about 8 5/8% from its levels of just below 9% last week.The federal funds rate is the overnight lending rate that banks charge each other. Market participants said that the mark continues to post the most significant gains against the dollar. On the Commodity Exchange in New York, gold for current delivery settled at $367.40 an ounce, up 10 cents.Estimated volume was a moderate 3.5 million ounces. In early trading in Hong Kong Wednesday, gold was at $366.55 an ounce.
J.P. Morgan & Co., New York, will help the statutory managers of DFC New Zealand Ltd. to evaluate the failed investment bank's condition. Earlier this month, the Reserve Bank of New Zealand, the country's central bank, appointed the managers to run the investment bank and pay creditors.DFC asked the central bank to appoint managers after it revised loan-loss provisions to around the same level of shareholders' funds of 180 million New Zealand dollars (US$105.4 million). DFC is held 80% by National Provident Fund, New Zealand's largest pension fund, and 20% by Salomon Brothers Inc., the investment-bank and securities-firm subsidiary of Salomon Inc. in New York. A spokeswoman for J.P. Morgan, parent of the bank Morgan Guaranty Trust Co., confirmed its appointment to assist the managers but declined to elaborate. The managers said in a brief statement yesterday that Morgan will help evaluate DFC's position and help determine alternatives.The managers don't expect to complete the evaluation until Nov. 30.
An experimental vaccine can alter the immune response of people infected with the AIDS virus, a prominent U.S. scientist said. However, that doesn't mean they can benefit from the vaccine.Its effectiveness can't be determined until a large clinical trial is undertaken by the Army in January, according to Robert Redfield, chief of acquired immune deficiency syndrome research at Walter Reed Army Institute of Research. Dr. Redfield's report on early experiments using an AIDS vaccine made by MicroGeneSys Inc. of West Haven, Conn., came at a meeting of AIDS vaccine researchers in Florida late Monday.The vaccine, VaxSyn HIV-1, has been safely given to 14 people, some of whom are experiencing substantial increases in certain antibodies. "The conventional wisdom used to be that you couldn't modify the immune response of an infected individual" by innoculating them with synthetic viral proteins, Dr. Redfield said. "We've demonstrated that you can." He said certain volunteers developed kinds of antibodies associated with early AIDS. Other antibodies sparked by the preparation are of a sort rarely present in large quantities in infected or ill individuals, he added.One of the mysteries of AIDS remains why infected people produce large quantities of antibodies, but deteriorate nonetheless.
Spooked investors, despite their stampede to dump takeover stocks, should hold on tight to their Jaguar shares. That's the view of some analysts here who argue that Britain's leading maker of luxury cars still may have two U.S. auto giants battling for it. Yesterday, Ford Motor disclosed that it has raised its holding in Jaguar to 10.4% from 5%.Both Ford and its rival General Motors recently set their sights on grabbing significant minority stakes in the British company. Ford's latest move increases the pressure on GM to complete its current talks with Jaguar quickly.GM is likely to reach the cooperative operating pact it has been seeking in about two weeks, knowledgeable individuals say. At that point investors may face a long, bumpy ride.A victor in the fight for Jaguar may not emerge until after the expiration late next year of British government takeover restrictions.The curbs prevent a buyer from purchasing more than 15% of Jaguar shares without permission. "This is an exceptionally odd takeover battle," says London analyst Christopher Will of Shearson Lehman Hutton. Jaguar's American depositary receipts were up 3/8 yesterday in a down market, closing at 10 3/8. (Jaguar's ADRs make the company one of the most widely held United Kingdom stocks in the U.S., with more than one-fourth of its shares owned there.) Jaguar topped the most-active list for the U.S. over-the-counter market Monday.And on London's Stock Exchange Monday, 18.5 million shares were traded, far above the usual volume.Ford's share purchases undoubtedly accounted for much of Monday's heavy trading. Last week, many Jaguar shareholders took their money and ran.Fears that Ford's ardor might be cooling put Jaguar shares into reverse after GM confirmed its friendly negotiations with Jaguar.But yesterday's announcement indicates that Ford hasn't lost interest. Both Shearson's Mr. Will and Stephen Reitman, European auto analyst at the London brokerage firm UBS-Phillips & Drew, recently switched their Jaguar recommendations to hold from buy. "Sit tight" through the coming volatility, Mr. Reitman suggests, though he concedes that many small investors will find Jaguar's zigzags "too hard to swallow." But a crucial point is how Ford reacts when GM, the world's largest auto maker, firms up its proposed deal with Jaguar.At the moment, Ford executives will say little beyond reiterating their desire to raise Ford's Jaguar stake to about 15%. GM is expected to inject roughly #200 million ($316 million) by acquiring some Jaguar shares, and then win Jaguar management's promise of an eventual 30% stake.Analysts believe the car makers also will create joint ventures to develop new executive models, doubling Jaguar's yearly output of 50,000 cars. Jaguar shareholders would have to bless such a far-reaching accord.Ford might challenge the proposal by offering a full bid if holders and the U.K. government agreed to drop the anti-takeover barrier early. "I think Ford is going to come out with full guns blazing," Mr. Reitman says. "Ford wants {Jaguar} very much." U.S. takeover-stock speculators, who may own between 20% and 30% of Jaguar, could give Ford enough votes to block the GM deal. GM might counterbid.Then, Mr. Will says, "you get a bidding war between two very rich, very determined international companies." He believes Jaguar's share price could zoom to between #8 and #10 ($12.60 to $15.80). "There's quite a bit of value left in the {Jaguar} shares here even though they have run up" lately, says Doug Johnson, a fund manager for Seattle-based Safeco Asset Management.At the moment, he intends to keep the firm's 180,000 Jaguar shares. The risk is that Jaguar's share price could slump if GM's agreement with Jaguar effectively locks out its U.S. rival. "Ford's appetite to attack {Jaguar} could gradually wane over time, particularly if Saab is a reasonably attractive proposition," says John Lawson, an auto analyst at London's Nomura Research Institute.He thinks Saab-Scania AB on Friday will announce the sale of 50% of its car division to Ford; the companies have been discussing closer cooperation for months. Clifford Stahl, president and chief investment officer of C-S Capital Advisors Inc., two weeks ago sold his Cincinnati firm's 107,100 Jaguar ADRs at about 10 each, making a tidy profit on a holding purchased at 4 7/8 in early May. "I thought the probabilities of {a bidding war} happening were less," he says.Of course, that was before Ford's latest move. Jaguar (OTC; Symbol: JAGRY) Business: Luxury cars Year ended Dec. 31, 1988: Revenue: $1.71 billion Net income: $44.9 million; or 25 cents a share First half ended, June 30, 1989: Net loss: $1.7 million vs. net income: $21.2 million; or 12 cents a share Averae daily trading volume: Ordinary shares outstanding: 182.9 million NOTE: All figures are translated into U.S. dollars based on current exchange rates.
Newport Electronics Inc. of Santa Ana, Calif., said Milton B. Hollander, who holds a 49.4% stake, requested a special shareholders' meeting next Wednesday to remove four current directors and elect an alternative slate. Mr. Hollander's High Technology Holding Co. of Stamford, Conn., acquired most of its stake last August in an $11-a-share tender offer for Newport, a maker of electronic-measuring devices. Newport said Mr. Hollander is asking shareholders to retain only one director, James R. Lees, a Newport vice president.The board isn't proposing a slate of its own and the other four current directors don't want to serve beyond the special meeting date, Newport said. Mr. Hollander "is the new owner and wants to exercise control," said Barret B. Weekes, Newport's chairman.
Microsoft Corp. 's earnings growth continued to outstrip that of most of its competitors and customers in the personal-computer industry, as it reported a 36% jump in fiscal first-quarter earnings on a 33% revenue gain. The Redmond, Wash. company, a bellwether provider of operating systems and software for personal-computer makers and users, reported net income for the quarter ended Sept. 30 of $49.6 million, or 87 cents a share, up from $36.6 million, or 65 cents a share, in the year-ago period.Revenue rose to $235.2 million, from $176.4 million. Microsoft previously indicated it would have a strong quarter by forecasting its revenue gain on Oct. 4, causing a $6.50 a share jump in its stock.But its stock jumped again yesterday as it disclosed surprisingly strong margins on those sales. Microsoft's stock rose $2.875 a share in national over-the-counter trading to $78.625.The stock had hit a high of $81 a share early last week but collapsed to $73.50 in the Friday stock plunge. The company had been experiencing softening margins because of increased sales of software applications, which have lower margins than do operating systems.But the company said that trend was offset in the first quarter by better economies of scale and efficiencies in manufacturing. As a result, Microsoft's cost of goods, as a percentage of sales, fell 17% from the year-ago quarter and 13% from the previous period.The trend drove up the aftertax margin -- net income as a percentage of revenues -- to 21.1% in the quarter, compared with 20.7% a year earlier. Microsoft officials said the strong results also reflected continuing high demand for its software applications and operating systems.While it has predicted that overall growth in unit sales of personal computers is slowing to about a 10% yearly rate, its own products are selling at a much faster rate because many are geared to the high-performance end of the market.That segment continues to post strong quarter-to-quarter gains, while the low-end, or commodity segment, of the industry is experiencing sluggish growth or even sales declines. Compared with its previous quarter, the final period of its 1989 fiscal year, net rose 9%, and sales rose 7%.
UAL'S STOCK SKIDDED an additional $24.875, to $198, as British Airways indicated it may balk at any hastily revised version of the aborted $6.79 billion buy-out of United Air's parent.UAL has fallen $87.25, or 31%, in the three trading days since disclosure of the buy-out's collapse jolted the stock market.Meanwhile, investor Marvin Davis said he remains interested in UAL, but he dropped his earlier $300-a-share back-up bid. Stock prices fell broadly in heavy trading, dominated by futures-related program selling and further declines by UAL and other airline stocks.The Dow Jones industrials closed off 18.65 points, at 2638.73, after plunging over 60.25 points in the morning.Bond prices ended lower after an early rally, while the dollar was mixed. The U.S. trade deficit swelled to $10.77 billion in August, prompting worries that the nation's export drive had stalled.Exports declined for the second month in a row, while imports rose to a record.An analyst called it one of the worst trade reports since the dollar bottomed out in Industrial output fell 0.1% in September, the latest sign manufacturing is slowing.An analyst cited weaker capital spending and exports. Bankers Trust added $1.6 billion to reserves for Third World loans, the latest big bank to take such a step.It expects a $1.42 billion quarterly loss.Citicorp posted a 9% drop in quarterly profit.Manufacturers Hanover had a loss due to a big reserve addition. Bank of New England plans to sell some operations and lay off 4% of its work force after a year of weak earnings and mounting loan problems. Eastern Airlines' creditors have begun exploring alternative approaches to a Chapter 11 reorganization because they are unhappy with the carrier's latest proposal. Tele-Communications agreed to buy half of Showtime Networks from Viacom for $225 million.The move could pose a new challenge to Time Warner's Home Box Office. The CFTC plans to curb dual trading on commodities markets, in which traders buy and sell both for their own account and for clients.The move is likely to anger traders. FDIC Chairman Seidman said that Lincoln Savings & Loan of California should have been seized in 1986 to contain losses he estimated will cost taxpayers as much as $2 billion. A $67 billion spending bill was approved by House-Senate conferees that includes major provisions affecting the federal mortgage market. Hooker's U.S. unit is expected to agree in principle this week to sell its Merksamer Jewelers chain to management, according to executives. The deficit-reduction bill became snagged over efforts to streamline the House version of the legislation in advance of a House-Senate conference. Integrated Resources said talks have ended with another potential buyer of its core businesses. Three big drug makers posted robust third-quarter earnings.Merck's profit climbed 25%, Warner-Lambert's 22% and Eli Lilly's 24%. Markets -- Stocks: Volume 224,070,000 shares.Dow Jones industrials 2638.73, off 18.65; transportation 1254.27, off 49.96; utilities 214.54, off 0.19. Bonds: Shearson Lehman Hutton Treasury index 3377.43, off Commodities: Dow Jones futures index 129.72, unchanged; spot index 129.97, off 0.19. Dollar: 142.75 yen, up 0.95; 1.8667 marks, off 0.0018.
Oncor Inc., Gaithersburg, Md., said it received approval from the U.S. Food and Drug Administration to market a genetic test that will assist in diagnosis and treatment of leukemia and lymph cancer. The B/T gene rearrangement test is more accurate than existing tests for diagnosing the type of cancer, whether it has spread or whether there is a recurrence following treatment, said Oncor President Stephen Turner.Mr. Turner said the test initially will be used in conjunction with biopsies and other tests, but eventually might become the benchmark for tumor analysis.Mr. Turner said the test will be shipped in 45 days to hospitals and clinical laboratories. Dr. Wyndham Wilson, a cancer treatment specialist at the National Cancer Institute, said the test is widely used in research centers but isn't having a major impact because it is only occasionally useful in choosing the most effective treatment.But the test may prove to be more sensitive in determining whether a tumor has spread or returned following treatment, Dr. Wilson said. "We don't know yet how useful it's going to be," he said. Oncor, a six-year-old developer of genetic medical tests, projects that the cancer test will help it to post its first-ever profit during the first quarter of 1990, Mr. Turner said.The company will charge $35 for a test and projects about $2 million in revenue from the test during the first 12 months of marketing, he said.
Consumers may want to move their telephones a little closer to the TV set. Couch-potato jocks watching ABC's "Monday Night Football" can now vote during halftime for the greatest play in 20 years from among four or five filmed replays.Two weeks ago, viewers of several NBC daytime consumer segments started calling a 900 number for advice on various life-style issues.And the new syndicated "reality" show "Hard Copy" records viewers' opinions for possible airing on the next day's show. Interactive telephone technology has taken a new leap in sophistication, and television programmers are racing to exploit the possibilities.Eventually viewers may grow bored with the technology and resent the cost.But right now programmers are figuring that viewers who are busy dialing up a range of services may put down their remote control zappers and stay tuned. "We've been spending a lot of time in Los Angeles talking to TV production people," says Mike Parks, president of Call Interactive, which supplied technology for both ABC Sports and NBC's consumer minutes. "With the competitiveness of the television market these days, everyone is looking for a way to get viewers more excited." One of the leaders behind the expanded use of 900 numbers is Call Interactive, a joint venture of giants American Express Co. and American Telephone & Telegraph Co. Formed in August, the venture weds AT&T's newly expanded 900 service with 200 voice-activated computers in American Express's Omaha, Neb., service center. Other long-distance carriers have also begun marketing enhanced 900 service, and special consultants are springing up to exploit the new tool.Blair Entertainment, a New York firm that advises TV stations and sells ads for them, has just formed a subsidiary -- 900 Blair -- to apply the technology to television. The use of 900 toll numbers has been expanding rapidly in recent years.For a while, high-cost pornography lines and services that tempt children to dial (and redial) movie or music information earned the service a somewhat sleazy image, but new legal restrictions are aimed at trimming excesses. The cost of a 900 call is set by the originator -- ABC Sports, for example -- with the cheapest starting at 75 cents.Billing is included in a caller's regular phone bill.From the fee, the local phone company and the long-distance carrier extract their costs to carry the call, passing the rest of the money to the originator, which must cover advertising and other costs. In recent months, the technology has become more flexible and able to handle much more volume.Before, callers of 900 numbers would just listen and not talk, or they'd vote "yes" or "no" by calling one of two numbers. (People in the phone business call this technology "900 click.") Now, callers are led through complex menus of choices to retrieve information they want, and the hardware can process 10,000 calls in 90 seconds. Up to now, 900 numbers have mainly been used on local TV stations and cable channels.MTV used one to give away the house that rock star Jon Bon Jovi grew up in.For several years, Turner Broadcasting System's Cable News Network has invited viewers to respond nightly to topical issues ("Should the U.S. military intervene in Panama?"), but even the hottest controversies on CNN log only about 10,000 calls. The newest uses of the 900-interactive technology demonstrate the growing variety of applications.Capital Cities/ABC Inc., CBS Inc. and General Electric Co. 's National Broadcasting Co. unit are expected to announce soon a joint campaign to raise awareness about hunger.The subject will be written into the plots of prime-time shows, and viewers will be given a 900 number to call.Callers will be sent educational booklets, and the call's modest cost will be an immediate method of raising money. Other network applications have very different goals.ABC Sports was looking for ways to lift deflated halftime ratings for "Monday Night Football." Kurt Sanger, ABC Sports's marketing director, says that now "tens of thousands" of fans call its 900 number each week to vote for the best punt return, quarterback sack, etc. Profit from the calls goes to charity, but ABC Sports also uses the calls as a sales tool: After thanking callers for voting, Frank Gifford offers a football videotape for $19.95, and 5% of callers stay on the line to order it.Jackets may be sold next. Meanwhile, NBC Sports recently began "Scores Plus," a year-round, 24-hour 900 line providing a complex array of scores, analysis and fan news.A spokesman said its purpose is "to bolster the impression that NBC Sports is always there for people." NBC's "On-Line" consumer minutes have increased advertiser spending during the day, the network's weakest period.Each weekday matches a sponsor and a topic: On Mondays, Unilever N.V.'s Lever Bros. sponsors tips on diet and exercise, followed by a 30-second Lever Bros. commercial. Viewers can call a 900 number for additional advice, which will be tailored to their needs based on the numbers they punch ("Press one if you're pregnant," etc.).If the caller stays on the line and leaves a name and address for the sponsor, coupons and a newsletter will be mailed, and the sponsor will be able to gather a list of desirable potential customers. Diane Seaman, an NBC-TV vice president, says NBC has been able to charge premium rates for this ad time.She wouldn't say what the premium is, but it's believed to be about 40% above regular daytime rates. "We were able to get advertisers to use their promotion budget for this, because they get a chance to do couponing," says Ms. Seaman. "And we were able to attract some new advertisers because this is something new." Mr. Parks of Call Interactive says TV executives are considering the use of 900 numbers for "talk shows, game shows, news and opinion surveys." Experts are predicting a big influx of new shows in 1990, when a service called "automatic number information" will become widely available.This service identifies each caller's phone number, and it can be used to generate instant mailing lists. "Hard Copy," the new syndicated tabloid show from Paramount Pictures, will use its 900 number for additional purposes that include research, says executive producer Mark B. von S. Monsky. "For a piece on local heroes of World War II, we can ask people to leave the name and number of anyone they know who won a medal," he says. "That'll save us time and get people involved." But Mr. Monsky sees much bigger changes ahead. "These are just baby steps toward real interactive video, which I believe will be the biggest thing yet to affect television," he says.Although it would be costly to shoot multiple versions, TV programmers could let audiences vote on different endings for a movie.Fox Broadcasting experimented with this concept last year when viewers of "Married . . . With Children" voted on whether Al should say "I love you" to Peg on Valentine's Day. Someday, viewers may also choose different depths of news coverage. "A menu by phone could let you decide, `I'm interested in just the beginning of story No. 1, and I want story No. 2 in depth," Mr. Monsky says. "You'll start to see shows where viewers program the program."
The stock of UAL Corp. continued to be pounded amid signs that British Airways may balk at any hasty reformulation of the aborted $6.79 billion buy-out of United Airlines' parent. UAL stock plummeted a further $24.875 to $198 on volume of more than 2.8 million shares in New York Stock Exchange composite trading.The plunge followed a drop of $56.875 Monday, amid indications the takeover may take weeks to be revived. The stock has fallen $87.25, or 31%, in the three trading days since announcement of the collapse of the $300-a-share takeover jolted the entire stock market into its second-worst plunge ever. "This is a total bloodbath" for takeover-stock traders, one investment banker said. Los Angeles financier Marvin Davis, who put United in play with a $5.4 billion bid two months ago, last night proffered both a ray of hope and an extra element of uncertainty by saying he remains interested in acquiring UAL.But he dropped his earlier $300-a-share back-up bid, saying he must first explore bank financing. Even as Citicorp and Chase Manhattan Corp. scrambled to line up bank financing for a revised version of the lapsed labor-management bid, British Airways, a 15% partner in the buying group, indicated it wants to start from scratch.Its partners are United's pilots, who were to own 75%, and UAL management at 10%. Adding insult to injury, United's 25,000-member Machinists' union, which helped scuttle financing for the first bid, yesterday asked UAL Chairman Stephen Wolf and other UAL directors to resign.A similar demand was made by a group that represents some of United's 26,000 noncontract employees.John Peterpaul, Machinists union general vice president, attacked Mr. Wolf as "greedy and irresponsible" for pursuing the buy-out.Although Mr. Wolf and John Pope, UAL's chief financial officer, stood to pocket $114.3 million for stock and options in the buy-out, UAL executives planned to reinvest only $15 million in the new company. The blue-collar machinists, longtime rivals of the white-collar pilots, say the buyout would load the company with debt and weaken its finances. Confusion about the two banks' hurried efforts to round up financing for a new bid that the UAL board hasn't even seen yet helped send UAL stock spiraling downward.And rumors of forced selling by takeover-stock traders triggered a 25-point downdraft in the Dow Jones Industrial Average around 11:15 a.m. EDT yesterday. Yesterday's selling began after a Japanese news agency reported that Japanese banks, which balked at the first bid, were ready to reject a revised version at around $250 a share, or $5.65 billion.Several reports as the day progressed gave vague or conflicting indications about whether banks would sign up. Citicorp, for example, said only that it had "expressions of interest of a transaction from both the borrowers and the banks," but didn't have an agreement. Late in the day, Mr. Wolf issued a onepage statement calling Mr. Peterpaul's blast "divisive and uncalled for." But he gave few details on the progress toward a new bid, saying only, "We are working toward a revised proposal for majority employee ownership." Meanwhile, in another sign that a new bid isn't imminent, it was learned that the UAL board held a telephone meeting Monday to hear an update on the situation, but that a formal board meeting isn't likely to be convened until early next week. In London, British Airways Chairman Lord King was quoted in the Times as declaring he is "not prepared to take my shareholders into a hasty deal." Observers said it appeared that British Air was angered at the way the bid has degenerated into confusion, as well as by the banks' effort to round up financing for what one called "a deal that isn't a deal." The effort to revive the bid was complicated by the unwieldy nature of the three-party buying group.The pilots were meeting outside Chicago yesterday.But British Air, which was to have supplied $750 million out of $965 million in equity financing, apparently wasn't involved in the second proposal and could well reject it even if banks obtain financing. A group of United's noncontract employees said in a statement, "The fact that Wolf and other officers were going to line their pockets with literally millions of dollars while instituting severe pay cuts on the nonunion employees of United is not only deplorable but inexcusable." The machinists also asked for an investigation by the Securities and Exchange Commission into possible securities-law violations in the original bid for UAL by Mr. Davis, as well as in the response by UAL. Last week, just before the bank commitments were due, the union asked the U.S. Labor Department to study whether the bid violated legal standards of fairness governing employee investment funds. In his statement, Mr. Wolf said, "We continue to believe our approach is sound, and that it is far better for all employees than the alternative of having an outsider own the company with employees paying for it just the same." Mr. Wolf has eschewed merger advice from a major Wall Street securities firm, relying instead only on a takeover lawyer, Peter Atkins of Skadden Arps Slate Meagher & Flom. The huge drop in UAL stock prompted one takeover stock trader, George Kellner, managing partner of Kellner, DiLeo & Co., to deny publicly rumors that his firm was going out of business.Mr. Kellner said that despite losses on UAL stock, his firm's health is "excellent." The stock's decline also has left the UAL board in a quandary.Although it may not be legally obligated to sell the company if the buy-out group can't revive its bid, it may have to explore alternatives if the buyers come back with a bid much lower than the group's original $300-a-share proposal. At a meeting Sept. 1 to consider the labor-management bid, the board also was informed by its investment adviser, First Boston Corp., of interest expressed by buy-out funds including Kohlberg Kravis Roberts & Co. and Forstmann Little & Co., as well as by Robert Bass, Morgan Stanley's buy-out fund, and Pan Am Corp. The takeover-stock traders were hoping that Mr. Davis or one of the other interested parties might re-emerge with the situation in disarray, or that the board might consider a recapitalization. Meanwhile, Japanese bankers said they were still hesitant about accepting Citicorp's latest proposal.
Macmillan Inc. said it plans a public offering of 8.4 million shares of its Berlitz International Inc. unit at $19 to $21 a share. The offering for the language school unit was announced by Robert Maxwell, chairman and chief executive officer of London-based Maxwell Communication Corp., which owns Macmillan. After the offering is completed, Macmillan will own about 56% of the Berlitz common stock outstanding.Five million shares will be offered in the U.S., and 3.4 million additional shares will be offered in concurrent international offerings outside the U.S. Goldman, Sachs & Co. will manage the offering. Macmillan said Berlitz intends to pay quarterly dividends on the stock.The company said it expects to pay the first dividend, of 12.5 cents a share, in the 1990 first quarter. Berlitz will borrow an amount equal to its expected net proceeds from the offerings, plus $50 million, in connection with a credit agreement with lenders.The total borrowing will be about $208 million, the company said.Proceeds from the borrowings under the credit agreement will be used to pay an $80 million cash dividend to Macmillan and to lend the remainder of about $128 million to Maxwell Communications in connection with a promissory note. Proceeds from the offering will be used to repay borrowings under the short-term parts of a credit agreement. Berlitz, which is based in Princeton, N.J., provides language instruction and translation services through more than 260 language centers in 25 countries.In the past five years, more than 68% of its sales have been outside the U.S. Macmillan has owned Berlitz since 1966. In the first six months of this year, Berlitz posted net income of $7.6 million on sales of $106.2 million, compared with net income of $8.2 million on sales of $90.6 million.
Right away you notice the following things about a Philip Glass concert.It attracts people with funny hair (or with no hair -- in front of me a girl with spiked locks sat beside a boy who had shaved his).Whoever constitute the local Left Bank come out in force, dressed in black, along with a smattering of yuppies who want to be on the cutting edge.People in Glass houses tend to look stoned.And, if still conscious at the evening's end, you notice something else: The audience, at first entranced and hypnotized by the music, releases its pent-up feelings in collective gratitude. Currently in the middle of a four-week, 20-city tour as a solo pianist, Mr. Glass has left behind his synthesizers, equipment and collaborators in favor of going it alone.He sits down at the piano and plays.And plays.Either one likes it or one doesn't.The typical Glass audience, which is more likely to be composed of music students than their teachers, certainly does. The work, though, sounds like Muzak for spaceships.Philip Glass is the emperor, and his music the new clothes, of the avant-garde.His success is easy to understand.Softly introducing and explaining his pieces, Mr. Glass looks and sounds more like a shaggy poet describing his work than a classical pianist playing a recital.The piano compositions, which have been labeled variously as minimalist, Oriental, repetitive, cyclical, monophonic and hypnotic, are relentlessly tonal (therefore unthreatening), unvaryingly rhythmic (therefore soporific), and unflaggingly harmonious but unmelodic (therefore both pretty and unconventional).It is music for people who want to hear something different but don't want to work especially hard at the task.It is E-Z listening for the now generation. Mr. Glass has inverted the famous modernist dictum "less is more." His more is always less.Far from being minimalist, the music unabatingly torments us with apparent novelties not so cleverly disguised in the simplicities of 4/4 time, octave intervals, and ragtime or gospel chord progressions.But the music has its charm, and Mr. Glass has constructed his solo program around a move from the simple to the relatively complex. "Opening" (1981), from Glassworks, introduces the audience to the Glass technique: Never straying too far from the piano's center, Mr. Glass works in the two octaves on either side of middle C, and his fingers seldom leave the keys.There is a recognizable musical style here, but not a particular performance style.The music is not especially pianistic; indeed, it's hard to imagine a bad performance of it.Nothing bravura, no arpeggios, no ticklish fingering problems challenge the performer.We hear, we may think, inner voices, but they all seem to be saying the same thing. With "Planet News," music meant to accompany readings of Allen Ginsberg's "Wichita Vortex Sutra," Mr. Glass gets going.His hands sit farther apart on the keyboard.Seventh chords make you feel as though he may break into a (very slow) improvisatory riff.The chords modulate, but there is little filigree even though his fingers begin to wander over more of the keys.Contrasts predictably accumulate: First the music is loud, then it becomes soft, then (you realize) it becomes louder again. "The Fourth Knee Play," an interlude from "Einstein on the Beach," is like a toccata but it doesn't seem to move much beyond its left-hand ground in "Three Blind Mice." When Mr. Glass decides to get really fancy, he crosses his hands and hits a resonant bass note with his right hand.He does this in at least three of his solo pieces.You might call it a leitmotif or a virtuoso accomplishment.In "Mad Rush," which came from a commission to write a piece of indeterminate length (Mr.Glass charmingly, and tellingly, confessed that "this was no problem for me"), an A section alternates with a B section several times before the piece ends unresolved. Not only is the typical Glasswork open-ended, it is also often multiple in its context(s). "Mad Rush" began its life as the accompaniment to the Dalai Lama's first public address in the U.S., when Mr. Glass played it on the organ at New York's Cathedral of St. John the Divine.Later it was performed on Radio Bremen in Germany, and then Lucinda Childs took it for one of her dance pieces.The point is that any piece can be used as background music for virtually anything. The evening ended with Mr. Glass's "Metamorphosis," another multiple work.Parts 1, 2, and 5 come from the soundtrack of Errol Morris's acclaimed film, "The Thin Blue Line," and the two other parts from incidental music to two separate dramatizations of the Kafka story of the same name.When used as background in this way, the music has an appropriate eeriness, as when a two-note phrase, a descending minor third, accompanies the seemingly endless litany of reports, interviews and confessions of witnesses in the Morris film.Served up as a solo, however, the music lacks the resonance provided by a context within another medium. Admirers of Mr. Glass may agree with the critic Richard Kostelanetz's sense that the 1974 "Music in Twelve Parts" is as encyclopedic and weighty as "The Well-Tempered Clavier." But while making the obvious point that both composers develop variations from themes, this comparison ignores the intensely claustrophobic nature of Mr. Glass's music.Its supposedly austere minimalism overlays a bombast that makes one yearn for the astringency of neoclassical Stravinsky, the genuinely radical minimalism of Berg and Webern, and what in retrospect even seems like concision in Mahler. Mr. Spiegelman is professor of English at Southern Methodist University and editor of the Southwest Review.
AN EARTHQUAKE STRUCK Northern California, killing more than 50 people. The violent temblor, which lasted about 15 seconds and registered 6.9 on the Richter scale, also caused the collapse of a 30-foot section of the San Francisco-Oakland Bay Bridge and shook Candlestick Park.The tremor was centered near Hollister, southeast of San Francisco, and was felt as far as 200 miles away.Numerous injuries were reported.Some buildings collapsed, gas and water lines ruptured and fires raged.The quake, which also caused damage in San Jose and Berkeley, knocked out electricity and telephones, cracked roadways and disrupted subway service in the Bay Area. Major injuries weren't reported at Candlestick Park, where the third game of baseball's World Series was canceled and fans evacuated from the stadium. Bush vowed to veto a bill allowing federal financing for abortions in cases of rape and incest, saying tax dollars shouldn't be used to "compound a violent act with the taking of an unborn life." His pledge, in a letter to Democratic Sen. Byrd, came ahead of an expected Senate vote on spending legislation containing the provision. East Germany's Politburo met amid speculation that the ruling body would oust hard-line leader Honecker, whose rule has been challenged by mass emigration and calls for democratic freedoms.Meanwhile, about 125 refugees flew to Duesseldorf, West Germany, from Warsaw, the first airlift in East Germany's refugee exodus. The World Psychiatric Association voted at an Athens parley to conditionally readmit the Soviet Union.Moscow, which left the group in 1983 to avoid explusion over allegations that political dissidents were being certified as insane, could be suspended if the misuse of psychiatry against dissenters is discovered during a review within a year. NASA postponed the liftoff of the space shuttle Atlantis because of rain near the site of the launch pad in Cape Canaveral, Fla.The flight was rescheduled for today.The spacecraft's five astronauts are to dispatch the nuclear-powered Galileo space probe on an exploratory mission to Jupiter. Senate Democratic leaders said they had enough votes to defeat a proposed constitutional amendment to ban flag burning.The amendment is aimed at skirting a Supreme Court ruling that threw out the conviction of a Texas flag-burner on grounds that his freedom of speech was violated. Federal researchers said lung-cancer mortality rates for people under 45 years of age have begun to decline, particularly for white males.The National Cancer Institute also projected that overall U.S. mortality rates from lung cancer should begin to drop in several years if cigarette smoking continues to abate. Bush met with South Korean President Roh, who indicated that Seoul plans to further ease trade rules to ensure that its economy becomes as open as the other industrialized nations by the mid-1990s.Bush assured Roh that the U.S. would stand by its security commitments "as long as there is a threat" from Communist North Korea. The Bush administration is seeking an understanding with Congress to ease restrictions on U.S. involvement in foreign coups that might result in the death of a country's leader.A White House spokesman said that while Bush wouldn't alter a longstanding ban on such involvement, "there's a clarification needed" on its interpretation. India's Gandhi called for parliamentary elections next month.The balloting, considered a test for the prime minister and the ruling Congress (I) Party, comes amid charges of inept leadership and government corruption.Gandhi's family has ruled independent India for all but five years of its 42-year history. The Soviet Union abstained from a U.N. General Assembly vote to reject Israel's credentials.It was the first time in seven years that Moscow hasn't joined efforts, led by Moslem nations, to expel Israel from the world body, and was viewed as a sign of improving Soviet-Israeli ties.Israel was seated by a vote of 95-37, with 15 abstentions. Black activist Walter Sisulu said the African National Congress wouldn't reject violence as a way to pressure the South African government into concessions that might lead to negotiations over apartheid.The 77-year-old Sisulu was among eight black political activists freed Sunday from prison. London has concluded that Austrian President Waldheim wasn't responsible for the execution of six British commandos in World War II, although he probably was aware of the slayings.The report by the Defense Ministry also rejected allegations that Britain covered up evidence of Waldheim's activities as a German army officer. An international group approved a formal ban on ivory trade despite objections from southern African governments, which threatened to find alternative channels for selling elephant tusks.The move by the Convention on Trade in Endangered Species, meeting in Switzerland, places the elephant on the endangered-species list. An assassin in Colombia killed a federal judge on a Medellin street.An anonymous caller to a local radio station said cocaine traffickers had slain the magistrate in retaliation for the extraditions of Colombians wanted on drug charges in the U.S. Libyan leader Gadhafi met with Egypt's President Mubarak, and the two officials pledged to respect each other's laws, security and stability.They stopped short of resuming diplomatic ties, severed in 1979.The reconciliation talks in the Libyan desert town of Tobruk followed a meeting Monday in the Egyptian resort of Mersa Metruh.
Once again, your editorial page misstates the law to conform to your almost beatific misperceptions.In an excursus of little relevance to his central point about private enforcement suits by environmental groups, Michael S. Greve informs your readers, ". . . the Clean Water Act is written upon the presumption -- the pretense, rather -- that nothing but zero risk will do; it establishes a legal standard of zero discharge" ("Congress's Environmental Buccaneers," Sept. 18). This statement surely buttresses your editorial viewpoint that environmental protection is generally silly or excessive, but it is simply wrong.The Clean Water Act contains no "legal standard" of zero discharge.It requires that "discharges of pollutants" into the "waters of the United States" be authorized by permits that reflect the effluent limitations developed under section 301.Whatever may be the problems with this system, it scarcely reflects "zero risk" or "zero discharge." Perhaps Mr. Greve was confused by Congress's meaningless statement of "the national goal" in section 101, which indeed calls for the elimination of discharges -- by 1985, no less.This fatuous statement was not taken seriously when enacted in 1972, and should not now be confused with the operative provisions of the statute. Thus, you do the public a great disservice when Mr. Greve suggests, even facetiously, that the Clean Water Act prohibits the preparation of a scotch and water; your tippling readers may be led to believe that nothing but chance or oversight protects them, as they cower in the night with their scotch and waters, from the hairyknuckled knock of the Sierra Club at their doors. Robert J. McManus Washington
National Geographic, the sixth-largest U.S. magazine, is attracting more readers than ever and offers the glossy, high-toned pages that upscale advertisers love. So why did advertising pages plunge by almost 10% and ad revenue by 7.2% in the first half? To hear advertisers tell it, the magazine just hasn't kept up with the times.Despite renewed interest by the public in such topics as the environment and the Third World, it hasn't been able to shake its reputation as a magazine boys like to flip through in search of topless tribe women.Worse, it lagged behind competitors in offering now-standard gimmicks, from regional editions to discounts for frequent advertisers. But now, the magazine is attempting to fight back, with an ambitious plan including a revamped sales strategy and a surprisingly aggressive ad campaign.Advertisers don't think of the magazine first, says Joan McCraw, who joined in April as national advertising director. "What we want to do is take a more aggressive stance.People didn't believe we were in tune with the marketplace, and in many ways we weren't." The 101-year-old magazine has never had to woo advertisers with quite so much fervor before.It largely rested on its hard-to-fault demographics: 10.8 million subscribers in the first half, up from 10.5 million a year ago; an average age of 42 for readers -- at the height of their consuming years; loyalty to the tune of an 85% average subscription renewal rate. The magazine had its best year yet in 1988, when it celebrated its centennial and racked up a 17% gain in ad pages, to 283.But this year, when the hullabaloo surrounding its centennial died, so too did some advertiser interest.The reason, ad executives say, is that the entire magazine business has been soft -- and National Geographic has some quirks that make it especially unattractive during a soft market. Perhaps the biggest of those factors is its high ad prices -- $130,000 for a four-color page, vs. $47,000 for the Smithsonian, a comparable publication with a far smaller circulation.When ad dollars are tight, the high page cost is a major deterrent for advertisers, who generally want to appear regularly in a publication or not at all. Even though National Geographic offers far more readers than does a magazine like Smithsonian, "the page costs you an arm and a leg to develop any frequency,"says Harry Glass, New York media manager for Bozell Inc. To combat that problem, National Geographic, like other magazines, began offering regional editions allowing advertisers to appear in only a portion of its magazines -- for example, ads can run only in the magazines sent to subscribers in the largest 25 markets. But the magazine was slower than its competitors to come up with its regional editions, and until last year offered fewer of them than did competitors.Time magazine, for example, has more than 100 separate editions going to different regions, top management, and other groups. Another sticking point for advertisers was National Geographic's tradition of lumping its ads together, usually at the beginning or end of the magazine, rather than spreading ads out among its articles, as most magazines do.And National Geographic's smaller-than-average size means extra production costs for advertisers. But Ms. McCraw says the magazine is fighting back.It now offers 30 regional editions, it very recently began running ads adjacent to articles, and it has been beefing up its sales force.And it just launched a promotional campaign to tell chief executives, marketing directors, and media executives just that. The centerpiece of the promotion is its new ad campaign, into which the magazine will pour about $500,000, mostly in the next few weeks.The campaign, created by Omnicom Group's DDB Needham agency, takes advantage of the eye-catching photography that National Geographic is known for.In one ad, a photo of the interior of the Sainte-Chapelle in Paris is paired with the headline, "The only book more respected than ours doesn't accept advertising." Another ad pictures a tree ant, magnified 80 times, with the headline, "For impact far beyond your size consider our regional editions." Ms. McCraw says she wants the campaign to help attract advertisers in 10 categories, including corporate, financial services, consumer electronics, insurance and food.Her goal: to top 300 ad pages in 1990, up from about 274 this year.Whether she can meet that ambitious goal is still far from certain. "The ad campaign is meant to contemporize the thought of National Geographic," she says. "We want it to be a '90s kind of image." WCRS Plans Ad-Unit Sale WCRS Group hopes to announce, perhaps today, an agreement to sell the majority of its ad unit to Paris-based Eurocom, a European ad executive said. WCRS has been in discussions with Eurocom for several months.However, when negotiations bogged down recently, WCRS's chief executive, Peter Scott, met in Paris with another French firm, Boulet Dru Dupuy Petit, or BDDP. According to the executive, BDDP's involvement prompted renewed vigor in the WCRS-Eurocom talks and the two agencies were hoping to hammer out details by today.Executives of the two agencies couldn't be reached last night. Ad Notes. . . . NEW ACCOUNT: Procter & Gamble Co., Cincinnati, awarded the ad accounts for its line of Professional Crisco vegetable shortening and oil products to Northlich, Stolley, LaWarre, Cincinnati.Billings weren't disclosed.Professional Crisco products are specially made for the foodservice industry. WHO'S NEWS: Stephen Novick, 49, was named executive vice president, deputy creative director at Grey Advertising, New York.He was executive vice president, director of broadcast production.
The Commodity Futures Trading Commission plans to restrict dual trading on commodity exchanges, a move almost certain to infuriate exchange officials and traders. The CFTC said it will propose the restrictions after the release of a study that shows little economic benefit resulting from dual trading and cites "problems" associated with the practice.Dual trading gives an exchange trader the right to trade both for his own account and for customers. The issue exploded this year after a Federal Bureau of Investigation operation led to charges of widespread trading abuses at the Chicago Board of Trade and Chicago Mercantile Exchange.While not specifically mentioned in the FBI charges, dual trading became a focus of attempts to tighten industry regulations.Critics contend that traders were putting buying or selling for their own accounts ahead of other traders' customer orders. Traders are likely to oppose such restrictions because dual trading provides a way to make money in slower markets where there is a shortage of customer orders. The exchanges contend that dual trading improves liquidity in the markets because traders can buy or sell even when they don't have a customer order in hand.The exchanges say liquidity becomes a severe problem for thinly traded contracts such as those with a long time remaining before expiration. The CFTC may take those arguments into account by allowing exceptions to its restrictions.The agency didn't cite specific situations where dual trading might be allowed, but smaller exchanges or contracts that need additional liquidity are expected to be among them.Wendy Gramm, the agency's chairman, told the Senate Agriculture Committee that she expects the study to be released within two weeks and the rule changes to be completed by Thanksgiving. The study, by the CFTC's division of economic analysis, shows that "a trade is a trade," a member of the study team said.Whether a trade is done on a dual or non-dual basis, the member said, "doesn't seem to have much economic impact." Currently, most traders on commodity exchanges specialize in trading either for customer accounts, which makes them brokers, or for their own accounts as socalled locals. "The tests indicate that dual and non-dual traders are similar in terms of the trade executions and liquidity they provide to the market," Mrs. Gramm told the Senate panel. Members of Congress have proposed restricting dual trading in bills to reauthorize CFTC operations.The House's bill would prohibit dual trading in markets with daily average volume of 7,000 contracts or more, comprising those considered too difficult to track without a sophisticated computer system.The Senate bill would force the CFTC to suspend dual trading if an exchange can't show that its oversight system can detect dual-trading abuses. So far, one test of restricting dual trading has worked well.The Chicago Merc banned dual trading in its Standard & Poor's 500-stock index futures pit in 1987.Under the rules, traders decide before a session begins whether they will trade for their own account or for customers.Traders who stand on the pit's top step, where most customer orders are executed, can't trade for themselves. A Merc spokesman said the plan hasn't made much difference in liquidity in the pit. "It's too soon to tell . . . but people don't seem to be unhappy with it," he said.He said he wouldn't comment on the CFTC plan until the exchange has seen the full proposal. But at a meeting last week, Tom Donovan, the Board of Trade's president, told commodity lawyers: "Dual trading is definitely worth saving.It adds something to the market."
Japanese Firms Push Posh Car Showrooms JAPANESE luxury-car makers are trying to set strict design standards for their dealerships.But some dealers are negotiating looser terms, while others decline to deal at all. Nissan Motor Co. 's Infiniti division likes to insist that every dealer construct and furnish a building in a Japanese style.Specifications include a polished bronze sculpture at the center of each showroom and a tile bridge spanning a stream that flows into the building from outside. "Infiniti has it down to the ashtrays," says Jay Ferron, a partner at J.D. Power & Associates, an auto research firm. Toyota Motor Corp. 's Lexus division also provides specifications.But only two-thirds of Lexus dealers are constructing new buildings according to the Lexus specs.Some are even coming up with their own novel designs.In Louisville, Ky., for example, David Peterson has built a Lexus dealership with the showroom on the second floor. Yet some dealers have turned down Infiniti or Lexus franchises because they were unwilling or unable to meet the design requirements.Lee Seidman of Cleveland says Infiniti "was a bear on interiors" but at least let him retrofit an existing building -- without the stream.Mr. Seidman says he turned down a Lexus franchise in part because "the building was gorgeous but very expensive." To head off arguments, Infiniti offers dealers cash bonuses and low-interest construction loans. Dictation Device's Saga Plays Back a Lesson PRODUCTS DON'T have to be first to be winners.That's the lesson offered through one case study featured in a design exhibit. Dictaphone Corp. was caught off guard in 1974 when its main competitor, Lanier Office Products of Japan, introduced a microcassette dictation recorder half the size of standard cassette devices.Blocked by patent protection from following suit, Dictaphone decided to go a step further and cut the cassette in half again -- down to the length of a paperclip.By 1979, designers and engineers at Dictaphone, a Pitney Bowes subsidiary, had produced a working model of a "picocassette" recorder. By 1982, however, the patent status of the Lanier microcassette had changed, permitting Dictaphone to develop its own competitive micro system, which it did.Marketing and sales departments then urged abandonment of the pico project.But others said pico should proceed.Both were right. Dictaphone went ahead and introduced the pico in 1985, but it hasn't sold well.To date, says Emil Jachmann, a Dictaphone vice president, it has "broken even or shown a small loss." Nevertheless, the device has been successful in other ways.It helped Dictaphone attract better engineers, and it provided new technology for other company products.The picocassette recorder also helped transform the company's reputation from follower to leading-edge innovator. "It gave me great pride to see the inventor of the microcassette in Japan look at the pico and shake his head and say `unbelievable, '" says Mr. Jachmann. Dictaphone's picocassette recorder is one of 13 case studies in the TRIAD Design Project, sponsored by the Design Management Institute of Boston and Harvard Business School.The studies are on exhibit at Harvard this month and will travel to Chicago's Institute of Design and the University of California at Berkeley. A Rake's Progress Means Branching Out ONE DAY Carl Barrett of Mobile, Ala., was raking some sycamore leaves, but the rake kept riding up over the piles.The harder he tried to push them into large piles, the closer he came to breaking the rake and straining his back. So Mr. Barrett, then vice president of the Alabama Steamship Association, took a steel-toothed garden rake and taped it to the underside of a leaf rake about nine inches up.His crude device worked: The lower teeth gathered the leaves into a pile, while the higher, harder teeth moved the top of the pile.Now incorporated into a polypropylene rake, the four-inch prongs, or "wonderbars," also are supposed to aid in picking up leaves. One customer, Donald Blaggs of Mobile, says the Barrett Rake allowed him to do his lawn in 2 1/2 hours, two hours less than usual. But other rake makers have their doubts.Richard Mason, president of Ames Co. in Parkersburg, W. Va., says the Barrett rake "makes sense," but it would be "tough" to explain to consumers. John Stoner, marketing director for True Temper Corp., a subsidiary of Black & Decker, says people don't want to move a leaf pile. "They either pick it up," he says, "or they start pulling from a fresh direction." Odds and Ends NO MORE STUBBED toes or bruised shins, promises Geste Corp. of Goshen, Ind., the designer of a bed support to replace traditional frames.Four tubular steel "Bedfellows," each roughly in the shape of a "W," are attached to the bottom of the box spring in a recessed position. . . . Nearly half of U.S. consumers say they'll pay up to 5% more for packaging that can be recycled or is biodegradable, according to a survey commissioned by the Michael Peters Group, a design consultant.
The Pentagon is a haunted house.Living there for six years was really scary.The ghosts of the past are everywhere: They are kept at bay only by feeding them vast quantities of our defense budget. Some can be bought off relatively cheaply.During the Korean War, Gen. Douglas MacArthur demanded and got, in addition to his U.N. command in Korea, his own naval command in Japan, NavforJapan.Those obsolete operations cost less than $2 billion a year, and keep Mac's ghost quiet. That's about all it costs to appease Adm. Erich Raeder's ghost.In 1941, Raeder and the German navy threatened to attack the Panama Canal, so we created the Southern Command in Panama.The Southern Command has grown even bigger since the war because Raeder's ghost sometimes runs through the E ring dressed like Gen. Noriega.The Command's huge bureaucracy is needed to analyze whether leaders of coups against Gen. Noriega meet the War Powers Act's six points, Cap Weinberger's seven points, the Intelligence Committee's 32 points and Woodrow Wilson's 14 points necessary to justify U.S. support.So far no one has. The ghost of the Soviet brigade discovered in Cuba back in the '70s costs just a few hundred million: the price of the Caribbean Command in Key West that President Carter created in 1980.The brigade hasn't been heard from since, but we keep the staff around just in case. George Marshall's ghost is much more difficult to keep happy.We keep a lot of shrines to him around the Pentagon: statues, busts, relics and such.The Army headquarters on the third deck of the Pentagon used to burn a lot of incense to him, but the Navy headquarters on the fourth deck made them stop it.You see, Marshall had this thing about the Navy and the Marines -- he wanted to make them part of the Army but Secretary of the Navy James Forrestal blocked him.Now his ghost won't let up till it's done. To keep him quiet we invent a new unified command every year or so run by the Army or the Air Force and put more of the Navy and Marines under it.But we still hear him moaning at night because the Navy has a few ships left, and to satisfy him the Navy's sea lift forces were given to a new Air Force bureaucracy in Illinois, its space operations to another command in Colorado, the frogmen to a new Army bureaucracy in Fort Bragg, and the Navy's Indian Ocean and Persian Gulf forces to an Army bureaucracy in Florida. Which brings up the worst and meanest ghost of all -- the ghost of the shah of Iran.When the shah died, President Carter was so scared that the shah's ghost would blame him for shoving him out to make way for the ayatollah that he declared the Carter Doctrine.Mr. Carter said he would go to war to stop anyone from trying to grab Iran.But that ghost wouldn't settle for words, he wanted money and people -- lots.So Mr. Carter formed three new Army divisions and gave them to a new bureaucracy in Tampa called the Rapid Deployment Force.But that ghost wasn't fooled; he knew the RDF was neither rapid nor deployable nor a force -- even though it cost $8 billion or $10 billion a year. After Mr. Carter was defeated in 1980, the shah's ghost claimed the credit and then went after President Reagan and Cap Weinberger.I saw what he did to them firsthand.It made my shoelaces dance with terror.Why, he used to lay in wait for Cap; suddenly he'd leap from behind some statue of Marshall onto Cap's chest and grab him by the throat and choke him till he coughed up an additional $2 billion or so. Cap added four more divisions to the Army, two active and two reserve; two carrier groups to the Navy; a division -- equivalent to the Marines; and the C-5B, KC-10, C-17 and a thousand tactical aircraft to the Air Force.He bought $4 billion in prepositioning ships and $7 billion in ammo and equipment to fill them, and parked them at a new $6 billion base at Diego Garcia in the middle of the Indian Ocean.He dedicated all these new forces to the Persian Gulf. One night both Marshall's ghost and the shah's ghost together caught Cap and threw him to the ground.Before they let him go he added a thousand bureaucrats to the RDF in Tampa and renamed it Central Command.He gave those bureaucrats charge of all naval operations in the Persian Gulf and Indian Ocean. Marshall figured it would be good training for those soldiers -- someday maybe they would get the whole Navy.They had fun moving the carriers around, but it turned out that they had forgotten all about mine sweepers.But the shah still kept leaping out at Cap, so Cap bought a hundred merchant ships more and $7 billion of loading barges, ramps, etc., in order that those seven new Army divisions and three Marine brigades could unload from all those new ships and aircraft and go to war in the Zagros mountains. Then suddenly Ike's ghost came to visit and said, "What the hell are you doing planning for a land war in Asia 12,000 miles away?We'd get our asses kicked." Lucky for Cap, Ike was easygoing and soon went away, while the shah -- he kept coming back.So the U.S. found itself paying about $2 billion in baksheesh to various Arab potentates for basing rights around the Indian Ocean. We had great success in Somalia.But then it turned out that President Siad Barrah was not at all a nice person and the Navy pointed out that the base he promised us in Berbera had silted up about a hundred years ago and anyway was 1,244 miles from the mouth of the Gulf. (But who's counting.) Still, Berbera was the best we could get, so we stay in bed with President Barrah.All these reports about him committing genocide are probably exaggerated anyway. But wouldn't you know, now that we are spending jillions of dollars, and have built those new divisions and new air wings, and have positioned all these ships and supplies to fight the Russians in Iran, the Russians seem to have lost interest in the whole subject.Meanwhile, Congress is cutting huge chunks out of the rest of the defense budget. Predictably, some Navy guys said: "Do we still need to keep all 18 Army divisions on active duty and all those extra land-based aircraft without bases and all those Army guys playing admiral in Tampa?Couldn't we save $20 billion or $30 billion a year by shifting that stuff to the reserves?And why not save the costs of a thousand bureaucrats by abolishing Central Command and putting responsibility for Gulf naval operations back where it belongs, afloat with the task force commander in the Gulf?And where were all our handsomely paid Indian Ocean allies last year when our convoys were being attacked?" Questions like that really stir up Marshall's ghost.He appeared late one night in the bedroom of the new defense secretary, Dick Cheney.Marshall came clanking in like Marley's ghost dragging those chains of brigades and air wings and links with Arab despots.He wouldn't leave until Mr. Cheney promised to do whatever the Pentagon systems analysts told him. So next day Mr. Cheney went out and did just that: He canceled the 600-ship Navy and cut back one carrier and 20 frigates.Then he canceled production of the Navy's most important carrier aircraft, the F-14 and the A-6.On the other hand, Mr. Cheney retained all those new land forces.Marshall's ghost is satisfied for now, but he'll be back. What with Halloween coming and bigger defense cuts looming, more and more Pentagon bureaucrats are crawling under their desks.They know that they can hold off the ghosts only a little while longer by cutting carriers and ships.Then the whole thing will start to collapse, just as it did in the 1970s, and the ghosts and banshees will be howling through the place turning people's hair white.Gives me the willies just thinking about it. Mr. Lehman, a Reagan Navy secretary, is a managing director of PaineWebber.
The metal and marble lobby of CenTrust Bank's headquarters is grander than your average savings and loan.For one thing, there is an old master on the wall -- "Samuel Anointing David," a big baroque canvas painted by Mattia Preti, a 17th-century Neapolitan. At the moment, however, the painting is a nagging reminder of the problems that have engulfed CenTrust and its flamboyant chairman and chief executive, David L. Paul.In an international buying spree that began barely two years ago, Mr. Paul amassed a collection of about 30 pre-18th-century works, including the Preti, at a total cost of $28 million. By midnight Oct. 6, all of the paintings were supposed to have been sold off, under orders from Florida's comptroller, whose office regulates the state's S&Ls.CenTrust didn't meet the deadline. The collection was at the heart of a grandiose plan Mr. Paul had in which the art was to do double duty -- as an investment for CenTrust and as decoration for the S&L's new office tower, designed by I.M. Pei.The rub is that the $28 million was plucked from the funds of this federally insured institution even as CenTrust was losing money hand over fist.Mr. Paul had no right to buy art for the S&L in the first place -- it isn't on the comptroller's "permissible" list -- without seeking a special dispensation, which he did not do.Besides that, some of the paintings that were to grace the walls of CenTrust actually ended up hanging in the chairman's estate on La Gorce Isle off Miami Beach. Last spring, the comptroller's office called a halt to Mr. Paul's fling, giving him six months to sell the paintings.The acquisitions, officials said in a letter to Mr. Paul, were "unsafe, unsound and unauthorized." So far, Mr. Paul has unloaded but three of his masterpieces, he won't say to whom.The comptroller's office says it is "monitoring the situation." Though the agency could remove Mr. Paul, it has no current intention to do that. "It's not like selling Chevrolets," Mr. Paul says, as he takes a drag on a goldbanded St. Moritz cigarette. "The last six months has established the quality of the collection.There's no fire sale here." Despite Mr. Paul's characteristic hauteur, the 50-year-old, chain-smoking dynamo is finding that getting CenTrust -- Florida's largest thrift institution -- out of its riskiest investments is much tougher than getting into them had been.Paintings are just part of the picture.Although Mr. Paul has pared a $1.35 billion junk-bond portfolio to less than $900 million since April, the high-yield debt market has plummeted.Divesting itself of what is left, as is required of all thrift institutions by July 1994 under the new federal S&L bailout law, may well prove difficult. And CenTrust has other problems.Late last week federal regulators ordered the thrift institution to stop paying dividends on its preferred stock -- a move that suggests deep concern about an institution.Mr. Paul has a plan to bring in $150 million by selling off 63 of CenTrust's 71 branches, but it has yet to be approved by regulators. It is Mr. Paul's art venture, however, that has drawn the most attention from investors and regulators, not to mention galleries throughout the world.Embittered shareholders (some of whom are suing) say the chairman and his collection epitomize the excesses of speculation that set off the national S&L crisis. (CenTrust shares have fallen sharply in price from a high of $15.125 in 1986 to close yesterday at $2.875.) Gallery directors, meanwhile, say Mr. Paul and others of his ilk have left an indelible mark on the art world -- and not for the better. Collectors don't say "It's a van Gogh" anymore, laments Harry Brooks, the president of Wildenstein & Co., a New York gallery. "They say, `Johnny Payson got $53 million for his, so certainly $10 million isn't too much for mine. ' The great collectors we depended on, such as Paul Mellon or Norton Simon, have stopped buying, and the new buyers are brilliant men who made money in the stock market or in takeovers and rushed into collecting. . . ." Mr. Payson, an art dealer and collector, sold Vincent van Gogh's "Irises" at a Sotheby's auction in November 1987 to Australian businessman Alan Bond. (Trouble is, Mr. Bond has yet to pay up, and until he does, Sotheby's has the painting under lock and key.) When Mr. Paul moved in on the art market, he let it be known that virtually no piece was too costly to be considered by CenTrust. He established his reputation as a freespender in January last year at Sotheby's auction of the Linda and Gerald Guterman collection in New York.There, on one of his first shopping trips, Mr. Paul picked up several paintings at stunning prices.He paid $2.2 million, for instance, for a still life by Jan Jansz. den Uyl that was expected to fetch perhaps $700,000.The price paid was a record for the artist. (Some 64% of items offered at the Guterman auction were sold, at an average price of $343,333.The rest were withdrawn for lack of acceptable bids.) Afterward, Mr. Paul is said by Mr. Guterman to have phoned Mr. Guterman, the New York developer selling the collection, and gloated. "He says he `stole them, '" recalls Mr. Guterman. "And he tells me, `If you want to see your paintings, you'll have to come to my house in Florida. '" Mr. Paul denies phoning and gloating. "It's just not true," he says. Mr. Paul quickly became more aggressive in his collecting, with the help of George Wachter, a Sotheby's expert in old masters whom he met at an exhibition of the Guterman items.Mr. Wachter, who became his principal adviser, searched galleries in London, Paris and Monaco.And, according to one dealer, Mr. Wachter had a penchant for introducing Mr. Paul with the phrase: "He can buy anything." Nicholas Hall, the president of the Colnaghi U.S.A. Ltd. gallery in New York, sold Mr. Paul "Abraham and Sarah in the Wilderness" by Giovanni Battista Tiepolo.Mr. Hall says Mr. Paul "was known to spend a lot of money.People were interested in seeing him, but it was recognized that the route was through Sotheby's and particularly George Wachter." Mr. Paul thus developed a close, symbiotic relationship with Sotheby's.Mr. Paul was eager to assemble a collection for the headquarters CenTrust has been moving into for the greater part of a year.Sotheby's, the auction house founded in London 1744 and now under the umbrella of Sotheby's Holdings Inc., was hoping to stir up interest in old masters as it strove to build its U.S. business.European dealers continued to dominate the action in old masters, which Sotheby's North America had lately been touting in this country. For several months, there was optimism all around.Last October, Mr. Paul paid out $12 million of CenTrust's cash -- plus a $1.2 million commission -- for "Portrait of a Man as Mars." The painting, attributed to Flemish artist Peter Paul Rubens, was purchased privately through Sotheby's, not at auction. In March 1989, just 15 months into his campaign, Mr. Paul was named by Art & Antiques magazine as one of the top 100 individual collectors in the U.S. "An unknown quantity to most of the art world, Paul is no stranger to lavish spending," the magazine said, noting that he doesn't stop at paint on canvas but also spends big on art you can eat. "He recently bid $30,000 at a Paris charity auction for a dinner cooked by six of the world's great chefs, but the final party cost closer to $100,000." (Mr.Paul says it wasn't that high.) The art collection might have come to rival the Medicis' had the Florida comptroller's office not got wind of Mr. Paul's aesthetic adventure. In its letter to him, dated March 2 and shared with reporters, Alex Hager, the chief of the thrift-institution bureau in the comptroller's office, expressed puzzlement that the S&L could be so profligate when it had reported losses of more than $13 million in its two preceding quarters. The state gave CenTrust 30 days to sell the Rubens.The comptroller's office eventually extended the deadline to six months but broadened its demands, ordering that the "book value of the collection {be} reduced to zero." In other words: Get rid of all the pictures.The state obliquely noted that unsafe banking practices are grounds for removing an officer or director and closed with the admonition to Mr. Paul: "Govern yourself accordingly." The state agency was particularly vexed to learn that the Rubens and a half-dozen other paintings listed among the bank's "furniture and fixtures," were actually hanging in the chairman's house. Mr. Paul says that at one point he did indeed have eight or nine of the paintings at home and that the rest were in storage at Sotheby's.He explains that he was "merely storing the paintings at home -- with some display -- because of the special dehumidified environment" required for their safekeeping, until CenTrust's new building was ready for them.Still, the incident was embarrassing. It came on the heels of a number of local newspaper articles suggesting that Mr. Paul has benefited handsomely from his association with CenTrust.For instance, he got a $3 million loan from the S&L, negotiated at a below-market rate.He owns 43% of CenTrust's shares. Adding to Mr. Paul's problems, dealers (some with vested interests) insist that he, relying rather too heavily on Sotheby's advice, paid much too much for several pieces in the CenTrust collection.The $12 million lavished on the Rubens, for example, was a record price for the artist and maybe twice its value, given a dispute among scholars about its provenance.David Tunick, the president of David Tunick Inc., a New York gallery, says scholars question the authenticity of the Rubens.It may have been painted instead by a Rubens associate. "The feeling among many experts on the commercial side is that the price paid at the time was excessive in any event," Mr. Tunick says. "It sounds like with the Rubens he got absolutely taken to the cleaners." Victor Wiener, the executive director of the Appraisers Association of America, agrees that Mr. Paul paid very dearly for the Rubens and adds that getting rid of it any time soon for a similar sum would be quite a feat. "It's not beyond credibility the Rubens will someday be worth $12 million, but whether it could be sold for that amount tomorrow remains to be seen." Still, predicting is tricky. "I'm forever dumbfounded by what I see making these high prices." Jonathan H. Kress, the son of the painting's former owner, Mrs. Rush Kress, dismisses the price talk as "sour grapes." Dealers contemptuous of the purchase price, he says, were themselves interested in buying the Rubens but lost out. Mr. Paul, for his part, defends the Rubens price, saying a lot of the experts have never seen the thing itself. "Most of them weren't even born the last time the painting was displayed publicly," he says. Art prices are skyrocketing, but a good deal of legerdemain is involved in compiling statistics on sales.Salomon Brothers Inc., the investment-banking firm, in its annual tally of investment returns, reported that old masters appreciated 51% in the year ended June 1, the greatest return of any of 13 assets it tracked. (Impressionist and modern paintings, not tracked by Salomon, are ranked even higher at 74% by Sotheby's.) Salomon, moreover, gets its data on art appreciation from Sotheby's, whose prices go up with clients like Mr. Paul in its thrall.The percentages omit from consideration the many paintings that go begging at auction.Art indexes track winners, not losers.But art that has fallen sharply in value is rarely put up for sale.Also, at any of Sotheby's auctions of old masters, roughly one-third to one-fifth of what is offered doesn't sell at any price.It's not that there aren't any bids, but the bids don't meet the minimum "reserve" prices set by the sellers. In January, the Preti painting that now hangs at CenTrust was expected to bring no more than $700,000 at auction until Mr. Paul came along with his $1.15 million. Mr. Hall of the Colnaghi gallery says $1.15 million "would have been an impossible price for anyone to ask for a Preti four years ago." But from his vantage point, it isn't that Mr. Paul, a customer of his too, overpaid for the work, "a gargantuan painting by an artist who is not a household word." (The painting is 10 feet wide, seven feet high.) Rather, "It just shows things have changed." Mr. Paul boasts that he spotted bargains in old masters just before they took an upward turn. "They went up 51% last year, and they'll do it again this year," he declares. "They were a sleeper.Everybody was out buying Monets." Sotheby's vice president Diana Levitt says the auction house has been "assisting" Mr. Paul in selling the paintings.And while Sotheby's chief rivals in the art world, private art dealers, "won't be happy to hear it," she adds, "a number of {the artworks} have already been sold, and at a substantial profit." Mr. Paul claims to have sold three paintings, at more than a 10% profit.That isn't 51%, and the claim isn't documented. He furthermore denies that he relied too heavily on Sotheby's or Mr. Wachter.Mr. Paul says he had not one but four advisers and that he never bid impulsively.After all, he had the counsel of "curators from the most reputable museums in the world." He says he expects to sell the collection -- including the controversial Rubens -- "carefully and prudently, just as it was put together." But in art-world parlance, Mr. Paul's holdings are "burnt." That is, he is being compelled to put them on the market too soon, and has already gotten offers that are less than he paid for some of the art works. "After a few years, you can argue there has been natural appreciation," says Susan Theran, the publisher of Leonard's Annual Price Index of Art Auctions.But quick turnover in artwork is "like pawning your jewelry -- you end up with 50%.People hold out and try to get a bargain." Sotheby's defends itself and Mr. Paul in the matter.Mr. Wachter says Mr. Paul was a quick study who worked intensely and bought the best pictures available at the moment. "On occasion, he paid a high price," Mr. Wachter concedes, but he says those who bid less and dropped out were dealers who would then have marked up the paintings to resell them at a profit to collectors. Naomi Bernhard Levinson, a fine-arts appraiser at Bernhard Associates in San Francisco, considers it "definite conflict of interest for an auction house to both advise a client on purchases and to set price estimates on the paintings to be purchased." Sotheby's, she says, is "wearing both hats." "I can't see why there would be a conflict of interest," says Sotheby's Ms. Levitt. "Estimates are based on the previous price of similar works sold at auction and current market conditions, and are not affected by any knowledge of who the potential buyer could be." Frequently, clients express interest in paintings but don't end up bidding, she adds, "so we don't know who the potential buyer will be." Mr. Paul, in selling off his paintings, is seeking at least a 15% return on the bank's investment, so as to prove that the venture was sound.Mr. Paul says that he has feelers out over much of the globe and that potential buyers from as far away as Japan and Italy have examined the collection. Because of the pressure on CenTrust to sell, dealers and collectors have been trying to get the paintings at bargain-basement prices.But so far, Mr. Paul and his advisers are holding fast. One dealer, Martin Zimet of French & Co. in New York, says he "would have loved to buy" a Jan Davids de Heem painting from the bank. "I tried to steal the picture -- to buy it attractively -- and {Sotheby's} wouldn't do it.They were protecting his interests." Meanwhile, Mr. Paul and CenTrust executives are getting squeamish about opulence.Mr. Paul has been characterized as "the Great Gatsby or something," complains Karen E. Brinkman, an executive vice president of CenTrust.The media, she says, have distorted his personal life. Mr. Paul nods in agreement. "I don't think I have a life style that is, frankly, so flamboyant," he says.But at just that moment, he is interrupted in his office by a servant in tuxedo who pours coffee from silver into a cup of china and dabs the brim with linen. Mr. Paul says, yes, the ceiling in his executive suite is gold-leaf inlay.The offices are done in hardwood and oriental rugs, leatherbound books and, of course, a $12 million Rubens.But he implores that the splendor be played down. "Don't say it's a gold ceiling.Just say the offices are tastefully appointed," he says. "Otherwise, the regulators will take it for decadence, and nowadays everything's got to be pristine." Figures don't include taxes or transaction costs.
Reynolds Metals Co. said third-quarter net income dropped nearly 10% to $123.7 million, or $2.10 a share, from $137.2 million, or $2.56 a share, a year earlier.The latest earnings reflect an increase of about 5.5 million in common shares outstanding.Revenue rose 3% to $1.52 billion from $1.48 billion. Reynolds is the third big aluminum company since Friday to report disappointing earnings.The No. 1 domestic aluminum producer, Aluminum Co. of America, Friday said its earnings fell 3.2% to $219 million, or $2.46 a share.And Alcan Aluminium Ltd. yesterday reported net income slid 30% to $180 million, or 77 cents a share, from $258 million, or $1.07 a share.Analysts on average had been expecting about $2.70 for Alcoa and $1 for Alcan. "It's a good indication that level of profitability has peaked for the industry," says Vahid Fathi, metals analyst with Prescott, Ball & Turben Inc., who had estimated Reynolds would earn about $2.35 a share. The nation's No. 2 aluminum company said earnings were hurt by lower prices for certain fabricated aluminum products, which typically follow price fluctuations of primary ingots.The base metal price has dropped 30.3% from a year earlier to 78 cents a pound.Much of the price decline has been blamed on a slowing economy and the third quarter is typically the industry's slowest period. But William O. Bourke, chairman and chief executive officer, said the ingot price "appears to have bottomed out." He said shipments are continuing at a "healthy" pace and the company has no excess inventory.Aluminum shipments of 329,600 metric tons were nearly equal to the year-earlier period, the company said. Nevertheless, the company said that in the latest quarter there were increased material and labor costs, including a new employee profit-sharing plan. In composite trading on the New York Stock Exchange, Reynolds closed at $55.375, up $1.25.
No strikeout, but certainly no home run. That's how the stock-picking game is shaping up for the months ahead, according to money managers and a few brokers. Yesterday's 88-point recovery from Friday's megadrop in the Dow Jones industrials had many brokerage houses proclaiming that stocks are a good bargain again.But quite a few money managers aren't buying it.Weakening corporate earnings, they say, are no prescription for a bull market. "The stock market ain't going to do much of anything" for a while, says John Neff of Wellington Management, who runs the $8.3 billion Windsor Fund.He suspects that Friday's market decline may have a second leg, perhaps a 10% to 15% drop later on. Mr. Neff says the stock market has lost some powerful driving forces, namely earnings growth and the "LBO sweepstakes" -- buy-out fever that induced investors to bid up whole groups of stocks, such as media and airlines.After sitting with 20% of his fund in cash before Friday's sell-off, Mr. Neff says he bought "a narrow list of stocks" yesterday. With flat corporate profits on the horizon for 1990, money managers say price-earnings multiples that look cheap today might go on being cheap for a long time. "This is not a grossly overvalued market, but it's not cheap either," says George Collins, president of the mutual fund company T. Rowe Price Associates in Baltimore. According to Institutional Brokers Estimate System, Wall Street market strategists see only a 2.4% jump in company profits in 1990 -- unlike in 1987, when profits a year out looked good (they did soar 36% in 1988). Bulls say the market is an incredible bargain, priced at only about 12 times estimated 1989 earnings for stocks in the Standard & Poor's 500 index.Before the 1987 crash, the P/E was more than 20. The common view, says Abby Cohen, strategist for Drexel Burnham Lambert, is that there will be "mild economic growth, modest profit expansion, and things are going to be hunky-dory.Our view is that we may see a profit decline." Some think investors should sell into rallies.The market "is going to wind down," says Gerald W. Perritt, a Chicago money manager. "Things are a little less overpriced" after Friday's jolt in the market.He expects stocks to decline an additional 5% to 30%, with the Dow perhaps bottoming out between 2000 and 2100 "between now and June." After Friday's decline, Mr. Perritt's firm ran statistical tests on 100 high-quality stocks, using old-fashioned value criteria devised by Benjamin Graham, an analyst and author in the 1930s and 1940s who is widely considered to be the father of modern securities analysis.He found 85 still overvalued and 15 fairly valued. Nicholas Parks, a New York money manager, expects the market to decline about 15%. "I've been two-thirds in cash since July, and I continue to think that having a defensive position is appropriate," he says.Companies that piled on debt in leveraged buy-outs during the past two years "will continue to surface as business problems." "Generalizations about value aren't useful," says New York money manager John LeFrere of Delta Capital Management.For instance, he says, International Business Machines and Unisys might look cheap, but investors might continue to do better with stocks like Walt Disney, Procter & Gamble and Coca-Cola, strong performers in recent years. Money manager Robert Ross, head of Duncan Ross Associates Ltd. in Vancouver, British Columbia, says stocks would have to fall 15% to 20% before they are competitive with less risky investment alternatives.Fredric Russell, a money manager in Tulsa, Okla., says Friday's cave-in "is going to have more of a permanent impact on the psyche of many investors than Wall Street would want to admit." There are still bulls out there. "I still think we will have a 3000 Dow, whether it's six months or 12 months from now I don't know," says David Dreman, managing partner of Dreman Value Management in New York. "We're doing a little buying" in some stocks "that have really been smashed down." Many brokerage house officials also are optimistic.Yesterday, Goldman Sachs, Merrill Lynch and Dean Witter all increased the proportion of assets they recommend investors commit to stocks.Dean Witter now recommends 85%, Goldman 65% and Merrill Lynch 50%. Some investors say Friday's sell-off was a good thing, because it deflated a lot of crazy takeover speculation. "It was a healthy cleansing," says Michael Holland, who runs Salomon Brothers Asset Management in New York. From here out, these investors see a return to old-fashioned investing, based on a company's ability to show profit growth. "The fundamentals are pretty strong," Mr. Dreman says. "I don't see this as a bear market at all.It's a recognition that there was much too much fluff in the LBO market." Friday's big fall was "just a blunder by the stock market," says John Connolly, chief strategist for Dean Witter. "It was an overreaction to an event {the failure of a management and union group to get bank financing for a takeover of UAL} that doesn't mean that much to lots of stocks." Many investors have nagging worries, however.Newspapers are full of headlines about companies defaulting on their debts and banks writing off real estate loans.That hurts investors' confidence in the economy and stocks. Not even all the brokerage firms see clear sailing ahead. "Disappointing profits are likely to get worse in the next two quarters," says Mary Farrell, a market strategist at PaineWebber.She thinks the market could drop about 10% in the next few months, then recover and go higher.Companies with steady earnings growth could do well, she says, while others with high debt or poor earnings could see their shares decline far more than 10%.
The turmoil on Wall Street may benefit some retailers attempting to lead leveraged buy-outs of their specialty and department-store chains, investment bankers and retailers said. Managers at five chains have said in recent weeks that they intend to bid for their companies.The chains include Bloomingdale's, owned by Campeau Corp., Toronto; Saks Fifth Avenue and Marshall Field's, owned by B.A.T Industries PLC, London; and B. Altman & Co. and Sakowitz Inc., owned by Hooker Corp., which is now being managed by a court-appointed provisional liquidator.Hooker is based in Sydney, Australia. The combination of so many chains available for sale, the recent failures of such retailing LBO's as Miller & Rhoads Inc. and declining investor confidence will drive down prices, retailing observers said. "The pricing will become more realistic, which should help management," said Bruce Rosenthal, a New York investment banker with Nathan S. Jonas & Co. "Investors aren't going to be throwing money at any of the proposed LBOs, but doing deals on the basis of ridiculous assumptions never made sense, either." Earlier this year, bankers and other investors were willing to provide financing because they assumed there would be major gains in both profitability and sales, Mr. Rosenthal added.Those days are over now, he believes. "Competition from third parties who have cash and are prepared to buy has always existed and will continue," added Mr. Rosenthal. "But when prices were crazy, it was even harder to do an LBO. Bankers believed in the greater-fool theory that says somebody else is always willing to pay more.This is no longer true today." At Saks Fifth Avenue, Paul Leblang, senior vice president, marketing, agreed that lower prices will help his management team in their proposed LBO. "Having to take on less debt would certainly be an advantage," said Mr. Leblang. "It would also help us in our search for equity partners.To make an LBO work, now we are going to need more than just junk bonds." None believe the proposed management LBOs will be easy to complete, especially at B. Altman & Co., which is under Chapter 11 bankruptcy protection.Not only could the Wall Street gyrations damp Christmas sales if consumers lose confidence in the economy, but potential junk-bond buyers are sure to demand even stronger covenants and greater management equity participation. Further, many institutions today holding troubled retailers' debt securities will be reticent to consider additional retailing investments. "It's called bad money driving out good money," said one retailing observer. "Institutions that usually buy retail paper have to be more concerned." However, the lower prices these retail chains are now expected to bring should make it easier for managers to raise the necessary capital and pay back the resulting debt.In addition, the fall selling season has generally been a good one, especially for those retailers dependent on apparel sales for the majority of their revenues. "What's encouraging about this is that retail chains will be sold on the basis of their sales and earnings, not liquidation values," said Joseph E. Brooks, chairman and chief executive officer of Ann Taylor Inc., a specialty chain. "Retailers who had good track records of producing profits will have a better chance to buy back their companies." Still, most retailing observers expect that all the proposed retailing LBOs will depend partly on the sale of junk bonds, a market already in tumult, in part because of concerns associated with bonds issued by the Federated and Allied units of Campeau. "Prices for retail chains are lower today than they were last week, which will help management," said Gilbert Harrison, chairman of Financo Inc., an investment-banking firm specializing in retailing acquisitions. "But the hurdle of financing still has to be resolved.Potential bondholders will either look for greater equity participation on behalf of management, or insist the equity component of the deals be substantially greater than in the past."
Sony Corp. won a pretrial order blocking U.S. sales of Justin Products Inc. 's "My Own" line of portable audio players for children. Judge John E. Sprizzo issued the order in Manhattan federal court, where Sony has accused the tiny company of illegally knocking off the "My First Sony" line.The judge held that the combination of colors used for the Sony products is distinctive and subject to protection under New York state law, rather than federal law.The legal fight was the subject of a Wall Street Journal story yesterday. Justin's attorney, Charles E. Baxley, said Justin would ask an appeals court to set aside the order temporarily, pending an expedited appeal.He also repeated Justin's denial of Sony's charges. "Their likelihood of reversing us is very slim," said Lewis H. Eslinger, Sony's attorney, who said he doubts Justin will go ahead with a trial.
Dun & Bradstreet Corp. 's Market Data Retrieval unit said it acquired School and College Construction Reports service from Intelligence for Education Inc. Terms weren't disclosed. The service supplies weekly reports on school and college construction plans. Market Data Retrieval is a compiler of educational information and provides related services.Closely held Intelligence in Education, of Larchmont, N.Y., is an educational publisher and consultant. A battle is raging in Venice over plans to have the 1,200-year-old Italian city be the site for a universal exposition in 2000. The plans include a subway system, a congress center, floating trees, fanciful fountains -- and as many as 60,000 additional tourists a day. Expo enthusiasts argue that holding the fair would attract businesses, create jobs and help renovate abandoned sections of town.But opponents fear overcrowding. "This city already has too many tourists, and it can't hold them all," says Pierluigi Beggiato, the president of the Venice hoteliers association. About 40 Italian businesses, including Fiat S.p.A. and Ing.C. Olivetti & Co., have formed a consortium to lobby for holding the expo in Venice. Three gambling casinos have opened in Poland.The three establishments -- two in Warsaw and one in Krakow -- accept only foreign currency and are joint ventures between Polish firms and Western companies.Not all Poles are pleased. "What do we want casinos for when we haven't got anything in the shops?" one housewife asked.But Bogdan Gumkowski, who runs the casino at Warsaw's Marriott Hotel, said the ventures would help Poland service its $39 billion foreign debt by pouring dollars into the state firms in the joint ventures -- the LOT airline and Orbis tourist organization. Algeria plans to increase natural-gas sales to Europe and the U.S. According to the Middle East Economic Survey, the North African nation is holding talks with Italy for adding a fourth pipe to a section of the Trans-Mediterranean pipeline, expanding capacity by up to six billion cubic meters a year from 12.5 billion.Algeria also wants to build a pipeline through Morocco and across the Strait of Gibraltar to supply Spain, France and West Germany with up to 15 billion cubic meters a year by the late 1990s. South Africa's National Union of Mineworkers agreed to suspend the strike by diamond workers and resume negotiations with De Beers Consolidated Mines Ltd. over their wage dispute, De Beers said.It also said the union had agreed to meet the company for further talks tomorrow.The strike at five De Beers mines began last Thursday, with 9,500 out of a total 10,000 NUM members employed on De Beers mines participating, according to the union, while De Beers said there were 7,800 participants.The union has demanded a 37.6% increase in the minimum wage while De Beers's final offer was an increase of 17%. A 35-nation environmental conference opened in Sofia, Bulgaria.The gathering is expected to focus on curbing the fouling of rivers and lakes, limiting damage from industrial accidents and improving the handling of harmful chemicals.West German Environment Minister Klaus Toepfer said Bonn is convinced of the need for cooperation, "especially with our neighbors in the East, because we are directly affected by their ecological progress or lack of it." The U.S. and Canada joined every European country except Albania at the meeting. The Swedish publishers of a new Estonian-language newspaper rushed an extra edition across the Baltic on Oct. 10 after the first run sold out in one day.Editor Hasse Olsson said plans had called for 7,000 copies of the monthly Are Paev (Business Paper) to be sold at newsstands and an additional 3,000 promotion issues to be sent by direct mail.He said 13,000 more copies were sent to Estonia because of strong sales.The Swedish publishing company Bonniers owns 51% of Are Paev, and the Estonian management company Minor owns 49%. Angel Gurria, Mexico's top debt negotiator, said the country's creditor banks are responding positively to Mexico's debt-reduction package. Mr. Gurria's optimism contrasts with some bankers' views that the deal may require a lot of arm twisting by the U.S. Treasury in order to succeed.Mr. Gurria, Mexico's under-secretary of the ministry of finance, met yesterday with European bankers in London, at the half-way point on a so-called road show to market the package around the world. An increasing number of banks appear to be considering the option under the deal whereby they can swap their Mexican loans for 30-year bonds with a face value discounted by 35%, Mr. Gurria said.The other two options consist of swapping loans for bonds with 6.25% interest rates, or providing fresh loans. The accord, which covers $52.7 billion of Mexico's medium- and long-term debt, is expected to go into effect in early China's top film actress, Liu Xiaoqing, paid $4,555 in back taxes and fines in Shandong province, the People's Daily reported.The amount is equal to about 30 years earnings for the average peasant, who makes $145 a year. . . . China will spend $9.45 million for urgent maintenance on Tibet's Potala Palace, former home of the Dalai Lama, the China News Service said.The Dalai Lama, who was just awarded the Nobel Peace Prize, lives in exile in India.
Korean car exports have slid about 40% so far this year, but auto makers here aren't panicking. They are enjoying domestic sales that are more than making up for lost overseas sales.South Korean consumers are expected to buy almost 500,000 passenger cars this year, up 60% from 1988.In fact, some auto executives suggest that slackened demand for their cars in the U.S. and Canada is a blessing; otherwise they wouldn't be able to keep up with demand in the more profitable local market. "We are very lucky to easily change an export loss to domestic plus," says Hong Tu Pyo, managing director of domestic marketing for Hyundai Motor Co. As it is, waiting lists of a month aren't unusual for popular models.Demand is so strong that all of the domestic makers -- Hyundai, Kia Motors Corp., Daewoo Motor Co. and even upstart SsangYong Motor Co. -- plan to build more factories.Industry analysts predict that by 1995, South Korea will be building three million cars a year -- about half of that for export. It's an optimistic move in a industry already facing world-wide overcapacity.But South Korean auto makers are confident that the export market will bounce back and that demand in Korea will stay strong.Currently only one in 38 South Koreans owns a car, up from one in 200 a decade ago. "In the year 2000 it will be one car per family.At that point domestic sales will slow down," says Kim Yoon Kwon, director of marketing for Daewoo Motor. The reason for the tremendous demand is simple: South Koreans suddenly have a lot more money. "We never thought we'd own a car," says Kwang Ok Kyong, who just bought a Daewoo LeMans on a five-year loan.She and her husband started a small printing business and need the car for work as well as for weekend jaunts. Pay raises of 60% over the past three years have given many South Koreans the money to enjoy the things they were supplying the rest of the world.The success of newcomer SsangYong Motor shows the strength of the auto market and its growing diversity.A part of the construction-oriented conglomerate SsangYong Group, it took over the dying Dong-A Motor Co. in 1986.SsangYong began making variations of the Jeep-like "Korando" vehicle. (Dong-A had had a technology agreement with Jeep maker American Motors Corp., now a part of Chrysler Corp.) The most popular style is the stretched "Family," which resembles a Ford Bronco or Chevy Blazer.The four-wheel-drive vehicles start at $15,000; a Family can cost over $25,000. SsangYong, which has only about 3% of the domestic market, will sell about 18,000 of its models this year, twice as many as last year.It sees sales rising 45% to 26,000 units next year. The company plans to expand plant capacity 50% by 1991.By then it also hopes to begin producing a passenger car based on the Volvo 240 and selling for about $20,000. Hyundai and Daewoo seem unconcerned about the SsangYong threat, but Kia, the scrappy No.3 auto maker, is selling four-wheel-drive vehicles through its Asia unit.It plans to sell 1,700 units in 1989. Kia, the only Korean car maker that has seen its overseas sales grow in 1989, aims at Korea's common man.Its advantage has been the peppy little Pride, sold as the Ford Festiva in the U.S.At 3.8 million won, or $5,700, the econobox is the lowest-priced car in South Korea.Along with two larger models, the company claims 18% of the domestic market.Ford Motor Co. and Japan's Mazda Motor Corp. have equity interests in Kia. Kia is the most aggressive of the Korean Big Three in offering financing.Loans for as long as five years make the cars very accessible, with monthly payments as low as 80,000 won, or $120. Daewoo Motor, a 50-50 joint venture with General Motors Corp. and the Daewoo Group conglomerate, is the only auto maker that appears to be hurting.Shipments of its Lemans to GM's Pontiac division are off about 65% from a year ago, versus a 44% decline for Hyundai and an 18% increase for Kia.Moreover, Daewoo's domestic sales have grown half as fast as sales of its rivals. The big problem for Daewoo, which holds about 21% of the market, is the long series of labor disruptions it suffered this year.But Daewoo is expanding too.In fact, a sister company, Daewoo Shipbuilding and Heavy Machinery, plans to build 240,000 minicars by the mid-1990s. Hyundai, the Korean market leader with a 58% share, also plans to jump into minicars at the same time.It has a similar project for 200,000 cars a year.Kia is reportedly also considering such a plan.Even giant Samsung Group is rumored in the Korean press to be considering getting into the auto-making business; a company spokesman had no comment.
Many skittish mutual fund investors picked up the phone yesterday, but decided not to cash in their chips after all. As the stock market bounced back, withdrawals of money from stock funds amounted to a mere trickle compared with Black Monday, when investors dumped $2.3 billion, or about 2% of stock-fund assets. Fidelity Investments, the nation's largest fund company, said phone volume was more than double its typical level, but still half that of Oct. 19, 1987.Net outflows from Fidelity's stock funds stood at less than $300 million, or below 15% of the $2 billion cash position of the firm's stock portfolios.Much of the money was switched into the firm's money market funds.Outflows since the close of trading Friday remain below one-third their level of two years ago, Fidelity said. Other mutual fund companies reported even lighter withdrawal requests.And some investors at Fidelity and elsewhere even began buying stock funds during the day. "Two years ago, there was a lot of redemption activity and trouble with people getting through on the phone," said Kathryn McGrath, head of the investment management division of the Securities and Exchange Commission.This time, "We don't have that at all." Of course, the relative calm could be jolted if the market plunges again.And any strong surge in redemptions could force some funds to dump stocks to raise cash, as some did during Black Monday. But funds generally are better prepared this time around.As a group, their cash position of 10.2% of assets in August -- the latest figure available -- is 14% higher than two years earlier.Many fund managers have boosted their cash levels in recent weeks. The biggest flurry of investor activity came early in the day.Vanguard Group Inc. saw heavy exchanges from stock funds into money market funds after the telephone lines opened at 8:30 a.m. "In the first hour, the real nervous folks came along," a spokesman said. "But the horrendous pace of call volume in the first half-hour slowed considerably." At Scudder, Stevens & Clark Inc., phone calls came in at 40% more than the normal pace through early afternoon.Most of that increase came in the first hour after the phone lines opened at 8 a.m. As stocks rose, in fact, some investors changed course and reversed their sell orders.Many funds allow investors to void orders before the close of trading. At Scudder and at the smaller Ivy funds group in Hingham, Mass., for instance, some shareholders called early in the morning to switch money from stock funds to money market funds, but later called back to reverse the switches.Because mutual fund trades don't take effect until the market close -- in this case, at 4 p.m. -- these shareholders effectively stayed put. At Fidelity's office in downtown Boston, Gerald Sherman walked in shortly after 7:30 a.m. and placed an order to switch his retirement accounts out of three stock funds and into a money market fund.But by 3:15 p.m., with the market comfortably ahead for the day, Mr. Sherman was preparing to undo his switch. "It's a nice feeling to know that things stabilized," said Mr. Sherman, the 51-year-old co-owner of a discount department store. But some investors continued to switch out of high-risk, high-yield junk funds despite yesterday's rebound from that market's recent price declines. Shareholders have been steadily bailing out of several big junk funds the past several weeks as the $200 billion market was jolted by a cash crunch at Campeau Corp. and steadily declining prices.Much of the money has been switched into money market funds, fund executives say. Instead of selling bonds to meet redemptions, however, some funds have borrowed from banks to meet withdrawal requests.This avoids knocking down prices further.The $1.1 billion T. Rowe Price High Yield Fund was among the funds that borrowed during the Campeau crisis, says George J. Collins, president of T. Rowe Price Associates Inc. That way, Mr. Collins says, "We didn't have to sell securities in a sloppy market." When the market stabilized, he added, the firm sold the bonds and quickly paid the loans back. Tom Herman contributed to this article.
The roller-coaster stock market is making life tougher for small companies trying to raise money. In the wake of Friday's plunge and yesterday's rebound, some companies are already postponing deals, and others wish they could.As in other jittery times, many small businesses expect a particularly rough time raising funds as investors shun risky deals, seeking safety in bigger companies. Even if stock prices fully recover from Friday's sharp decline, the unsettled conditions will frighten many investors. "The implication of an unsettled situation is that the thing could drop dramatically," says Henry Linsert Jr., chairman of Martek Corp., a four-year-old biotechnology company that is planning a private placement of stock. "The more variables that indicate risk, the more the investor is going to drive a hard bargain." Earlier this month, Staples Inc., a Newton, Mass., office-supplies discounter, said it would accelerate expansion plans nationwide and offer more of its stock to the public.At the time, its shares were selling above their initial offering price of $19, and bankers believed Staples would sell new stock without a hitch. But with the company's shares standing at $15 yesterday, a new offering seems unlikely, company officials say.Business, however, continues to be "robust," and the stock market hasn't affected the concern's expansion plans, says Todd Krasnow, a senior executive. Other companies figure they can't avoid the market. "We have capital requirements," says Mr. Linsert, "so we have to go ahead" with a planned $1.5 billion private placement.Unless the market goes right back up, he says, "it may take us six to nine months to find the money, instead of three." And the Columbia, Md., company may have to settle for a lower price, he adds. Life is particularly nerve-racking for companies that had planned to go public this week.Hand-holding is becoming an investment-banking job requirement. Robertson, Stephens & Co., a San Francisco investment banking concern, has a client that looked forward to making its initial public offering yesterday.Officers of the company, a health-care concern, "were very discouraged on Friday and felt they shouldn't go public; we felt they should," says Sanford Robertson, partner in the banking concern. As the market dropped Friday, Robertson Stephens slashed the value of the offering by 7%.Yesterday, when similar securities rebounded, it bumped the valuation up again.As of late yesterday, the IPO was still on. For many, the situation is especially discouraging because the market for IPOs was showing signs of strengthening after several years of weakness. "We were just beginning to look at the increase in IPOs, seeing the light at the end of the tunnel," says Frank Kline Jr., partner in Lambda Funds, a Beverly Hills, Calif., venture capital concern. "But the tunnel's just gotten longer." Companies planning to go public "are definitely taking a second look," says Allen Hadhazy, senior analyst at the Institute for Econometric Research, Fort Lauderdale, Fla., which publishes the New Issues newsletter on IPOs.He calculates that the recent market slide translated into a 5% to 7% reduction in IPO proceeds to companies. Many companies are hesitating.Exabyte Corp. had been planning to sell 10% of its stock this week in an IPO that would raise up to $28.5 million.But now, Peter Behrendt, president, says, "We're making decisions on a day-to-day basis." Debt-free and profitable, the Boulder, Colo., computer-products concern could borrow funds if it decides against an IPO now, he says. KnowledgeWare Inc., an Atlanta computer-software concern, says it is still planning to go ahead with its IPO this week or next -- unless conditions change. "It's a wait-and-see situation right now," says Terry McGowan, president. Delayed financings also would affect the operations of many companies.Sierra Tucson Cos., a Tucson, Ariz., operator of addiction-treatment centers, has a planned doubling of capacity riding on an IPO scheduled for next week.William O'Donnell, president, says he still thinks the IPO will succeed.If it doesn't, he says, the company would have to change its expansion timetable. But the market turmoil could be partially beneficial for some small businesses.In a sagging market, the Federal Reserve System "might flood the market with funds, and that should bring interest rates down," says Leonard T. Anctil, vice president of the Bank of New England, Boston. James G. Zafris, president of Danvers Savings Bank, Danvers, Mass., says the market turmoil "is an absolute non-event for small business." For small companies, he says, interest rates are far more important than what happens on stock exchanges.Mr. Zafris thinks rates are heading down, helping small companies. Peter Drake, biotechnology analyst for Vector Securities International, Chicago, thinks market uncertainty may encourage small companies to form more strategic alliances with big corporations.Partly because the 1987 market crash made it harder for them to find financing, many high-technology concerns have made such alliances recently.Some even see a silver lining in the dark clouds.Alan Wells, president of Bollinger, Wells, Lett & Co., a New York merger specialist, thinks panicky investors may lose their enthusiasm for leveraged buy-out and giant takeover deals.Instead, they could turn to investing in smaller deals involving smaller companies, he says. And William E. Wetzel Jr., a University of New Hampshire management professor and director of Venture Capital Network Inc., says the market's gyrations will underline the investors' lack of control in big stock investments.This will add to the appeal of small business, he says, where investors often have a degree of influence.
a tragicomic monologue by an idealistic, not unheroic, though sadly self-deceived English butler in his sixties -- proceeds as if the realistic English novel of manners, like Britannia herself, still ruled the waves.In fact, Kazuo Ishiguro's "The Remains of the Day" (Knopf, 245 pages, $18.95) is both an homage to traditional English forms and a dramatic critique of them.It implies that the British Empire was rooted in its subjects' minds, manners and morals, and argues, tacitly, that its self-destructive flaws were embodied in the defensive snobbery, willful blindness, role-playing and especially the locutions of its domestic servants. As the narrator Stevens, the solitary butler of Darlington Hall, mulls over such hallowed terms as "greatness," "dignity," "service" and "loyalty," we see how pious cant subverts the soul.Stevens's dutiful conflation of the public and private realms -- like his beloved master's -- destroys all it was designed to preserve.Such armor crushes the soldier.The mask cuts to the quick. It's 1956, the year the Suez crisis marked the final end of Empire.As he stands on a hill at the beginning of a six-day motor expedition from Oxfordshire to Cornwall, where a former housekeeper resides, perhaps the victim of an unhappy 20-year marriage, perhaps (he hopes with more fervor than he will ever acknowledge) not disinclined to return to domestic service, Stevens surveys the view and thereby provides a self-portrait, a credo and the author's metaphor for the aesthetic of the novel we're reading: "We call this land of ours Great Britain, and there may be those who believe this a somewhat immodest practice.Yet I would venture that the landscape of our country alone would justify the use of this lofty adjective. . . . It is the very lack of obvious drama or spectacle that sets the beauty of our land apart.What is pertinent is the calmness of that beauty, its sense of restraint.It is as though the land knows of its own beauty, of its own greatness, and feels no need to shout it.In comparison, the sorts of sights offered in such places as Africa and America, though undoubtedly very exciting, would, I am sure, strike the objective viewer as inferior on account of their unseemly demonstrativeness." An effusive landscape?An ill-mannered mountain?But let Stevens continue in his unwitting comic manner (his conscious efforts at "banter" always fail -- most comically): "This whole question is very akin to the question that has caused much debate in our profession over the years: what is a `great' butler?" His answer is one "possessed of a dignity in keeping with his position." Such dignity "has to do crucially with a butler's ability not to abandon the professional being he inhabits." He "will not be shaken out by external events, however surprising, alarming or vexing. . . . Continentals are unable to be butlers because they are as a breed incapable of the emotional restraint which only the English race are capable of." Despite his racial advantage, to be a great butler is a heroic calling; one's pantry is "not unlike general's headquarters during a battle." If, for example, in the midst of a great social occasion (such as an international conference on revising the Versailles Treaty in 1923), one's 72-yearold father, himself a great butler once, should happen to die of a stroke, one must continue to serve the port: "Please don't think me unduly improper in not ascending to see my father in his deceased condition just at this moment.You see, I know my father would have wished me to carry on just now." It is this kind of dignity and restraint that allows Stevens to declare: "For all its sad associations, whenever I recall that evening today, I find I do so with a large sense of triumph." We note the imperial public word used to deny private rage and sorrow.That Stevens himself is not grotesque or repellent, but funny and sad and enlightening, is entirely the author's triumph. Mr. Ishiguro's ability to create a fallible narrative voice that permits him to explore such intertwining domestic, cultural and political themes was abundantly clear in his previous novel, "An Artist of the Floating World," set in Japan after the war.Now shifting his scene from the country he left at five to the England he has lived in for nearly 30 years, he has fashioned a novel in the mode of Henry James and E.M. Forster.With great aplomb he considers not only filial devotion and (utterly repressed) sexual love, but British anti-Semitism, the gentry's impatience with democracy and support of Hitler, and the moral problematics of loyalty: "It is, in practice, simply not possible to adopt such a critical attitude towards an employer and at the same time provide good service. . . . `This employer embodies all that I find noble and admirable.I will hereafter devote myself to serving him. ' This is loyalty intelligently bestowed." In the end, after meeting with the former housekeeper, Stevens sits by the seashore at dusk, thinking of her and of his employer, and declares "I trusted.I trusted in his lordship's wisdom. . . . I can't even say I made my own mistakes.Really -- one has to ask oneself -- what dignity is there in that?" The loyal servant has come full circle.What is greatness?What is dignity?We understand such rueful wisdom must be retrospective: The owl of Minerva only spreads her wings at dusk.But as "The Remains of the Day" so eloquently demonstrates with quiet virtuosity, such wisdom can be movingly embodied in art. Mr. Locke teaches English and comparative literature at Columbia University.
Stanislav Ovcharenko, who represents the Soviet airline Aeroflot here, has some visions that are wild even by the current standards of perestroika. In his office overlooking the runway of Shannon Airport, Mr. Ovcharenko enthusiastically throws out what he calls "just ideas": First, he suggests, GPA Group Ltd., the international aircraft leasing company based in Ireland, could lease some of its Boeing jetliners to the Soviet airline.Then Aer Lingus, the Irish flag carrier, could teach Aeroflot pilots to fly the Boeings, and the fleet could be based here at Shannon Airport. That's not all, he says.Aer Rianta, the Irish airport authority, could build a cargo terminal in the Soviet Union.Aeroflot could lease some of its cargo planes to Aer Lingus, through GPA, for a joint-venture cargo airline.And then there is his notion of an Irish-Soviet charter airline to ferry Armenians to Los Angeles via Shannon. Have the freedoms of glasnost gone to Mr. Ovcharenko's head? Hardly.The Irish-Soviet aviation connection is alive and well here at Shannon Airport.GPA is indeed talking about leasing Western planes to Aeroflot and even about buying Soviet-built Tupolev 204s.Aer Lingus is in discussions with the Soviet carrier about a cargo venture and other possibilities.Aer Rianta already has so many ventures with Aeroflot that its chief executive is studying Russian. Unlikely as it may seem, tiny, politically neutral Ireland has penetrated the mighty Soviet airline bureaucracy.And as Aeroflot struggles to boost its service standards, upgrade its fleet and pursue commercial opportunities, the Irish aviation industry seems poised to benefit. "Irish and Soviet people are similar," says Mr. Ovcharenko. "They look the same.They're very friendly." Moreover, he says, Irish companies are small but spunky. "We have to study their experience very well," he says. "We must find any way to get business." The two groups have been working together since the late 1970s, long before Soviet joint ventures were the rage in the West.Aeroflot carried about 125 million passengers last year, and Shannon Airport, the airline's largest transit airport outside the Soviet Union, saw 1,400 Aeroflot flights and 250,000 passengers pass through.An apartment complex down the road is the crew-rest and staging area for more than 130 Aeroflot pilots and flight attendants. The airport's biggest supplier of aircraft fuel is the Soviet Union.Tankers from the Latvian port of Ventspils each year unload 25 million gallons of fuel into a special tank farm at the airport.What Aeroflot doesn't pour into its own gas-guzzling Ilyushins is bartered to the airport authority, which resells it to 11 Western carriers including Air France, Trans World Airlines and Pakistan International Airlines.Aeroflot thus pays its landing fees, ground-handling and catering bills with fuel, preserving its hard currency. That isn't all.Last year, the Irish airport authority, in a joint venture with Aeroflot, opened four hard-currency duty-free shops at Moscow's Sheremetyevo Airport.Aer Rianta now manages duty-free sales on all Aeroflot international flights out of Moscow.Duty-free shops in Leningrad's Pulkova Airport opened in July, and hard-currency shops in Leningrad hotels and on the Soviet-Finnish frontier are coming soon. Aer Rianta is talking about similar joint ventures in Tashkent and in Sochi, a Black Sea resort, and even has a computer-assembly project cooking with the Georgian city of Tbilisi. Aeroflot's international fleet of 285 planes is being repainted and refurbished at Shannon Airport.Thanks to a new air-traffic agreement and the ability of Irish travel agents to issue Aeroflot tickets, tourists here are taking advantage of Aeroflot's reasonable prices to board flights in Shannon for holidays in Havana, Kingston and Mexico City.The round-trip fare to Havana is 410 Irish punts ($578).Jamaica costs 504 punts. A formal blessing of sorts was bestowed on this friendship in April when Mikhail and Raisa Gorbachev stopped here for talks with Irish Prime Minister Charles Haughey.New trade accords were signed. It all started with geography.When it opened in 1939, Shannon was the first landfall in Europe for thirsty airplanes flying from North America.Advances in aircraft fuel efficiency over the years made a Shannon stop unnecessary for most Western air fleets, but Aeroflot still flies inefficient Ilyushins that can't make it from Moscow to Managua on one hop. As a result, Ireland didn't spurn the Soviets after they shot down a Korean Air Lines jetliner over the Sea of Japan in 1983, though it suspended direct Moscow-Shannon flights for two months.In fact, Aer Lingus started ferrying Russians from Shannon to New York when Washington stripped Aeroflot of its U.S. landing rights. Today, Aer Rianta is making a heap of money from its Soviet friendship.And, with those contacts in place, it could be relatively simple to add Aer Lingus and GPA to the team.Then, perhaps, Mr. Ovcharenko's ideas wouldn't sound like so much blarney.
When Nucor Corp. begins shipping steel from the world's first thin-slab plant this month, it will begin testing the competitive mettle of its giant competitors. The new technology, which creates a very thin piece of steel, radically reduces the costs of making flat-rolled sheets.An ebullient Kenneth Iverson, Nucor's chairman, says the company's plant eventually will make a ton of steel in 1.5 man hours, compared with four to six man hours at a conventional mill. "We've had the Russians and Chinese, and people from India visiting us," Mr. Iverson beams. "Everyone in the world is watching us very closely." Especially his neighbors, the major U.S. steelmakers.Already, USX Corp. and Armco Inc. are studying Nucor's technology to see if they can adopt it.Says the chief executive officer of a major Midwest steel company: "It's damn worrisome." The once-staid steel industry is about to be turned topsy-turvy by a 1990s technology revolution.New, efficient and sophisticated processes make it easier for smaller, less cash-rich companies to make steel at a fraction of what Big Steel paid decades ago.It also enables minimills finally to get a toehold in the flat-rolled steel market -- the major steelmakers' largest, most prized, and until now, untouchable, market. But such thin-slab technology is only the beginning.Eager engineers espouse direct-steelmaking and direct casting, which by the end of the 1990s will enable production without coke ovens and blast furnaces.Those massive structures, while posing cost and environmental headaches, effectively locked out all but deep-pocketed giants from steelmaking. "There's a revolution ahead of us that will ultimately change the way we market and distribute steel," says William Dennis, vice president, manufacturing and technology, for the American Iron Ore and Steel Institute. It isn't that major steelmakers have blithely ignored high technology.In fact, they've spent billions of dollars to boost the percentage of continously cast steel to 60.9% in 1988, from 39.6% five years before.Moreover, their balance sheets are rich with diversity, their old plants shuttered, and work forces lean. But that won't suffice. "It's no longer enough to beat the guy down the street.You have to beat everyone around the world," says Mr. Dennis.He wants to see steelmakers more involved in computers and artificial intelligence. The problem: They're saddled with huge plants that require costly maintenance.And try plying new dollars free in a market that is softening, hurt by a strong dollar and concerned about overcapacity -- the industry's Darth Vadar. "The technology revolution is going to be very threatening to established producers," says Peter Marcus, an analyst with PaineWebber Inc. "They've got too much invested in the old stuff and they can't get their workers to be flexible." No one expects minimills to eclipse major integrated steelmakers, who remain the undisputed kings of highest-quality steel used for autos and refrigerators.Nucor's plant in Crawfordsville, Ind., ultimately will produce only one million tons annually, a drop in the 40-million-ton-a-year flat-rolled steel bucket, and it will be years before such plants can compete in the high-profit market.Still, flat-rolled is the steel industry's bread and butter, representing about half of the 80 million tons of steel expected to be shipped this year. Moreover, the process isn't without its headaches.Because all operations are connected, one equipment failure forces a complete plant shutdown.On some days, the Nucor plant doesn't produce anything. "At this point, the minimill capacity won't make a great dent in the integrated market, but it does challenge them to develop new markets," says James McCall, vice president, materials, at Battelle, a technology and management-research giant based in Columbus, Ohio. Indeed, with demand for steel not growing fast enough to absorb capacity, steelmakers will have to change the way they do business.In the past, says Armco's chief economist John Corey, steelmakers made a product and set it out on the loading dock. "We said: `We've got a product: if you want it, you can buy it, '" he says, adding: "Now we're figuring out what people need, and are going back to make it." Armco's sales representatives visit the General Motors Corp. 's Fairfax assembly plant in Kansas City, Mo., two or three days a week.When they determined that GM needed parts more quickly, Armco convinced a steel service center to build a processing plant nearby so shipments could be delivered within 15 minutes. Cementing such relationships with major clients -- car and appliance makers -- is a means of survival, especially when those key clients are relying on a smaller pool of producers and flirting with plastic and aluminum makers. For example, when Detroit began talking about plastic-bodied cars, the American Iron and Steel Institute began a major lobbying effort to show auto makers how they could use steel more efficiently by simply redesigning how a car door is assembled. But steelmakers must also find new markets.After letting aluminum-makers take the recycling lead, a group of the nation's largest steelmakers started a recycling institute to promote steel cans to an environmentally conscious nation. Battelle's Mr. McCall thinks steelmakers should concentrate more on construction.Weirton Steel Corp., Weirton, W. Va., for example, is touting to homeowners fashionable steel doors, with leaded glass inserts, as a secure and energy-efficient alternative to wooden or aluminum ones.Other steelmakers envision steel roofs covering suburbia. Still others are looking at overseas markets.USX is funneling drilling pipe to steel-hungry Soviet Union.This year, the nation's largest steelmaker reactivated its overseas sales operation. Producers also are trying to differentiate by concentrating on higher-profit output, such as coated and electrogalvanized products, which remain beyond the reach of minimills.Almost all capital-improvement programs announced by major steelmakers within the past year involve building electrogalvanizing lines, used to produce steel for such products as household appliances and car doors. But unfortunately, that segment is much smaller than the bread-and-butter flat-rolled steel. "It's like everyone climbing out of the QE II and getting into a lifeboat," says John Jacobson, an analyst with AUS Consultants. "After a while, someone has to go over the side." Although he doesn't expect any bankruptcies, he does see more plants being sold or closed. Robert Crandall, with the Brookings Institute, agrees. "Unless there is an enormous rate of economic growth or a further drop in the dollar, it's unlikely that consumption of U.S. produced steel will grow sufficiently to offset the growth of minimills." Not to mention the incursion of imports.Japanese and European steelmakers, which have led the recent technology developments, are anxiously awaiting the lifting of trade restraints in 1992.Moreover, the U.S. can expect more competition from low-cost producing Pacific Rim and Latin American countries.A Taiwanese steelmaker recently announced plans to build a Nucor-like plant. "People think of the steel business as an old and mundane smokestack business," says Mr. Iverson. "They're dead wrong." *USX, LTV, Bethlehem, Inland, Armco, National Steel **Projected Source: WEFA Group
Polaroid Corp. 's patent-infringement damages case against Eastman Kodak Co., one of the highest stakes corporate trials ever, is getting scant attention on Wall Street. After 78 days of mind-numbing testimony in federal court in Boston, the trial is being all but ignored by analysts and patent attorneys.Most have read the pre-trial documents, however, and estimate Kodak will be ordered to pay $1 billion to $1.5 billion for infringing on seven Polaroid patents.That may be the largest patent award ever, but it is well below the $12 billion Polaroid seeks. The highest patent damage award to date was in 1986, when Smith International Inc. was ordered to pay $205 million to Baker Hughes Inc. for infringing on a patent on an oil drilling bit seal.The two companies later agreed to settle for $95 million. Few analysts think it is worth their time to slog through the Polaroid trial testimony. "It's like panning for gold outside of Grand Central Station.You might find something, but the chances are low," said Michael Ellman, an analyst at Wertheim Schroder & Co. And Eugene Glazer, an analyst at Dean Witter Reynolds Inc., said: "If you hired an attorney to be there all the time and give you a (prediction) of the eventual award, I would be willing to bet that he would be off" by a lot. A 75-day trial in the early 1980s determined that Kodak, based in Rochester, N.Y., infringed on patents of Polaroid, of Cambridge, Mass.The main issues remaining are how to calculate damages and whether the infringement was "willful and deliberate." If so, the damages could be tripled. Two analysts who have read the transcripts, David Nelson of Shearson Lehman Hutton Inc. and Calvert D. Crary, a litigation analyst at Labe, Simpson & Co., think Judge A. David Mazzone will decide in Kodak's favor on the "willful and deliberate" issue. Mr. Crary said testimony by Kodak's patent counsel, Francis T. Carr of Kenyon & Kenyon, showed that "he worked with Kodak continuously from the outset of the project" in an effort to avoid infringement. "Carr told Kodak on many occasions to avoid various features because of Polaroid's patent positions," and Kodak followed his advice in every instance, Mr. Crary said. But Irving Kayton, a patent expert at George Mason University School of Law who is familiar with the case, said the fact that seven patents were infringed "suggests that infringement was willful.It's difficult to be that consistently wrong." Observers also wonder whether Judge Mazzone will use the lost-profits method of determining damages, which Polaroid favors because it would result in a larger award, or the reasonable royalty method.Polaroid claims it could have manufactured and sold all the instant cameras and film sold by Kodak if Kodak hadn't entered the market.Moreover, Polaroid contends it could have sold them at a higher price -- and thus made higher profits -- because it wouldn't have been forced to match Kodak's lower prices. Each side has called a Harvard Business School professor to testify on that issue.Kodak hired Robert Buzzell and Polaroid brought in Robert J. Dolan. "There's nothing that says that people at Harvard Business school have to agree with each other," said Mr. Buzzell. Testimony is expected to continue until early December.A decision isn't expected until some time next year.
International Business Machines Corp. said earnings tumbled 30% in the third quarter, even a bit further than expected, rendering the outlook doubtful for the next few quarters. The main reason was a delay in shipment of new high-end disk drives, a business that accounts for some 10% of IBM's $60 billion of annual revenue. IBM, which telegraphed the poor results three weeks ago, also cited an increase in its leasing business, which tends to lock in business long-term but cut revenue in the near term.In addition, IBM noted that the stronger dollar has cut the value of overseas revenue and earnings when they are translated into dollars. Earnings fell to $877 million, or $1.51 a share, somewhat below securities analysts' revised expectations of around $1.60 a share.That compared with the year-earlier $1.25 billion, or $2.10 a share -- which was inflated by a 15-cents-a-share gain from the sale of some MCI Communications Corp. stock and by an unspecified amount from a payment by Fujitsu Ltd. relating to a software dispute.Revenue climbed 4.3% to $14.31 billion from $13.71 billion. IBM, Armonk, N.Y., remained upbeat.The computer giant, whose U.S. results have been dismal for years, noted that revenue rose again in the U.S. in the third quarter, following an increase in the second period.The company said in a statement that "demand for IBM products and services continues to be good world-wide.We do not see anything in the fundamentals of our business that would cause us to change our strategy of investing for profitable growth." Securities analysts, however, remained downbeat. "I think 1990 will be another mediocre year," said Steve Milunovich of First Boston. Jay Stevens of Dean Witter actually cut his per-share earnings estimate to $9 from $9.50 for 1989 and to $9.50 from $10.35 in 1990 because he decided sales would be even weaker than he had expected.Both estimates would mark declines from the 1988 net of $5.81 billion, or $9.80 a share, which itself was well below the record IBM set in 1984. Mr. Stevens said he kept a "buy/hold" recommendation on the stock only because "all the damage has been done." He said the stock hasn't traded below 1 1/2 times book value over the past 10 years, which at the moment computes to a stock price of $100.The stock closed yesterday at $103 a share, up just $1 in composite trading on the New York Stock Exchange as the market surged. Analysts worry that the disk-drive and leasing problems will last at least through the first quarter. "A key part of the question is, how soon does this disk-drive come and how soon does production ramp up?" said Steve Cohen at SoundView Financial Group. "And the input I've had from customers is that it still could be a while." On leasing, Bob Djurdjevic at Annex Research said he thinks IBM has hurt itself unnecessarily.He said IBM has priced its leases aggressively, thinking that would help win business.But he said IBM would have won the business anyway as a sale to a third party that would have then leased the equipment to the customer.He said IBM has not only hurt its short-term revenue outlook but has also been losing money on its leases. Bob Bardagy, executive vice president of marketing at Comdisco Inc., a huge leasing firm, said: "To put it mildly, IBM Credit has been doing some of the worst economic deals of any leasing company we have ever seen." IBM is expected to get a boost soon when it announces some new versions of its mainframes.But the basic technology in the line is almost five years old, which means it is long in the tooth, and competitors are rolling out strong products of their own. IBM is gaining momentum in the personal-computer market, and is expected to introduce some impressive workstations early next year.But it's hard to squeeze much profit out of the personal-computer business these days, and the workstation market, while important, is too small to rely on for much growth. The disk drives will doubtless sell well when they finally become available.But the AS/400, IBM's highly successful minicomputer line, is losing its momentum, and some analysts said sales could even decline in the fourth quarter.In addition, IBM's growth in software in the third quarter was just 8.8%, well below historical levels even when adjusted to reflect last year's payment from Fujitsu and the stronger dollar.And expenses, up 7.9% in the quarter, have stayed stubbornly high. In the nine months, IBM earned $3.17 billion, or $5.43 a share, down 8.4% from the year-earlier $3.46 billion, or $5.83 a share.Revenue increased 6.5% to $42.25 billion from $39.68 billion.
PepsiCo Inc. 's chairman said he is "more than comfortable with" analysts' estimates that third-quarter earnings rose to at least 98 cents to $1 a share from 91 cents the year earlier. D. Wayne Calloway, also chief executive officer of the company, indicated that he expects analysts to raise their forecasts for 1989 after the company releases its earnings today.So far, analysts have said they are looking for $3.30 to $3.35 a share.After today's announcement, that range could increase to $3.35 to $3.40 a share.The official said he also would be comfortable with that new range.In 1988, the soft-drink giant earned $2.90 a share.Results for 1989 will include about 40 cents a share from the dilutive effects of snack-food and bottling company acquisitions. In composite trading on the New York Stock Exchange, the company closed yesterday at $57.125 a share, up $3.125. The company said third-quarter sales are expected to increase 25% from $3.12 billion of last year's third quarter. Domestic soft-drink bottler case sales are estimated to have risen only 1% in the third quarter -- well below the 4% to 5% growth of recent years -- but about in line with the rest of the soft-drink industry. Mr. Calloway blamed the slower volume on rainier weather, a dearth of new products in the industry and -- to a much lesser extent -- pricing.PepsiCo said its soft-drink prices were about 2% higher in the quarter.Mr. Calloway also noted that soft-drink volume rose a hefty 9% in last year's third quarter, making the comparison more difficult.International soft-drink volume was up about 6%. Snack-food tonnage increased a strong 7% in the third quarter, while domestic profit increased in double digits, Mr. Calloway said.Excluding the British snack-food business acquired in July, snack-food international tonnage jumped 40%, with sales strong in Spain, Mexico and Brazil.Total snack-food profit rose 30%. Led by Pizza Hut and Taco Bell, restaurant earnings increased about 25% in the third quarter on a 22% sales increase.Same-store sales for Pizza Hut rose about 13%, while Taco Bell's increased 22%, as the chain continues to benefit from its price-value strategy.Taco Bell has turned around declining customer counts by permanently lowering the price of its tacos.Same store-sales for Kentucky Fried Chicken, which has struggled with increased competition in the fast-food chicken market and a lack of new products, rose only 1%. The operation, which has been slow to respond to consumers' shifting tastes away from fried foods, has been developing a grilled-chicken product that may be introduced nationally at the end of next year.The new product has performed well in a market test in Las Vegas, Nev., Mr. Calloway said. After a four-year, $7.7 billion acquisition binge that brought a major soft-drink company, soda bottlers, a fast-food chain and an overseas snack-food giant to Pepsi, Mr. Calloway said he doesn't expect any major acquisition in the next year or so.But, "You never can tell," he added, "you have to take advantage of opportunities."
President Bush chose Martin Allday, a longtime friend from Texas, to be chairman of the Federal Energy Regulatory Commission. Mr. Allday would succeed Martha Hesse, who is resigning.The White House said Ms. Hesse, a Chicago businesswoman who previously held posts at the Energy Department and FERC, is leaving to become a vice president of First Chicago Corp. Mr. Allday, an attorney in Midland, Texas, has been solicitor at the Interior Department.He met Mr. Bush in the 1950s, when the president was a young oil man in Midland and Mr. Allday was a lawyer for an oil firm. The FERC is a five-member commission that regulates billions of dollars of interstate wholesale energy transactions.Mr. Allday's appointment is subject to confirmation by the Senate.Administration officials said a date for Ms. Hesse's departure hasn't been set.
CHICAGO - Options traders were among the big victims of Friday's plunging stock market, including one small firm that required an emergency $50 million bailout. While Monday's rebounding markets helped other investors recoup losses, many options customers and professional traders in stock-index options and the options on takeover stocks were left with multimillion-dollar losses, traders here and in New York said. Options traders were hurt worse than others on Friday because of the highly volatile nature of options, which often rise or fall in value several times the amount of the price change in the individual stock or index of stocks on which they are based.Thus, options traders Friday were stuck with losses that also were several times larger than those suffered by many stock traders in New York. Jeffrey Miller of Miller Tabak Hirsch & Co. said that given the high degree of leverage in the options market, it is "very easy for these guys to get wiped out.That may just be the nature of these highly leveraged little creatures." An options contract gives the holder the right to buy (call) or sell (put) a specific amount of stock, or in this case the value of a stock index, based on a predetermined price within a given time period.Options traders who, in return for a small fee, or premium, had previously sold put options on stocks or stock indexes were forced on Friday to buy those contracts back at the previously agreed prices, which were substantially above those in the market as it was falling.They then had no choice in many cases but to sell the contracts at prevailing prices -- in most cases at a substantial loss. The latest round of losses is likely to be a serious blow to the Chicago Board Options Exchange, which has never fully recovered from the aftershock of Black Monday, when investors fled the market because of huge losses. Making matters worse was the fact that late Friday afternoon the CBOE halted stock-index options trading in step with the Chicago Mercantile Exchange's halt in stock-index futures.But while the Merc reopened a half hour later, the CBOE remained closed, leaving many options traders unable to make trades that might have reduced the losses. CBOE Chairman Alger "Duke" Chapman, said that, unlike the futures market, the options exchange has to open in a rotation that allows each different options series to trade.Exchange officials reasoned that they wouldn't have been able to make such a rotation with the time remaining Friday afternoon, and with the stock-index futures on the verge of closing for a second and final time, the CBOE reasoned that its best course was to remain closed. The damage was so bad at Fossett Corp., an options trading firm here, that it was forced to transfer its accounts to First Options of Chicago, a unit of Continental Bank Corp., as a result of options trading losses.Fosset so far is the only member of a financial exchange to be forced to be taken over by another firm as a result of Friday's rout. Fossett still had several million dollars in capital left after Friday's close of trading, but not enough that regulators, worried about another potential market plunge yesterday, would let it reopen for trading, options exchange officials said. Thus, in an unprecedented arrangement underscoring the seriousness of the transfer, the CBOE, the American Stock Exchange and the Options Clearing Corp., as well as the firm's owner, Stephen Fossett, put up a total of $50 million to guarantee the customer positions being transferred to the bank holding company subsidiary in case the market plunged again yesterday. S. Waite Rawls III, vice chairman of Continental Bank, First Options' parent company, said the firm took on about 160 accounts formerly held by Fossett, almost all of them belonging to professional floor traders. "Steve and his firm were still worth a lot of money," Mr. Rawls said. "A package of credit support was put together -- including the assets of Steve and his firm." The bailout was cobbled together over the weekend, with officials from the Federal Reserve Board, Securities and Exchange Commission, Comptroller of the Currency and Treasury as well as the options exchanges. "It was great to have the luxury of time," Mr. Rawls said. At one point, an options industry official had to talk the Federal Reserve Bank of Chicago's night watchman into giving him the home phone number of Silas Keene, Chicago Fed president. First Options didn't have to put any money into the bailout. Yesterday's rally in the stock, futures and options markets led CBOE and Amex officials to conclude that the $50 million in guarantees almost certainly won't need to be tapped by First Options. The Fossett firm had some losses and liquidity problems during the October 1987 crash as well, Mr. Rawls said. A federal official said that Continental Bank worked with securities and banking regulators over the weekend to fashion the Fossett bailout, but that conditions weren't dictated by those agencies. "It was their business decision," the official said. Officials at Options Clearing Corp., which processes all options trades for U.S. exchanges, said that the $50 million guarantee was unprecedented, but was necessary to help insure the integrity of the options markets. "It was an extraordinary situation that needed extraordinary steps," said Paul Stevens, OCC president and chief operating officer. Mr. Stevens declined to give the specific contributions to the $50 million guarantee from each participant.But CBOE and Amex officials said that Options Clearing Corp. contributed $20 million to the guarantee, the CBOE put up $8 million, the Amex added $4 million and $18 million came from Mr. Fossett's own assets. Mr. Fossett couldn't be reached to comment.
Debora Foster takes off her necklace, settles herself on a padded chair and gently leans forward.With a jazz-piano tape playing softly in the background, the soothing hands of Sabina Vidunas begin to work on Ms. Foster's neck and shoulders. "It's like an oasis in this room," Ms. Foster purrs.The room in question is the directors' lounge of H.J. Heinz Co., 60 floors above the bustle of Pittsburgh.There, amid oil paintings and marble tables, massages are administered every Wednesday. "On days that I'm really busy," says Ms. Foster, who works in public relations for the company, "it seems decadent to take time off for a massage." Although such sessions may never replace coffee breaks, on-site massage, as it is known in the trade, is certainly infiltrating corporate America.In some companies middle managers sneak massage therapists into the office, fearful that upper-level executives won't approve. Ms. Foster's indulgence is nothing like the oily, hour-long rubfests enjoyed by spa visitors.Nor does it at all resemble (despite what some executives think) the more intimate variety offered at specialty parlors in bad parts of town.On the contrary, office rubdowns usually take place in dimly lighted conference rooms, where stressed-out employees relax in specially designed chairs, fully clothed.The massages last 15 minutes and typically cost about $10. Some companies, including Heinz, even pay part of the fee.Ms. Vidunas has been seeing some 15 clients a visit since the program was started at Heinz last year.Anthony J.F. O'Reilly, the company's chairman, swears by her firm touch, saying regular massages are a balm for his old football injuries. Massage advocates say that kneading the head, shoulders, neck and back can go a long way toward easing tension and improving morale.They also insist that touching is a basic need, as powerful as the need for food or sleep, and that the office is as good a place as any to do it. "The blood flows to your head, you feel lightheaded and you don't feel tension around the head or neck," says Minnie Morey, an operations supervisor at the Social Security office in Grand Rapids, Mich., where massages began last month. "When you leave the room after your massage, people say you look like you're glowing." Adds Candice Ohlman, the 35-year-old masseuse who plies her trade in the Grand Rapids office, "They fall in love with my hands." Not everyone, however, is at ease with office massage.Three years ago, the Internal Revenue Service's office in San Jose, Calif., opened its doors to on-site massage.And even though employees paid the bill, taxpayers grumbled. "Sometimes, with the release of stress, you hear `oohs' and `ahs' coming out of the room," explains Morgan Banks, the agency's health specialist. "And you can't have taxpayers coming into an audit hearing `oohs' and `ahs. '" Last month, the complaints intensified and the massages ended. "Now we're looking for a room with thicker walls," Ms. Banks says. Massage also has an image problem to contend with.Some masseurs have tried to get around this by calling themselves "bodyworkers" and describing their office visits as "reinvigoration breaks." But massage, no matter how chaste, is still associated in many minds with seedy fronts for prostitution, and that makes some executives nervous. Last year, the research and development division of Weyerhaeuser Co., the large wood-products concern, invited a masseuse to its Tacoma, Wash., offices.Phil Harms, a software engineer, was an eager customer. "You build up a lot of tension working at a terminal all day," he says. But after about eight months, the vice president of the division, Ed Soule, learned about the sessions and brought them to a halt.Mr. Soule says his only beef was that the massages were being given in a company conference room; the department's supervised health facility would have been fine. "In my view, {massages} should be managed with an appropriate mixture of males and females around," he says. Given such attitudes, some corporate masseurs prefer to go about their business quietly.Russell Borner of Park Ridge, N.J., says he has been working for the past year at a huge chemical and manufacturing concern in New York -- unbeknownst to the company's executives.He visits the same department every two or three weeks.His massage chair is kept in a closet, and a secretary escorts him past security. "This is common with a lot of large companies," says Mr. Borner, who worked for American Telephone & Telegraph Co. for 23 years before choosing his current trade.Managers, he contends, "are afraid how they're going to look in the eyes of their peers.My vision is to change human consciousness towards touch.My attitude is: Let's come out of the closet." Occasionally, all that's needed is a little coaxing.Elisa Byler, a St. Louis masseuse, won over officials at Emerson Electric Co., a maker of electrical and electronic equipment, by providing documents and other articles trumpeting the therapeutic benefits of massage.She notes that she also stresses professionalism during her weekly visits. "I pull my hair back, wear a little makeup and look corporate," says Ms. Byler, who has been visiting Emerson since January. "If I go in there as I normally dress, they'd ask, `Who is this hippie? '" The self-proclaimed father of on-site massage is David Palmer, a 41-year-old San Francisco masseur whose mission is to save the touch-starved masses.To help do this, Mr. Palmer developed a portable massage chair three years ago that he hopes will bring "structured touching" into mainstream America. "The culture is not ready to take off its clothes, lie down and be touched for an hour for $45," he says. "The idea is to keep the clothes on and to keep people seated.The chair is a way to package massage." Sitting in one of Mr. Palmer's chairs, which cost $425 and have since been copied by others, is a bit like straddling a recliner.Customers lean forward, rest their knees on side supports and bury their face in padding on the back of the chair. (Ms.Ohlman, the Grand Rapids masseuse, says she has heard the odd-looking contraption compared to something out of the Spanish Inquisition.) Mr. Palmer, who serves as president of the On-Site Massage Association and writes an industry newsletter, says some 4,000 practitioners -- out of about 50,000 certified masseurs across the country -- now use massage chairs in the workplace, as well as on street corners, in airports and malls, and at conventions and other gatherings where weary people can be found. Scot MacInnis, a masseur in Boulder, Colo., had a scary experience while massaging a man in a natural-foods supermarket as part of a store promotion.Three minutes into the massage, the man curled up, began shaking and turned red.Paramedics were called. A week later, the man told Mr. MacInnis he had suffered a mild heart attack unrelated to the massage. "It was a powerful point in my career," says the 31-year-old Mr. MacInnis, who has since taken out a $1 million liability policy for his business. "But he pulled through, and after the ambulance left, there were still six people in line waiting for a massage.The next woman was older, and I was afraid to touch her.But it's like falling off a horse and getting back on." Despite the number of fans that office massage has won, some purists look down on it, arguing that naked, full-body rubs are the only way to go.Linda Aldridge, who does full-body work in Pittsburgh, says that while on-site massage is better than nothing, tired workers should realize it is only the tip of the iceberg. "Whole areas of their bodies are neglected," she says, adding that clothes ruin the experience. "There's nothing like skin to skin."
In what is believed to be the first cancellation of a loan to China since the June 4 killings in Beijing, an international bank syndicate has terminated a $55 million credit for a Shanghai property project. The syndicate, led by Schroders Asia Ltd., agreed last November to provide the loan to Asia Development Corp., a U.S. property developer.But several weeks ago, in the wake of the Beijing killings, the loan was canceled, according to bankers and executives close to the project.Asia Development and Schroders declined to comment on the move. Lenders had doubts about the project even before June 4, but the harsh crackdown, which caused many businesses to reassess their China transactions, "gave the banks the out they wanted," says an official close to the Shanghai venture. The decision to cancel the loan exemplifies the tough attitude bankers have taken toward China since June 4.While some commercial lending has resumed, international lenders remain nervous about China's economic troubles and foreign debt -- $40 billion at the end of 1988. Many loans are being renegotiated, especially those tied to the hotel sector, which has been hit hard by a post-June 4 tourism slump.Many bankers view property-sector loans as particularly risky. The canceled Shanghai loan leaves Asia Development, a small concern, saddled with a half-completed 32-story apartment building and heavy debts.The company owes $11 million to the Shui On Group, the project's Hong Kong contractor, and a significant, though unspecified, amount in legal fees to Coudert Brothers, a U.S. law firm, the sources say. The project, known as Lotus Mansion, has been mired in controversy.When the loan agreement was announced, it was hailed as one of the first Western-style financing transactions ever used in China.Unlike most loans to China, there was no Chinese guarantor.Instead, the banks secured a promise from state-owned Bank of Communications that it would lend Asia Development the entire $55 million at maturity to finance repayment of the original borrowing.The loan was to have matured in just two to three years, as soon as construction was completed. But in a letter sent in August to Asia Development, Schroders said the loan was terminated because the developer had failed to deliver adequate financial data and pay certain fees to the loan-management committee on time, according to officials close to the project.Creditors involved in the project contend, however, that the termination actually had nothing to do with these technical violations. Instead, the creditors say, the loan fell victim to nervousness about China's political turmoil, as well as to concern about the loan's security.The bank syndicate is made up mostly of European banks, but it includes China's state-owned Citic Industrial Bank. The 11 banks in the syndicate sustained no monetary losses because none of the credit facility had been drawn down.
K mart Corp. agreed to acquire Pace Membership Warehouse Inc. for $23 a share, or $322 million, in a move to expand its presence in the rapidly growing warehouse-club business. The proposed merger comes as K mart's profit is declining and sales at its core discount stores are rising more slowly than at such competitors as Wal-Mart Stores Inc. K mart, based in Troy, Mich., recently said net income would fall for the third consecutive quarter, after a 16% drop in the first half of its current fiscal year. "The membership warehouse-club concept has great potential," the company's chairman, Joseph E. Antonini, said in a statement.Warehouse clubs typically carry general merchandise and food products, which they sell for close to wholesale prices in no-frills stores.Shoppers, many of whom operate small businesses, pay annual membership fees, which provide an income base for the stores. K mart tested the warehouse-club sector last year with its acquisition of a 51% interest in Makro Inc.But the Makro chain, which operates as a joint venture between K mart and SHV Holdings N.V. of the Netherlands, has only six stores and annual sales that one analyst estimated at about $300 million. Six-year-old Pace, based in Aurora, Colo., operates 41 warehouse-club stores.The company had losses for several years before turning profitable in fiscal 1988.In the year ended Jan. 31, Pace rang up profit of $9.4 million, or 72 cents a share, after a tax-loss carry-forward, on sales of $1.3 billion, and analysts expect its results to continue to improve. "The company turned the corner fairly recently in profitability," said Margo McGlade of PaineWebber Inc., who had been forecasting a 46% jump in Pace's net income from operations this year and another 42% increase next year. "Warehouse productivity is really beginning to take off." But some analysts contend K mart has agreed to pay too much for Pace. "Even if you look at it as a turnaround situation, it's expensive," said Wayne Hood of Prudential-Bache Securities Inc. "In my opinion, you would only pay that kind of price if you were getting a premier player in the industry." Ms. McGlade of PaineWebber raised a more fundamental question about the deal. "If K mart can't get its act together in discounting, why is it spending time worrying about other growing markets?" She said, "I would say K mart's number one job is to address its market-share loss {in discount stores}, which longer-term will lead to improved profit margins.At that point, perhaps diversification would be appropriate." But K mart's Mr. Antonini is intent on pushing the company into new retail businesses.For instance, K mart is opening big food and general merchandise stores, called hypermarkets, and warehouse-type stores specializing in office products and sporting goods.It also operates Waldenbooks, Pay Less Drug Stores and Builders Square home improvement stores. In composite trading on the New York Stock Exchange, K mart closed yesterday at $36 a share, up 12.5 cents.Pace rose $2.625 to close at $22.125 a share in national over-the-counter trading. A K mart spokesman said the acquisition would be financed with short-term borrowings. Under terms of the agreement, a K mart subsidiary will soon make a tender offer for Pace shares.Among the conditions of the offer is that Pace shareholders tender a majority of the company's shares outstanding.The companies said Pace would ill continue to operate under its present management.
Houston attorney Dale Friend, representing a plaintiff in a damage suit, says he has negotiated a settlement that will strike a blow for his client.Literally. It turns out Mr. Friend's client, Machelle Parks of Cincinnati, didn't like the way defense attorney Tom Alexander acted during the legal proceedings.So she has agreed to forgo monetary damages against Mr. Alexander's client in return for the right to punch the attorney.Ms. Parks's mother also gets to cuff Mr. Alexander.So does Mr. Friend and his law partner, Nick Nichols. The bizarre arrangement grows out of Mr. Alexander's representation of Derr Construction Co., one of several defendants in a wrongful death lawsuit brought by Ms. Parks, the widow of a construction worker killed in January 1987 while working on a new Houston convention center.Last month, Mr. Friend says, Mr. Alexander's associate agreed that Derr would pay $50,000 as part of an overall settlement. But Mr. Alexander scuttled the deal at the last minute, angering the plaintiff's side. "I never agreed to it," Mr. Alexander says, adding that "it's not necessary to pay these nuisance settlements." When Ms. Parks and her mother heard about what had happened, Mr. Friend says, they volunteered that they would like to give Mr. Alexander a good walloping.Mr. Friend says he passed that along to his adversary, and soon they were talking about the ground rules under which Derr could keep its money and the plaintiffs could take a shot at Mr. Alexander. Although time and place have yet to be determined, some details are in place.Mr. Friend says he agreed to strike Mr. Alexander above the belt.Ms. Parks and her mother indicated they want to "catch him unawares from behind," he says.Mr. Alexander, for his part, insisted that the punchers can't assign their pummeling rights to anyone else, can't use a blunt instrument and can't take a running start. Mr. Alexander says he regards the agreement, which hasn't been submitted to a judge, as something of a joke.However, he acknowledges they "have the option of taking a swat at me if they really want to." Mr. Friend says his side is "dead serious." Although they don't contemplate delivering any disabling blows, he says that Mr. Alexander will be asked to sign a release from liability, just in case.
After two years of drought, it rained money in the stock-index futures markets yesterday. As financial markets rebounded, trading volume in the Chicago Mercantile Exchange's huge Standard & Poor's 500 stock-index futures pit soared, reaching near-record levels for the first time since October 1987. The sudden influx of liquidity enabled several traders to reap six-figure windfalls in a matter of minutes as prices soared, traders said. "Guys were minting money in there today," said John Legittino, a futures broker for Elders Futures Inc. in Chicago. The S&P 500 futures contract, which moves in fractions of an index point under normal conditions, jumped two to three points in seconds early yesterday after an initial downturn, then moved strongly higher the rest of the day.Each index point represents a $500 profit for each S&P 500 contract held.For the first time since the 1987 crash, traders said that they were able to trade several hundred S&P 500 contracts at a time in a highly liquid market. Many institutions and individual investors have shied away from stock-index futures, blaming them for speeding the stock market crash on Black Monday two years ago.Since the crash, many futures traders haven't assumed large positions for fear that the S&P 500 market, with much of its customer order flow missing, would dry up if prices turned against them. More than 400 traders jammed the S&P 500 futures pit to await the opening bell.Traders were shouting bids and offers a full five minutes before the start of trading at 8:30 am The contract fell five points at the open to 323.85, the maximum opening move allowed under safeguards adopted by the Merc to stem a market slide.But several traders quickly stepped up and bid for contracts, driving prices sharply higher.The market hovered near Friday's closing price of 328.85 for about a half hour, moving several index points higher or lower in seconds, then broke higher and didn't look back. The S&P 500 contract that expires in December closed up a record 15.65 points on volume of nearly 80,000 contracts. "Traders five feet from each other were making bids and offers that were a full point apart," said one S&P 500 broker. "You could buy at the bid and sell at the offer and make a fortune," he marveled. Several of Wall Street's largest securities firms, including Salomon Brothers Inc. and PaineWebber Inc., were also large buyers, traders said.Salomon Brothers was among the largest sellers of stock-index futures last week, traders said.Brokerage firms as a rule don't comment on their market activity. Unlike the week following Black Monday two years ago, individual traders in the S&P 500 pit were also being uncharacteristically circumspect about their one-day profits. "With the FBI around here, bragging rights are a thing of the past," said one trader, referring to the federal investigation of futures trading that so far has resulted in 46 indictments lodged against individuals on the Merc and the Chicago Board of Trade.
literally. Traders nervously watching their Quotron electronic-data machines yesterday morning were stunned to see the Dow Jones Industrial Average plummet 99 points in seconds.A minute later it soared 128 points, then zoomed back down 113 points, 69 below Friday's close. "It was crazy," said Neil Weisman, general partner of Chilmark Capital Corp. "It was like flying without a pilot in the front of the plane." But those who said "This can't be happening" were right.The Quotrons were wrong. Quotron Systems Inc., a Citicorp unit, blamed the 30-minute foul-up on "a timing problem in our software" caused by the enormous early volume -- about 145 million shares in the first hour of New York Stock Exchange trading.The prices of the individual stocks that make up the average were correct, Quotron said, but the average was wrong. Meanwhile, there was an awful lot of confusion.At about 10:40 a.m. on the over-the-counter trading desk at a major brokerage firm, a veteran trader who buys and sells some of the most active stocks looked at a senior official and asked, "What's going on?Is the market up or down?" At the time, Quotron was reporting that the industrial average was down 70 points.In fact, it was up 24. Holly Stark, a vice president who heads the trading desk at Dillon Read Capital Corp., said that once she figured out the Quotron numbers were wrong, she called brokers to tell them. "It's been kind of annoying, to say the least," she said.To confuse matters further, when UAL Corp. stock finally opened on the New York Stock Exchange at 11:08 a.m., the price was listed at $324.75 a share, up about $45 from Friday; in fact, its true price was $224.75, down $55. That was the New York Stock Exchange's blooper.A spokesman cited a "technical error" and declined to elaborate. And there were other blunders.When the market opened at 9:30 a.m. EST, a reporter for the Reuters newswire miscalculated the industrial average's drop as a 4% decline when it really was down 0.7%. "It was a case of human error, which we found almost immediately and corrected," a spokesman for Reuter in New York said. Meanwhile, some currency traders at West German banks in Frankfurt said they sold dollars on the news and had to buy them back later at higher prices. But it was the Quotron problems that had lingering effects.Dillon Read's Ms. Stark said in early afternoon that she was still viewing prices and other data as subject to verification, and she said portfolio managers continued to question the numbers they saw on the screen. It was the second time in less than a week that Quotron has had problems calculating the industrial average.At the start of trading last Wednesday, the average appeared to plunge more than 200 points.Actually, it was down only a few points at the time. Quotron said that snafu, which lasted nine minutes, resulted from a failure to adjust for a 4-for-1 stock split at Philip Morris Cos. A Quotron spokeswoman said recent software changes may have contributed to yesterday's problems.She said Quotron switched to a backup system until the problems were corrected. "Today of all days," she lamented. "The eyes of the world were watching us."
The market for $200 billion of high-yield junk bonds regained some of its footing as the Dow Jones Industrial Average rebounded from Friday's plunge. But the junk recovery, led by the bellwether RJR Holdings bonds, was precarious.No trading existed for the vast majority of junk bonds, securities industry officials said.On Friday, trading in practically every issue ground to a halt as potential buyers fled and brokerage firms were unwilling to provide bid and offer prices for most issues. "Nothing traded on Friday, and people weren't really sure where the market should have opened" yesterday, said Raymond Minella, co-head of merchant banking at Merrill Lynch & Co. "But we had a fairly active day yesterday." At Drexel Burnham Lambert Inc., the leading underwriter of junk bonds, "I was prepared to be in a very bad mood tonight," said David Feinman, a junk bond trader. "Now, I feel maybe there's a little bit of euphoria." But before the stock market rebounded from a sharp early sell-off yesterday, he said, "You couldn't buy {junk bonds} and you couldn't give them away." Yesterday's rally was led by RJR Holdings 13 3/4% bonds, which initially tumbled three points, or $30 for each $1,000 face amount, to 96 1/4 before rebounding to 99 3/4.Bonds issued by Kroger, Duracell, Safeway and American Standard also showed big gains, recovering almost all their losses from Friday and early yesterday. But traders said the junk bond market increasingly is separating into a top-tier group, in which trades can be executed easily, and a larger group of lower-quality bonds in which liquidity -- or the ability to trade without too much difficulty -- has steadily deteriorated this year. "Liquidity hasn't returned to the vast middle ground of the market," said Mr. Minella of Merrill. "The deadbeats are still deadbeats," said Mr. Feinman of Drexel. Analysts are concerned that much of the high-yield market will remain treacherous for investors.Paul Asquith, associate professor at the Massachusetts Institute of Technology's Sloan School of Management, citing a pattern of junk-bond default rates that are low in the early years after issuance and rise later, says, "We're now in a period where we're starting to see defaults from the big issue years of 1984 to 1986." Mark Bachmann, a senior vice president at Standard & Poor's Corp., confirms that there is "increasing concern about the future liquidity of the junk bond market." "Junk bonds are a highly stratified market," said Lewis Glucksman, vice chairman of Smith Barney, Harris Upham & Co. "There's a whole bunch of stuff that's money good and a whole bunch of stuff that's not so good." Analysts at Standard & Poor's say junk bond offerings by "tightly stretched" issuers seem to be growing.Almost $8 billion of junk bonds that are considered untradeable include issues from SCI TV, Gillette Holdings (not related to Gillette Co.), Interco, Seaman Furniture, Allied Stores, Federated Department Stores, National Gypsum, M.D.C. Holdings, Micropolis, Leaseway Transportation and Price Communications. "You could still have some very bad times ahead," said Mr. Bachmann. "It's possible to have a 10% default rate in one year, because we're already seeing big problems in the midst of a pretty strong economy.I'm certainly not comfortable saying we've seen the bottom." But yesterday's rally among "good" junk was a badly needed tonic for the market.Many issues "bounced off the floor," Mr. Minella said, and benchmark junk issues "recovered all of their losses" from Friday and early yesterday.In contrast, he says, "The stock market gained back only about half what it lost Friday, and the {government} bond market lost about half what it gained Friday." Traders said yesterday's rally was fueled by insurance companies looking for bargains after a drastic slide in prices the past month.In addition, mutual funds didn't appear to be major sellers of high-yield securities as was expected. "Sometimes a shakeout is healthy," said Drexel's Mr. Feinman. "People will learn to be more circumspect.If they do good credit analysis, they will avoid the hand grenades.I think the market is in good shape."
Should you really own stocks? That's a question a lot of people are asking, following the stock market's stunning display of volatility.Whipsawed financially and emotionally by Friday's heartstopping 190-point drop in the Dow Jones Industrial Average and yesterday's 88-point rebound, they're wondering if an individual has any business being in the market. The answer, say academic researchers, money managers and investment specialists, is yes -- as long as you approach the stock market as an investor.But, they say, people shouldn't try to be traders, who buy and sell in an effort to ride the latest economic trend or catch the next hot stock. The case for owning stocks over the long-term is compelling. "If you look at 75 years worth of investment history -- including the Great Depression and every bear market since -- stocks have outperformed almost everything an individual could have owned by a long shot," says Barry Berlin, vice president at First Wachovia Capital Management. A dollar invested in the stock market in 1926 would have grown to $473.29 by the end of last June, according to Laurence Siegel, managing director at Ibbotson Associates Inc.But a dollar invested in long-term bonds in 1926 would have grown to only $16.56, and a dollar put in Treasury bills would equal a meager $9.29. The longer the time period, the less risk there is of losing money in the stock market.Over time, the odds increasingly favor the investor with a diversified portfolio.For instance, Ken Gregory, a San Francisco money manager, calculates that if an investor holds a basket of stocks that tracks the Standard & Poor's 500-stock index, the chance of losing money is 3% to 4% over a 10-year period, compared with 15% over three years and 30% over one year. "If you don't need the money for 10 years, there's a clear-cut case for sticking to a steady core of stocks," Mr. Gregory says. Stock-market investments also help balance the other assets an individual owns, says John Blankenship Jr., president of the Institute of Certified Financial Planners.Stocks have a place in an investors' portfolio along with real estate, bonds, international securities and cash, he says. There are some important caveats: Before investing in stocks, individuals should have at least three to six months of living expenses set aside in the bank, most investment advisers say.Individuals also should focus on building equity in a home, which provides some protection against inflation, as well as a nest-egg that can be cashed in late in life to help cover the cost of retirement living. People also shouldn't invest money in stocks that they'll need in the near future -- for example, for college tuition payments or retirement expenses. "You may have to sell your stocks at a time when the market takes a plunge," says Mr. Blankenship, a Del Mar, Calif. financial planner. But once the basics are covered, "then I would start to invest, even if it's as little as $1,000," says Michael Lipper, president of Lipper Analytical Services Inc.He says individuals should consider not just stocks, but other long-term investments, such as high-quality bonds. Despite the strong case for stocks, however, most pros warn that individuals shouldn't try to profit from short-term developments. "It's very difficult to do," says Donald Holt, a market strategist for Wedbush Morgan Securities, a Los Angeles brokerage firm. "Our markets move so fast and they are so volatile, there's no way the average investor can compete with the pros." Individual investors face high transaction costs of moving in and out of the market.The cost of executing stock orders varies from brokerage to brokerage and with the size of the order, but 2% of the order's value is an average, says Stephen Boesel, manager of T. Rowe Price's Growth and Income mutual fund. And assuming their first investment is successful, investors will have to pay taxes on their gains.That can reduce returns by a third or more, once local taxes are included, Mr. Lipper says.After that, individual traders face the risk that the new investment they choose won't perform well -- so their trading costs could be sustained for nothing. "It's very tough for most individuals to out-trade the mutual funds or the market," says Mr. Lipper. "You should really think twice if you think you can out-smart the system." Then, too, many individual investors lack the sturdy emotional makeup professionals say is needed to plunge in and out of the market. So what's the best way to buy stocks? "Unless an individual has a minimum of between $50,000 and $100,000 to invest in stocks, he's still better off in mutual funds than in individual stocks, in terms of getting enough attention from a competent broker," says Mr. Lipper. Still, he adds, "I could see owning both, given that individuals often have an advantage over big investors in spotting special situations based on their own insights," he adds. George Douglas, first vice president at Drexel Burnham Lambert Inc., says that individuals have a particular edge now in "small to medium-size niche companies with exciting earnings prospects" -- a traditional stomping ground for small investors.This growth sector, which usually carries a price/earnings multiple about twice that of the Standard & Poor's 500, happens to include some of the market's most attractive bargains right now. "It's now selling at a multiple about even with the market," says Mr. Douglas. Moreover, Mr. Douglas sees a revival of institutional interest in smaller growth stocks that could boost the performance of these stocks in the medium term.Many big Wall Street brokerage firms who eliminated their research effort in stocks of emerging growth companies a few years ago are now resuming coverage of this area, he notes. "We're seeing a real turnaround in interest in small growth stocks," he says. The pros strenuously advise individuals to stay away from the latest investment fad.They say that's especially important this late in the growth phase of the economic cycle, when there's no robust bull market to bail investors out of their mistakes. Friday's correction presents "a pretty good buying opportunity, but let's not speculate at this point in the business cycle," says Carmine Grigoli, chief equity portfolio strategist at First Boston Corp. "Buy stocks on weakness for their long-term fundamentals," he says. In the long run, investment advisers say, most investors will be better off using the dollar-cost averaging method of buying stocks.In this method, a person invests a regular amount every month or quarter into the stock market whether the market is up or down.That cuts the risk, Mr. Gregory, the San Francisco money manager, points out. "When the market is low, you are buying more shares, and when it's high, you're buying fewer shares," he says.Otherwise, if you put all your money in at one time, by sheer bad luck, you might pick a terrible time, and have to wait three years to get even, Mr. Gregory says. A disciplined program will work the best, Mr. Boesel says. "One of the hardest things to do is to buy stocks when the market is down," he says. "But's that just the time when you should be buying them." Compound annual returns, including price changes and income from interest and dividends *Actual performance, not annualized Source: Ibbotson Associates Inc.
Donald Trump, who faced rising doubt about his bid for American Airlines parent AMR Corp. even before a United Airlines buy-out came apart Friday, withdrew his $7.54 billion offer. Separately, bankers representing the group trying to buy United's parent UAL Corp. met with other banks about reviving that purchase at a lower price, possibly around $250 a share, or $5.65 billion.But a lower bid could face rejection by the UAL board. Mr. Trump, who vowed Wednesday to "go forward" with the bid, said he was dropping it "in light of the recent change in market conditions." He said he might now sell his AMR stake, buy more shares, or make another offer at a lower price. The Manhattan real-estate developer acted after the UAL buyers failed to obtain financing for their earlier $300-a-share bid, which sparked a selling panic among that snowballed into a 190-point drop Friday in the Dow Jones Industrial Average. News about UAL and AMR, whose shares never reopened after trading was halted Friday for the UAL announcement, sent both stocks nosediving in composite trading on the New York Stock Exchange. UAL tumbled $56.875 to $222.875 on volume of 2.3 million shares, and AMR declined by $22.125 to $76.50 as 4.7 million shares changed hands.Together, the two stocks wreaked havoc among takeover stock traders, and caused a 7.3% drop in the Dow Jones Transportation Average, second in size only to the stock-market crash of Oct. 19, 1987. Some said Friday's market debacle had given Mr. Trump an excuse to bail out of an offer that showed signs of stalling even before problems emerged with the UAL deal.After reaching an intraday high of $107.50 the day Mr. Trump disclosed his bid Oct. 5, AMR's stock had retreated as low as $97.75 last week. Some takeover stock traders had been betting against Mr. Trump because he has a record of disclosing stakes in companies that are potential takeover targets, then selling at a profit without making a bid. "He still hasn't proven his mettle as a big-league take-out artist," said airline analyst Kevin Murphy of Morgan Stanley & Co. "He's done this thing where he'll buy a little bit of a company and then trade out of it.He's written this book, `The Art of the Deal. ' Why doesn't he just follow through on one of these things?" Mr. Trump withdrew his bid before the AMR board, which is due to meet tomorrow, ever formally considered it.AMR had weighed a wide range of possible responses, from flat rejection to recapitalizations and leveraged buy-outs that might have included either employees, a friendlier buyer such as Texas billionaire Robert Bass, or both. AMR had also sought to foil Mr. Trump in Congress by lobbying for legislation that would have bolstered the authority of the Transportation Department to reject airline buy-outs.Yesterday, Mr. Trump tried to put the blame for the collapse of the UAL deal on Congress, saying it was rushing through a bill to protect AMR executives. "I believe that the perception that legislation in this area may be hastily approved contributed to the collapse of the UAL transaction, and the resulting disruption in the financial markets experienced this past Friday," Mr. Trump wrote members of Congress. AMR declined to comment, and Mr. Trump didn't respond to requests for interviews. Mr. Trump never said how much AMR stock he had bought, only that his holdings were "substantial." However, he only received federal clearance to buy more than $15 million of the stock on Sept. 20, when the price rose $2 a share to $78.50.Between then and his bid on Oct. 5, the price fluctuated between $75.625 and $87.375. In an attempt to persuade investors that his bid wasn't just "a stock play," Mr. Trump promised last week to notify the market before selling any shares.AMR was trading at around $84 yesterday before his withdrawal announcement, then immediately fell to about $76. Assuming that he paid a rough average price of $80 a share, and assuming he didn't sell before his announcement reached the market, Mr. Trump could be sitting with a modest loss with the stock at $76.50. Some analysts said AMR Chairman Robert Crandall might seize the opportunity presented by the stock price drop to protect the nation's largest airline with a defensive transaction, such as the sale of stock to a friendly holder or company employees.However, other knowledgeable observers said they believed Mr. Crandall and the AMR board might well decide to tough it out without taking any extra steps. Some analysts said they believed Mr. Trump, whose towering ego had been viewed by some as a reason to believe he wouldn't back out, might come back with a lower bid.Ray Neidl of Dillon Read & Co. said Mr. Trump "is stepping back and waiting for the dust to settle.I'm sure he still wants AMR." But others remained skeptical. "I was never sure Donald Trump really wanted to take AMR," said John Mattis, a bond analyst with Shearson Lehman Hutton Inc. "What happened with United was a gracious way for him to bow out." Mr. Trump never obtained financing for his bid. That skepticism would leave him with an even greater credibility problem should he return that would handicap him in any effort to oust the board in a proxy fight. Meanwhile, Citicorp and Chase Manhattan Corp., the two lead lenders on the UAL buy-out, met with other banks yesterday to determine if they would be willing to finance the buy-out at a lower price.Officials familiar with the talks said Citicorp had discussed lowering the offer to $250 a share, but said that price was a talking point and that no decision has been made. At $250 a share, the group would have to borrow about $6.1 billion from banks.The first UAL deal unraveled after Citibank and Chase couldn't raise $7.2 billion.Citibank and Chase had agreed to commit $3 billion, and said they were "highly confident" of raising another $4.2 billion. Together, Citicorp and Chase received $8 million in fees to raise the rest of the financing.But other banks balked at the low interest rate and banking fees the UAL group was willing to pay them.Officials familiar with the bank talks said the UAL buy-out group -- UAL pilots, management, and British Airways PLC -- is now willing to pay higher bank fees and interest, but isn't likely to boost its $965 million equity contribution. Nor is the group likely to come forward with a revised offer within the next 48 hours despite the hopes of many traders.The group's advisers want to make certain they have firm bank commitments the second time around. Even if the buy-out group is able to obtain financing, the transaction still faces obstacles. UAL's board could reject the new price as too low, especially since there aren't any competing bids.Los Angeles investor Marvin Davis, whose $275-a-share offer was rejected by UAL's board, hasn't shown signs of pursuing a $300-a-share back-up bid he made last month. In addition, the coalition of labor and management, longtime enemies who joined forces only under the threat of Mr. Davis's bid, could break apart now.The group's resilience gets its first test today when 30 top pilot union leaders convene outside Chicago in a previously scheduled meeting.Union Chairman F.C. (Rick) Dubinsky faces the tough task of explaining why banks refused to finance a buy-out the members approved overwhelmingly last week. The pilot union is vowing to pursue an acquisition whatever the board decides.But if the board rejects a reduced bid and decides to explore other alternatives, it could transform what has been a harmonious process into an adversarial one. The pilots could play hardball by noting they are crucial to any sale or restructuring because they can refuse to fly the airplanes.If they were to insist on a low bid of, say $200 a share, the board mightn't be able to obtain a higher offer from other bidders because banks might hesitate to finance a transaction the pilots oppose. Also, because UAL Chairman Stephen Wolf and other UAL executives have joined the pilots' bid, the board might be forced to exclude him from its deliberations in order to be fair to other bidders.That could cost him the chance to influence the outcome and perhaps join the winning bidder.
The White House budget director, prodding Congress to finish work quickly on 1990 budget bills, is trying to put some sting into the little-feared spending cuts that were triggered yesterday under the Gramm-Rudman deficit-reduction law. To impose "a little bit more discipline" on the budget process, Budget Director Richard Darman said he won't give agencies much flexibility to shift funds among different programs as a means of coping with the law's requirements. Some government budget experts suggested that Mr. Darman's maneuver doesn't amount to much more than tough talk.Nevertheless, it may add to pressure on the House to follow the Senate's lead and strip from pending budget legislation scores of costly, extraneous provisions. House Speaker Thomas Foley met with committee chairmen yesterday to try to move in that direction. "We are going to try to make an agreement with the Senate that the president would sign," the Washington state Democrat told reporters.The talks are to continue today. House Republicans also are reluctant to pare down the 1,878-page measure -- at least until they are guaranteed that the provisions they care about will get another vote. "A lot of the guys . . . don't want it all to just die," said House GOP leader Robert Michel (R., Ill.). The House didn't move quickly enough to meet the Gramm-Rudman deadline for passing legislation to bring the projected fiscal 1990 deficit below the $110 billion target.As the law requires, President Bush yesterday signed an order cutting federal spending across the board by $16.1 billion. If removed from the budget legislation, the extraneous provisions in the House bill -- including ones to cut capital-gains taxes, provide new aid for child care and repeal the catastrophic-illness insurance program -- could be reintroduced as separate bills. "What we're trying to explore now is how to protect these other issues," said House Budget Committee Chairman Leon Panetta (D., Calif.). "We're not going to suddenly abandon them." Reps.Foley and Michel had agreed to streamline the deficit-reduction bill before the House even took it up, but Mr. Darman and White House Chief of Staff John Sununu had torpedoed that plan in order to press their fight for a cut in capital-gains taxes. Congressional leaders rejected suggestions that their attempts to speed the deficit-reduction bill had anything to do with Friday's stock market decline. "We are responding to our responsibility under the budget act," Rep. Foley said. Even before the size of yesterday's rebound in stock prices was known, Mr. Darman said that Friday's plunge "would have no significant effect on the budget process." When the fiscal year began on Oct. 1, the Office of Management and Budget began withholding 4.3% of the Pentagon's money and 5.3% of other agencies' money, as the Gramm-Rudman law requires.Those cuts, known as a "sequester" in budget jargon, became permanent yesterday, although Congress could cancel or rescind them whenever it wants to.Under a special provision of the law, the government yesterday began slicing 2% from Medicare payments made to doctors and hospitals. Nearly two-thirds of all federal spending -- including Social Security payments and salaries of current federal employees -- is exempt from the Gramm-Rudman cuts.The rest of the government will be pinched, perhaps within a month, if the cut funds aren't restored. Taking a tough bargaining position, Mr. Darman said he opposes restoring the funds when Congress finally wraps up its work on 1990 spending.The Gramm-Rudman penalty won't be taken seriously if agencies merely "figure out how to juggle the accounts, trusting that Congress is going to restore all the money a little bit later," he said. Congressional Democrats were quick to disagree.Senate Budget Chairman James Sasser (D., Tenn.) insisted, "We don't do the American people any good whatsoever by standing by and letting these automatic cuts go into effect." To quicken the pain that the spending cuts are intended to inflict, Mr. Darman said the OMB is making the cuts from each individual program, project or activity in the budget.Until yesterday, OMB had indicated it would cut at the "account" level; each account is comprised of many programs, projects or activities. Mr. Darman said the new approach will give agencies "less ability to shift from one area to another . . . to fudge over things." But at least for some major spending programs, government budget experts said, OMB hasn't any significant control of individual programs, projects or activities. First to suffer from the spending cuts will be programs that spend most of their money on personnel, Mr. Darman said.He wouldn't predict how long it would be before the first layoffs, if any, occur.Under the law, President Bush may exempt military personnel accounts from the spending cuts.He hasn't yet done so.Mr. Darman also said yesterday that although the administration isn't any longer pushing to include a cut in capital-gains taxes as part of the 1990 budget legislation, the odds are 8-to-5 in favor of winning approval for capital gains taxes this year.
E. Robert Wallach, former personal legal adviser to ex-Attorney General Edwin Meese, was sentenced to six years in prison and fined $250,000 for his role in the Wedtech Corp. scandal. Mr. Wallach, 55 years old, was convicted in August of racketeering and conspiring to commit fraud.The charges involved $425,000 in payments he got from Wedtech in return for promising to use his influence with Mr. Meese and other federal officials on behalf of the now-defunct defense contractor. Though Mr. Wallach's attorney, Gary Naftalis, described the defendant as "a relatively minor player" in the Wedtech political-corruption case, U.S. District Judge Richard Owen strongly disagreed.At the sentencing in federal court in New York, Judge Owen told Mr. Wallach: "You sold your federal office and the integrity of your federal office for $300,000 before you even got the office." The money was allegedly paid to Mr. Wallach in anticipation of his being appointed to a top position in the Justice Department, but that appointment was never made.Wedtech, a minority-owned company in New York City's South Bronx, accounted for the payments as consulting fees, though no services were actually provided, the government charged. Mr. Wallach's co-defendants, W. Franklyn Chinn and R. Kent London, were also sentenced.Mr. Chinn, formerly a financial adviser to Mr. Meese, was sentenced to three years and fined $100,000.Mr. London, who along with Mr. Chinn worked as a financial consultant to Wedtech, was sentenced to five years and fined $250,000.The defendants, who remain free on bail pending their appeals, would have to serve a third of their sentences before being eligible for parole.Lawyers for the three defendants have said they plan to appeal. Before issuing the sentences, Judge Owen criticized Mr. Wallach for a host of alleged ethical and legal improprieties, some of which had nothing to do with the Wedtech case and most of which involved Mr. Meese.The judge also suggested that Mr. Wallach tried to influence the jury in August when the verdict was being read. About halfway through the verdict, Mr. London's mother had a seizure and collapsed in the front row of the courtroom.As court officers sought to get help for the woman, the judge said, Mr. Wallach "charged at the jury and screamed, `You see what you have done. '" The judge said he didn't understand why Mr. Wallach, an experienced trial lawyer, would commit such an outburst, but he said Mr. Wallach may have hoped the jury would be unable to continue with its verdict. After the sentencing, Mr. Wallach blamed his Wedtech woes on his longtime friendship with Mr. Meese.He said prosecutors "were looking for a man between Ed Meese and Wedtech. . . . If they could have gotten Ed Meese that would have been the fulfillment of the dreams." The defendants also face stiff forfeiture penalties because they were convicted under the Racketeer Influenced and Corrupt Organizations law.The judge ordered that the defendants turn over all the money earned through the racketeering enterprise.For Mr. Wallach, the amount is $425,000.Mr. London must forfeit $99,000, and Mr. Chinn must forfeit $20,000; together, Mr. Chinn and Mr. London must jointly forfeit an additional $1.14 million. Mr. Naftalis said Mr. Wallach had been "financially devastated" by the Wedtech scandal.According to a corrected pre-sentencing report, Mr. Wallach currently has a negative net worth of $273,000. TEAMSTERS ELECTIONS will be supervised by court-appointed officer. U.S. District Judge David Edelstein of New York ruled that the elections officer will play an extensive role in all phases of the International Brotherhood of Teamsters' 1991 election of top union officials. The government hailed the ruling as a major victory in its quest to achieve broad reforms in the union, particularly the election of top officials by the rank and file. But Teamsters counsel James Grady claimed that the power bestowed upon the court-appointed officer was a departure from the terms of the union's agreement with the government earlier this year.Mr. Grady added that to fund the type of supervision Judge Edelstein described would cost the union at least $3.5 million. In March, the Teamsters agreed to a settlement of civil racketeering charges brought by the U.S. attorney's office in Manhattan.In its suit, the government claimed organized crime figures had routinely picked top union officials. Under the settlement terms, union leaders agreed that a court-appointed administrator, investigator and elections official would oversee union activities for three years.Also, the union agreed to pay all expenses related to the officers' oversight. But in his first progress report, filed two weeks ago, Administrator Frederick B. Lacey revealed some disagreements over the scope of such oversight, the interpretation of the settlement, and financial support. After the judge's ruling, Mr. Grady said, "We gave up our right to a trial for the terms of the {agreement}, and we believe that anything that modifies those terms is completely inappropriate." JUDGE'S COMMENTS on homosexual murder victims are scrutinized. A special master, appointed by the Texas Supreme Court, received evidence yesterday about comments made by Dallas District Judge Jack Hampton in the wake of a murder trial in December. Judge Hampton sentenced the 18-year-old defendant to 30 years in state prison for killing two homosexual men in a city park.The judge was then quoted in the Dallas Times Herald as referring to the victims as "queers" and saying "these guys wouldn't have been killed if they hadn't been cruising the streets picking up teen-age boys." The comments touched off a furor in the Dallas gay community and prompted several complaints about Judge Hampton to the State Commission on Judicial Conduct.The commission, which could remove Judge Hampton from the bench, will act after reviewing findings to be submitted within two weeks by special master Robert R. Murray of San Antonio. At a hearing yesterday, Judge Hampton's defense team, which included former Dallas County District Attorney Henry Wade and former U.S. Attorney Jim Rolfe, accused the Times Herald reporter of misquoting the judge.The defense lawyers also argued that it was appropriate for the judge to consider whether the murder victims were committing a crime at the time they were killed. But Bill Hornung, general counsel for the judicial-conduct commission, said the defense team was sidestepping the focus of the inquiry -- whether Judge Hampton violated judicial ethics by commenting to the public while a motion for new trial was pending. "The place where a judge can comment and explain his rationale {for sentencing} is from the bench . . . not in the privacy of a little impromptu press conference," Mr. Hornung said. SENATE JUDICIARY COMMITTEE gets legislation to limit death-penalty appeals. Sen. Joseph Biden (D., Del.), committee chairman, proposed legislation that would carry out the streamlining of death-penalty appeals in federal court that was proposed last month by a special task force appointed by Chief Justice of the U.S. William Rehnquist.Sen. Biden proposed the legislation to comply with a law passed last year requiring the Senate to expedite consideration of proposals made by the task force, led by retired Supreme Court Justice Lewis Powell. The task force proposed that states provide lawyers to death-row inmates for civil, post-conviction lawsuits, called habeas corpus cases, in which they challenge the constitutionality of their convictions.In exchange, the number of such lawsuits each inmate may file would be sharply curtailed, allowing states greater certainty of being able to execute those on death row.When Chief Justice Rehnquist sent the report to Congress, a majority of federal judges on the policy-making Judicial Conference complained they hadn't been given a chance to consider the recommendations. The legislation introduced by Sen. Biden adopts the same approach as the Powell report: state-provided lawyers, in exchange for limiting appeals.But the senator's bill eases a number of the restrictions. Leslie Harris, an American Civil Liberties Union spokeswoman criticized the Powell proposals, but said the Biden legislation is "a more moderate, thoughtful approach," although the group will likely oppose it. APPLE COMPUTER Inc. 's former general counsel John P. Karalis joined the Phoenix, Ariz., law firm of Brown & Bain.Mr. Karalis, 51, will specialize in corporate law and international law at the 110-lawyer firm.Before joining Apple in 1986, he served as general counsel at Sperry Corp.
The bulls are back in the art-auction china shops, predicting higher prices and higher volume than ever before.Christie's and Sotheby's, the two major New York houses, are about to offer a large number of impressionist and modern paintings at estimates unheard of even five years ago.They are betting that demand for these pictures will be so strong that the market will swallow everything that is thrown at it and prices still will rise -- a lot.As art dealer Richard Feigen sees it, "There is unlimited money trying to absorb itself in art." Step right this way.More than $600 million of impressionist and modern paintings are about to hit the New York auction block -- far outstripping May's four-day $400 million bonanza.This season Lorinda de Roulet (sister of John Whitney Payson, for whom "Irises" by Vincent van Gogh was sold for $53.9 million in November of 1987, to the Australian Alan Bond, who still hasn't taken possession because he hasn't yet paid off the loan Sotheby's offered him at the sale) has consigned another biggie to Sotheby's. "Au Lapin Agile" is a 1905 Rose Period Picasso being billed as "the most important 20th-century picture ever to come up for auction." It may sell for more than any previous Picasso -- the record is $47.85 million set in May for "Self Portrait: Yo Picasso." Sotheby's also weighs in with the John T. Dorrance Jr. collection of impressionists at an estimated $100 million-plus (to be offered tomorrow) and a juicy assortment of paintings from other sources, more than 35 of which are expected to sell in November for at least $1 million each. Christie's has snagged the 15 impressionist and modern paintings being pruned from Paul Mellon's vast collection, including the probable $30 million-plus "Rue Mosnier, Paris, Decorated With Flags on June 30, 1878" by Edouard Manet (purchased by Mellon at the Jacob Goldschmidt sale in London in 1958 for $316,400) and a van Gogh, "Trunk of an Old Yew Tree, Arles," estimated at $25 million-plus. Other one-owner collections include Billy Wilder's more modest but choice offerings, and the George N. Richard collection -- piled on top of Christie's estimated $150 million -- $200 million of other impressionist goodies.All these will go under the hammer on Nov. 13 and 14. "A strong art market is bringing out paintings I never expected to see on the market," says David Nash, director of Sotheby's Fine Arts Division.Some museum directors never expected to see them there either.But since the 1986 tax laws drastically reduced deductions for the donation of appreciated property and reduced overall tax rates (thereby making deductions less significant), charitable donations to museums, when anyone makes them, are very charitable indeed.And given the seductive prices held out by the auction houses, the urge to sell can -- and apparently has -- become irresistible. Of the current group of paintings, it's hard to say which, in the days before tax reform, might have been donated instead of sold.No museum director will risk offending potential patrons by publicly airing disappointed hopes.Philadelphia Museum head Anne d'Harnoncourt insists that even though John Dorrance may have been the chairman of her Board of Trustees, "We weren't expecting the pictures we didn't get." Although Sotheby's points out that it is "an international organization" not specifically concerned with potential losses to American museums, others are up in arms: "Donations have always been the main source of increased museum collections," says Edward H. Able Jr., executive director of the American Association of Museums. "Now there is a hemorrhaging of this country's patrimony." According to a study conducted by the Association of Art Museum Directors, the drop in the dollar value of donated works of art since 1986 is more than 50%. "This is just the tip of the iceberg, because no major collector has died recently," says Christopher Burge, president of Christie's America. "The next 10 years are going to be a wasteland for American museums." But not for auction houses.Their sales have turned into theater for a world audience.Even before the sales, the hoopla is well under way.Major attractions have out-of-town tryouts. "Au Lapin Agile," some of the Mellon paintings, and others went around the world on a series of whistle-stop exhibition tours; Billy Wilder's pictures went to a party at the Beverly Hills Hotel; and the Dorrance paintings hung for five days in the Philadelphia Museum of Art. (Even Sotheby's PR department couldn't have pulled that one off; Dorrance's executors "requested" it.) At last, however, the warmup is done and the action is about to begin.And it will soon be clear whether enough people will be raising those little bidding paddles, no matter what the cost.The weak dollar makes our market a playground for foreign bidders, and our sorry balance of trade has given them plenty of dollars to play with. "In many ways the Japanese -- particularly Japanese corporations -- dictate art price levels," says Susan Seidel of William Beadleston, a New York private dealing concern. "They are willing to pay almost anything." But why art?Are we talking pure aesthetic appreciation here?For many buyers, that still is major motivation.But the stakes are now very high and for your $40 million you can buy only the best of what is available -- which may not be the best there is.But at least the auction process illustrates so beautifully that everybody else wanted to have it too.For some, the social status that can be acquired in this way is the point of the game. "They buy the co-op, they buy the cars," says Ms. Seidel. "Then they buy `brand names' like Picasso to put on the wall." But at these price levels, confidence in the "investment" potential of major paintings must be playing a part in fueling the collecting frenzy.Big-bucks buyers trust that the market will continue its strong surge. "In October of '87 people saw that everything else went down but art went up," Desmond Corcoran of London's Alex Reid & Lefevre Ltd. gallery points out.Since then, the market has continued to rise, but now the size of the estimates seems to be making some people nervous. "Zey are crazee!" shrieked one French dealer, reeling from auction estimate sticker shock. In a lower key, Mr. Corcoran finds the world "full of strange speculators" and the auction estimates "incredible," and suggests the Dorrance sale as a sort of early warning system: "These pictures are not absolutely top quality," he says. "So if the market absorbs those, what comes three weeks later will do just fine." If all goes well, if the Picasso hits $75 million, and Mellon, Dorrance, Wilder and the rest get what they bargained for, the uncomfortable, questioning buzz in the art marketplace will trail off into sighs of relief, only to begin anew slightly louder than before, as the cycle starts over in the spring.Because for some, the art market has become a sort of magic beanstalk rising into the clouds at a cartoon rate of speed.Nobody knows what is at the top, but they are hoping it is very far away. Ms. Berman covers the auction scene.
While investors were keeping a close eye on stock-market indicators yesterday, securities regulators focused on Wall Street's back offices to ensure that customer funds were safe. Securities and Exchange Commission officials said they called heads of firms, traders and other brokerage staffers to make sure the houses had enough capital and back-office resources to handle the crush of sell orders during the first few hours of trading yesterday. "We're very concerned about the financial well-being of the firms," said Martin Kuperberg, who runs the SEC's New York broker-dealer unit. "We've spoken to a number of people both at the {exchanges} and at the firms." Meanwhile, SEC officials in Washington held a series of discussions with officials from the Treasury, the Federal Reserve, the exchanges, the Commodity Futures Trading Commission and the Council of Economic Advisers to see whether market mechanisms were working properly. In his first statement since the recent market gyrations began, Richard Breeden, who was sworn in as SEC chairman last week, said the "markets' trading and order routing systems generally operated quite smoothly.Today's developments demonstrate the value of the significant improvements that have been made in trading systems over the past two years." Back offices are the huge, behind-the-scenes operations that support the brokerages' sales and trading departments.Key back-office functions are to organize and maintain securities owned by a firm and its customers and to monitor the firm's capital position. The default of several Wall Street houses that ran short of liquidity during the 1987 crash is a fresh memory for regulators and the exchanges.So the SEC recently renewed its attacks on firms that violate back-office regulations. Two weeks ago, for example, the agency censured Prudential Insurance Co. of America's Prudential-Bache Securities Inc. for failing to adequately keep track of customers' funds.The move was in part a warning to firms that the SEC will try to crack down on firms if their back offices aren't in order and become a danger in the event of a major market move. "It notifies the broker-dealer community that we won't tolerate this kind of action," Mr. Kuperberg said. Separately, the National Association of Securities Dealers dispatched 25 examiners into brokerages' trading rooms to make sure brokers were answering phones and handling customer orders properly.Two years ago, many market makers refused to answer their phones, creating frustration and losses among investors looking to sell stocks. "The market-making firms responded pretty well," said Joseph Hardiman, Nasdaq president. "We've had little to no complaints."
Martha O. Hesse, chairman of the Federal Energy Regulatory Commission since 1986, was named senior vice president for corporate affairs, effective about the beginning of next year.The banking company said her duties will include corporate advertising and investor relations. Cleveland Museum of Art: "American Cities: The Artist's View" -- Nearly 50 prints, drawings, paintings and photographs dating from the 1850s to the present explore how different artists have interpreted the urban scene.Included are Joseph Pennell's lithographs of New York City in the 1900s; six black-and-white photos of Cleveland steel mills by Margaret Bourke-White; and Wayne Thiebaud's contemporary views of San Francisco. 11150 East Boulevard.Through Jan. 7. Pennsylvania Academy of the Fine Arts, Philadelphia: "Making Their Mark: Women Artists Move Into the Mainstream 1970-85" -- More than 160 works by painters, sculptors and photographers, as well as tapes and documentation by 33 video and performance artists.Among the artist represented: Laurie Anderson, Alice Aycock, Nancy Graves and Elizabeth Murray.Broad and Cherry Streets, Oct. 20Dec. 31. Metropolitan Museum, New York: "Gold of Africa: The Barbier-Mueller Collection" showcases a king's ransom of West African artifacts culled from a renowned Swiss collection.The 130 objects on display range from a whimsical bestiary of gilded sword ornaments to the dazzling raiment of Ghanaian rulers. 82nd St. and Fifth Ave.Through March 11. Cavin-Morris Gallery, New York: "Gregory Van Maanen" -- Many of the forceful, heavily symbolic images of this self-taught artist were partly inspired by his service in Vietnam, and carry titles such as "Death in Flight" and "Germans Are Born With Helmet Shaped Skulls." 100 Hudson St., Oct. 19-Nov. 25. Joffrey Ballet: The company's six-week Manhattan season features a pair of premieres -- "Les Noces," Bronislava Nijinska's celebrated 1923 collaboration with Stravinsky; and "The Pantages and the Palace Present TWO-A-DAY," artistic director Gerald Arpino's salute to vaudeville.Other highlights include the revival of "Trinity," Mr. Arpino's rock-scored salute to the Sixties, and, beginning Nov. 24, the late Robert Joffrey's version of "The Nutcracker." City Center, 131 West 55th St., Oct. 24-Dec. 2. (212) 581-7907. San Diego Opera opens its 25th season with Mussorgsky's "Boris Godunov," featuring five leading singers and a conductor from the Soviet Union. (The opera also opens the San Diego Arts Festival: Treasures of the Soviet Union.) Bass Alexander Morozov of the Leningrad Kirov Opera sings the title role; mezzo soprano Irina Bogacheva is the scheming Polish princess Marina.Civic Theatre, 3rdand B Streets.Oct. 21, 24, 27, 29 and 31. (619) 236-6510. Bel canto tenor Raul Gimenez makes his U.S. recital debut at Alice Tully Hall, (Lincoln Center, 65th and Broadway), Oct. 24.He then heads for the Lone Star State to make his U.S. opera debut at the Dallas Opera in "Don Pasquale." Dec. 7, 10, 13 and 16. Jeff Beck and Stevie Ray Vaughan: For many rock fans, this double bill of the rarely seen British legend Beck and Texas tornado Vaughan will spell guitar heaven: Minneapolis (Northrop Memorial Auditorium), Oct. 25; Milwaukee (Mecca Auditorium), Oct. 27; Chicago (UIC Pavillion), Oct. 28; St. Louis (Fox Theatre), Oct. 29; Columbus, Ohio (Ohio Theatre), Oct. 31; Toronto (Sky Dome), Nov. 2; Detroit (Cobo Arena), Nov. 3; Pittsburgh (Palumbo Center), Nov. 4; Landover, Md. (Capitol Centre), Nov. 6; Philadelphia (Spectrum), Nov. 7; Worcester, Mass. (Centrum), Nov. 8; Manhattan (Madison Square Garden), Nov. 11; Cleveland (Public Hall), Nov. 14; Dayton, Ohio (Hara Arena), Nov. 15; Louisville, Ky. (Louisville Gardens), Nov. 16; Birmingham, Ala. (Boutwell Auditorium), Nov. 18; Atlanta (Omni), Nov. 19; Miami (The Arena), Nov. 21; Tampa (Sundome), Nov. 22; Houston (Sam Houston Arena), Nov. 24; Dallas (State Fair Coliseum), Nov. 25; Austin (Frank Irwin Center), Nov. 26; Albuquerque, N.M. (Tingley Arena), Nov. 28; Denver (McNichols Arena), Nov. 29; Los Angeles (Sports Arena), Dec. 1; Oakland, Calif. (Oakland Coliseum), Dec. 3.
The nine major domestic auto makers plan to build 10.4% fewer cars in this year's fourth quarter than they built a year ago, with the Big Three accounting for nearly all of the decline. Continuing a trend that is putting intense pressure on General Motors Corp., Ford Motor Co. and Chrysler Corp., output at Japanese-owned and managed plants will rise 42% from year-earlier levels to an estimated 296,187 cars.Production at Big Three plants is forecast to fall 17% to 1,402,000 cars. Some of the decline at the Big Three is production shifted to the "transplants": Diamond-Star Motors Corp. builds cars sold by Chrysler as well as Mitsubishi Motors Corp. Mazda Motor Corp. 's U.S. plant builds cars for its own and Ford dealers.New United Motor Manufacturing Inc. supplies GM's Chevrolet and Toyota Motor Corp. 's U.S. dealer networks. The only transplants to drop below 1988 levels are owned by Mazda and Honda Motor Co. Part of the Mazda decline reflects "trying to anticipate what sales" are going to be, said a spokesman.Mazda also is adding the Mazda 626 car at its Flat Rock, Mich., plant, slowing output.Honda is accelerating production after retooling its Marysville, Ohio, plant to build the redesigned Accord. The overall decline in car production is matched by an almost equal drop of 10.6% in expected truck output at GM, Ford, Chrysler and Nissan Motor Corp. Car and truck sales are expected to soften during the remainder of the year from unusually high, incentive-buoyed levels in August and September. "None of it is a surprise," said Edward Sullivan, vice president of automotive consulting at the WEFA Group, a market analysis firm in Bala Cynwyd, Pa. "Strong third-quarter sales stole from fourth-quarter sales." He said schedules at GM, in particular, are still too high given market expectations, which will likely mean some trimming.But "if the cuts are going to come, they'll have to come pretty soon," he added. "Once you get into November there's not a whole lot of flexibility." The recent gyrations in the stock market didn't have any immediate impact on the auto makers' schedules. "Based on the minimal impact that the 1987 event had on car sales, this little hiccup is unlikely to have any influence," said a Ford spokesman. Here are industry forecasts for the fourth quarter: Much of the difference in Chrysler's car output compared with a year ago comes from having two fewer plants; Chrysler's now-shuttered facilities in Kenosha, Wis., turned out 51,000 subcompacts and mid-size cars in the 1988 fourth-quarter before it closed in December. More than half the decline in Ford's expected car output comes from closing its Escort plant in Wayne, Mich., as of Nov. 22 to prepare for production of the next generation of the popular subcompact.The plant won't reopen until late February or early March, the company spokesman said.The lower output will likely mean the subcompacts will lose for the first time since the 1985 model year their distinction as the best-selling car in the U.S. Honda's Accord, made in the U.S. and Japan, was a close second to Escort in the just-ended 1989 model year.If Accord were to top the list in 1990, it would be the first vehicle from a foreign auto maker ever to hold that spot.
Being the No. 2 newspaper in town just got tougher. The Dallas Morning News, the No. 1 paper in town, has secured exclusive rights here to Universal Press Syndicate's features, including 26 previously carried by its struggling rival, the Dallas Times Herald.The News agreed to pay a minimum of $100,000 annually for five years for the features, and an unusual $500,000 fee, mostly up front, to keep all current and future Universal offerings for itself in the Dallas area. The move was a stunning coup, nabbing some of the Times Herald's biggest draws, including "Dear Abby," "Doonesbury," Erma Bombeck's column and "The Far Side." It also reignited a long-running newspaper war that had cooled last year after closely held DTH Media Inc. bought the Times Herald. Universal argues that special circumstances led to the agreement.But if the syndicate's contract with the Morning News survives the Times Herald's court challenge, other second-place newspapers worry that they, too, may see their best features snatched away by bigger, wealthier rivals. "We're very concerned," says Tom King, the editor and president of the El Paso Herald-Post, a Scripps Howard newspaper that competes with a Gannett Corp. paper. "It certainly looks like it could lead to bidding wars." One effect, syndicate executives say, is that some newspapers in competing markets are considering seeking long-term contracts for their favorite features instead of the usual pacts that let the syndicate cancel with 30 to 90 days' notice. For smaller newspapers, syndicated features can be crucial.Industry executives say the columns and cartoons give newspapers consistency and build fierce reader loyalty. "I have people tell me that Garfield is the only reason they read the {Arkansas} Gazette," says Walter E. Hussman, the publisher of the competing Arkansas Democrat.Syndicates have traditionally turned down fatter fees from competitors, switching only when a newspaper dropped a feature or some unusual ownership change occurred.In 1984, the Boston Herald stole about 10 features from the bigger Boston Globe, but only after the Herald's owner, Rupert Murdoch, bought the features' syndicator.In 1977, Universal pulled its features from the now-defunct Philadelphia Bulletin because of a contract dispute and because "there was no growth {there} for Universal," says John McMeel, president and co-owner of Universal. Growth was also a consideration in Dallas.The Times Herald's circulation had been slipping for several years, and its audited daily circulation now stands at 222,000, compared with the Morning News's 370,000.But the main reason for the move, Mr. McMeel says, is a joint venture between Universal and A.H. Belo Corp., the Morning News's parent and the owner of five television stations.Plans call for the two to explore TV programming drawn from the syndicate's and others' characters, as well as to develop TV ads for newspapers using Universal's characters. Universal says that it wanted all its creators to share in the television venture and Belo wouldn't promote features appearing in its competition.Belo declined comment, citing the litigation. The Times Herald charges that the venture is a smokescreen, created to hide the News's plan to buy the features away. "We're very skeptical of a venture in which no one has invested a dollar, in which no one has any experience in syndicating animated features and game shows and for which there was not prior {market} research," says Roy E. Bode, the Times Herald's editor. Some syndicate executives apparently prefer not to discuss the episode in public.Willard Colston, chairman of the Los Angeles Times Syndicate and program director of the National Features Council, wanted the group to sponsor a panel discussion on the pact at its annual meeting in Dallas last week.Initially a majority of the directors, made up of syndicate executives, editors, cartoonists and columnists, supported the idea.But Universal's Mr. McMeel, the council's president, asked directors to reconsider, and they voted down the discussion 13-12, Mr. Colston says. Meanwhile, the Times Herald is just hoping to survive this latest blow.A Houston state district judge refused to enjoin the syndicate from moving the features, and the Morning News began running most of them a few weeks ago.A trial on breach of contract and antitrust charges isn't expected for a few months.Mr. Bode acknowledges that some subscriptions have been canceled. The Universal-Morning News deal also troubles syndicated writers and artists, who fear that they won't get their cut from this new type of exclusivity payment. (Creators of syndicated features generally receive about half the fee a newspaper pays for their work.) Mr. McMeel says some of the exclusivity payment fee will be used for future development of features and promises that those whose work appears in the Morning News will see "substantial immediate increases" in pay.But he concedes that they haven't been notified yet.The uncertainty already has some in the business plotting new strategy.Arnold Schwartzman, a Dayton, Ohio, lawyer who has represented about 50 writers and artists, says that any new contract or renewal he negotiates will require that special payments be shared with his clients. "It's not something I'm considering; it'll become part of my boilerplate," he says.
As stocks recovered, the U.S. dollar rebounded, but bond prices plunged and Treasury bill rates soared. The Dow Jones Industrial Average's 88.12-point bounce back from Friday's 190-point dive helped calm investor fears of a financial Armageddon.However, gold prices rose despite the dollar's resilience, reflecting continued nervousness about the markets' manic behavior. Early yesterday, strategists at several investment firms, including Merrill Lynch and Dean Witter Reynolds, urged customers to buy stocks and cut back on bonds.Treasury bond prices dropped the most for any single day in more than two months.The 30-year bond lost 1 3/4 points, or $17.50 for each $1,000 face amount.Treasury bill rates, which fell nearly three-quarters of a percentage point Friday as investors sought a safe haven from plunging stocks, jumped more than half a percentage point yesterday. "Investors had expected the worst from the stock market, and so they piled into government bonds last Friday," said Steven Einhorn, chairman of the investment policy committee at Goldman, Sachs & Co. "But when we didn't get the worst, there was some movement out of bonds and back into stocks" yesterday.Mr. Einhorn early yesterday told Goldman traders and salesmen that he recommends investors increase their stock holdings. Speculation that the Federal Reserve stands ready to act as a safety net for the financial system helped restore investor confidence yesterday, said Mitchell Shivers, president of Kleinwort Benson Government Securities Inc.Many investment managers expect the Fed to ease credit further in coming weeks to bolster the economy. In major market activity: Bond prices plummeted, reversing Friday's big gains.The yield on the Treasury's benchmark 30-year issue rose to 7.97%. The dollar bounced back in the currency markets.In New York very late yesterday, it was quoted at 141.80 Japanese yen and 1.8685 West German marks, up from 141.50 yen and 1.8655 marks late Friday.
Despite turmoil created by a costly S&L bailout and the growing realization that a government guarantee may become a taxpayer liability, some members of Congress are insistent on using tax dollars as collateral for risky and unnecessary government-backed deals. This appears to be the case with the Federal Housing Administration's mortgage guarantee program.A program created to assist low- to moderate-income people, it may soon be expanded to accommodate much higher loan amounts for well-to-do home purchasers.The FHA now holds a 50% share of the mortgage insurance market, while mismanagement prevails throughout the agency. The General Accounting Office has just completed an FHA financial audit showing a loss of $4.2 billion for fiscal 1988.Significant losses are also expected for the fiscal year just ended.Congress should not consider any expansion of FHA until a comprehensive, proven plan for FHA solvency and reform is established. Ignoring the FHA losses, a few of my colleagues have pushed for expansion of FHA mortgage guarantees by including wealthier home purchasers in the program.The National Affordable Housing Act (Cranston-D'Amato), introduced earlier this year, erases the current mortgage guarantee ceiling of $101,250 and places a "floating cap" at 95% of the median home price in higher-cost areas. While it increases FHA loan-guarantee amounts, this bill also calls for the reduction of down-payment requirements.Legislation of this nature can be likened to fueling a runaway locomotive headed in the wrong direction. Studies consistently show, and the GAO has admitted, that increasing loan-to-value ratios -- making higher loans without higher down-payment requirements -- increases the risk of default.Taxpayers will be saddled with a tremendous financial burden if these fundamental data are not heeded. Recently, a Senate Appropriations bill similarly removed the current FHA mortgage guarantee ceiling and increased it to 95% of the median home price in higher-cost areas.This provision would have nearly doubled FHA loan exposure in skyrocketing markets where median home prices can range to $200,000 or more. Out of concern for the potentially damaging effects of this proposal, and still awaiting the GAO report on FHA losses, I suggested the Senate instead work on ways to eliminate or substantially curtail this vast loan-guarantee expansion.After several hours of floor debate and three roll-call votes, we reached a compromise, placing the FHA loan-guarantee ceiling at $124,875.Although my desire to retain the present ceiling was exceeded by $23,625, a firm limit on loan guarantees did provide some consolation in the face of allowing a haphazard floating cap to remain in the bill. Not only is such an FHA expansion risky, it is also a direct government intrusion into a market already served by private mortgage insurers.Private mortgage insurers also happen to be solvent.Yes, they have higher down-payment requirements.But people who can afford payments on a $200,000 home should be expected to put more money down. It would be difficult to explain to average American workers that their tax dollars were being used to guarantee mortgages on $200,000 homes.If an FHA expansion is such a great idea, why not have the federal government guarantee all home mortgages?Congress cannot expect taxpayers to continue bearing the burden of well-intended government guarantees. When Congress increased federal deposit insurance to $100,000 from $40,000, it seemed like a good idea.It gave the appearance of a more stable financial industry.It was easy to extend a government guarantee to cover apparent problems.But postponing problems soon gave way to a nightmarish taxpayer bailout to the tune of over $200 billion. The problems surrounding the FHA must be addressed.Significant reforms must be made.The high-risk venture of unnecessarily expanding FHA mortgage guarantees without reform is ludicrous. Sen. Nickles (R., Okla.) sits on the Appropriations and Budget committees. (See related story: "The Home Builders' Wish-List" -- WSJ Oct. 17, 1989)
The dollar rose yesterday but careened like a roller-coaster in a market that traders described as volatile, confused and at times frightening. And while the U.S. currency recovered much of the lost ground from its collapse on Friday, several dealers contend that its potential to climb further could be limited. In late New York trading, the dollar stood at 1.8685 West German marks and 141.80 yen, compared with 1.8655 marks and 141.50 yen late Friday.The British pound declined to $1.5755 from $1.5840 before the weekend. In early trading in Tokyo Tuesday, the U.S. currency was changing hands at about 142.15 yen, up from Tokyo's Monday close of 140.74 yen, and at about 1.8665 marks, down a bit from late trading Monday in New York. At times on Monday, the dollar followed the Dow Jones Industrial Average like a dog on a leash, but only so far. "Trading in dollar/mark looked like the Dow's shadow, to a point," said Jeffrey M. Mondschein, managing director in charge of foreign-exchange operations at Continental Bank in Chicago.He said the U.S. currency was having difficulty rising above the 1.87-mark level. "If you take away the stock-market brouhaha of the last few days, you still have lower {U.S.} interest rates, lower {U.S.} capacity utilization, and concern about quarterly earnings and general economic strength -- or lack thereof," said Mr. Mondschein, "so you wonder what the level of the dollar should be." Moreover, forecasters predict that the trade deficit for August, to be released today, will worsen to more than $9 billion from $7.6 billion the previous month. The dollar's bumpy journey began late Sunday night in Far Eastern trading where panic selling in a thin market initially pushed it as low as 1.8305 marks and 139.10 yen.By the end of trading in Tokyo, the dollar was quoted at 1.8470 and 140.73 yen. But the real fireworks began in European and early New York activity where traders were whipsawed by an inaccurate report of the stock market's opening and a statement by Federal Reserve Board Chairman Alan Greenspan. Initially, Reuters reported that the Dow Jones Industrial Average opened down 4%, instead of the actual 0.7% decline.The mistake was quickly corrected.But the news prompted traders to dump dollars and then almost immediately buy them back.On its rebound, the dollar soared from about 1.8480 marks to 1.8735, or 1.4%, within two-and-a-half minutes. A spokesman for Reuters in New York confirmed there was an error and that it was quickly corrected. Nonetheless, Peter Stein, a trader at Commerzbank in Frankfurt, said: "It's crazy; it's absolute madness." Later, news wires reported that Mr. Greenspan said a speech he delivered last week in Moscow had been misinterpreted.At the time, many traders took it to be a signal that the Fed wouldn't lower interest rates to weaken the dollar, and that the U.S. was at odds with its major trading partners in seeking to stabilize a high-flying U.S. currency at a lower level. The dollar promptly fell nearly two pfennig to 1.8560. "It was up and down, up and down, up and down," said Marcus Croonen, a trader at DG Bank in Frankfurt. "It was a bad day." Indeed, the dollar dropped 4.4% against the mark from its highs on Friday to its Sunday night lows only to shoot back up 2.4% to its high point yesterday. During the hectic activity, traders said the Danish and Italian central banks intervened to defend their respective currencies against the strengthening mark. Roberto Bianchi, a vice president at Union Bank of Switzerland, described the market's mood as confused. "Everybody keeps repeating that it's OK, it's not the same as 1987, the central banks stand ready to stabilize the market, and yet there is a lot of uncertainty." Mr. Bianchi said some big European institutional investors were selling dollars in lots of $100 million to $200 million. "Investors who had been in dollars for a long time got out.That led to nervousness in the trading room," said Mr. Bianchi. Yet Heiko Thieme, an investment strategist for Deutsche Bank in New York, contended that Europeans hadn't purchased many American shares this year.Even so, he's bullish. "In my view, the dollar isn't vulnerable at all.On a fundamental basis, I'm not afraid about the dollar, which runs more of a risk of being too strong than too weak," said Mr. Thieme.He expects the U.S. trade deficit to keep improving and the U.S. economy to expand at 2% to 2.5% next year. "The recession fears are overdone and inflation hysteria totally unfounded," Mr. Thieme argued.He also said that at about 3% of the total output of goods and services, the U.S. budget deficit is manageable. Thus, with little risk of losing profits through a deteriorating currency, "what you have here is a unique buying opportunity," said Mr. Thieme of the U.S. stock market. George Kuster, a manager at Gulf & Occidental Investment S.A. in Geneva, agrees but only to a point.Unlike October 1987, "this time I was laughing.I'm convinced that this {stock market} is going to go up," he said. Nonetheless, Mr. Kuster added: "I don't trust the U.S. market that much" because of the dollar's volatility. "My clients lost a lot of money in the 1970s because of the dollar, so I can afford not to gain" from U.S. equities.Instead, the Swiss money manager sees better opportunities in the Japanese, West German and French markets. On the Commodity Exchange in New York, gold for current delivery rose $4 to $367.30 an ounce in moderate trading.Estimated volume was 4.5 million ounces. In early trading in Hong Kong Tuesday, gold was quoted at about $366.27 an ounce, down $2 an ounce from Monday.
In a sign of its continuing problems in the U.S. auto market, General Motors Corp. acknowledged that a key midsized-car plant will shut down for two weeks to cut bulging inventories of Pontiac Grand Prix models. Meanwhile, GM Chairman Roger B. Smith said it should be "no surprise" the auto maker is moving to close permanently more North American assembly plants.At an Economic Club of Detroit luncheon, Mr. Smith said announcements last week that indicated at least three and perhaps five more GM plants in the U.S. and Canada may close by the early 1990s reflect "a carefully conceived, calculated and executed strategic plan." Mr. Smith said GM is looking for ways to save some of the five older plants targeted last week. "I'm hoping we'll need another plant for the APV," a new plastic-bodied minivan now being assembled at a single plant in Tarrytown, N.Y., he said.However, Mr. Smith said that as a result of a $70 billion factory-modernization program undertaken over the last decade, "we can produce more in the new plants than we could in the old plants." But GM is also struggling with a steep decline in U.S. car-market share that wasn't part of the company's strategic plans when it began the modernization program.The latest evidence of that is the decision to idle the Fairfax, Kan., plant that makes the Grand Prix less than three weeks into the new model year. The Grand Prix is one of GM's newest lines of cars, the so-called GM-10 midsized cars.This fall, GM introduced the first four-door versions of the cars -- a move that was supposed to spur sales of the models, which have been disappointing so far. But GM officials confirmed they will close the Fairfax plant for two weeks beginning Oct. 30 because of slow sales, bringing to 10 the number of weeks it will have been closed since early June.U.S. car dealers had a 92-day supply of the cars at the end of September, according to industry trade publication Wards Automotive Reports.That's about 50% higher than the 60-to-65-day supply considered normal in the industry. Union officials at the Fairfax plant said the company is studying the feasibility of giving the plant another product to build, contrary to GM's original plan.Company officials declined to comment on this issue, calling the talk "speculation."
Louisiana-Pacific Corp. and Pope & Talbot Inc. posted strong third-quarter profit gains, citing continued strong demand and firm prices in the forest-products business. Louisiana-Pacific reported a 40% increase in net income to $51.5 million, or $1.34 a share, from $36.8 million, or 97 cents a share, the year earlier.Sales in the period increased about 10% to $510.1 million from $462.9 million. Harry A. Merlo, chairman and president, credited strong demand for plywood and other building products.The record results came despite a decline in operating results for the company's pulp business, he added.This was due in large measure to a drought-related production curtailment at its Ketchikan, Alaska, pulp mill. For the nine months, the company posted a 34% gain in net to $139.8 million, or $3.66 a share, from $104.1 million, or $2.73 a share.The company said it had an 11% sales increase to $1.50 billion from $1.35 billion the year earlier. (The company's 1988 results don't include a non-recurring gain on the final settlement of the Redwood National Park condemnation in 1988's first quarter.) Pope & Talbot said healthy demand and prices, especially for consumer products, led to a 55% increase in third-quarter net to $13.2 million, or $1.11 a share, from $8.5 million, or 71 cents a share.The 1989 results include a gain of $3.5 million, or 29 cents a share, on the sale of a sawmill.Sales in the quarter rose 20% to $162.1 million from $135.3 million. For the nine months, the company posted profit of $33.8 million, or $2.86 a share, including the gain on the sawmill's sale.That was up 45% from $23.3 million, or $1.95 a share, the year earlier.Nine-month sales grew 26% to $471.1 million from $373 million. Looking ahead, Pope & Talbot said it expects all of 1989 to be a record year.Louisiana-Pacific said fourth-quarter performance is usually hampered by weather-related construction slowdowns, but that "many positive factors" should help the period's results.
Some nervous market makers in Nasdaq over-the-counter stocks lowered prices severely at the start of trading in response to Friday's sell-off.The markdowns were excessive, some traders groused, and indeed the market closed lower despite heavy buying of its leading technology stocks. After plummeting nearly 19 points almost immediately after trading began, the Nasdaq Composite Index staged a comeback, but still closed off 6.31, or 1.4%, at 460.98. Volume was an astonishing 242.8 million shares, 33% more than the turnover on May 19, which had been this year's busiest day. Many observers said yesterday afternoon that the price-slashing by some market makers during the last hour of trading Friday and before the market opened yesterday was overdone.It was, they said, a factor in why the market didn't rally as strongly as the biggest New York Stock Exchange issues.The Dow Jones industrials rose 3.4%. "Bids were lowered too much," said Gary Rosenbach, a market maker and manager of equity trading at Needham & Co. On Friday, the market makers, who must be prepared to buy stock when no one else will, were frantically cutting the prices at which they would take stocks off sellers' hands, in reaction to plunging prices on the New York Stock Exchange, according to Mr. Rosenbach. Yesterday, they again lowered their bids before trading began, in anticipation of another wave of selling.Joseph Hardiman, president of the National Association of Securities Dealers, which oversees trading on Nasdaq, said that between 9 a.m. and 9:30 a.m., the market's Small Order Execution System was deluged with six times the normal volume of quotation updates from market makers and had to be shut down for nearly 25 minutes after trading began so computers could digest the data. Mr. Hardiman said the system received about 102,000 updated quotes by 10 a.m., compared with 20,000 normally.He said total volume on the system, used for trades of 1,000 shares or less by non-professional investors, was 2.5 times busier than usual.But, Mr. Hardiman wasn't complaining. "It meant that market makers were dynamically updating their quotes, rather than sitting there frozen." Market makers defended their actions.They said it was reasonable to expect a rash of selling and to lower prices in anticipation of it. "Market makers saw sell orders first and that's why they (lowered bids)," said Brian Finnerty, a Shearson Lehman Hutton market maker. "The buyers sat back and didn't come in until a half hour or 45 minutes later." E.E. "Buzzy" Geduld, president of Herzog, Heine, Geduld, a giant market-making firm, said, "Stocks looked ugly at 9:30.It was shades of October 1987 until it turned and stabilized at about 11:30.Nobody made a fortune on this market." Some of the biggest stocks were snapped up by bargain hunters and fared much better.Intel rose 1 1/4 to 33 on 3.7 million shares.Tele-Communications gained 1 to 19 5/8 on 3.7 million shares.MCI Communications added 1 1/2 to 45 on 5.6 million shares.Apple Computer advanced 1 to 46 3/4 on 3.8 million shares.Microsoft jumped 2 1/4 to 75 3/4 on 1.8 million shares.But Sun Microsystems eased 1/4 to 17 1/4 on 3.6 million shares and Lotus Development was unchanged at 29 7/8. The result was that the Nasdaq 100 Index of the big non-financial issues rose 0.56, to 449.89.The biggest financial issues, tracked by the Nasdaq Financial Index, weren't as popular, falling 6.90, to 456.08. There was some favorable takeover news, in stark contrast to Friday, when nervousness about the future of leveraged buy-outs hurt takeover-related issues. National Pizza said it signed a definitive agreement to acquire Skipper's for $11.50 a share.The company said the acquisition, valued at about $31.3 million, is subject to the condition that at least two-thirds of the Skipper's shares outstanding are tendered. National Pizza also said it settled its dispute with PepsiCo's Pizza Hut unit that had threatened to scuttle the proposed acquisition.Skipper's rose 1/2 to 11 and National Pizza was unchanged at 17. Among other takeover-related issues, LIN Broadcasting fell 2 3/4 to 104 3/4.McCaw Cellular Communications, a LIN suitor, rose 1 1/4 to 41 1/4. The biggest percentage advancer was Grayhound Electronics, which jumped 73%, or 7 3/8, to 17 1/2.The stock rose after Grayhound said it agreed to enter into a five-year joint venture with Lermer Corp., a maker of airline-interior equipment.
Soviet leader Mikhail Gorbachev wants to bring the nation's reformist press back into line, blaming it for contributing to the many problems he faces and even suggesting that one liberal editor resign. Mr. Gorbachev's comments, made at a meeting with Soviet national editors and media executives Friday, indicate his growing frustration with the nation's mounting problems.According to people who attended, he didn't advocate an end to glasnost, his policy of openness.But he made clear that the press should show greater responsibility in its reporting and cut back on criticism of his reforms. The text of his remarks hasn't been published, and editors say they have no instructions as to whether it will be.Accounts of previous such meetings with media and other groups have been printed, sometimes after a delay of several days. Although glasnost has given the government-controlled media here much greater freedom to report and criticize, Mr. Gorbachev and other Soviet leaders still regard newspapers and TV as important propaganda tools they can use at will. According to participants at the meeting and Soviet journalists who were later briefed by their editors, Mr. Gorbachev blamed the press for fueling a nationwide mood of despondency.In particular, he complained about some articles this summer that openly discussed the possibility of a coup or civil war in the Soviet Union, and accused the media of fueling panic buying of goods by printing stories about impending shortages. He singled out the daily Izvestia and the weekly Argumenty i Fakty, and also gave stinging criticism of Yuri Afanasyev, a leading reformist historian who has written articles attacking the Communist Party.Among other things, Mr. Gorbachev questioned whether Mr. Afanasyev should remain in the party. The meeting lasted a little under two hours and was attended by most members of the ruling Politburo.There was no other speaker apart from the Soviet leader, and those attacked weren't given the opportunity to defend themselves.Mr. Afanasyev, who isn't an editor, didn't attend. According to participants, Mr. Gorbachev was particularly incensed by an article on the front page of Argumenty i Fakty this month that examined the popularity of members of the Soviet Parliament.The piece was based on a survey of 1,500 readers' letters and contained some criticism of Mr. Gorbachev himself. The newspaper wrote that readers assessed his role both positively and negatively.It said many thanked the Soviet leader for his "self-control, modesty, culture and ability to hear a speaker out." But others criticized him, "for imposing his opinion on other deputies, giving commentaries to many speeches, holding elections with no choice of candidate, putting pressure on the voting process and maneuvering between the right and left wings" of the Parliament.All this, the paper quoted readers as saying, "has seriously weakened his authority." The Soviet leader apparently suggested to Argumenty i Fakty's editor, Vyacheslav Starkov, that he should resign.The comment, which Mr. Starkov relayed to his staff, has sparked anger and bitterness at the paper.Mr. Starkov has been summoned to see the Kremlin's ideology chief, Vadim Medvedev, in the near future, and may discover then if he is to be fired. Izvestia was criticized for a front-page article last Wednesday that took a sharp look at the Parliament's activities.It attacked the level of a debate on the private-sector cooperative movement, saying "the discussion was more like a riot than a civilized exchange of points of view." And it questioned the speed with which the Parliament was adopting new legislation, often with a minimum of debate. Speaking to foreign reporters, Ivan Laptev, Izvestia's editor, sought to play down Mr. Gorbachev's criticism, but he acknowledged that his paper had been singled out.The Parliament yesterday approved legislation that imposes new restrictions on the cooperative movement, enabling local authorities to set ceilings for prices and preventing the "speculative" sale of goods in short supply for prices higher than that charged by the state.
Wall Street's takeover-stock speculators yesterday suffered their worst bloodbath since the Black Monday crash of October 1987. Even as the stock market rebounded from Friday's 190.58-point rout, takeover traders were hammered by setbacks in two big airline takeover deals.Some analysts estimated that paper losses could total $500 million for the takeover traders, known as risk arbitragers, or "arbs." Nearly all of the big paper losses were caused by declines of more than 20% in two airline stocks, UAL Corp. and AMR Corp. Wall Street's arbitrage desks had loaded up on stocks of both companies after each had received takeover proposals from investors.The bid for UAL came from Marvis Davis of Beverly Hills, Calif., and the bid for AMR came from Donald Trump of New York. But in the wake of Friday's announcement that a UAL management-union group couldn't obtain bank financing for its agreement to buy UAL at $300 a share, UAL stock plunged $56.875 yesterday to close at $222.875 a share in New York Stock Exchange composite trading of nearly 2.3 million shares.On Friday, the stock didn't trade after the buy-out group announced its financing troubles. That was bad enough for the arbs. "On balance, the Street's biggest position has been UAL, mostly {bought} in the $280 range," said Frank Gallagher, director of Phoenix Capital Markets, who follows arbitrage activity. But the arbs were quickly hit with another dose of bad news when Mr. Trump announced that he was withdrawing his proposal to buy AMR at $120 a share.After trading in AMR resumed, the stock fell sharply to close at $76.50 a share, down $22.125 on the day in Big Board composite trading of more than 4.7 million shares. Mr. Gallagher estimates that arbitragers owned the equivalent of nearly 30% of UAL's stock, or about six million shares, indicating losses of about $350 million.He estimates that arbs own the equivalent of about 10% of AMR's stock, also about six million shares, indicating an additional $130 million in losses. Several other stocks owned by takeover traders continued to fall.Many takeover stocks rebounded somewhat yeterday, but none made up all of their sharp declines on Friday. Despite the losses, there haven't been any reports of arbitrage or brokerage firms that have encountered serious financial difficulties.For most takeover-stock traders, huge profits from booming takeover activity last year would provide a cushion against current losses. Arbitragers at several major Wall Street securities firms said that UAL was by far the biggest stock position that they owned.They also believe that UAL was the biggest position for most other arbs. "In the arbitrage community, UAL was viewed as being a very safe deal," said one trader.Arbs believed that major banks would easily finance the UAL buy-out group's $6.79 billion bid, and were stunned on Friday when the group couldn't obtain the necessary loans. Several traders said they weren't selling UAL shares because they believe the buy-out group will be able to obtain financing to complete the acquisition eventually, although perhaps at a price of less than $300 a share. Mr. Gallagher thinks that much of the heavy trading in UAL shares was "one arb passing it on to another.I don't think you have institutional investors buying the stock." Gainers among the arb's favorite stocks included Hilton Hotels Corp., which rose $9.50 a share to close at $94.50 in Big Board composite trading, and Warner Communications Inc., which rose $1.875 to close at $63.375.Hilton is soliciting bids for some or all of its hotel and casino operations; Warner is being acquired by Time Warner Inc., which already owns about 58% of Warner. The past two trading days, while painful, haven't been as disastrous for the arbs as the October 1987 market crash because takeover-related stocks haven't dropped as sharply as they did two years ago, and traders aren't as deeply in debt as they were then. On Friday and yesterday, the worst price declines among takeover-related stocks were about 20%, with most takeover stocks falling between 5% and 15%.In October 1987, however, stocks of some potential takeover targets, such as Dayton Hudson Corp., fell about 50%, Mr. Gallagher said. A trader at one major Wall Street firm said his arbitrage desk had about 30% of its capital currently invested in cash.Two years ago, he said, his firm had borrowed an amount equal to about 30% of its capital so that it could buy more stocks.Mr. Gallagher said he believes that situation is typical of the more conservative strategies that many arbitragers adopted after the crash. When traders borrow money to buy additional amounts of stock, they run the risk of having to sell stocks after a sharp price decline such as yesterday's to meet margin calls.Margin calls are demands by lenders that traders put up more cash to make up for declines in the value of stocks that serve as collateral for loans. One trader, however, said he believes that most of the selling in takeover-related stocks in the past two trading days has been the result of judgments by traders that takeover bids are less likely to be completed, rather than selling prompted by margin calls. Stocks in which `risk arbitrage' speculators have large positions
In response to your extracts from David Fenton's memo ("How a PR Firm Executed the Alar Scare," editorial page, Oct. 3): For the past 10 years, the Environmental Protection Agency has known about the carcinogenic hazards of Alar, and has carried on proceedings to remove the chemical from the market.Yet until recently, no significant progress had occurred because the pesticide manufacturers and other special interests have blocked necessary congressional reform, stymied EPA actions to cancel Alar and other hazardous pesticides, and kept the public in the dark about the threat of pesticides. In this country, major reforms occur only when substantial public pressure is applied to the government and Congress in order to counteract the lockhold of special interests.Therefore, the Natural Resources Defense Council specifically chose to inform the public about the risks posed by pesticides in foods.To move the pesticide-reform agenda, NRDC -- like any major corporation or the government -- used the professional communication skills of a public-relations firm to educate the public about the results of our two-year-long scientific study on pesticides residues in children's food. NRDC offers no apologies for making public the results of our report on pesticides in the diet of preschoolers.We will continue to present the facts about pesticides in food to the broadest possible segment of society. Americans have a right to know what is in their food and to do something about it if they choose.Until the food supply is safe, especially for children, NRDC will keep doing everything we can to educate the public about the unnecessary and intolerable risk of pesticides. John H. Adams Executive Director National Resources Defense Council New York Mr. Fenton's PR firm has abused the trust of the media and done the public no favor.Just as you can yell "wolf" only so many times before people cease to heed you, a PR firm can manipulate the press only once, and then it loses all credibility.Such firms go quickly bankrupt. C. Brian Maddox New York I was fascinated to read political publicist David Fenton's self-serving celebration of his own work in creating the illusion that Alar was "an intolerable risk" to Americans -- particularly American children -- when used on apples. (The one "fact" that caught my eye -- the alleged $700,000 paid by the apple growers to Hill & Knowlton -- was overstated by more than a factor of two.) While I doubt the media were as gullible and malleable as Mr. Fenton's memo suggests, the Alar scare was created, mostly out of thin air, just as Mr. Fenton claims, and the media that were taken in can learn something from this episode.So, for that matter, can other industries subject to this kind of guerrilla PR attack. Robert L. Dilenschneider President and CEO Hill & Knowlton Inc. New York Mr. Fenton says it was not the intent of the NRDC to have school systems ban apples.Am I also to believe that Meryl Streep did not intend to harm apple growers by condemning the use of Alar?Well, apple growers were hurt and many others were needlessly frightened by this news story. Scientific fact was replaced with media hype produced by genuinely concerned but irrational people who created a dangerous phenomenon when, by using bad information and bad logic, they skillfully frightened people about agricultural chemicals. My family and I will continue to believe the FDA, USDA, EPA and the surgeon general and follow their nutritional guidelines to eat a balanced diet that includes many fresh fruits and vegetables. Frederick Walsifer Jr. Colts Neck, N.J.
Insurance-industry consultant Benjamin Zycher's attack on Proposition 103, the landmark insurance-reform initiative approved by Californians last November ("Insurance Fraud, California Style," Oct. 9) is much like the industry's unsuccessful $80 million campaign against the measure: distorted and often dishonest. Prop 103 eliminates many barriers to competition in the industry, including the insurers' unjustified exemption from the antitrust laws.Insurers are permitted to share some historical-claims data in order to enhance the competitiveness of small companies.Mr. Zycher says the industry doesn't need the exemption; if that's so, why do its lobbyists so bitterly oppose state and federal efforts to eliminate it? Mr. Zycher also criticizes 103's requirement that auto-insurance rates be based primarily on a motorist's safety record and driving habits rather than upon zip code.Proposition 103 does not prohibit any use of territorial rating, but requires insurers to justify it scientifically.So far, they've been unable to do so. The most controversial provision of 103 requires a 20% rollback in all auto, home and business liability premiums to offset excessive rates -- the product of years of lax regulation and insulation from competition. Mr. Zycher quotes me as saying something I never said -- that the 20% figure was arbitrary and hence the rollback unjustified.In fact, simply using the insurers own self-serving profitability standards, the California Insurance Commissioner -- an opponent of 103 -- has already called for more than $800 million in rollbacks.Hearings to begin this month will allow us to introduce evidence of the industry's inflated reserves, excess surplus, gross waste and inefficiency that will justify more than a 20% rollback. Insurance-reform efforts are under way in 35 states.Like Mr. Zycher, the industry's response is to make war against the reformers.But until the industry acknowledges the reality that reform is necessary, it will remain its own worst enemy. Harvey Rosenfield Voter Revolt Los Angeles
In all the finger-pointing in the wake of Friday's stock-market plunge, you'd think the Transportation Department, of all agencies, would be safe. Look again.Some people on Wall Street -- and even some in the Bush administration -- think that Transportation Secretary Samuel Skinner may have played a second-hand role in the stock slide. His drumbeat of warnings on the perils of airline leveraged buy-outs, this theory goes, spooked major banks out of bankrolling the buy-out of UAL Inc.And that, in turn, sent the market into Friday's tailspin. Mr. Skinner's LBO comments "probably helped discourage some of the banks from participating" in the UAL deal, says Louis Marckesano, airline analyst for Janney Montgomery Scott Inc., a Philadelphia brokerage house. "The government is putting its nose where it doesn't belong, and Skinner is at the head of the pack." Many others -- indeed, most industry officials and members of Congress -- absolve Mr. Skinner, saying that the UAL deal was flawed from the start.But whether he single-handedly sparked the crash or had nothing to do with it, one thing is clear in the aftermath of the price slide: Sam Skinner, by his repeated jawboning on the buy-out issue, has irritated some in the Bush administration, so much so that some White House officials want to rein him in. Yesterday, for example, the administration came out in opposition to legislation to strengthen the Transportation Department's hand in blocking leveraged buy-outs -- despite statements by Mr. Skinner to Congress that suggested he looked favorably on it, without explicitly endorsing it.Moreover, administration officials say that Office of Management and Budget Director Richard Darman, Treasury Secretary Nicholas Brady, Council of Economic Advisers Michael Boskin and U.S. Trade Representative Carla Hills all have had problems with Mr. Skinner's jawboning. Secretary Skinner, for his part, says "it's silly" to blame him for the market crash. "The banks in this country and in Japan couldn't put the financing together on the terms offered," he said in a telephone interview from Detroit, where he was speaking to the Economic Club of Detroit. "They have the same kind of questions that I raised about the financial aspects of the transaction." At the very least, the administration has been sending mixed signals about leveraged buy-outs and foreign ownership of U.S. airlines.Last month, Mr. Skinner forced Northwest Airlines to reduce a stake held by KLM Royal Dutch Airlines to ensure, he said, that the foreign airline wouldn't illegally control Northwest. But it isn't clear how he would treat other leveraged buy-outs.Each deal, he insists, must be handled separately, on a "case-by-case" basis.That gives Mr. Skinner lots of wiggle room, but critics say it doesn't provide a clear picture to the business community of what would pass government muster. "It's a regulatory scandal," says Timothy Pettee, a Merrill Lynch & Co. airline analyst, who contends that the lack of clear standards raises the specter of inconsistent decision-making and unfair treatment. Mr. Skinner says he hasn't spelled out a policy for leveraged buy-outs because Wall Street bankers and lawyers would simply find ways to circumvent it.But others say Mr. Skinner is gagged until the Economic Policy Council, a cabinet-level group that makes decisions on national economic issues, finishes its ruminations on the issue.The group is scheduled to discuss airline buy-outs again today. But although the administration has yet to reach a decision on airline buy-outs, President Bush and Treasury Secretary Brady in general don't have philosophical problems with leveraged buy-outs or foreign investment involving non-airline companies, and don't appear inclined to block them.Mr. Bush hasn't yet focused on the airline buy-out question. The buy-out issue is politically and financially complex because of two separate but intertwining questions -- foreign ownership and debt levels.Foreign companies are barred by law from holding more than 25% voting stock, or exerting actual control, over U.S. airlines.Under the original Northwest Airlines bid, KLM would have contributed 57% of the equity but received only 5% of the voting stock. The Transportation Department concluded that was a violation of the spirit, if not the letter, of the law, and persuaded Northwest to restructure the deal.Among other things, the Economic Policy Council is discussing the department's interpretation of the law. It appears that some leading administration officials believe the Northwest decision leaves the U.S. open to charges of protectionism and could undermine the U.S. position in international trade talks.Mr. Skinner, they complain, went too far in defining "control" by American citizens and should be discouraged from applying the same reasoning to future buy-outs. Mr. Skinner plays down any rift in the administration on the foreign-ownership question. "I think that Darman, Brady, Boskin and I all have the same basic understanding of the importance of foreign investment in this country," he said yesterday. "And they all understand I have a statutory duty to enforce safety and existing law regarding foreign ownership." He and other department officials argue that it would be foolish to open U.S. markets to foreign carriers through investments, when other countries are blocking expanded service by American carriers overseas. The debt issue also is contentious.Mr. Skinner says he is concerned that heavily leveraged airlines may be so stretched for funds that safety will suffer. "I have to make sure that every company spends the right amount on maintenance," he says. But some experts say that there isn't a correlation between an airline's debt load and its safety record. "No systematic link between finances and safety has ever been demonstrated," says Michael Levine, dean of the Yale University School of Organization and Management and formerly a top official with the Civil Aeronautics Board. Mr. Skinner satisfied his safety concerns on the Northwest deal by requiring the airline to file certain financial information that could affect safety, including maintenance expenditures.But now he is under pressure by some in Congress to extend those reporting requirements to other debt-laden airlines that haven't been involved in recent buy-outs. A final dispute involved in the leveraged buy-out issue is how much authority the Transportation Department should have in dealing with LBOs.Several members of Congress, generally delighted with Mr. Skinner's activist approach to buy-outs, want the department to be able to block the deals before they become final.But the administration told lawmakers yesterday that it opposed the legislation, saying the government already has enough authority. Currently, however, the Transportation Department's authority over leveraged buy-outs appears to some to be a case of too much, too late.The department doesn't have prior-review authority.In addition, if it can't persuade a company to restructure an unacceptable buy-out plan, its only recourse is to revoke the airline's certificate -- in effect grounding the carrier.That, says House Aviation Subcommittee Chairman James Oberstar, a Minnesota Democrat, is like "using a howitzer to go deer hunting."
Influential members of the House Ways and Means Committee introduced legislation that would restrict how the new savings-and-loan bailout agency can raise capital, creating another potential obstacle to the government's sale of sick thrifts. The bill, whose backers include Chairman Dan Rostenkowski (D., Ill.), would prevent the Resolution Trust Corp. from raising temporary working capital by having an RTC-owned bank or thrift issue debt that wouldn't be counted on the federal budget.The bill intends to restrict the RTC to Treasury borrowings only, unless the agency receives specific congressional authorization. "Such agency `self-help' borrowing is unauthorized and expensive, far more expensive than direct Treasury borrowing," said Rep. Fortney Stark (D., Calif.), the bill's chief sponsor. The complex financing plan in the S&L bailout law includes raising $30 billion from debt issued by the newly created RTC.This financing system was created in the new law in order to keep the bailout spending from swelling the budget deficit.Another $20 billion would be raised through Treasury bonds, which pay lower interest rates. But the RTC also requires "working" capital to maintain the bad assets of thrifts that are sold, until the assets can be sold separately.That debt would be paid off as the assets are sold, leaving the total spending for the bailout at $50 billion, or $166 billion including interest over 10 years. "It's a problem that clearly has to be resolved," said David Cooke, executive director of the RTC.The agency has already spent roughly $19 billion selling 34 insolvent S&Ls, and it is likely to sell or merge 600 by the time the bailout concludes. Absent other working capital, he said, the RTC would be forced to delay other thrift resolutions until cash could be raised by selling the bad assets. "We would have to wait until we have collected on those assets before we can move forward," he said. The complicated language in the huge new law has muddied the fight.The law does allow the RTC to borrow from the Treasury up to $5 billion at any time.Moreover, it says the RTC's total obligations may not exceed $50 billion, but that figure is derived after including notes and other debt, and subtracting from it the market value of the assets the RTC holds. But Congress didn't anticipate or intend more public debt, say opponents of the RTC's working-capital plan, and Rep. Charles Schumer (D., N.Y.) said the RTC Oversight Board has been remiss in not keeping Congress informed. "That secrecy leads to a proposal like the one from Ways and Means, which seems to me sort of draconian," he said. "The RTC is going to have to pay a price of prior consultation on the Hill if they want that kind of flexibility." The Ways and Means Committee will hold a hearing on the bill next Tuesday.
We're about to see if advertising works. Hard on the heels of Friday's 190-point stock-market plunge and the uncertainty that's followed, a few big brokerage firms are rolling out new ads trumpeting a familiar message: Keep on investing, the market's just fine.Their mission is to keep clients from fleeing the market, as individual investors did in droves after the crash in October Just days after the 1987 crash, major brokerage firms rushed out ads to calm investors.This time around, they're moving even faster. PaineWebber Inc. filmed a new television commercial at 4 p.m. EDT yesterday and had it on the air by last night.Fidelity Investments placed new ads in newspapers yesterday, and wrote another new ad appearing today.Shearson Lehman Hutton Inc. by yesterday afternoon had already written new TV ads.It considered running them during tomorrow night's World Series broadcast but decided not to when the market recovered yesterday.Other brokerage firms, including Merrill Lynch & Co., were plotting out potential new ad strategies. The brokerage firms learned a lesson the last time around, when frightened investors flooded the phone lines and fled the market in a panic.This time, the firms were ready.Fidelity, for example, prepared ads several months ago in case of a market plunge.When the market went into its free fall Friday afternoon, the investment firm ordered full pages in the Monday editions of half a dozen newspapers.The ads touted Fidelity's automated 800-number beneath the huge headline, "Fidelity Is Ready For Your Call." A Fidelity spokesman says the 800-line, which already was operating but which many clients didn't know about, received about double the usual volume of calls over the weekend. "A lot of investor confidence comes from the fact that they can speak to us," he says. "To maintain that dialogue is absolutely crucial.It would have been too late to think about on Friday.We had to think about it ahead of time." Today's Fidelity ad goes a step further, encouraging investors to stay in the market or even to plunge in with Fidelity.Underneath the headline "Diversification," it counsels, "Based on the events of the past week, all investors need to know their portfolios are balanced to help protect them against the market's volatility." It goes on to plug a few diversified Fidelity funds by name. PaineWebber also was able to gear up quickly thanks to the 1987 crash.In the aftermath of the 1987 debacle, the brokerage firm began taping commercials in-house, ultimately getting its timing down fast enough to tape a commercial after the market closed and rush it on the air that night.It also negotiated an arrangement with Cable News Network under which CNN would agree to air its last-minute creations. The new PaineWebber commercial, created with ad agency Saatchi & Saatchi Co., features Mary Farrell, one of the firm's most visible investment strategists, sounding particularly bullish.Taped just as the market closed yesterday, it offers Ms. Farrell advising, "We view the market here as going through a relatively normal cycle. . . . We continue to feel that the stock market is still the place to be for long-term appreciation." The spot was scheduled to appear three times on CNN last night. PaineWebber considered an even harder sell, recommending specific stocks.Instead, it settled on just urging the clients who are its lifeline to keep that money in the market. "We're saying the worst thing that anyone can do is to see the market go down and dump everything, which just drives the prices down further," says John Lampe, PaineWebber's director of advertising. "If you owned it and liked it Friday, the true value hasn't changed." He adds, "This isn't 1987 revisited." With the market fluctuating and then closing up more than 88 points yesterday, investment firms had to constantly revise their approach.At Shearson Lehman, executives created potential new commercials Friday night and throughout the weekend, then had to regroup yesterday afternoon.The plan had been to make one of Shearson's easy-to-film, black-and-white "Where We Stand" commercials, which have been running occasionally in response to news events since 1985.The ad would have run during the World Series tomorrow, replacing the debut commercial of Shearson's new ad campaign, "Leadership by Example." But in a meeting after the market closed yesterday, Shearson executives decided not to go ahead with the stock-market ad. "We don't think at this point anything needs to be said.The market seems to be straightening out; we're taking a wait-and-see attitude," says Cathleen B. Stewart, executive vice president of marketing. In any case, the brokerage firms are clearly moving faster to create new ads than they did in the fall of 1987.But it remains to be seen whether their ads will be any more effective.In 1987, despite a barrage of ads from most of the major investment firms, individuals ran from the market en masse.Now the firms must try their hardest to prove that advertising can work this time around. Ad Notes. . . . ARNOLD ADVERTISING: Edward Eskandarian, former chairman of Della Femina, McNamee WCRS/Boston, reached an agreement in principle to acquire a majority stake in Arnold Advertising, a small Boston shop.Terms weren't disclosed.Mr. Eskandarian, who resigned his Della Femina post in September, becomes chairman and chief executive of Arnold.John Verret, the agency's president and chief executive, will retain the title of president.Separately, McDonald's Corp., Oak Brook, Ill., named Arnold to handle its estimated $4 million cooperative ad account for the Hartford, Conn., area.That account had been handled by Della Femina, McNamee WCRS. EDUCATION ADS: A 142-page ad supplement to Business Week's special "Corporate Elite" issue calls on business leaders to use their clout to help solve the nation's education crisis.The supplement, the largest ever for the magazine, includes ads from 52 corporate advertisers and kicks off a two-year Business Week initiative on education.The magazine will distribute 10% of the gross revenues from the supplement as grants to innovative teachers.
You know what the law of averages is, don't you?It's what 1) explains why we are like, well, ourselves rather than Bo Jackson; 2) cautions that it's possible to drown in a lake that averages two feet deep; and 3) predicts that 10,000 monkeys placed before 10,000 pianos would produce 1,118 publishable rock 'n' roll tunes. Baseball, that game of the long haul, is the quintessential sport of the mean, and the mean ol' law caught up with the San Francisco Giants in the World Series last weekend.The team that dumped runs by the bushel on the Chicago Cubs in the National League playoffs was held to just one in two games by the home-team Oakland A's, the gang that had been done unto similarly by the Los Angeles Dodgers and Orel Hershiser in last year's tournament.Morever, much of the damage was accomplished by A's who had some catching up to do. In game two, on a cool Sunday evening in this land of perpetual autumn, a lot of the catching up was done by the A's catcher, Terry Steinbach.He hit a 2-0 pitch from Rick Reuschel into the left-field stands in inning four to stretch his team's lead from 2-1 to a decisive 5-1, where it stayed.So what if Steinbach had struck just seven home runs in 130 regular-season games, and batted in the seventh position of the A's lineup. "If you get your pitch, and take a good swing, anything can happen," he later remarked. On Saturday night, quite a few of the boys in green and gold salted away successes to salve the pain of past and, no doubt, future droughts.Mark McGwire, the big, red-haired Oakland first baseman, had three hits in four at bats, two more than he'd had in the five-game Dodger series in which he'd gone 1-for-17.The A-men batting Nos. 6 through 9, a.k.a. the "bottom of the order," got seven of their team's 11 hits and scored four of its runs in a 5-0 decision. Right-hander Dave Stewart held the Giants to five hits to account for the zero on the other side of the Saturday ledger.That he was the A's winningest pitcher during its American League campaign with a 21-9 mark, plus two wins over Toronto in the playoffs, indicates he may have some evening up coming, but with the way his split-fingered fastball is behaving, that might not be this week.The same goes for Mike Moore, another veteran who overcame early struggles to permit the Giants but a run and four hits in seven innings in Sunday's contest. "Every guy they put out there had a better split-finger than the guy before," marveled Giant manager Roger Craig.He's an ex-hurler who's one of the leading gurus of the fashionable delivery, which looks like a fastball until it dives beneath the lunging bat. The upshot of the downshoot is that the A's go into San Francisco's Candlestick Park tonight up two games to none in the best-of-seven fest.The stat to reckon with here says that about three of four clubs (29 of 39) that took 2-0 Series leads went on to win it all.That's not an average to soothe Giant rooters. One might think that the home fans in this Series of the Subway Called BART (that's a better name for a public conveyance than "Desire," don't you think?) would have been ecstatic over the proceedings, but they observe them in relative calm.Partisans of the two combatants sat side by side in the 49,000-plus seats of Oakland Coliseum, and while they cheered their favorites and booed the opposition, hostilities advanced no further, at least as far as I could see. A few folks even showed up wearing caps bearing the colors and emblems of both teams. "I'm for the Giants today, but only because they lost yesterday.I love 'em both.The only thing I'm rooting for is for the Series to go seven games," said David Williams, a Sacramento septuagenarian, at the Coliseum before Sunday's go. The above represents a triumph of either apathy or civility.I choose to believe it's the latter, although it probably springs from the fact that just about everyone out here, including the A's and Giants, is originally from somewhere else.Suffice it to say that if this were a New York Yankees-Mets series, or one between the Chicago Cubs and White Sox (hey, it's possible), you'd need uniformed police in every other seat to separate opposing fans, and only the suicidal would bifurcate their bonnets. Anyway, the A's gave you a lot of heroes to root for.In the opening game, besides Steinbach and Stewart, there was Walt Weiss, a twiggy-looking, second-year shortstop who had lost a couple months of the season to knee surgery.He was flawless afield (ditto in game two), moved a runner along in the A's three-run second inning, and homered for his team's final tally.Such is his reputation among the East Bay Bashers that when he hit his first career home run last season, the fan who caught it agreed to turn the ball over to him in return for an autograph.Not his autograph; power-hitter McGwire's. An A's co-hero of the second game was Rickey Henderson, who exemplifies the hot side of the hot-cold equation.He smoked Toronto in the playoffs with six hits, seven walks and eight stolen bases in 22 at bats, and continued that by going 3-for-3 at the plate Sunday, along with walking, stealing a base and scoring a run. "When you're in the groove, you see every ball tremendously," he lectured. The cold guys in the set were Will Clark, Kevin Mitchell and Matt Williams, the Giants' 3-4-5 hitters.They combined for 25 hits, six home runs and 24 runs batted in in the five games against the Cubs.They went a collective 5-for-24 here, with zero homers and ribbies. It's that last set of numbers, as much as anything else, that gives the Giants hope in the Series games to come. "I believe in the law of averages," declared San Francisco batting coach Dusty Baker after game two. "I'd rather see a so-so hitter who's hot come up for the other side than a good hitter who's cold." But the old Dodger slugger wisely offered no prediction about when good times would return to his side. "When it goes, you never know when you'll get it back," he said. "That's baseball."
NCR Corp. reported a 10% drop in third-quarter net income, citing intense competition that caused its gross profit margins to dip. Net income for the quarter fell to $93.1 million from $103.1 million, roughly what analysts had expected.But per-share profit dropped only 2% to $1.23 a share from $1.26 a share, as the company continued its stock buy-back plan.Average shares outstanding dropped to 75.8 million from 82.1 million.Revenue fell 1% to $1.39 billion from $1.41 billion. The computer maker, which sells more than half its goods outside the U.S., also said the negative effect of a stronger U.S. dollar will "adversely affect" its fourth-quarter performance and "make it difficult" to better 1988 results. NCR said revenue declined both in the U.S. and overseas, reflecting a world-wide softening of the computer markets.The company, however, said orders in the U.S. showed "good gains" during the latest quarter.Analysts estimate those gains at 12% to 13%, a good part of it coming from large orders placed by a few of NCR's major customers. In addition to a general slowing of the computer industry, NCR, which sells automated teller machines and computerized cash registers, is also affected by the retail and financial sectors, "areas of the economy that have generally not been robust," notes Sanjiv G. Hingorani, an analyst for Salomon Brothers Inc. These factors, combined with a strong dollar, should negatively affect the current quarter's results, NCR said.In the year-earlier fourth quarter, NCR had profit of $149.6 million, or $1.85 a share, on revenue of $1.8 billion. Mr. Hingorani said he lowered his full-year estimates for 1989 to $5.35 a share from $5.50 a share.Revenue projections were slashed to $6.03 billion from $6.20 billion.Last year, NCR had net income of $439.3 million, or $5.33 a share, on $5.99 billion in revenue. For the nine months, the company's earnings fell 9% to $264.6 million, or $3.40 a share, from $289.7 million, or $3.49 a share.Revenues declined 1% to $4.17 billion from $4.19 billion. In New York Stock Exchange composite trading yesterday, NCR shares fell 75 cents to close at $57.
Steve Clark, a Shearson Lehman Hutton Inc. trader, reported for work at 5 a.m., two and a half hours before the usual Monday morning strategy meeting. At Jefferies & Co., J. Francis Palamara didn't reach the office until 5:30 a.m., but then he had been up most of the night at home. "I had calls all night long from the States," he said. "I was woken up every hour -- 1:30, 2:30, 3:30, 4:30.People are looking for possible opportunities to buy, but nobody wants to stick their chin out." For many of London's securities traders, it was a day that started nervously in the small hours.By lunchtime, the selling was at near-panic fever.But as the day ended in a frantic Wall Street-inspired rally, the City breathed a sigh of relief. So it went yesterday in the trading rooms of London's financial district.In the wake of Wall Street's plunge last Friday, the London market was considered especially vulnerable.And before the opening of trading here yesterday, all eyes were on early trading in Tokyo for a clue as to how widespread the fallout might be. By the time trading officially got under way at 9 a.m., the news from Asia was in.And it left mixed signals for London.Tokyo stocks closed off a significant but less-than-alarming 1.8% on thin volume; Hong Kong stocks declined 6.5% in orderly trading. At Jefferies' trading room on Finsbury Circus, a stately circle at the edge of the financial district, desktop computer screens displayed the London market's major barometer -- the Financial Times-Stock Exchange 100 Share Index.Red figures on the screens indicated falling stocks; blue figures, rising stocks.Right away, the reds outnumbered the blues, 80 to 20, as the index opened at 2076.8, off 157.1 points, or 7%. "I see concern, but I don't see any panic," said Mr. Palamara, a big, good-humored New York native who runs the 15-trader office. The Jefferies office, a branch of the Los Angeles-based firm, played it conservatively, seeking to avoid risk. "This is not the sort of market to have a big position in," said David Smith, who heads trading in all non-U.S. stocks. "We tend to run a very tight book." Jefferies spent most of its energies in the morning trying to match buyers and sellers, and there weren't many buyers. "All the takeover stocks -- Scottish & Newcastle, B.A.T, DRG -- are getting pretty well pasted this morning," Mr. Smith said.Seconds later, a 7,500-share "sell" order for Scottish & Newcastle came in.For the third time in 15 minutes, a trader next to Mr. Smith left the no-smoking area to have a cigarette.On the screens, only two forlorn blue figures remained, but the index had recovered a few points and was off about 140. "Because Tokyo didn't collapse, let's pick up a little stock," Mr. Smith said.He targeted 7,500 shares of Reuters and punched a button to call up on his screen other dealers' price quotes.The vivid yellow figures showed the best price at 845 pence, ($13.27) and Mr. Smith's traders started putting out feelers.But the market sensed a serious buyer on a day dominated by selling, and the quotes immediately jumped to 850 pence. "When I want to buy, they run from you -- they keep changing their prices," Mr. Smith said. "It's very frustrating." He temporarily abandoned his search for the Reuters shares. By this time, it was 4:30 a.m. in New York, and Mr. Smith fielded a call from a New York customer wanting an opinion on the British stock market, which had been having troubles of its own even before Friday's New York market break. "Fundamentally dangerous. . . ," Mr. Smith said, almost in a whisper, ". . . .fundamentally weak . . . fairly vulnerable still . . . extremely dangerously poised . . . we're in for a lot of turbulence. . . ." He was right.By midday, the London market was in full retreat. "It's falling like a stone," said Danny Linger, a pit trader who was standing outside the London International Financial Futures Exchange.Only half the usual lunchtime crowd gathered at the tony Corney & Barrow wine bar on Old Broad Street nearby.Conversation was subdued as most patrons watched the latest market statistics on television.At 12:49 p.m., the index hit its low, 2029.7, off 204.2 points. "France opened the limit down, off at least 10% if you could calculate the index, which you couldn't," Mr. Clark, the Shearson trader, said early in the afternoon. "Spain is down 10% and suspended, Sweden's down 8%, Norway 11%.This market has been very badly damaged." As 2:30 p.m. -- Wall Street's opening time -- neared, Shearson traders and salesmen traded bets on how low the New York market would open. In the center of the trading floor, chief trader Roger Streeter and two colleagues scrambled for the telephones as soon as the New York market opened -- plummeting more than 60 points in the first few minutes.They saw an opportunity created by the sell-off.As Wall Street traders dumped American Depositary Receipts in Jaguar PLC, Mr. Streeter and trader Sam Ruiz bought them to resell in the U.K. Investors here still expect Ford Motor Co. or General Motors Corp. to bid for Jaguar. Suddenly, after about 45 minutes, the U.S. markets rallied. "The MMI has gone better," shouted one trader at about 3:15 London time, as the U.S. Major Markets Index contract suddenly indicated a turnabout. As Wall Street strengthened, the London trading room went wild.Traders shouted as their screens posted an ever-narrowing loss on Wall Street.Then, nine minutes later, Wall Street suddenly rebounded to a gain on the day. "Rally! Rally! Rally!" shouted Shearson trader Andy Rosen, selling more Jaguar shares. "This is panic buying!" As the London market rallied, some wondered whether the weekend of worrying and jitters had been worth it.The London index closed at 2163.4, its high for the day, off 70.5, or about 3.3%.
The House Aviation Subcommittee approved a bill that would give the transportation secretary authority to review and approve leveraged buy-outs of major U.S. airlines. The collapsed plan to acquire UAL Corp., parent of United Airlines, spurred quick action on the legislation, introduced Wednesday and approved by the subcommittee on a voice vote yesterday.The bill is expected to be taken up by the Public Works and Transportation Committee tomorrow, and a floor vote by next week will be urged. The measure drew criticism from the Bush administration and a parting shot from financier Donald Trump, who yesterday withdrew his takeover bid for AMR Corp., the parent of American Airlines.In a letter to subcommittee Chairman James Oberstar (D., Minn.), Mr. Trump criticized the bill as an explicit effort to thwart his bid for AMR, and said it contributed to the collapse of the deal. Elaine Chao, deputy transportation secretary, also sent a letter to express the administration's opposition to the bill "in its present form." Rep. Oberstar brushed off Mr. Trump's allegations as an "excuse for his own deal failing." He also said the fact that the other letter hadn't come from Transportation Secretary Samuel Skinner indicated there is "wiggle room" in the administration's position. Mr. Oberstar and other committee members repeatedly stressed that the legislation wasn't a response to any particular market situation.But they cited the UAL and AMR examples as reasons to move quickly to enact this legislation. Aides both in the House and Senate said the withdrawal of the Trump bid for AMR isn't likely to deflate efforts to push the legislation. "It's still on the fast track and we still want to do it," said one Senate aide. The bill is aimed at addressing the concern that an airline might sacrifice costly safety measures to pay off the debt incurred in a leveraged buy-out. Currently, the transportation secretary doesn't have clearly established authority to block mergers, but can take the drastic step of revoking the operating certificate of any carrier the official considers unfit.Supporters of the legislation view the bill as an effort to add stability and certainty to the airline-acquisition process, and to preserve the safety and fitness of the industry. In general, the bill would give the Transportation Department a 30-day review period before 15% or more of the voting stock of a major U.S. air carrier could be acquired.It also would require the acquiring party to notify the transportation secretary and to provide all information relevant to determining the intent of the acquisition. The bill would allow the secretary to reject a buy-out if sufficient information hasn't been provided, or if the buy-out is likely to weaken the carrier financially, result in a substantial reduction in size of the airline through disposal of assets, or give control to a foreign interest.If more information is needed, the secretary would have authority to extend the review period 20 days. All the witnesses, both congressmen and industry experts, expressed support for the bill in order to prevent profiteers from cashing in on airline profits at the expense of safe, cost-effective service.But several committee members disapproved, some backing Mr. Trump's claim that the threat of regulation caused the failure of the UAL deal and the stock-market plunge. One of the major concerns expressed by the dissenters was that large airlines would be prohibited from divesting themselves of smaller entities and producing independent spin-off companies.
Share prices plummeted across Europe yesterday in response to Friday's New York sell-off, but some issues staged a late comeback after Wall Street opened without another rout. European investors have further reason for optimism today, after the U.S. rebound. The Frankfurt Stock Exchange, which closed before the New York exchanges opened, was the hardest hit of the major European markets, with the DAX Index dropping 12.8%. In London, prices plummeted in early trading and were off as much as 9% before coming back strong after the New York opening to close down only 3.2%. West German Economics Minister Helmut Haussmann said, "In my view, the stock market will stabilize relatively quickly.There may be one or other psychological or technical reactions, but they aren't based on fundamentals.The economy of West Germany and the EC {European Community} is highly stable." Paris, which has been the center of speculation fever in recent weeks, also was hard hit.Share prices fell in Milan, Amsterdam, Zurich, Madrid and Stockholm.Prices in Brussels, where a computer breakdown disrupted trading, also tumbled.Following is a breakdown of major market activity: FRANKFURT: One of the sharpest declines came in the financial center of Europe's strongest economy.The DAX Index of 30 West German blue chips plunged 12.8%, a one-day record, wiping out the summer's gains.The index closed at 1385.72, down 203.56 points. By comparison, two years ago on Black Monday, the new index would have dropped 9.4%, according to a projection by the exchange.Investors may have reacted so strongly to Friday's U.S. stock market loss because they had vivid memories of the Frankfurt exchange's losing 35% of its value in the 1987 crash and its wake. This time, however, many small investors may have been hurt by acting so swiftly. "They all went in the wrong direction," said Andreas Insam, an investment adviser for the Bank in Liechtenstein's Frankfurt branch.He said he told clients to buy selected West German blue chips after they fell by about 10%. After the opening was delayed 30 minutes because of the crush of sell orders, Frankfurt's normal two-hour trading session was extended 75 minutes to handle the heavy volume. "The beginning was chaotic," said Nigel Longley, a broker for Commerzbank AG. "It took three-quarters of an hour before enough prices could be worked out to get a reading on the market." Institutional investors and bankers, many of whom spent the night before in their offices watching Far Eastern markets, were cautiously optimistic after the mild 1.8% decline in Tokyo stock prices. "Everybody was still confident, including most institutional investors.That is why everybody was a little surprised by the storm of sell orders from small private investors," said Norbert Braeuer, a senior trader for Hessische Landesbank. Some big institutions, including banks, began picking up lower-priced shares late yesterday, but most investors wanted to see what would happen in New York before acting. But even if Wall Street continues to stabilize, analysts here say the latest blow to investor confidence could inhibit a swift recovery for the Frankfurt exchange, which already was showing signs of weakness after the DAX had slipped from a 1989 high of 1657.61 on Sept. 8. Some of West Germany's bluest chips took some of the biggest hits.A 16.3% drop for Mannesmann AG and Dresdner Bank AG's 9.6% decline were especially problematic for their respective boards, whose plans for major rights issues in November could now be in jeopardy. Dresdner Bank last month said it hoped to raise 1.2 billion marks ($642.2 million) by issuing four million shares at 300 marks each.Yet yesterday's market cropped Dresdner's share price by 33 marks to 309 marks a share, leaving little incentive for investors to subscribe to the standing price unless the market recovers quickly. LONDON: Headed toward a record drop at midday, the London stock market recouped two-thirds of its losses in the wake of New York's early rally. The Financial Times-Stock Exchange 100 Share Index closed off 70.5 points, at 2163.4, its high for the day, after having plunged 204.2 points at 12:49 p.m. It was big institutions such as Norwich Union Insurance Group, Scottish Amicable Investment Managers and Standard Life Assurance Co. that spearheaded the rally.Attracted by low prices and encouraged by New York's performance, they scooped up equities across the board. Volume was 959.3 million shares, more than triple recent levels. PARIS: Late buying gave the Paris Bourse a parachute after its free fall early in the day.The CAC General Index ended down 5.4% at 523.6, a drop of 29.6 points from Friday. "There was a volatility in the market that I have never seen before," said Michel Vigier, a partner in brokerage firm Cholet Dupont. "When Wall Street turned around shortly after the opening, there was panic buying in Paris." Brokers said that as the news spread that Wall Street was moving up, traders who had called to place sell orders changed their line in mid-conversation, ordering buys instead. Trading was driven primarily by small investors and speculators, with large institutions waiting on the sidelines until late in the day.When Wall Street turned, however, the big boys entered the market, looking for bargains.
J.P. Morgan & Co. swung to a loss in the third quarter, while NCNB Corp. reported net income more than doubled, and Security Pacific Corp. net rose 10%. J.P. Morgan & Co. J.P. Morgan, as expected, posted a $1.82 billion net loss for the quarter, reflecting the New York bank's decision last month to add $2 billion to reserves for losses on loans to less-developed countries. The reserve addition placed the parent of Morgan Guaranty Trust Co. among a few major U.S. banks that have covered nearly all their medium and long-term portfolios to less-developed countries with reserves. The latest quarter's loss equals $9.92 a share.In the year-earlier quarter, Morgan earned $233.6 million, or $1.25 a share. George M. Salem, analyst at Prudential-Bache Securities Inc., called the results "mildly disappointing." Excluding the $2 billion provision and allowing for the taxes Morgan paid, earnings were about 65 cents a share, Mr. Salem said. In New York Stock Exchange composite trading yesterday, Morgan climbed $1.50 a share to $44.125. Net interest income sank 27% in the quarter to $254 million from $347 million.The interest rate on short-term funds, which banks borrow to finance longer-term loans to customers, was "sharply higher," Morgan said. Morgan received $2 million of interest payments on its medium and long-term Brazilian loans; had they been accruing interest, net interest income would have been $35 million higher in the quarter, Morgan said.Such loans to Argentina also remain classified as non-accruing, costing the bank $10 million of interest income in the third period. Income from sources other than interest climbed 12% to $414 million, reflecting higher corporate-finance and other fees and gains on sales of investment securities. "These increases were partly offset by lower trading-related" income, the bank said.Non-interest expenses grew 16% to $496 million. NCNB Corp. NCNB Corp. 's net income more than doubled in the period, largely because of continued strong performance by the bank's Texas operations. The Charlotte, N.C., company said earnings rose to $143.6 million, or $1.45 a share, from $58.9 million, or 69 cents a share, a year earlier.The latest quarter included a gain of $56.1 million, or 59 cents a share, related to the purchase of the remaining 51% of NCNB Texas National Bank from the Federal Deposit Insurance Corp. The strong performance, however, contrasted with an unexpectedly large increase in the size of NCNB's problem loans, particularly in the Southeast.In the third quarter, nonperforming assets jumped to $474.1 million, or 1.43% of net loans and leases, from $232.8 million, or 1.13% in the second quarter.Nonperformers totaled $230.8 million, or 1.27% in the year-ago third quarter.Included in the increase in the most recent quarter is a $33 million loan, which NCNB said it "expects to be fully repaid, with no loss, early in the fourth quarter." The deterioration in credit quality offset strong loan growth of 17% in NCNB's Southeast operations, as well as a 28% growth in deposits resulting from an aggressive marketing campaign.The higher rates paid on deposits also helped squeeze NCNB's net interest margin in the Southeast to 3.38% from 3.80% a year earlier. In Big Board composite trading yesterday, NCNB jumped $3.50 a share, to $51.Results were released after the market closed. NCNB Texas National, formed from the remnants of of the failed First RepublicBank Corp. of Dallas, contributed $76.9 million to NCNB's bottom line in the third quarter.NCNB said its third-quarter results reflect 100% of earnings of the Texas operation since Aug. 1. NCNB raised some $1.9 billion in new capital during the quarter to complete the NCNB Texas purchase, and to acquire several small failed thrifts to fill out its regional franchise.Last week, the banking company said it purchased both Freedom Savings & Loan Association, Tampa, Fla., and University Federal Savings Association of San Antonio, Texas, for $169.4 million. In the first nine months, NCNB's net income climbed 65% to $310.9 million, or $3.30 a share, from $188.2 million, or $2.22 a share, a year earlier. Security Pacific Corp. Security Pacific's earnings growth slowed in the third quarter, but the Los Angeles bank holding company was still able to post a 10% increase in net income because of robust growth in residential real-estate and consumer loans. Net rose to $185.1 million, or $1.55 a share, from $167.9 million, or $1.47 a share, a year earlier.The company said the gain resulted mainly from a $54 million increase in net interest income, reflecting a 33% increase in real estate loans (mainly residential), and a 19% rise in consumer loans.These high-yielding loans in effect replaced some low-yielding assets such as inter-bank loans, which were allowed to decrease.As a result, Security Pacific's net interest margin fell only 13 basis points, a more mild decrease than some major banks outside California, which have been reporting more sluggish earnings. Security Pacific shares closed at $44.625, down 37.5 cents, in Big Board composite trading. The earnings represent a 0.89% return on assets for Security Pacific, and an 18.9% return on equity. The loan growth offset continuing real-estate loan losses in the depressed Arizona market.Security Pacific reported a 33% increase in net credit losses for the quarter, to $109 million from $81.9 million in the year-ago period. Nonperforming loans grew slightly to $1.75 billion at Sept. 30, from $1.7 billion a year ago. Security Pacific's loan-loss provision was down 22%, or $30.4 million, because it added to its foreign-debt reserve the year before.Non-interest income fell 6% in the quarter, mainly because of an unusual gain a year earlier from the sale of Hong Kong banking operations.Non-interest expense grew only 4% in the period. For the nine months, net rose 17% to $548.9 million, or $4.67 a share, from $469.4 million, or $4.13 a share, a year earlier.
A group of institutional investors in Telerate Inc. said that Dow Jones & Co. 's $18-a-share offer for the electronic financial information services company is "grossly inadequate." In a letter filed with the Securities and Exchange Commission, the group, which holds about 4.5 million Telerate shares, or about 4.7% of the shares outstanding, said " . . . at present none of us believes an offer for less than $25 per share would be fair and some believe that $25 is too low." The letter was dated Oct. 6. In composite trading on the New York Stock Exchange, Telerate shares closed yesterday at $18.875, down 75 cents a share. Dow Jones, publisher of The Wall Street Journal, has launched an $18-a-share, or $576 million, tender offer to acquire the remaining Telerate shares outstanding; Dow Jones owns 67% of Telerate.Telerate has rejected the offer, which expires Nov. 3. The group includes Putnam Cos. and various affiliates based in Boston; Wells Fargo Bank, San Francisco; the California Public Employees Retirement System, Sacramento, Calif., and T. Rowe Price Associates Inc., Baltimore. Among other issues, the group's letter said it has "concerns as to whether Dow Jones's offer meets the applicable requirements of procedural fairness." A spokesman for Dow Jones said he hadn't seen the group's filing, but added, "obviously Dow Jones disagrees with their conclusions.Our offer is to buy any and all shares tendered at $18 a share."
U.S. Trade Representative Carla Hills said the first dispute-settlement panel set up under the U.S.-Canadian "free trade" agreement has ruled that Canada's restrictions on exports of Pacific salmon and herring violate the accord. Mrs. Hills said the U.S. and Canada have until Nov. 13 to resolve the dispute.If a solution isn't reached by then, she said, the U.S. would have the right to suspend some trade concessions to Canada equivalent in value to the losses suffered by U.S. fish-processing companies in Alaska and the Pacific Northwest. However, in Ottawa, Canadian Trade Minister John Crosbie said the dispute-settlement panel accepted the "legitimacy of Canada's position on the use of these landing requirements to conserve and manage these important fisheries." Questioned about the seeming contradiction in the U.S. and Canadian government views of the panel's report, an aide for Mrs. Hills said the panel had clearly ruled that the Canadian trade restrictions "are illegal." The U.S. trade representative declined to put a dollar estimate on the losses resulting from the Canadian export restrictions. Canada initially had an export prohibition that was replaced by regulations requiring that such fish had to be brought ashore in British Columbia by commercial fishermen prior to export.This action was defended by the Canadian government on conservation grounds. Mrs. Hills said yesterday that the dispute-settlement panel rejected this Canadian government argument. "We fully expect that Canada will comply with the panel's ruling" that the "landing requirement" also must be ended, she said. Earlier, an international panel set up under the rules of the General Agreement on Tariffs and Trade in Geneva determined that the original Canadian fish-export restrictions violated GATT rules. Mrs. Hills said the U.S. won't accept any delays after Nov. 13 because U.S. fish-processing firms enter into contracts in the fall to purchase the next season's catch.She said the Canadian restrictions must be removed before such contracts are concluded.
Merrill Lynch & Co. 's net income dropped 37%, while Bear Stearns Cos. posted a 7.5% gain in net, and PaineWebber Group Inc. 's profit fell, but would have risen without a special gain a year ago. At Merrill Lynch, third-period net was $41 million, or 34 cents a share, down from $65.6 million, or 58 cents a share, a year ago.Total revenue reached $2.83 billion, up 10% from $2.57 billion. The firm's drop in net reflected weaker revenue in transactions for its own account -- a decline of 19% to $314.6 million on reduced revenue from trading fixed-income securities.Investment banking revenue fell 22% to $296.6 million on fewer equity and municipal underwritings. Merrill Lynch's commission revenue grew 21%, however, to $462.8 million, on higher share prices and volume and on strong sales of mutual funds.Revenue derived from interest and dividends jumped 30% to $1.4 billion.Asset-management fee revenue grew 12% to $151 million. The brokerage also reported a loss of $2.2 million from the discontinued operations and disposal of its Fine Homes International Limited Partnership real-estate subsidiary. Bear Stearns said net in the first quarter ended Sept. 29 reached $22.1 million, or 23 cents a share, from $20.5 million, or 20 cents a share, in the year-earlier quarter.Gross revenue rose 21% to $580.4 million from $478.9 million. Profit from trading for its own account dropped, the securities firm said.Investment banking revenue climbed 25%, while commission revenue advanced 31% on a stronger retail market.Bear Stearns is the holding company for Bear, Stearns & Co., the investment banking and brokerage firm. In New York Stock Exchange composite trading yesterday, Bear Stearns shares closed at $13.625, down 25 cents. Separately, PaineWebber posted net income for the third quarter of $16.8 million, or 41 cents a share, reflecting a "broad-based improvement" in the company's core businesses.Retail profit surged, but the company said it was only a "modest contributor" to third-quarter results. A year ago, net at the New York investment banking firm was $20.9 million, or 50 cents a share, including a special pretax gain of $46.3 million from the sale of the company's interest in National Car Rental Systems Inc. Revenue was $444.9 million, including net interest, down slightly from $450.7 million. In Big Board composite trading yesterday, PaineWebber closed at $18.50, up 75 cents.
What happened Friday shows that financial markets are not yet sufficiently coordinated to handle another meltdown in prices.No fiddling with systems and procedures will ever prevent markets from suffering a panic wave of selling.But markets can operate with greater or lesser efficiency. After the 1987 plunge, markets agreed that it would be wise to halt trading whenever panic conditions arose.The New York Stock Exchange adopted two specific circuit breakers: If the Dow Jones index falls 250 points in a day, the exchange will halt trading for one hour; if the decline hits 400 points, the exchange will close for an additional two hours.The rationale is that an interruption of trading will allow investors to reconsider their strategies, calm sellers and lead buyers to enter the market at indicated new price levels. It is impossible to know whether that theory is realistic.A temporary cessation of trading may indeed discourage a selling panic from feeding on itself.But there is also the possibility that shutting down markets will intensify fears and cause an even more abrupt slide in prices. What happened Friday was the worst of all worlds.The futures exchanges followed their own pre-set circuit breakers and shut down at about 3 p.m. for 30 minutes, after the Standard & Poor's 500 stock index had fallen 12 points, or about 100 points on the Dow Jones index.Options markets stopped trading in many securities.The New York Stock Exchange, under its own rules, remained open. With nowhere else to go, sellers, and particularly program traders, focused all their selling on the New York Stock Exchange.As liquidity on that market weakened, prices fell sharply. Had the futures and options markets been open, additional liquidity would have been provided and the decline, most probably, would have been less intense.At 3:30, after intense telephone negotiations between the trading markets and Washington, the futures exchanges reopened.Futures trading, however, was halted altogether at 3:45, after the futures markets had dropped an additional 30 points, which is the daily limit for price declines.At this point, the options markets also shut down and once more left all sales to be handled by the New York Stock Exchange. It is time to recognize that the New York Stock Exchange, the futures markets and the options markets, though physically separate, have actually become so closely intertwined as to constitute one market effectively.Traders can vary their strategies and execute their orders in any one of them.It therefore makes no sense for each market to adopt different circuit breakers.To achieve maximum liquidity and minimize price volatility, either all markets should be open to trading or none. Synchronized circuit breakers would not have halted the slide in prices on Friday, but they probably would have made for smoother, less volatile executions.It's time for the exchanges and the Securities and Exchange Commission to agree on joint conditions for halting trading or staying open.Let's not have one market shut down for 30 minutes when the Dow declines 100 points and another shut down for an hour after a 250-point decline. The need for hurried last-minute telephone negotiations among market officials will disappear once rules are in place that synchronize circuit breakers in all markets.The new circuit breakers, if they are to be applied at all, will require that futures and options trading continue as long as the New York Stock Exchange remains open.The rules should be established by agreement of the officials of all affected exchanges acting under the oversight and with the approval of the government regulatory agencies.Should the SEC and the Commodities Futures Trading Commission (which, with the SEC, regulates the Chicago stock-index markets) be unable to agree, the issue may have to be resolved by decision of the Treasury secretary. In many ways, our financial markets are better prepared today to handle a decline than they were two years ago.The New York Stock Exchange now has the capacity to handle a volume of nearly a billion shares a day.Telephone service has been improved for customers trying to reach their brokers, and specialists -- who I believe should stay, despite the urgings of some post-crash critics -- have larger capital positions. (Of course, specialists' actions alone can never prevent a major crack in stock prices.Witness the fact that trading in some stocks closed early Friday and opened late Monday because of an excess of sell orders.) But the task of improving market performance remains unfinished. Mr. Freund, former chief economist of the New York Stock Exchange, is a professor of economics at Pace University's business school in New York.
A UNIFIED EUROPE poses labor problems and prospects for U.S. firms. The "social dimension" -- worker concerns -- of the European Community's plan to open its internal borders in 1992 could set the effort "off the rails" if not done reasonably, says General Electric senior vice president Frank Doyle.U.S. companies wanting to expand in Europe face "tough pressure" from unions in nations such as West Germany, which play a big consulting role in management decisions, he says. FMC Corp. and Baxter International say unions also won't like plant relocations and needed restructuring, which means layoffs.Many employers have already begun moving to southern countries such as Spain and Italy, where wages are low and unions are weaker; demand for trained labor and managers will rise there, FMC says. Pfizer, Fluor and GE see big "EC 92" pluses: a push for job training and ease in moving and finding workers. CLUBBING A FAN wasn't the Baltimore Orioles' fault. So said a federal judge, in a case involving two players for the minor league Bluefield, Va., Orioles, a Baltimore farm team.The players were heckled by a patron during a July 4, 1988, game with the Martinsville Phillies.Like its parent that year, "Bluefield was not having a good year," the judge said.After the game ("Bluefield lost, 9-8, stranding three runners in . . . the ninth," he noted), trouble began. More taunting in the parking lot, the players said, led to a fight.The fan said he was punched and kicked by one player and that the other broke his jaw with a baseball bat.The judge dismissed the fan's suit against the team, however, ruling the Orioles innocent of negligent hiring, and not responsible for a fight that was outside the players' employment. PROPOSALS ARISE for coping with the shortage of nurses. An Association of Academic Health Centers report urges freeing nurses from duties that don't require special skills.It also recommends better retirement and day-care benefits, and basing pay on education, experience and nurses' demanding work schedules.But it opposes an American Medical Association proposal for creating a "registered care technologist," as "potentially divisive"; it says the job would entail an unwanted new doctor's "bedside" extension. Over a third of 618 hospitals surveyed by consultant Hewitt Associates use a "clinical ladder," basing advancement on performance and education.Many also use recruiting bonuses, tuition reimbursement, loan repayment or child-care help.Some give lump-sum incentives. MRA Staffing Systems signs up nurses for paid travel, promising annual income up to $50,000 and free or subsidized housing. TREATING EMPLOYEES with respect is crucial for managers, says consultant Hay Group after surveys of a million workers.It's in their top five "work values." Fully 80% of employees who say their bosses treat them with respect, but only a third of those who don't feel respected say they're satisfied with where they work. SPRUCING UP THE DIGS: About 200 employees of the Maryland Department of Economic and Employment Development for four months painted walls, polished and carpeted floors, bought plants, cleaned windows and blinds, and hung pictures at the agency's Baltimore office.The 3,000 hours of work will save the state $55,000. CURBING WAGE BOOSTS will get high priority again in 1990 collective bargaining, a Bureau of National Affairs survey of 250 companies with pacts expiring next year indicates.Despite labor-shortage warnings, 80% aim for first-year wage increases of under 4%; and 77% say they'd try to replace workers, if struck, or would consider it. TEMPORARY WORKERS have good educations, the National Association of Temporary Services says; its survey of 2,508 such employees shows 82% with more than a high-school education, and 31% with college degrees.About 12% have retired from a full-time job, while 54% were asked to stay on full time. HOME-SALE LOSSES rise, but they're often covered by employers. But they search for ways to limit the damage.A third of 439 companies surveyed by the Employee Relocation Council report a rise in 1988 sales losses over 1987.About 72% reimburse for all or some losses.Since 1984, more companies give sales-loss aid, as many real-estate values depreciated, the council says.RJR Nabisco pays up to $30,000 of losses, including improvements.Goodrich won't ensure loss coverage, but will prevent a "catastrophic loss"; it has given some employees the full purchase price when values fell from concern over dangers posed by a disposal site.Federal Express, Dow Chemical, Ford and National City Corp. will buy the home or let the worker sell to an outside firm, but usually won't cover a loss. Since 1984, firms offering prepurchase house appraisals, to deter overpaying, rose to 40% of those the council polled, from 28%. THE CHECKOFF: The National Academy of Engineering gives two inventors of the semiconductor microchip a $350,000 achievement award. . . . Now, that's reactionary: Letter Carriers union president Vincent Sombrotto accuses Philadelphia postmaster Charles James of "12th century . . . oppressive management tactics."
Chicken Chains Ruffled By Loss of Customers FAST-FOOD chicken chains, faced with a worsening business slump, are struggling to hatch some new marketing strategies. The Crest Report, which tracks consumer purchases, says customer traffic at chicken restaurants fell 10% in the second quarter, while the overall fast-food customer count was down 2%. Chicken business is off largely because of more competition from grocery-store convenience food, home-delivered pizza and other takeout fare, says a spokesman for the report, a publication of NPD Group, a market research firm in Port Washington, N.Y. The loss of more customers is the latest in a string of problems.Church's Fried Chicken Inc. and Popeye's Famous Fried Chicken Inc., which have merged, are still troubled by overlapping restaurant locations. Chicken chains also are feeling more pressure from McDonald's Corp., which introduced its McChicken sandwich this year and recently tested the sale of individual pieces of chicken. New management at Kentucky Fried Chicken, a unit of PepsiCo Inc., has fought back with new medium and large chicken sandwiches for the lunch crowd.And the chain is testing products that aren't fried, such as "char-grilled" chicken, to try to win health-conscious consumers. Kentucky Fried Chicken also is testing home-delivery of chicken, which could be a hit with stay-at-home diners.But some fast-food industry analysts say problems with keeping chicken warm and fresh must be solved first. A Kentucky Fried Chicken spokesman, however, disputed the notion that the delivery service experienced problems in some markets where testing has been discontinued.He says the test is continuing in Chicago, Columbus, Ohio, and a few other cities. The advertising industry is buzzing with rumors that Kentucky Fried Chicken will drop Young & Rubicam and seek a new ad agency.But the company declines to comment. Emanuel Goldman, a PaineWebber Inc. analyst, predicts Kentucky Fried Chicken will post an 11% drop in 1989 net income. "They've been laggard," he says, "but they'll have to become more aggressive." Reluctant Advertisers Try Soft-Sell Spots CALL IT un-advertising.Pittsburgh consultant David Bear is selling a soft approach to clients who want exposure yet shun pushy ads. His ploy: 60-second radio spots that offer helpful hints.The only plug for the sponsor is a brief mention at the end of the spot. The messages resemble the Business Traveler, a daily dose of travel tips developed by Mr. Bear and sponsored by travel agencies in several major cities. New un-advertisers include Burt Hill Kosar Rittlemann Associates, a Butler, Pa., architectural firm.Its radio series features such spots as "Floodlights: Evening Wear for Urban Structures" and "Building a Place to Park." A harder sell, says John Kosar, the firm's president, would "detract from the profession." Hospitals have signed up to use the messages to promote fundraisers, and Equitable Gas Co. is considering the format to offer energy tips to consumers. But such spots can be too soft. "There's always a risk of lost messages," says John Fitzgerald, chairman of Ketchum Advertising USA, which created similar radio spots for Pittsburgh National Bank. "It's a question of how much credibility you gain for the possible loss of recognition." Retailer Sees Pitfalls In Environmental Push HERE'S a retailer that's getting tough in the push for environmentally safe packaging and products. Big Bear Supermarkets Inc., a grocery chain based in San Diego, plans to display shelf cards and distribute pamphlets recommending products deemed safe for the environment.The choices will be based on research by the San Diego Environmental Health Coalition and will include products like Murphy's Oil Soap and other noncorrosive cleaners. But the chain is quickly realizing the pitfalls of such endorsements.For example, it recommends nonchlorinated dishwasher detergent and puts Sunlight on its environmentally safe list. That doesn't thrill Procter & Gamble Co., maker of Cascade dishwasher detergent.A company spokesman questioned the validity of the list, noting that chlorine is present in all major dishwasher detergents.In fact, Lever Bros. confirms that its Sunlight brand does contain chlorine bleach, even though it isn't listed on the label for the powder version.Thomas G. Dahlen, Big Bear's executive vice president, said the chain is still reviewing its product list to avoid such problems. "Our intent is to promote the best alternative," he says. "And it's important that we be accurate." But in the end, customers' wishes are what will prevail.Big Bear doesn't care for disposable diapers, which aren't biodegradable.Yet parents demand them.Says Mr. Dahlen, "We'll still be forced to sell items we might not philosophically agree with." Odds and Ends NEATNESS does count -- at least in the grocery store. A study by Safeway's Scanner Marketing Research shows soap sales climbed 5% when bars were neatly stacked on shelves instead of dumped in a wire basket. . . . Which celebrity endorsers are most believable?For the third year in a row, consumers voted Bill Cosby first and James Garner second in persuasiveness as spokesmen in TV commercials, according to Video Storyboard Tests, New York.Michael J. Fox replaced Bruce Willis in third place; Cher placed fourth for the second time.
The continuing series of HUD scandals is a sadly predictable result of pork-barrel politics.Nevertheless, lobbies such as the National Association of Home Builders (NAHB) continue to pressure Capitol Hill for more special-interest spending. Kent Colton, NAHB executive vice president, argues that the U.S. faces a multifaceted housing crisis -- reduced affordability of homes for first-time buyers, increased homelessness, and lower apartment construction rates -- that will be "very difficult" to solve "without expanded federal resources." There's nothing unusual about business groups pushing for more government spending.But the NAHB was created in 1943 out of an organization that made its name fighting a Roosevelt administration proposal to take over all defense housing production.Through the years the association has been an active member of the taxpayer's coalition, pushing for such initiatives as the balanced-budget amendment.Yet on matters close to, er, home . . . "The HUD budget has dropped by more than 70% since 1980," argues Mr. Colton. "We've taken more than our fair share.I wouldn't have a problem if other programs had taken a similar hit." But NAHB support for subsidies is not related to the current housing crunch; over the years the NAHB has backed a host of public programs.It once pushed for a national housing production goal set by the federal government and has regularly advanced anti-recession housing measures.Moreover, explains one HUD official, the NAHB remains susceptible to internal pressure from members that specialize in subsidized production. The association is pushing an extensive and expensive wish-list, which would substantially boost spending above the current level of more than $15 billion annually. It would like to peg the ceiling on Federal Housing Administration mortgage guarantees to 95% of the median price in a particular market, instead of limiting it to $101,250; reduce (or even eliminate) FHA down-payment requirements and increase the availability of variable-rate mortgages; expand the Veterans Affairs Department loan guarantee program; provide "adequate" funding for the Farmers Home Administration (FmHA); increase federal funding and tax incentives for the construction of low-income and rental housing, including $4 billion in block grants to states and localities; and "fully fund" the McKinney Act, a $656 million potpourri for the homeless. Direct federal subsidies for housing construction have proved intolerably expensive in the past, and inevitably are twisted to the benefit of well-connected developers and lobbyists, as demonstrated by the ongoing HUD scandal, or congressmen.Indirect subsidies, through the FHA, for instance, are little better. Though Mr. Colton says expanding FHA lending would result in "no cost to the government," the mere diversion of funds from other parts of the economy and from other forms of housing (such as low-income) to the single-family home market would result in a major expense.More important, housing programs run by HUD, the VA, and FmHA are awash in red ink.The FHA alone lost $4.2 billion in fiscal 1988; the government's equity in the agency, essentially its reserve fund, fell to minus $2.9 billion.The federal government has had to pump in $2.28 billion into the VA housing program since 1984 to keep the fund afloat and the VA requested an additional $120 million for the fiscal year just ended.All told, the federal government already guarantees more than $900 billion of mortgages. In its nicely produced publication "Where Will Our Children Live?" the NAHB does acknowledge that "of course, the full measure of housing affordability cannot be provided by the federal government." It points to the pernicious impact of local government regulation, particularly zoning and building fees, which pushes the price of housing out of the reach of low- and middle-income people.But while the NAHB has suggested actions that states and localities should take to reduce regulatory barriers, the association has proposed no activist legislative program -- comparable to, say, its detailed request for more federal subsidies -- to eliminate counterproductive controls. The association, a majority of whose 156,000 members build fewer than 25 units a year, is like many other business lobbies.Explains Sheila MacDonald of the National Taxpayers Union: "It treads in two worlds.The builders like the subsidies, but at the same time they tend to be fiscal conservatives in terms of major issues, such as the balanced-budget amendment." Unfortunately, the organization's desire for pork tends to override its commitment to overall fiscal responsibility.Two years ago when the NAHB lobbied for the $19 billion omnibus housing bill, the organization "basically dropped out of the taxpayers' coalition," says Ms. MacDonald.As Mr. Colton of the NAHB acknowledges: "Government is not going to solve the problem. . . . The real key is to have the economy working and interest rates down." More money for HUD will increase the deficit and destabilize the economy; more money to municipalities that are wrecking their local housing markets will further insulate them from the destructive effects of their policies.Is this what the home builders want? Mr. Bandow is a Cato Institute fellow. (See related story: "And Bills to Make Wishes Come True" -- WSJ Oct. 17, 1989.)
The latest crewcut in the equities markets reminds me of the joke T. Boone Pickens tells about the guy who was run over by the parade.When asked "What went wrong?" the unfortunate victim replied, "It was a combination of things." And so it was on Gray Friday. The grand marshal of this parade would appear to have been excess leverage.Even if that is so, however, it's probably the case that no barriers should have been erected to stop the procession before the end of the rout(e). The ceremonies began Friday afternoon when word spread that the UAL buy-out was collapsing.Although the union-bidder expects to patch together a substitute offer, consisting of less cash, the failure to get cash from Japanese and American banks confirmed a growing fear among arbitragers that the pageant of high-leverage takeover deals is ending. Lots of other entries made up the parade, of course -- notably a surprisingly large increase in producer prices, signalling Federal Reserve tightness; and the Bush administration's (temporary?) defeat in trying to lower the capital-gains tax.As usual, few favorable reviews were heard for that ever-present marching band of program traders, although most serious studies suggest they only play the music that others write. What really spooked the crowds along Wall Street, however, was the sudden concern that, whatever the reason, the pool of debt capital is drying up.Gray Friday reflects a panic mainly by the takeover arbitragers, rather than the small investor, as their highly margined investments in the "deal" stocks are jeopardized by the unexpected drying up of the lubricant for deal financing. Deal stocks led the market down as they absorbed the heaviest losses.UAL, which triggered the slide, opened Monday at $224, down about 20% from Thursday's close.AMR opened Monday at $80, down nearly 20% from Thursday's close. (Both took further hits yesterday.) Hilton lost 20% on Friday; Paramount lost almost 11%.A careful look reveals that where deal financing has been secured, the target's stock price was not affected on Friday.The multibillion-dollar prospects, where the bidder must line up a consortium of banks and/or issue billions in high-yield debt, were where the damage was concentrated. The market for so-called junk bonds has been setting the stage for Friday's dramatic march for several weeks.The growing financial difficulties of recent high-leverage restructurings or takeovers, such as Resorts International, Integrated Resources, and Campeau's retailing empire, have cast a pall over the entire market for high-yield securities.Investors have reacted by ignoring recent efforts to float junk bonds by Ohio Mattress and by forcing Ramada to postpone indefinitely its planned junk-bond sale and restructuring.As a result, high-yield mutual funds have declined across the board and the many firms planning to sell $11 billion in junk bonds before year-end are experiencing anxious times. These are all market excesses (putting aside the artificial boosts that the tax code gives to debt over equity), and what we've seen is the market reining them in.Of course, Washington hadn't been silent in the days leading up to the debacle, and its tendency to meddle in the leverage equation remains a troublesome prospect, but those preliminary steps shouldn't distract us from the basic market fundamentalism that was at work on Friday. If it is correct to find that concerns over corporate debt and LBOs caused Gray Friday, what are the implications for policy makers?After all, the stock market's response to the collapse of the UAL deal might be taken to confirm the anti-debt direction of regulators.Is this a case where private markets are approving of Washington's bashing of Wall Street?Absolutely not. To the extent that Friday's sell-off reflected a sudden reappraisal of the excesses of leverage, the message is that Wall Street and the private markets are fully capable of imposing the appropriate incentives and sanctions on corporate behavior.The national economic interests are much better served allowing the private interests of bankers and investors be the ultimate judges of the investment quality of various LBO deals and leveraged restructurings.The recent difficulties in the junk-bond markets and the scarcity of bank capital for recent deals underscores the wisdom of letting the free markets operate. If takeover premiums become excessive, if LBO dealmakers become too aggressive, then the private market will recognize these problems more quickly and accurately than will policy makers, and the markets will move with lightning speed to impose appropriate sanctions.Yes, the broader exchanges got caught up in the spiral, but they rode the tiger up all year.Not surprisingly, he sometimes bites. The arbitragers and takeover initiatiors got killed on Gray Friday, while the besieged managers of prospective targets cheered lustily.If you identify with the besieged managers, you must concede that speedy and effective relief from the excesses of the takeover market is more likely to come from the marketplace than from Washington.If you side with the arbitragers and raiders, you clearly have more to fear from private investors than from regulators, although the Delaware courts should never be underestimated. The truth is, Washington understands politics better than economics.Although the average citizen is probably not harmed too much from Washington's rhetorical war against Wall Street regarding excessive financial leveraging, actual legislation would probably impose considerable harm.Any such attempt to distinguish "good debt" from "bad debt," or to draw the line at a particular industry, such as the airlines, is likely to blunt the spur that the proper amount of leverage provides both to equity markets and economic efficiency in general. Far better for policy makers to concentrate on the war against drugs, Panama and the deficit, all of them parades that seem never to end. Mr. Jarrell, former top economist at the Securities and Exchange Commission, teaches at the University of Rochester's Simon Business School.
Tokyo share prices rebounded Tuesday morning, with the Nikkei index of 225 selected stocks rising 618.69 points to close the morning session at 35087.38.The index slid 647.33 points, or 1.8%, on Monday. In the first 25 minutes of Tuesday's trading the Nikkei index soared 664.83 points, to 35133.83.By 10 a.m. Tokyo time, the index was up 435.11 points, to 34903.80 as investors hailed New York's overnight rally. Monday's slide came in a relatively calm session that didn't provide much direction for other markets. Shares also closed sharply lower across Europe, particularly in Frankfurt, although London and a few other markets recovered some ground after stocks began to rebound in New York.Other Asian and Pacific markets had sharper losses than Tokyo, but the selling wave stopped short of precipitating another market crash. All eyes were on Tokyo at the opening because it was the first major market to trade since Friday's 190.58-point plunge on Wall Street.But rather than set the tone for other markets, Japan's major institutional investors chose to remain on the sidelines.Still, despite the sudden reappearance of stock-market turbulence, managers of Japanese investment funds said they weren't planning to unload U.S. or European equities. "We didn't trade much today, as our policy now is to wait and see," said a fund manager at Taisho Life Insurance Co. "We would like to wait and see until trading goes around through Europe and New York." The institutions appeared confident that Japanese regulators would step in to ensure orderly trading if necessary, and there was considerable speculation during the day that the Finance Ministry was working behind the scenes to do just that.But in the absence of panicky trading, its presence was never overtly felt. At the close, the Nikkei average of 225 stocks stood at 34468.69, down 647.33 points, or 1.8%.The broader Tokyo Stock Price Index sank 45.66, or 1.7%, to 2600.88.The day's decline was generally in line with analysts' weekend predictions.Declining issues swamped advancers, 941-105.But volume was thin at 526.2 million shares, compared with 574.7 million Friday. The market opened sharply lower, with the Nikkei average down nearly 600 after 20 minutes.A midmorning rebound brought it back to show a gain of about 200 at the end of the morning session, but the rally failed in the afternoon, and the market closed near the day's low. The smaller stocks in the Tokyo market's second section also posted their biggest decline of the year.The Tokyo Stock Exchange index for the second section fell 100.96, or 2.7%, to 3655.40.Many investors, trying to outperform the market's major indexes, have flocked to these small issues in recent weeks. Japanese investors and traders expressed relief that the Tokyo market didn't fall more sharply.But its performance did bear some resemblance to events of two years ago, during the October 1987 global stock market crash. On Oct. 16, 1987 -- the Friday before the Black Monday crash -- the New York market dropped 4.6%, and Tokyo followed on Monday with a 2.4% drop.This time, Wall Street's plunge of 6.9% Friday was followed by yesterday's 1.8% loss in Tokyo. Two years ago, Tokyo's biggest fall came the day after New York's 22.6% Black Monday plunge, when the Nikkei average fell 14.9%.Thus, market participants yesterday were looking ahead nervously to Wall Street's opening.But in New York yesterday, the Dow Jones Industrial Average surged 88.12 to close at 2657.38 on heavy volume of 416,290,000 shares, although declining issues still outnumbered advancing ones on the broad market. Nobuto Yasuda, a director at Yamaichi Investment Trust & Management Co., called yesterday's session "a good scenario" for Japan. "Now we are looking for the time to place buy orders," he said. "For us institutional investors, the chance for buying has come." Isao Ushikubo, general manager of the investment research department at Toyo Trust & Banking Co., also was optimistic.He described Friday's plunge in the U.S. as a "fleeting" event resulting in part from excessive merger and acquisition activity. "Unless there is a panic, this is the best time to buy, as was the case two years ago," he said. "Those shares which had posted gains on M&A speculation were dashed with cold water, but as far as major stocks are concerned, there isn't much impact." Other fund managers were similarly sanguine. "We have no plans to adjust our asset allocation in foreign equities," said Masato Murakami, chief portfolio manager in the pension fund management department at Yasuda Trust & Banking Co.He said Friday's Wall Street decline was "well within the range of volatility" that Yasuda Trust plans for when it charts its overseas investment strategy. Among other Asian and Pacific markets, Malaysia and Singapore had the biggest losses, with the Kuala Lumpur composite index in Malaysia falling 11.5% and Singapore's Straits Times Industrial Index down 10%.Major indexes declined more than 8% in Australia and New Zealand and 6.5% in Hong Kong.Bangkok, Manila, Seoul, Taipei and Jakarta escaped with slightly smaller losses. Brokers and fund managers said the region's markets were reacting to Friday's Wall Street plunge even though that decline was due to local factors such as failed corporate buy-outs and a deteriorating junk-bond market. "It's pure psychology," said William Au Yeung, an account executive for Drexel Burnham Lambert (HK) Ltd. in Hong Kong. "Markets in this region aren't so geared to leveraged buy-outs, and their economies generally are in good shape, but there's no doubt that Asia is still following America's lead." Several analysts said Malaysia and Singapore had the biggest losses because they are relatively open to rapid cash flows.Hong Kong is the region's next most open market, but many foreign investors have been staying away from it since it plunged in June amid political turmoil in China. "Singapore took the hit because when people want to get out, they tend to go where the liquidity is," said Elizabeth Hambrecht, a regional analyst with Baring Securities (Hong Kong) Ltd.She pointed out that even after Monday's 10% decline, the Straits Times index is up 24% this year, so investors who bailed out generally did so profitably.Similarly, Kuala Lumpur's composite index yesterday ended 27.5% above its 1988 close. In Hong Kong, the Hang Seng Index fell 180.60 to finish at 2601.70.Trading was heavy at about one billion shares, compared with 473.9 million Friday.But the session was orderly, in contrast to the market's four-day closure after the 1987 crash. Richard Chenevix-Trench, a director at Hong Kong-based Baring International Fund Managers Ltd., said the market probably hasn't hit bottom yet but is close. "If New York doesn't collapse, I see maybe another 5% on the downside, not counting the risk of bad news out of China," he said. In Australia, Sydney's All Ordinaries index closed at 1601.5, down 8.1%, its biggest drop since October 1987.But volume rose only to 162 million shares from 143 million Friday. Nestor Hinzack, an analyst at brokerage firm Burdett, Buckeridge & Young Ltd., described the market's performance as "sheep-like" as investors fled to bluechip Australian stocks and shunned entrepreneurial companies they perceived as having any takeover premium built into the price. London's Financial Times-Stock Exchange 100-share index, the most closely watched market barometer, ended at its intraday high of 2163.4, down 70.5, or 3.2%.At its low, shortly before Wall Street opened, it was off more than 130 points. The Financial Times 30-share index closed 79.3 points lower at 1738.7.Volume more than doubled to 959.3 million shares from 457.7 million Friday. Prices on the Frankfurt Stock Exchange tumbled in heavy trading.The decline in the German Stock Index of 203.56 points, or 12.8%, to 1385.72 was the Frankfurt market's steepest fall ever. Retail investors dumped holdings on a massive scale, pushing some blue-chip shares down as much as 20%.Analysts cited memories of two years ago, when many small investors held on to their shares after the October crash but the West German market continued to decline steeply for the next three months. Here are price trends on the world's major stock markets, as calculated by Morgan Stanley Capital International Perspective, Geneva.To make them directly comparable, each index is based on the close of 1969 equaling 100.The percentage change is since year-end. Last week's best and worst performing stocks among those issues that make up 80% of the world's stock market capitalization (in local currency)
Frank Lloyd Wright is reported to have said once that if you tipped the world on its side, everything loose would end up in California.We've always thought that Mr. Wright underestimated California's vitality, but maybe the state's la-la factions are starting to overwhelm the forces that made it such a significant place.What else is one to make of the whacky save-the-earth initiative just proposed by several major environmental groups and organized by the state's attorney general? If passed by the voters, the recently announced initiative would phase out major pesticides, reduce carbon dioxide emissions by 40%, ban new offshore drilling, ban chemicals thought to deplete the ozone layer, and create a new state environmental officer armed with a $40 million budget to sue any firm or agency he thinks is being too dirty.The initiative is based largely on the wish-lists of the green lobby: the Sierra Club, the League of Conservation Voters, the Natural Resources Defense Council, the National Toxics Campaign and the Citizens for a Better Environment.Interestingly, the Environmental Defense Fund is having nothing to do with this one. Not only Californians but all Americans would pay if this thing passed.The initiative bars the sale of any crops in California that don't meet the initiative's standards.Kansas wheat farmers and Florida fruit growers would have to adjust or give up the California market.In other words, California is presuming to take control of the nation's farm policy. As usual the green lobby's proposal is disconnected from scientific reality.Consider the greenhouse-effect provision.The proposed initiative would mandate a reduction of carbon dioxide of 40%.Even if one buys into the whole greenhouse theory, it is inconceivable that reductions in a single state could have any impact on what is billed as a global problem. But if rational science and economics have nothing to do with the new environment initiative, what is going on?The first place to look under these circumstances is at the ways in which the sponsors themselves will benefit.The key here is the ambition of state Attorney General John Van de Kamp.He's running for governor. Mr. Van de Kamp is the one who collected the plans from the various radical environmental groups and cobbled them into a single unwieldy initiative to be placed on the ballot for election on Nov. 6, 1990.That's also the day of the gubernatorial election. The initiative seems to have been crafted to include all the hot issues that set off the wealthy Hollywood weepers who donate money.And it allows Mr. Van de Kamp to get around campaign spending limits.He can spend the legal maximum for his campaign; all the spending for the Van de Kamp initiative (on which there are no limits) is gravy.This initiative is being labeled The Big Green, but maybe it should be called The Big Greenback. (The Republican candidate, Sen. Pete Wilson, is playing the initiative fundraising game too, sponsoring his own crime initiative.) While it is possible that the Big Green initiative will be ruled unconstitutional, it is of course conceivable that in modern California it could slide through.This is the state that recently passed the Prop. 65 anti-toxic initiative.If this new proposal ever does become law, the green lobby will benefit directly. The initiative creates a free floating state environmental officer to sue companies or government agencies that do things he doesn't like.That means the NRDC and such groups no longer would have to spend as much money on litigation; taxpayers would bear the cost. Mr. Van de Kamp and his allies may be hoping that the environment is such a mom and apple-pie issue among certain segments of California's population now that almost any collection of anti-scientific, anti-pocketbook nonsense can pass under its rubric.Of course the state's liberals are not yet a nation unto themselves.George Bush, for example, may decide that he doesn't want to be the President who lost control of interstate commerce to an attorney general from California.And some other segments of California's political and media culture may yet start to point out that the initiative would impose significant costs on the state's less affluent citizens in the form of higher food prices and lost jobs. This grandiose initiative will help California define itself for the futureeither as a state still tethered to economic and scientific reality, or as one being led to wherever its la-la activists want to take it.
First, there was a death watch.Then exhilaration. Spurred by waves of large-scale buying in blue-chip stocks, the Dow Jones Industrial Average rallied yesterday and erased about a half of Friday's 190.58-point plunge, gaining 88.12 to 2657.38.It was the fourth-biggest advance for the average of 30 blue chips, on frenetic New York Stock Exchange volume of 416,290,000 shares -- the highest since the days after the 1987 crash. While the advance cheered investors who feared a 1987-style crash would occur yesterday, it was strictly a big-stock rally fed by huge buying by bargain-hunting institutions and program traders.A troubling sign: Declining stocks on the Big Board outnumbered advancers, 975 to 749, and the over-the-counter market that includes many smaller stocks suffered aftershocks of Friday's late Big Board plunge.The Nasdaq OTC index closed down 6.31 to 460.98. Meanwhile, in a divergence in two of the market's most important indicators, the Dow industrials' sister average, the 20-stock Dow Jones Transportation Average, tumbled 102.06 to 1304.23 -- its second-worst decline next to the 164.78-point fall during the 1987 crash. Transports plunged on takeover disappointments in two airline stocks, UAL and AMR, which each fell more than 20% when they reopened for trading yesterday after being suspended Friday afternoon.UAL, the takeover stock at the center of Friday's 190.58-point market plunge, fell 56 7/8 to 222 7/8 on nearly 2.3 million shares. Overall, "this is a pleasant rally but it's very selective," said Arthur Cashin Jr., a veteran PaineWebber Inc. trader at the Big Board. "Everyone was a little concerned about the general narrowness of the rally and failure of the OTC market to get into plus territory.It's just a strange feeling.I don't think anyone left the place whistling Dixie." The rally gave credence, at least for now, to the pre-trading declaration of Big Board Chairman John J. Phelan Jr. that Friday's market debacle was "an abnormal condition, and not a disaster." But to traders, it looked like disaster on the 9:30 a.m. opening bell. The Dow Jones Industrial Average opened down 1.64 shortly after 9:30.But most of the 30 blue-chip stocks in the average, including Eastman Kodak and General Motors, couldn't trade because of the heavy backlog of sell orders left over from Friday's late-afternoon rout.At 9:45, Procter & Gamble -- one of the most important Dow bellwethers of late -- opened down 2 3/4 to 117. The Dow dropped to a quick 27-point loss, and to many traders it looked as if stocks were headed for yet another big tumble. More stocks opened over the ensuing half hour, as the 49 Big Board specialist firms in charge of keeping the market orderly groped to find buy orders from major brokerage firms to match the selling flood. Then, to make matters worse, computerized sell programs kicked in, hammering stocks into steeper losses.There was heavy stock-index arbitrage, as traders sold big baskets of stock and bought stock-index futures to profit from the price discrepancies between the two markets.This was a hangover from Friday, when Standard & Poor's 500-stock index futures had closed at a sharp discount to stocks.The onslaught of the program selling dashed any hopes that some of the big program trading firms would hold off until the market stabilized.They didn't.The Dow accelerated its slide, losing 63.52 in the first 40 minutes of trading. With program traders seemingly in charge, buyers backed away from the market and watched stocks fall. Then at 10:15 the Dow suddenly started to rebound, and when it shot upward it did so even faster than the early-morning fall.And this time, it wasn't just the program traders who were responsible.All the selling had pushed stocks to such cheap values that big investment banks and major money management firms started buying stocks heavily.The program traders were in there, too, of course.But according to one trader, the programmers "didn't look as dominant on the upside as on the downside because there was {also} a lot of bargain-hunting" by institutions. Roland M. Machold, director of the New Jersey Division of Investment, which oversees $29 billion in investments, said the "first thing we did was to double our orders" yesterday morning. "With the market down like this, we'll probably take another $50 million and put it in" the market. Trading in Walt Disney Co. particularly caught traders' eyes.According to Big Board officials, Disney had one of the biggest sell-order imbalances on Friday; it was one of the seven stocks that couldn't finish trading that day.The stock opened late at 114 1/2, down 8 1/2.But then it shot upward 7 1/2 as Goldman, Sachs & Co. stepped in and bought, traders said.However, Disney specialist Robert Fagenson said: "I would be surprised if Goldman represented 4% of the opening volume." Around Wall Street, trading desks were relieved that they could at least play the market yesterday, in contrast to Friday's gridlock.At Donaldson, Lufkin & Jenrette Inc., head equity trader Dudley Eppel said: "I think the opening was constructive.It was orderly.We put some orders together.There wasn't a lot of panic selling, either domestically or internationally. . . .Not like Friday where they just took {the market} apart." Still, the market hadn't yet crossed into positive territory, and traders were glum.But in another dramatic burst, the Dow tacked on 42 points in five minutes, and at 10:25 the index showed a gain of 5.74. On the Big Board floor and on trading desks, traders yelped their approval.Grinned Griffith Peck, a trader in Shearson Lehman Hutton Inc. 's OTC department: "I tell you, this market acts healthy." Around him, scores of traders seemed to get a burst of energy; their boss broke out bottles of Perrier water to cool them off. Among Big Board specialists, the cry was "Pull your offers" -- meaning that specialists soon expected to get higher prices for their shares. "It was bedlam on the upside," said one Big Board specialist. But not everybody was making money.The carnage on the Chicago Board Options Exchange, the nation's major options market, was heavy after the trading in S&P 100 stock-index options was halted Friday.Many market makers in the S&P 100 index options contract had bullish positions Friday, and when the shutdown came they were frozen with huge losses.Over the weekend, clearing firms told the Chicago market makers to get out of their positions at any cost Monday morning. "They were absolutely killed, slaughtered," said one Chicago-based options trader. Some traders said that the closely watched Major Market Index, whose 20 stocks mimic the Dow industrials, didn't lead yesterday's big rally. James Gallagher, a partner at specialist Fowler & Rosenau, said, "The difference between today and two years ago" -- "Terrible Tuesday," Oct. 20, 1987 -- "is that then we needed a savior to go into the Major Market Index, spend $2 million and get the program rally started.This time {institutions} saw the programs coming and backed away and backed away.Then when the market was at a technical level to buy, they came in with a vengeance." However, according to one analyst, the timing of Major Market Index futures buying just before the turnaround was similar to that of Terrible Tuesday. "Futures were pulling the stock market higher," said Donald Selkin, head of stock-index futures research at Prudential-Bache Securities Inc. Although the Big Board's specialist firms struggled through another highly volatile trading session, their performance yesterday was better than during Friday's late-afternoon chaos, according to traders and brokers who work with them. Specialists were criticized for their inability to maintain orderly markets during the Friday plunge.But yesterday, even with halts in such major blue-chip stocks as Merck, "we expected (the halts) and it wasn't too bad," said Donaldson's Mr. Eppel, who had been critical of the specialists' performance on Friday.According to a Big Board official, while many stocks opened late, there were subsequent trading halts in only three issues -- AMR, Merck and Valero Energy.Merck is one of the most important stocks in the Major Market Index. No sector of the market has been spared during the past two days' gyrations.Yet from the Dow industrials' high on Oct. 9 through Friday's plunge, relatively good performances have been turned in by real-estate, utilities, precious metals and life insurance stocks.And yesterday, the top performing industry group was oil field equipment issues.For example, Halliburton jumped 3 1/4 to 38, Schlumberger rose 2 1/2 to 43 1/4 and Baker Hughes rose 1 1/8 to 22. Because of the UAL and AMR tumbles, airlines were the weakest sector of the market yesterday. Philip Morris was the Big Board's most active issue, rising 2 1/4 to 43 1/4 on nearly eight million shares. Among other major issues, Coca-Cola Co. closed up 2 at 66 3/4 on 1.7 million shares and American Telephone & Telegraph rose 3 1/4 to 43 on nearly 7.8 million shares.Shares of International Business Machines, which reported earnings yesterday, finished at 103, up 1, after slipping below 100 during Friday's session for the first time in five years. Shares of three brokerage firms rose after they reported earnings.Merrill Lynch added 1 3/4 to 28, PaineWebber rose 3/4 to 18 1/2 and Bear Stearns rose 3/8 to 14 1/4. Federal National Mortgage Association, a recently hot stock, climbed 4 to 124 on nearly 1.6 million shares. At a news conference after the close of trading yesterday, the Big Board's Mr. Phelan and other exchange officials praised the performance of their computers and personnel. Mr. Phelan said that program trading strategies weren't responsible for triggering Friday's decline despite a jump in the use of the computer-driven strategies in recent months.Some 24 million of the more than 100 million shares traded in the final 90 minutes of Friday's session, when the plunge in stock prices was concentrated, were program-related, he said. Program trades make up 10% of the exchange's volume on an average day, but despite the increase Friday, it was "certainly not something you would say precipitated the market decline," Mr. Phelan said. Mr. Phelan expressed relief that the market rebounded yesterday. "Obviously, every time we get this kind of reaction, it's going to make everybody nervous, including me," he said.He said that exchange officials had conversations with Wall Street firms throughout the weekend and that "all the participants behaved very, very responsibly today." Meanwhile, Peter DaPuzzo, Shearson's head of retail equity trading, praised institutional investors in the OTC market, who were heavy buyers of the Nasdaq's biggest technology issues yesterday amid a flood of selling by other investors. "The institutions can't be criticized for their behavior," Mr. DaPuzzo said in an interview. "It was the opposite of what happened on Oct. 19.They used their judgment.They didn't panic during the first round of selling this morning.Instead, they bought on weakness and sold into the strength, which kept the market orderly.Maybe they learned from experience." Mr. Phelan said the performance of specialists during Friday's plunge was admirable, because out of 1,640 Big Board common stocks traded during the day only seven were closed and weren't reopened before the close. "They did an excellent job," Mr. Phelan said of the specialists.Wall Street traders on Friday had complained about the trading suspensions. James A. White and Sonja Steptoe contributed to this article.
A House-Senate conference approved a permanent smoking ban on all domestic airline routes within the continental U.S. and on all flights of six hours or less to Alaska and Hawaii. The restrictions would cover all but a small percentage of domestic air traffic, and represent a major expansion of the current smoking ban on flights of two hours or less.The exemption allowed on longer flights to Alaska and Hawaii appears to be largely a face-saving concession for the traditionally powerful tobacco industry, which has found itself increasingly isolated in the face of public pressure in recent years. By a 6-4 margin, House negotiators initially rejected last night a Senate provision covering all domestic flights.But the six-hour compromise was soon agreed to in subsequent discussions.As a practical matter, flights from the West Coast to Hawaii would be covered as they are under the time limit, but the language would exempt longer routes beginning, for example, in Chicago or on the East Coast. Within the Senate, the ban has had aggressive support from Sen. Frank Lautenberg (D., N.J.), who has used his position as a Senate Appropriations subcommittee chairman to garner votes for the initiative.The measure is attached to the more than $26 billion fiscal 1990 transportation bill within Mr. Lautenberg's jurisdiction, and the final compromise is laced with more than $205 million in road projects earmarked by members as well as funds sought by major airports, including Denver. From the outset, the tobacco industry has been uncertain as to what strategy to follow.But the industry retains support in the House leadership through the influence of grower states, such as North Carolina.Majority Whip William Gray owes a political debt to Southern agriculture lawmakers for his rise in the House, and the Philadelphia Democrat used his position in the conference to salvage the exemption from a total ban. Although the smoking provision has attracted the most public interest, the underlying bill was the subject of behind-the-scenes lobbying because of its impact on air transportation and the more mundane, but politically important, projects of members.In a stark lesson in the power of the appropriations committees, the House deliberately killed a handful of projects backed by lawmakers in Florida, Illinois and Pennsylvania who had voted against the panel leadership on the House floor. "Anybody can vote as they want," said Rep. William Lehman (D., Fla.), head of the House conferees. "But if you make a request, you should support the committee." Within the Federal Aviation Administration, the final bill promises to increase spending for facilities and equipment by more than 20% from last year, and total operations would rise to $3.84 billion -- a 12% boost.The facilities account includes $40 million for Denver's ambitious new airport, and the competition for these funds created shifting alliances between urban lawmakers representing established airports in Philadelphia and Michigan and the major carriers to Denver, United and Continental. Leery of the costs -- and, critics say, competition -- the airlines have sought to gain leverage over the city of Denver. Texas Air Corp., which owns Continental, and the Air Transport Association were prominent in the lobbying.The industry sought to impose conditions that would have delayed funds for the project until Denver and the airlines had agreed to leases for 50% of the gates.But this was rejected in favor of much looser language directing the Transportation Department to review the costs of the first phase, expected to cost about $2 billion. Though smaller in total dollars, the conference agreed to preserve an estimated $30.6 million in controversial subsidies to carriers serving rural or isolated airports.The sum is more than double what the House had approved for the program, but the list of qualified airports would be cut by 22 under new distance requirements and limits on the level of subsidy.Congress previously cut six airports this year.The impact of the changes is to eliminate many of the most excessive cases where the government has been paying more than $200 for each passenger in subsidies. Among rail and highway accounts, the agreement provides $615 million for Amtrak, including $85 million for capital improvements.And federal-formula grants for mass transit would be effectively frozen at $1.625 billion, or $20 million more than last fiscal year.
U.S. Banknote Co. said it again extended the expiration date of its $7-a-share tender offer for International Banknote Co. to Nov. 15. U.S. Banknote said it is in negotiations to sell "certain facilities," which it didn't name, to a third party, and it needs the extension to try to reach a definitive agreement on the sale.U.S. Banknote said it believes the sale, if completed, apparently would satisfy antitrust issues raised by the U.S. Justice Department about U.S. Banknote's offer to buy International Banknote.Both of the New York-based companies print stock certificates and currency. U.S. Banknote said "there can be no assurance" a sale agreement would be concluded.It also said the tender offer would probably have to be extended further to complete financing arrangements.U.S. Banknote said Citibank extended the expiration date of its commitment for senior secured financing to Nov. 15. The offer, made June 1, has been extended several times.Closely held U.S. Banknote offered the $7 a share, or $126 million, for as many as 14.9 million shares, or 78.6%, of International Banknote's shares outstanding.U.S. Banknote said that as of Oct. 13, 16.1 million shares, or about 84.3% of the fully diluted shares outstanding, had been tendered.
Arthur M. Goldberg said he extended his unsolicited tender offer of $32 a share tender offer, or $154.3 million, for Di Giorgio Corp. to Nov. 1. DIG Acquisition Corp., the New Jersey investor's acquisition vehicle, said that as of the close of business yesterday, 560,839 shares had been tendered.Including the stake DIG already held, DIG holds a total of about 25% of Di Giorgio's shares on a fully diluted basis. The offer, which also includes common and preferred stock purchase rights, was to expire last night at midnight.The new expiration date is the date on which DIG's financing commitments, which total about $240 million, are to expire.DIG is a unit of DIG Holding Corp., a unit of Rose Partners L.P. Mr. Goldberg is the sole general partner in Rose Partners. In August, Di Giorgio, a San Francisco food products and building materials marketing and distribution company, rejected Mr. Goldberg's offer as inadequate. In New York Stock Exchange composite trading yesterday, Di Giorgio closed at $31.50 a share, down $1.75.
The sudden "flight to quality" that triggered Friday's explosive bond-market rally was reversed yesterday in a "flight from quality" rout. The setback, in which Treasury bond prices plummeted, reflected a rebound in the stock market and profit-taking. "It was a pretty wild day.Our markets were closely tied to the stock market," said Joel Kazis, manager of trading at Smith Barney, Harris Upham & Co. "Friday's flight to quality was no longer needed once the stock market found its legs," he said. Some fixed-income investors had expected a further drop in stock prices after the nearly 200-point drop in the Dow Jones Industrial Average on Friday.That caused investors to flee stocks and buy high-quality Treasury bonds, which are safer than other types of securities.But when stocks began to climb instead, prices of Treasury bonds declined. Contributing to the selling pressure were dispatches by several investment firms advising clients to boost their stock holdings and reduce the size of their cash or bond portfolios.Among the firms were Merrill Lynch & Co. and Dean Witter Reynolds Inc. The bond market seemed to ignore evidence that the Federal Reserve eased credit conditions slightly by allowing the federal funds rate to drift as low as 8 1/2%.The closely watched rate on federal funds, or overnight loans between banks, slid to about 8 3/4% last week, down from its perceived target level of about 9%.The rate is considered an early signal of changes in Fed policy.Traders said yesterday's modest easing didn't stir much enthusiasm because it had been widely expected.In fact, some economists contend that the latest easing started last week.Others note that some investors were disappointed because they had expected a more aggressive easing. The Treasury's benchmark 30-year bond, ended about 1 3/4 points lower, or down about $17.50 for each $1,000 face amount.The reversal was even more evident among shorter-term Treasury securities.After Treasury bill rates plummeted as much as 0.70 percentage point on Friday, they gave back three-fourths of that amount yesterday.The bond-equivalent yield on three-month Treasury bills, for example, was quoted late yesterday at 7.72%, compared with 7.16% Friday. Investment-grade corporate bonds, mortgage-backed securities and municipal bonds also fell. But prices of junk bonds, which were battered Friday in near standstill trading, rebounded to post small gains after a volatile trading session.Junk bonds opened as much as four points lower but staged a modest comeback as stock prices firmed.Some traders said the high-yield market was helped by active institutional buying.In particular, they said, firms such as First Boston Corp. and Drexel Burnham Lambert Inc. began making a market in junk issues early in the session when prices hit severely depressed levels. "I think the willingness of securities companies to make markets for high-yield issues improved the sentiment for junk bonds," said John Lonski, an economist at Moody's Investors Service Inc. U.S. Treasury bonds were higher in overnight trading in Japan, which opened at about 7:30 p.m. EDT.The benchmark 30-year bond, for example rose one point in early Japanese trading in reaction to a quick 600-point drop in the Tokyo stock market.But as Japanese stocks rebounded, Treasurys retreated and ended just modestly higher. Many U.S. trading operations, wanting to keep a watchful eye on Japanese trading as an indication of where U.S. trading would begin, were fully staffed during the Tokyo trading session. "Most of the action was during the night session," said Michael Moore, trading manager at Continental Bank. Jay Goldinger, who often trades overnight for Capital Insight Inc., Beverly Hills, Calif., said trading in Tokyo was "very active" but highly volatile. "We went down 3/4 point in 10 minutes right before lunch, then after lunch we went up 3/4 point in 12 minutes," he said.In Tokyo, trading is halted during lunchtime. Tokyo's market turned out to be a bad bellwether for U.S. trading.When the market opened here, bonds prices fell as the stock market regained strength. The bond market's focus on stock activity was so strong yesterday that it overshadowed today's slate of economic data, which includes the government's report on August U.S. merchandise trade and September industrial production. Industrial production is expected to have declined 0.2%, according to a consensus of economists surveyed by Dow Jones Capital Markets Report.The August trade deficit is expected to have widened to $9.1 billion from $7.58 billion in July.A widening of that magnitude, said one New York trader, is "not a favorable number. . . . It could do damage to us." Meanwhile, agency supply is expected to weigh heavily on the market today when the Federal Home Loan Bank prices a $2.3 billion offering of one-year, three-year, five-year and 10-year maturities. Tomorrow, the Resolution Funding Corp. will provide details of its first bond issue, which is expected to total between $4 billion and $6 billion and carry a maturity greater than 20 years.Resolution Funding is a division of Resolution Trust Corp., the new federal agency created to bail out the nation's troubled thrifts. And this week the Tennessee Valley Authority plans to price a $3 billion offering, its first public debt borrowing in 15 years. "There's lots of supply," the New York trader said. "We have a couple or three tough weeks coming." Treasury Securities Prices of Treasury bonds tumbled in moderate to active trading. The benchmark 30-year Treasury bond was quoted late at a price of 101 19/32, compared with a closing price of 103 12/32 Friday.The yield on the benchmark issue rose to 7.97% from 7.82%. The latest 10-year notes were quoted late at 100 3/32 for a yield of 7.97%, compared with 101 9/32 to yield 7.84%. Short-term interest rates fell yesterday at the government's weekly Treasury bill auction.The average discount rate on new three-month Treasury bills was 7.37%, the lowest since the average of 7.36% at the auction on Oct. 17, 1988.The average discount rate was 7.42% on new six-month bills, the lowest since the average of 7.35% at the auction on July 31, 1989. Here are auction details: Rates are determined by the difference between the purchase price and face value.Thus, higher bidding narrows the investor's return while lower bidding widens it.The percentage rates are calculated on a 360-day year, while the coupon-equivalent yield is based on a 365-day year. Both issues are dated Oct. 19.The 13-week bills mature Jan. 18, 1990, and the 26-week bills mature April 19, 1990.Corporate Issues Investment-grade corporate bonds ended one to 1 1/2 point lower.There were no new issues. Foreign Bonds Foreign bonds surged as the dollar weakened against most major currencies. Among benchmark issues: -- Japan's No. 111 4.6% bond due 1998 ended on brokers screens at 96.15, up 1.17 point.The yield was 5.245%. -- West Germany's 6 3/4% issue due June 1999 ended at 98.30, up 0.91 point to yield 6.99%. -- Britain's 11 3/4% bond due 2003/2007 ended 1 1/8 higher at 111 19/32 to yield 10.12%, while the 11 3/4% notes due 1991 rose 21/32 to 98 26/32 to yield 12.74%. Mortgage-Backed Securities Mortgage securities gave up most of Friday's gains as active issues ended 24/32 to 30/32 point lower. Dealers said morning activity was hectic as prices dropped in response to gains in the stock market and losses in Treasury securities, but trading slowed to moderate levels in the afternoon. Government National Mortgage Association 9% securities for November delivery were quoted late yesterday at 98 4/32, down 30/32 from Friday; 9 1/2% securities were down 27/32 at 100 5/32; and 10% securities were at 102 2/32, off 24/32.Federal Home Loan Mortgage Corp. 9% securities were at 97 1/4, down 3/4.On Friday, mortgage issues gained as much as 1 5/32. Late yesterday Ginnie Mae 9% securities were yielding 9.39% to a 12-year average life assumption, as the spread above the Treasury 10-year note narrowed 0.01 percentage point to 1.42. Traders said there were some busy dealings in Freddie Mac and Federal National Mortgage Association securities because underwriters from last week's heavy slate of real estate mortgage investment conduit issues moved to gather collateral for new deals. Offsetting the Remic-related purchases were continued heavy sales by mortgage originators, which are producing increased amounts of fixed-rate mortgage-backed issues with lower rates. There was no new-issue activity in the derivative market. Municipals Rebounding stocks and weaker Treasury prices drove municipal bonds 1/4 to 3/4 point lower in late dealings. The session losses left municipal dollar bonds close to where they were before the 190.58-point drop in the Dow Jones Industrial Average Friday prompted a capital markets rally. Trading was hectic during the morning, with players trying to gauge whether equities would continue Friday's free fall or stabilize after a brief spot of weakness.Tax-exempts started the session flat to a touch higher on anticipation of further stock market erosion, but bond prices rapidly turned south as it became more clear that a repeat of the October 1987 crash wasn't at hand. Professionals dominated municipal trading throughout the session.Traders said retail investors seemed to be hugging the sidelines until a measure of volatility is wrung out of the market. New Jersey Turnpike Authority's 7.20% issue of 2018 was off 3/4 at 98 1/2 bid, yielding 7.32%, up 0.07 percentage point from late Friday. Florida Board of Education's 7 1/4% issue of 2023 was 5/8 point weaker at 99 1/2 bid.The 7 1/8% issue of Triborough Bridge and Tunnel Authority of New York, due 2019, was off 5/8 at 98 1/8 bid.And Fairfax County, Va., Water Authority's 7 1/4% issue of 2027 was down 3/4 at 99 7/8 bid. Serial bond yields were up about 0.05 percentage point.
What doesn't belong here? A. manual typewriters, B. black-and-white snapshots, C. radio adventure shows. If you guessed black-and-white snapshots, you're right.After years of fading into the background, two-tone photography is coming back. Trendy magazine advertisements feature stark black-and-white photos of Hollywood celebrities pitching jeans, shoes and liquor.Portrait studios accustomed to shooting only in color report a rush to black-and-white portrait orders.And black-and-white photography classes are crowded with students. What's happening in photography mirrors the popularity of black and white in fashion, home furnishings and cinematography.On Seventh Avenue, designers have been advancing the monochrome look with clothing collections done entirely in black and white.And classic black-and-white movies are enjoying a comeback on videocassette tapes, spurred, in part, by the backlash against colorization of old films. "The pendulum is swinging back to black and white," says Richard DeMoulin, the general manager of Eastman Kodak Co. 's professional photography division. Until two years ago, sales of black-and-white film had been declining steadily since the 1960s.But last year, buoyed by increased use in advertising and other commercial applications, sales increased 5%, and they are expected to jump at least that much again this year. Photographic companies are scrambling to tap the resurging market, reviving some black-and-white product lines and developing new ones.At Kodak, which largely ignored the market for years, black-and-white film sales now account for nearly 15% of the company's $3 billion in film and paper sales annually, up from 10% three years ago. The Rochester, N.Y., photographic giant recently began marketing T-Max 3200, one of the fastest and most sensitive monochrome films.Aimed at commercial photographers, the film can be used in very low light without sacrificing quality, says Donald Franz of Photofinishing Newsletter. Also trying to snare a portion of the $2 billion-a-year industry is Agfa Corp., a unit of Bayer AG. Agfa recently signed Olympic gold medalist Florence Griffith-Joyner to endorse a new line of black-and-white paper that's geared to consumers and will compete directly with Kodak's papers.Slated for market by the end of the year, the paper "could have been introduced a long time ago but the market wasn't there then," says an Agfa spokesman. The biggest beneficiary of the black-and-white revival is likely to be International Paper Co. 's Ilford division, known in the industry for its premium products.Sales of Ilford's four varieties of black-and-white film this year are outpacing growth in the overall market, although the company won't say by exactly how much. "We hope the trend lasts," says Laurie DiCara, Ilford's marketing communications director. Why all the interest?For baby boomers who grew up being photographed in color, black and white seems eye-catching and exotic. "It has an archival, almost nostalgic quality to it," says Owen B. Butler, the chairman of the applied photography department at Rochester Institute of Technology. "You can shift out of reality with black and white," he adds. Such features have been especially attractive to professional photographers and marketing executives, who have been steadily increasing their use of black and white in advertising.Processing of black-and-white commercial film jumped 24% last year to 18.7 million rolls. Consider Gap Inc., whose latest ad campaign features black-and-white shots of Hollywood stars, artists and other well-known personalities modeling the retailer's jeans and T-shirts.Richard Crisman, the account manager for the campaign, says Gap didn't intentionally choose black and white to distinguish its ads from the color spreads of competitors. "We wanted to highlight the individual, not the environment," he says, "and black and white allows you to do that better than color." The campaign won a Cleo award as this year's best ad by a specialty retailer. Even food products and automobiles, which have long depended on color, are making the switch.Companies "feel black and white will convey a stronger statement," says Marc L. Hauser, a Chicago photographer who is working on a black-and-white print ad for Stouffer Food Corp. 's Lean Cuisine.Other companies that are currently using two-tone ads include American Express Co. and Epson America Inc. Portrait studios have also latched onto the trend.Using black and white, "we can make housewives look like stars," says John Perrin.His On-Broadway Photography studio in Portland, Ore., doubled its business last year and, he says, is booked solid for the next five. One customer, Dayna Brunsdon, says she spurned a color portrait for black and white because "it's more dramatic.I show it to my friends, and they all say 'wow. ' It isn't ordinary like color." Still, most consumers aren't plunking black-and-white film into their cameras to take family snapshots.One big obstacle is that few drugstores develop the film anymore.Typically, it must be mailed to a handful of processors and may take a week or more to be processed and returned. Black-and-white film costs consumers a little less than color film, and processing costs the same.But for photofinishers, developing costs for black-and-white film are higher. Some companies are starting to tackle that problem.Ilford, for example, recently introduced a black-and-white film that can be processed quickly by color labs.Intent on wooing customers, the company is also increasing its sponsorship of black-and-white photography classes. Similarly, Agfa is sponsoring scores of photography contests at high schools and colleges, offering free black-and-white film and paper as prizes.And Kodak is distributing an instructional video to processors on how to develop its monochrome film more efficiently. Other companies are introducing related products.Charles Beseler Co., a leading maker of photographic enlargers, introduced last month a complete darkroom starter kit targeted at teen-agers who want to process their own black-and-white photographs.The kit, which has a suggested retail price of $250 and has already become a bestseller, was introduced after retailers noticed numerous requests from parents for children's photography equipment. "It seems computers as hobbies have waned," says Ian Brightman, Beseler's chairman and chief executive officer. But some industry observers believe the resurgence of black and white is only a fad.They cite the emergence of still electronic photography, more newspapers turning to color on their pages and measurable improvements in the quality of color prints. "Black and white hasn't made the same quantum leaps in technological development as color," says Mr. Butler of the Rochester Institute. "The color print today is far superior to prints of 10 years ago.You can't say the same with black and white." But when Popular Photography, a leading magazine for photographers, selected 15 of the greatest photos ever made for its latest issue celebrating photography's 150th anniversary, all were black and white. "It's got a classic spirit and carries over emotionally," says Alfred DeBat of Professional Photographers of America. "That's the appeal."
While Friday's plunging stock market prompted new fears about the economy's prospects, a little-known indicator that has faithfully foreshadowed the economy's ups and downs by exceptionally long lead times points to a sustained rise in overall business activity. The barometer, developed by analysts at Columbia University's Center for International Business Cycle Research here, reached a record high of 223.0 in August, the latest month available, and the Columbia researchers estimate that it has moved even higher since then. The latest reading of 223.0 was up from 222.3 in July and 215.3 as recently as March.The August rise marked the fifth straight monthly gain for the indicator, which uses the 1967 average as a base of 100. In contrast, the Commerce Department's widely followed index of leading indicators, while up in August, has fallen repeatedly since reaching a high early this year.Its ragged behavior through much of 1989 has prompted some forecasters to anticipate the start of a new recession perhaps before year's end. But the far stronger showing of the Columbia index "makes a recession any time soon highly unlikely," says Geoffrey H. Moore, the director of the Columbia facility. A leading authority on the business cycle, Mr. Moore also is a member of the Business Cycle Dating Group, the panel of private economists that decides for the government when expansions and recessions begin and end.The group normally convenes only when a change in the economy's general course seems likely. "No meeting is scheduled because the expansion shows no sign of going off the tracks," Mr. Moore reports. Based largely on the recent strength in their index, called the long leading indicator, the Columbia analysts foresee uninterrupted economic growth through the rest of this year and next year as well.They expect a 2.6% rise in 1990 in the gross national product, after adjustment for inflation. Underlying this optimism is the index's longstanding ability to signal recessions or recoveries, as the case may be, by substantially greater periods than the Commerce Department's index of leading indicators.Over the full post-World War II era, the Columbia index, on the average, has entered sustained declines 14 months before the onset of recessions and turned up eight months before recoveries. The comparable lead times for the Commerce index, whose components include the stock market, are far shorter -- 10 months before recessions and only three months before recoveries. The Columbia economists also have reconstructed how the long leading index would have behaved, had it existed, in 1929, before the stock market crash in October that ushered in the Great Depression.The indicator reached a peak in January 1929 and then fell steadily up to and through the crash. "It was an entirely different pattern from what we're seeing now," Mr. Moore says. A major source of the recent strength in the long leading indicator has been the performance of the Dow Jones corporate bond-price index, which is not a part of the Commerce index.In August, the bond measure was at its highest monthly average since early 1987.It also rose last Friday, while the stock market sagged. Other components of the long leading indicator include a ratio of prices to unit labor costs in manufacturing industries, the M2 version of the money supply, adjusted for inflation, and the volume of new home-building permits. Notably absent from the Columbia index is the stock market, which Mr. Moore says "is simply no longer such a good indicator of the economy's long-range prospects, though it still is useful for anticipating some short-run twists and turns." As recently as 1975, the stock market -- as reflected in the Standard & Poor's index of 500 common stocks -- was rated by the National Bureau of Economic Research as the best of the 12 leading indicators that then made up the Commerce index.It was assigned a mark of 80 out of a possible 100, compared with scores ranging as low as 69 for the other components. The stock market has lost some precursory power, analysts at the Columbia center claim, because of the growing impact of international developments. "Stocks have become more sensitive to factors not directly tied to the domestic economy," Mr. Moore says, citing the exchange rate for the dollar on currency markets, the foreign-trade balance and inflows of foreign capital.He also feels that the rise of such computer-based practices as program trading has diminished the stock market's relevancy to the economic outlook.
Monday, October 16, 1989 The key U.S. and foreign annual interest rates below are a guide to general levels but don't always represent actual transactions. PRIME RATE: 10 1/2%.The base rate on corporate loans at large U.S. money center commercial banks. FEDERAL FUNDS: 8 3/4% high, 8 1/2% low, 8 5/8% near closing bid, 8 3/4% offered.Reserves traded among commercial banks for overnight use in amounts of $1 million or more.Source: Fulton Prebon (U.S.A.) Inc. DISCOUNT RATE: 7%.The charge on loans to depository institutions by the New York Federal Reserve Bank. CALL MONEY: 9 3/4% to 10%.The charge on loans to brokers on stock exchange collateral. COMMERCIAL PAPER placed directly by General Motors Acceptance Corp.:8.30% 5 to 44 days; 8.20% 45 to 59 days; 8% 60 to 89 days; 7.875% 90 to 119 days; 7.75% 120 to 149 days; 7.625% 150 to 179 days; 7.375% 180 to 270 days. COMMERCIAL PAPER: High-grade unsecured notes sold through dealers by major corporations in multiples of $1,000:8.40% 30 days; 8.33% 60 days; 8.26% 90 days. CERTIFICATES OF DEPOSIT: 8.05% one month; 8.02% two months; 8% three months; 7.98% six months; 7.95% one year.Average of top rates paid by major New York banks on primary new issues of negotiable C.D.s, usually on amounts of $1 million and more.The minimum unit is $100,000.Typical rates in the secondary market:8.40% one month; 8.40% three months; 8.40% six months. BANKERS ACCEPTANCES: 8.40% 30 days; 8.35% 60 days; 8.27% 90 days; 8.20% 120 days; 8.15% 150 days; 8.02% 180 days.Negotiable, bank-backed business credit instruments typically financing an import order. LONDON LATE EURODOLLARS: 8 5/8% to 8 1/2% one month; 8 5/8% to 8 1/2% two months; 8 9/16% to 8 7/16% three months; 8 1/2% to 8 3/8% four months; 8 1/2% to 8 3/8% five months; 8 1/2% to 8 3/8% six months. LONDON INTERBANK OFFERED RATES (LIBOR): 8 1/2% one month; 8 1/2% three months; 8 7/16% six months; 8 3/8% one year.The average of interbank offered rates for dollar deposits in the London market based on quotations at five major banks. FOREIGN PRIME RATES: Canada 13.50%; Germany 8.50%; Japan 4.875%; Switzerland 8.50%; Britain 15%.These rate indications aren't directly comparable; lending practices vary widely by location. TREASURY BILLS: Results of the Monday, October 16, 1989, auction of short-term U.S. government bills, sold at a discount from face value in units of $10,000 to $1 million: 7.37%, 13 weeks; 7.42%, 26 weeks. FEDERAL HOME LOAN MORTGAGE CORP. (Freddie Mac): Posted yields on 30-year mortgage commitments for delivery within 30 days. 9.83%, standard conventional fixedrate mortgages; 7.875%, 2% rate capped one-year adjustable rate mortgages.Source: Telerate Systems Inc. FEDERAL NATIONAL MORTGAGE ASSOCIATION (Fannie Mae): Posted yields on 30 year mortgage commitments for delivery within 30 days (priced at par).9.82%, standard conventional fixed rate-mortgages; 8.70%, 6/2 rate capped one-year adjustable rate mortgages.Source: Telerate Systems Inc. MERRILL LYNCH READY ASSETS TRUST: 8.49%.Annualized average rate of return after expenses for the past 30 days; not a forecast of future returns.
THE STOCK MARKET AVOIDED a repeat of Black Monday as prices recovered from an early slide, spurred by bargain-hunting institutions and program traders.The Dow Jones industrials closed up 88.12 points, at 2657.38, the fourth-biggest gain ever, after being down as much as 63.52 points in the morning.The rally erased about half of Friday's 190.58-point plunge, but analysts are cautious about the market's outlook. The dollar also rebounded, while bond prices plummeted and Treasury bill rates soared.Junk bonds also recovered somewhat, though trading remained stalled.Gold also rose. Tokyo stock prices bounced back in early trading Tuesday following a 1.8% plunge on Monday.The dollar also moved higher in Tokyo. Donald Trump withdrew his $7.54 billion offer for American Air, citing the "recent change in market conditions." AMR slid $22.125, to $76.50.Also, a UAL group tried to get financing for a lower bid, possibly $250 a share.UAL fell $56.875, to $222.875. Leveraged buy-outs of airlines would be subject to approval by the transportation secretary under a bill passed by a House subcommittee. IBM's earnings tumbled 30% in the third quarter, slightly more than expected.The computer giant partly cited a stronger dollar and a delay in shipping a new high-end disk drive.Analysts are downbeat about IBM's outlook for the next few quarters. U.S. auto makers plan to decrease car production 10.4% in the fourth quarter, with virtually all the decline coming from the Big Three.Output at Japanese-owned and managed plants in the U.S. is due to rise 42%. Budget director Darman said he won't give federal agencies much leeway in coping with Gramm-Rudman spending cuts, which took effect yesterday.Darman hopes to prod Congress to finish a deficit plan. The S&L bailout agency would be restricted by a new bill in how it raises capital.The Ways and Means plan would create another possible obstacle to selling sick thrifts. A natural gas rule was struck down by a federal appeals court.The regulation had prevented pipeline firms from passing part of $1 billion in costs along to customers. The Supreme Court agreed to decide whether a federal court may dismantle a merger that has won regulatory approval but been ruled anticompetitive in a private suit. Merrill Lynch's profit slid 37% in the third quarter.Bear Stearns posted a 7.5% gain, while PaineWebber had a decline due to a year-ago gain. Blue Arrow of Britain plans to return to the name Manpower and take a big write-off.The moves may help the firm solidify its dominance of the U.S. temporary-help market. J.P. Morgan posted a $1.82 billion loss for the third quarter, reflecting a big addition to loan-loss reserves.NCNB's profit more than doubled. K mart agreed to acquire Pace Membership Warehouse for $322 million, expanding its presence in the growing wholesale-store business. Markets -- Stocks: Volume 416,290,000 shares.Dow Jones industrials 2657.38, up 88.12; transportation 1304.23, off 102.06; utilities 214.73, up 2.77. Bonds: Shearson Lehman Hutton Treasury index 3393.51, off Commodities: Dow Jones futures index 129.72, off 0.15; spot index 130.16, up 0.91. Dollar: 141.85 yen, off 0.25; 1.8685 marks, off 0.0055.
J.P. Industries Inc. said it signed a definitive agreement to sell its Builders' Hardware Group to closely held Nalcor Inc. of Beverly Hills, Calif. Terms weren't disclosed, but a J.P. Industries spokesman said the amount J.P. Industries will get for the group is "a little better than expected by the marketplace, and the marketplace had been expecting $25 million to $30 million." The group consists of Weslock Corp. and JPI Modern Inc. J.P. Industries, which is based in Ann Arbor, Mich., said the sale completes a previously announced program to divest itself of its hardware and plumbing supplies operations.The company's remaining business is the manufacture and sale of engine and transmissions products for industrial and transportation applications.
An American journalist now is standing trial in Namibia.This is the place that world opinion has been celebrating over in the expectation that it's going to hold an election. The most likely winner will be the Marxist-dominated SWAPO rebels.The U.S. journalist's "crime" was writing that the head of the commission charged with overseeing the election's fairness, Bryan O'Linn, was openly sympathetic to SWAPO. Shortly after that, Mr. O'Linn had Scott Stanley arrested and his passport confiscated.Mr. Stanley is on trial over charges that he violated a proclamation, issued by the South African administrator general earlier this year, which made it a crime punishable by two years in prison for any person to "insult, disparate or belittle" the election commission. The Stanley affair doesn't bode well for the future of democracy or freedom of anything in Namibia when SWAPO starts running the government.To the extent Mr. Stanley has done anything wrong, it may be that he is out of step with the consensus of world intellectuals that the Namibian guerrillas were above all else the victims of suppression by neighboring South Africa.SWAPO has enjoyed favorable Western media treatment ever since the U.N. General Assembly declared it the "sole, authentic representative" of Namibia's people in Last year, the U.S. brokered a peace settlement to remove Cuba's "Afrika Korps" from Angola and hold "free and fair" elections that would end South Africa's control of Namibia.The elections are set for Nov. 7.In July, Mr. Stanley, editor of American Press International, a Washington D.C.-based conservative wire service, visited Namibia to report on the U.N.-monitored election campaign.He interviewed Mr. O'Linn, head of a commission charged with investigating electoral intimidation, and reported that Mr. O'Linn was openly sympathetic to SWAPO and indeed had defended its leaders in court.After Mr. Stanley's article was published in two Namibian newspapers, Mr. O'Linn had criminal charges brought against their editors, publisher and lawyer.Mr. Stanley was arrested and charged along with the others when he returned to Namibia this month. Both the State Department and the Lawyers Committee for Freedom of the Press have protested Mr. Stanley's detention.Mr. Stanley's arrest is the latest in a series of incidents that threaten to derail Namibia's elections.Both South African and SWAPO extremists are intimidating voters.The U.S. is in the habit of arranging peace settlements and then washing its hands over the tragic results.It now has the chance to redress that record in Namibia.State and the human-rights community should insist that Mr. Stanley and his fellow defendants be released and that the United Nation's monitors make certain that Mr. O'Linn's commission investigates election complaints from all sides.
Commodity futures prices generally reflected the stability of the stock market following its plunge Friday. Yesterday, the stock market's influence at first created nervousness.Later, however, it became more of an undercurrent than a dominating force as individual markets reacted more to their own factors. Gold, the traditional haven in times of financial crisis, continued its inverse lockstep with the dollar, rising early in the day as the currency fell, and then giving up some of its gains as the dollar recovered. Copper and crude oil reacted sharply to the concern that a crash yesterday could have a potentially devastating effect on the economy.Copper fell and showed little rebound through the day as one of the major supply problems that had been supporting prices appeared to be solved.Crude oil declined early, but as the stock market retained early gains, it, too, became stronger, ending with a small net loss. Trading in cotton and sugar was nervous and showed small declines. In Chicago, grain and soybean prices rose slightly.Livestock and meat prices, however, dropped on concern that a financial crisis would cut consumption of beef and pork. In commodity markets yesterday: PRECIOUS METALS: Futures prices were moderately higher as gold gave up some of its early gains and platinum behaved independently, first falling and then later rising.Silver performed quietly.The spot October gold price rose $4 to $367.30 an ounce.The more active December delivery gold settled with a gain of $3.90 an ounce at $371.20, after trading as high as $374.December silver was up 2.3 cents an ounce at $5.163.Platinum behaved more like an industrial metal, easing early on concern over a possible weaker economy, but recovering later, as the stock market strengthened.Gold was nowhere the spectacular performer it was two years ago on Black Monday.For one thing, last Friday, precious metals markets closed before the stock market went into its late-in-the-day nose dive, so it couldn't react to it.Back on Friday, Oct. 16, l987, the stock market declined during the day, and gold prices surged as the stock market fell.The October 1987 contract that day rose as much as $8.70 to as high as $471.60, and the more deferred positions, due to mature as late as March 1989, rose as much as $9.60.On Black Monday, Oct. 19, 1987, the October contract tacked on further gains, rising to as high as $491.50 for a gain of almost $20 on top of the Friday advances, before giving up almost $10 of that at the close.Yesterday's October gain of $4 was miniscule compared with that.One analyst, Peter Cardillo of Josephthal & Co., New York, said the gold market already had some good price-supporting technical factors that would have caused prices to rise, with or without the stock market. "What the stock market did was cause the rise to take place earlier than it would have happened," said Mr. Cardillo.There's a good chance that gold will retain its gains and rise further, he said.He expects a drop in interest rates, which would help gold by keeping the dollar from rising.Finally, according to Mr. Cardillo, the impact of the strong dollar should be reflected in reduced exports in the August merchandise trade deficit, when the figures are released today.This would be damaging to the dollar and supportive for gold, he said. ENERGY: Worried that Friday's 190-point stock market plunge might be a harbinger of things to come for the economy, petroleum futures traders called a halt to the recent string of increases in crude oil futures prices.The U.S. benchmark crude, West Texas Intermediate, closed at $20.59 a barrel for November delivery, down 30 cents.Some analysts said crude was due for a correction anyhow, following several days of significant gains.But most market observers agreed that Friday's stock market drop is what dampened spirits in the petroleum pits yesterday.Until yesterday, futures prices had been headed up on expectations that world oil demand will continue to be strong.The Organization of Petroleum Exporting Countries increased its production ceiling for the fourth quarter based on projections of robust demand.So any bearish indicator, such as Friday's precipitous drop in the stock market, sends shivers through the oil markets as well.Indeed, after reacting early in the trading day to Friday's plummet, futures prices firmed up again as traders took note of the stock market's partial recovery yesterday. COPPER: Futures prices fell and showed little rebound as one major labor problem that had been underpinning prices appeared to be solved.The December contract declined 3.05 cents a pound to $1.2745.Prices were down from the outset of trading on concern that a drop in the stock market might create a weakened economy and a consequent reduction in copper use.But the recovery in the stock market provided little help for copper as word spread that a three-month strike at the Highland Valley mine in British Columbia was about over, according to an analyst.Highland Valley is a large Canadian producer and principal supplier to Japan, which recently began seeking copper elsewhere as its inventories shrank.Last week it was reported that company and union negotiations had overcome the major hurdle, the contracting out of work by the company.Now, the analyst said, only minor points remain to be cleaned up. "For all intents and purposes, an agreement appears to have been achieved," he said.Copper inventories in New York's Commodity Exchange warehouses rose yesterday by 516 tons, to 10,004 tons.London Metal Exchange copper inventories last week declined 13,575 tons, to 89,300 tons.The LME stocks decline was about as expected, but the Comex gain wasn't.However, this was brushed aside by concern over the stock market, the analyst said.At one point in futures trading, as the stock market firmed, the December contract rose to as high as $1.2965, but it wasn't able to sustain the gain. "It was simply overbought," he said, and selling by funds that are computer guided helped depress prices. COTTON: Futures prices eased, more in reaction to Hurricane Jerry than to any influence of the stock market.The December contract ended with a loss of 0.22 cent a pound, at 74.48 cents.Technical considerations following the hurricane, which was a factor in the market Friday, caused prices to decline yesterday, said Ernest Simon, cotton specialist for Prudential-Bache Securities, New York.Prices rose sharply Friday as the storm approached Texas and Louisiana, which is part of the Mississippi Delta cotton-growing area.However, after absorbing the potential effect of the hurricane, prices began to slip late Friday, Mr. Simon said.That selling continued yesterday and kept prices under pressure, he said.Colder weather is being predicted for the high plains of Texas and the northern states of the Delta during the coming weekend, Mr. Simon said.That hasn't yet captured traders' attention, he added. SUGAR: Futures prices declined.The March contract was off 0.32 cent a pound at 13.97 cents.At one point in early trading the March price rose to as high as 14.22 cents when the stock market recovered, but the price then fell back.A price-depressing factor, one analyst said, was that India, which had been expected to buy around 200,000 tons of sugar in the world market, didn't make any purchases.India recently bought 200,000 tons and was expected to buy more, the analyst said.Another analyst thought that India may have pulled back because of the concern over the stock market. "India may have felt that if there was a severe drop in the stock market and it affected sugar, it could buy at lower prices," said Judith Ganes, analyst for Shearson Lehman Hutton, New York.At any rate, she added, "India needs the sugar, so it will be in sooner or later to buy it." FARM PRODUCTS: The prices of cattle and hog futures contracts dropped sharply because traders speculated that the stock market plunge Friday will linger in the minds of U.S. consumers long enough to prompt them to rein in their spending at the supermarket, which would hurt demand for beef and pork. The price of the hog contract for October delivery dropped its maximum permissible daily limit of 1.5 cents a pound. The prices of most grain futures contracts rose slightly yesterday out of relief that the stock market was showing signs of recovering.Earlier in the session, the prices of several soybean contracts set new lows.A broad rally began when several major processors began buying futures contracts, apparently to take advantage of the price dip.
For the moment, at least, euphoria has replaced anxiety on Wall Street. The Dow Jones Industrial Average jumped sharply yesterday to close at 2657.38, panic didn't sweep the world's markets, and investors large and small seemed to accept Friday's dizzying 190-point plunge as a sharp correction, not a calamity.Many went bargain-hunting. Among those sighing with relief was John H. Gutfreund, chairman of Salomon Brothers, who took to the firm's trading floor to monitor yesterday's events.As the rally gained strength at 3:15 p.m., he smiled broadly, brandished his unlit cigar and slapped Stanley Shopkorn, his top stock trader, on the back. At first, it seemed as if history might repeat itself.As trading opened yesterday morning on the Big Board, stocks of many of the nation's biggest companies couldn't open for trading because a wave of sell orders was overwhelming buyers.By 10:10, the Dow Industrials were off 63.52 points, and the stock of UAL Corp., whose troubles had kicked off Friday's plunge, still hadn't opened. But then, as quickly as the Dow had fallen, it began to turn around.It ended with a gain of 88.12 points. By the market's close, volume on the New York exchange totaled more than 416 million, the fourth highest on record.The Big Board handled the huge volume without any obvious strain, in sharp contrast to Black Monday of 1987.But the rally was largely confined to the blue-chip stocks, which had been hard hit during Friday's selling frenzy.Overall, more Big Board stocks lost money than gained. And many arbitragers, already reeling from Friday's collapse of the UAL deal, were further hurt yesterday when a proposed takeover of AMR Corp., the parent of American Airlines, collapsed.Indeed, the Dow Jones Transportation Average plunged 102.06 points, its second-worst drop in history. World-wide, trading was generally manageable.The Frankfurt stock exchange was hardest hit of the major markets, with blue chips there falling 12.8%.In London, a midday rally left the market's major index off 3.2%, and Tokyo's leading stock index fell only 1.8% in surprisingly lackluster trading.Other, more thinly traded Asian markets were hit harder than Tokyo's, but there were no free-fall declines. Investors big and small say they learned valuable lessons since the 1987 crash: In this age of computerized trading, huge corrections or runups in a few hours' time must be expected.What's more, such short-term cataclysms are survivable and are no cause for panic selling. Stephen Boesel, a major money manager for T. Rowe Price in Baltimore, says, "There was less panic than in 1987: We had been through it once." In Somerset, Wis., Adrian Sween, who owns a supplier of nursing-home equipment and isn't active in the stock market, agrees. "I look at it as a ho-hum matter," he says. Many other factors played a part in yesterday's comeback.The Federal Reserve signaled its willingness to provide liquidity; the interest rate on its loans to major banks inched downward early in the day.Foreign stock markets, which kicked off Black Monday with a huge selling spree, began the day off by relatively modest amounts.The dollar, after falling sharply in overnight trading to 139.10 yen, bounced back strongly to 141.8, thus easing fears that foreigners would unload U.S. stocks. And the widely disseminated opinion among most market experts that a crash wasn't in store also helped calm investors.Many major institutions, for example, came into work yesterday ready to buy some of the blue chips they felt had been sharply undervalued on Friday. Still, amid all the backslapping and signs of relief over yesterday's events, some market professionals cautioned that there is nothing present in the current market system to prevent another dizzying drop such as Friday's. "There is too much complacency," says money manager Barry Schrager. Computers have increasingly connected securities markets world-wide, so that a buying or selling wave in one market is often passed around the globe.So investors everywhere nervously eyed yesterday's opening in Tokyo, where the Nikkei average of 225 blue-chip stocks got off to a rocky start.The average plunged some 600 points, or 1.7%, in the first 20 minutes of trading.But the selling wave had no conviction, and the market first surged upward by 200 points, then drifted lower, closing down 647. Unlike two years ago, most of Japan's major investors chose to sit this calamity out.In Merrill Lynch & Co. 's Tokyo trading room, some 40 traders and assistants sat quietly, with few orders to process.Clients "are all staying out" of the market, one Merrill trader says. The relative calm in Tokyo proved little comfort to markets opening up in Europe.Frankfurt's opening was delayed a half hour because of a crush of sell orders. "The beginning was chaotic," says Nigel Longley, a broker for Commerzbank In London, the view from the trading floor of an American securities firm, Jefferies & Co., also was troubling.A computer screen displaying 100 blue-chip stocks colors each one red when its price is falling.The screen was a sea of red. "I see concern, but I don't see panic," says J. Francis Palamara, a New Yorker who runs the 15-trader office.London's blue-chip stock index turned up just before 8 a.m. New York time, sending an encouraging message to Wall Street. When trading opened in New York at 9:30 a.m. EDT, stocks fell sharply -- as expected.Futures markets in Chicago had opened at a level suggesting the Dow would fall by about 60 points.With sell orders piled up from Friday, about half the stocks in the Dow couldn't open on time.By 9:45, the industrial average had dropped 27 points.By 10 a.m., it was down 49.Ten minutes later, the Dow hit bottom-down 63.52 points, another 2.5%. But shortly before then, some of Wall Street's sharpest traders say, they sensed a turn. "The first thing that caught my eye that was encouraging was Treasury bonds were off," says Austin George, head of stock trading at T. Rowe Price. "It meant that people weren't running pell-mell to the safety of bonds." Shortly after 10 a.m., the Major Market Index, a Chicago Board of Trade futures contract of 20 stocks designed to mimic the DJIA, exploded upward.Stock traders were buoyed -- because an upturn in the MMI had also started the recovery in stocks on the Tuesday following Black Monday. "The MMI has gone better," shouted a trader in the London office of Shearson Lehman Hutton.Shearson's London trading room went wild.Traders shouted out as their Reuters, Quotron and Telerate screens posted an ever-narrowing loss on Wall Street.Then, nine minutes later, Wall Street suddenly rebounded to a gain on the day. "Rally, rally, rally," shouted Shearson's Andy Rosen. "This is panic buying." Major blue-chip stocks like Philip Morris, General Motors and Proctor & Gamble led the rally. Japanese were said to be heavy buyers.German and Dutch investors reportedly loaded up on Kellogg Co. Then, traders say, corporations with share buy-back programs kicked into high gear, triggering gains in, among other issues, Alcan Aluminium and McDonald's. Walt Disney Co., which had one of the biggest sell-order imbalances on Friday and was one of seven stocks that halted trading and never reopened that day, opened yesterday late at 114.5, down 8.5.But then it suddenly burst upward 7.5 as Goldman, Sachs & Co. stepped in and bought almost every share offer, traders said. By 10:25, the Dow had turned up for the day, prompting cheers on trading desks and exchange floors.Among Big Board specialists, the cry was "Pull your offers" -- meaning that specialists soon expected to get higher prices for their shares. "It was bedlam on the upside," said one Big Board specialist. "What we had was a real, old-fashioned rally." This technical strength spurred buying from Wall Street's "black boxes," computer programs designed to trigger large stock purchases during bullish periods.Typical, perhaps, was Batterymarch's Dean LeBaron.Mr. LeBaron, who manages $10 billion, says, "We turned the trading system on, and it did whatever it was programmed to do." Asked what stocks the computer bought, the money manager says, "I don't know." Not everybody was making money.The carnage on the Chicago Board Options Exchange, the nation's major options market, was heavy after the trading in S&P 100 stock-index options was halted Friday.Many market makers in the S&P 100 index options contract had bullish positions Friday, and when the shutdown came they were frozen with huge losses.Over the weekend, clearing firms told the Chicago market makers to get out of their positions at any cost Monday morning. "They were absolutely killed, slaughtered," said one Chicago-based options trader. Meanwhile, a test of the stock market's rally came at about 2 p.m., with the Dow at 2600, up 31 points on the day.Charles Clough, a strategist at Merrill Lynch, says bargain hunting had explained the Dow's strength up to that point and that many market professionals were anticipating a drop in the Dow.Moreover, the announcement that real estate magnate and sometime raider Donald Trump was withdrawing his offer for AMR Corp. might have been expected to rattle traders. Instead, the rally only paused for about 25 minutes and then steamed forward as institutions resumed buying.The market closed minutes after reaching its high for the day of Across the country, many people took yesterday's events in stride, while remaining generally uneasy about the stock market in general.Says James Norman, the mayor of Ava, Mo.: "I don't invest in stocks.I much prefer money I can put my hands on." While Mayor Norman found the market's performance Monday reassuring, he says, he remains uneasy. "We have half the experts saying one thing and half the other" about the course of the economy. Ralph Holzfaster, a farmer and farm-supply store operator in Ogallala, Neb., says of the last few days events, "If anything good comes out of this, it might be that it puts some of these LBOs on the skids." Says Gordon Fines, a money manager at IDS Financial Services in Minneapolis, "You're on a roller coaster, and that may last.The public is still cautious."
Skipper's Inc., Bellevue, Wash., said it signed a definitive merger agreement for a National Pizza Corp. unit to acquire the 90.6% of Skipper's Inc. it doesn't own for $11.50 a share, or about $28.1 million. NP Acquisition Co., a National Pizza unit, plans to begin a tender offer for Skipper's on Friday, conditioned on at least two-thirds of Skipper's shares being tendered.Pittsburg, Kan.-based National Pizza said the transaction will be financed under its revolving credit agreement. In national over-the-counter trading, Skipper's shares rose 50 cents to $11. Skipper's said the merger will help finance remodeling and future growth. Skipper's previously turned down a $10-a-share proposal from National Pizza and Pizza Hut Inc. questioned whether the purchase would violate National Pizza's franchise agreements.National Pizza said it settled its dispute with Pizza Hut, allowing it to make the purchase.Also, Skipper's results began to turn around, permitting a higher offer, National Pizza said. For the 12 weeks ended Sept. 3, Skipper's had net income of $361,000, or 13 cents a share, compared with a net loss a year earlier.Revenue was $19.9 million.
EAST GERMANS RALLIED as officials reportedly sought Honecker's ouster. In what was considered the largest protest in the Communist state's 40-year history, at least 120,000 demonstrators marched through the southern city of Leipzig to press demands for democratic freedoms, opposition activists said.Police didn't intervene.Meanwhile, as the first of more than 1,300 East Germans trying to flee to the West through Poland renounced their citizenship, a West German newspaper reported that regional Communist officials demanded the dismissal of hard-line leader Honecker. Secretary of State Baker, in a foreign policy speech, called for the reunification of Germany, saying it was the "legitimate right" of the German people. Gorbachev blamed the Soviet Union's press for contributing to the nation's mounting problems.At a meeting Friday, the Kremlin leader complained about recent articles that raised the possiblity of civil unrest, and accused the media of fueling panic buying of goods by publishing stories about impending shortages. House-Senate conferees approved a permanent smoking ban on domestic airline routes within the continental U.S. and on flights of less than six hours to Alaska and Hawaii.The curbs would cover all but a small percentage of flights, and represent an expansion of the current ban on flights of less than two hours. E. Robert Wallach was sentenced by a U.S. judge in New York to six years in prison and fined $250,000 for his racketeering conviction in the Wedtech scandal.Wallach, an associate of ex-Attorney General Meese, was found guilty in August of taking $425,000 in illegal payoffs from the now-defunct defense contractor. NASA resumed the countdown for today's launch of the space shuttle Atlantis, and a federal appeals court in Washington dismissed a lawsuit by anti-nuclear groups to delay the flight because the plutonium-powered Galileo space probe was aboard.The space agency said it didn't expect weather or protesters to block the liftoff. The Bush administration is preparing to extend a ban on federal financing of research using fetal tissue, government sources said.A temporary prohibition was imposed in March 1988.While anti-abortion groups are opposed to such research, scientists have said transplanting such tissue could be effective in treating diabetes. Delegates from 91 nations endorsed a ban on world ivory trade in an attempt to rescue the endangered elephant from extinction.Five African nations, however, said they would continue selling the valuable tusks. Mubarak held reconciliation talks with Gadhafi at the Egyptian resort of Mersa Metruh.It was the Libyan leader's first trip to Egypt in 16 years.They announced a reduction in formalities for travel, but didn't show any real signs of resuming full diplomatic ties.The Egyptian president said he would visit Libya today to resume the talks. Seoul and Pyongyang reached a tentative agreement to allow visits between families on the divided Korean peninsula.Such family reunions would be the second since 1945.Differences remained between the North and South Korean governments, however, over conditions for the exchanges. Freed black nationalists resumed political activity in South Africa and vowed to fight against apartheid, raising fears of a possible white backlash.The nation's main white opposition party warned that the government's release Sunday of eight black political prisoners risked bringing chaos and eventual black Marxist rule to the nation. The White House said Bush is "fully satisfied" with CIA Director Webster and the intelligence agency's performance during the Oct. 3 failed coup in Panama.The Washington Post reported that unidentified senior administration officials were frustrated with Webster's low-profile activities during the insurrection and wanted him replaced. Poland's legislature approved limits on automatic wage increases without special provisions for food price rises.The vote was considered a test of the Solidarity-led government's resolve to proceed with a harsh economic-restructuring program. Norway's King Olav V installed a three-party non-Socialist government as Gro Harlem Brundtland's three-year-old Labor regime relinquished power.The 19-member cabinet is led by Prime Minister Jan Syse, who acknowledged a "difficult situation" since the coalition controls only 62 seats in Oslo's 165-member legislature. El Salvador's government opened a new round of talks with the country's leftist rebels in an effort to end a decade-long civil war.A spokesman said the guerrillas would present a cease-fire proposal during the negotiations in Costa Rica that includes constitutional and economic changes. The State Department said there was a "possibility" that some Nicaraguan rebels were selling their U.S.-supplied arms to Salvadoran guerrillas, but insisted it wasn't an organized effort.Separately, Secretary of State Baker complained about a U.N. aide who last week told the Contras to disband as part of a regional peace accord. Died: Cornel Wilde, 74, actor and director, in Los Angeles, of leukemia. . . . Danilo Kis, 54, Yugoslav-born novelist and essayist, Sunday, in Paris, of cancer.
Chicago investor William Farley agreed to sell three divisions of Cluett Peabody & Co. for about $600 million to Bidermann S.A., a closely held clothing maker based in Paris. Shortly after completing the $1.56 billion acquisition of West Point-Pepperell Inc. in April, Mr. Farley's holding company, Farley Inc., said it was considering the sale of Cluett, a leading shirt maker and one of West Point-Pepperell's biggest units. Included in the sale are Cluett units that make men's shirts under the Arrow name, socks under the Gold Toe name and menswear through the Schoeneman division. The companies said the agreement is subject to Bidermann's receipt of financing and to regulatory and other approvals.They said the sale is expected to be concluded by the end of November. Mr. Farley said the sale of three of Cluett's four main divisions plus other "anticipated" West Point-Pepperell asset sales by December, should bring in a total of about $700 million.He didn't elaborate on other asset sales being considered. Mr. Farley followed a similar pattern when he acquired Northwest Industries Inc. and then sold much of its assets.But he kept Fruit of the Loom Inc., the underwear maker that he still controls and serves as chairman and chief executive. Cluett was an independent company until West Point-Pepperell acquired it for $375 million in cash and stock in 1986.In the fiscal year ended Sept. 30, 1988, Cluett had operating profit of $37 million on sales of $757 million. Bidermann sells clothes under various labels, including Yves Saint Laurent and Bill Robinson for men and Ralph Lauren for women.A spokesman said the company had sales of $400 million in 1988. In New York Stock Exchange composite trading, West Point-Pepperell fell 25 cents to $53.875.
Britain's Blue Arrow PLC intends to change its name to Manpower PLC and write off a chunk of the nearly $1.2 billion in good will realized in the takeover of U.S.-based Manpower Inc. Blue Arrow Chairman Mitchell Fromstein said in an interview that the two steps may be a prelude to reincorporating the world's biggest employment-services group in the U.S. Mr. Fromstein disclosed the planned steps, expected within a few months, as Blue Arrow posted a 2.5% drop in its third-quarter pretax earnings. The name change and good will write-off could help solidify Blue Arrow's dominance of the U.S. temporary-help market and give it a more American image as U.S. investors turn jittery about foreign stocks after Friday's market plunge.U.S. holders now own more than 60% of Blue Arrow compared with 9% last January. "In the U.S. market, the recognition of the Manpower name is infinitely stronger than Blue Arrow," Mr. Fromstein said. The moves also could erase shareholders' perception of Blue Arrow as a company in turmoil. "It further reinforces the concept that Blue Arrow is a thing of the past," said Doug Arthur, an analyst at Kidder Peabody & Co. in New York.The proposed changes "all make a lot of sense to me," he added. In a widely publicized boardroom coup, Mr. Fromstein ousted Antony Berry as Blue Arrow chief executive in January, a month after Mr. Berry had forced Mr. Fromstein out as the $1 million-a-year chief of Milwaukee-based Manpower.Mr. Fromstein solidified his control in April by taking over from Mr. Berry as chairman. But the Blue Arrow tumult isn't over yet, as the British government is investigating a disputed #25 million ($39.4 million) loan which Mr. Fromstein has said was made under Mr. Berry's direction. Blue Arrow was able to pull off the $1.34 billion takeover of Manpower in 1987 largely because different British and American accounting standards produce higher reported earnings for British companies.Under British rules, Blue Arrow was able to write off at once the $1.15 billion in good will arising from the purchase.As a U.S.-based company, Blue Arrow would have to amortize the good will over as many as 40 years, creating a continuing drag on reported earnings. Good will is the excess of cost of an acquired firm, operating unit or assets over the current or fair market value of those assets. But with so many shares now held in the U.S., Blue Arrow reports its earnings two ways, based on both U.K. and U.S. accounting standards. "Our balance sheets look like they came from Alice's wonderland," Mr. Fromstein said.The British version shows "a handful of pounds of net worth" following the 1987 write-off of good will, while the American version reflects "$1 billion of net worth because almost none of {the good will} has been written off." Mr. Fromstein said he hopes to eradicate some of the good will left on Blue Arrow's U.S. books in one fell swoop, but wouldn't specify how much.People close to Blue Arrow suggested the write-down would represent a sizable chunk, with executives claiming prior management overstated the extent of Manpower's good will. That move, along with the return to the Manpower name, could bolster the company's prospects during possibly difficult times for temporary help.The number of U.S. temporary workers fell about 1% in the 12 months ending Aug. 31, after sliding nearly 3.5% in July, said Kidder Peabody's Mr. Arthur. Blue Arrow blamed the pretax profit drop in the quarter ended July 31 partly on slower earnings growth of non-Manpower units in Britain.Overall, pretax profit slid to #18.49 million in the quarter from #18.98 million a year earlier.
Richard G. Sim, the man credited with transforming Applied Power Inc. from an underachiever into a feisty player in the global market for hydraulic tools, hopes to guide a similar turnaround at the company's latest acquisition, Barry Wright Corp. The 45-year-old former General Electric Co. executive figures it will be easier this time.But analysts, while applauding the acquisition, say Applied's chief executive faces a tough challenge in integrating the two companies. Barry Wright, acquired by Applied for $147 million, makes computer-room equipment and vibration-control systems.The Watertown, Mass., company's sales have been dormant and its profits have dropped.Last year's earnings of $1.3 million, including $815,000 from a restructuring gain, were far below the year-earlier $8.4 million. Besides spurring Barry Wright's sales, which were $201.7 million in 1988, Mr. Sim must pare its costs and product line. "The question is how long it's going to take Barry Wright to make a contribution," says F. John Mirek, an analyst at Blunt Ellis Loewi in Milwaukee. The answer will help determine whether Applied continues to reach the ambitious goals set by Mr. Sim.The Butler, Wis., manufacturer went public at $15.75 a share in August 1987, and Mr. Sim's goal then was a $29 per-share price by 1992.Strong earnings growth helped achieve that price far ahead of schedule, in August 1988.The stock has since softened, trading around $25 a share last week and closing yesterday at $23.00 in national over-the-counter trading.But Mr. Sim has set a fresh target of $50 a share by the end of Reaching that goal, says Robert T. Foote, Applied's chief financial officer, will require "efficient reinvestment" of cash by Applied and continuation of its healthy 19% rate of return on operating capital. In Barry Wright, Mr. Sim sees a situation "very similar" to the one he faced when he joined Applied as president and chief operating officer in 1985.Applied, then a closely held company, was stagnating under the management of its controlling family.While profitable, it "wasn't growing and wasn't providing a satisfactory return on invested capital," he says. Mr. Sim is confident that the drive to dominate certain niche markets will work at Barry Wright as it has at Applied.He also professes an "evangelical" fervor to develop a corporate culture that rewards managers who produce and where decision-making is shared. Mr. Sim considers the new unit's operations "fundamentally sound" and adds that Barry Wright has been fairly successful in moving into markets that haven't interested larger competitors. "With a little patience, these businesses will perform very satisfactorily," Mr. Sim says.Within about six months, "things will be moving in the right direction," he predicts. Mr. Sim figures it will be easier to turn Barry Wright around since he's now in the driver's seat.When he came to Applied, "I didn't have the power to execute as I do today," he says.He was named chief executive officer of Applied in 1986 and became chairman last November. At Applied, Mr. Sim set growth as his first objective.He took the company public in an offering that netted Applied about $12.6 million, which helped launch the company's acquisition program.Sales climbed to an estimated $245 million in fiscal 1989, ended Aug. 31, from $99.9 million in fiscal 1985.The company expects that earnings, which have marched steadily upward in recent years, reached about $20.8 million, or $1.58 a share, in the fiscal year just ended, up from $15.2 million in fiscal 1988 and $3.9 million in 1985.
The Supreme Court agreed to decide whether a federal court, in an antitrust lawsuit filed by state officials or private parties, may dismantle a merger that it has ruled anti-competitive. The high court agreed to hear the state of California's challenge to the legality of the acquisition of Lucky Stores Inc., a supermarket chain, by American Stores Co. which owns another chain, Alpha Beta Stores Inc. Under federal antitrust law, the Federal Trade Commission and the Justice Department have the authority to ask a federal court to order the divestiture of a merger that has been completed but has been found to be anticompetitive. But even after the federal agencies have approved a merger, federal antitrust law allows states or other affected parties to sue to challenge the merger on the grounds that it is anticompetitive.Federal appeals courts, however, disagree whether federal courts have the authority to order the break up of completed mergers in such private antitrust lawsuits. While the high court tries to resolve the disparate views of the appeals courts, American Stores remains under a temporary order to operate the two supermarket chains as separate businesses. American Stores' bid for Lucky Stores began as a hostile offer.But when the tender offer was increased, Lucky's directors approved the merger and, in June 1988, American Stores' $2.5 billion purchase of Lucky Stores was completed. The FTC reviewed the merger and, in August 1988, approved a settlement between the FTC staff and American Stores.While the settlement was under review by the FTC, the staff required American Stores to run the Lucky and Alpha Beta chains separately. Meanwhile, California officials, arguing that the merger would cost the state's consumers $400 million annually in higher prices, sued in federal court in September 1988.A federal judge in Los Angeles, after a hearing but before a trial was held, reached an initial conclusion that the merger was anti-competitive.He then issued a preliminary injunction ordering American Stores to continue to run the two chains separately. A federal appeals court in San Francisco ruled in March that the district court's order had the same effect as requiring divestiture of one chain by American Stores.The appeals court said federal courts lack the authority to require divestiture in private antitrust lawsuits. In August, Supreme Court Justice Sandra O'Connor issued a temporary stay, requiring the separate operations to continue until the high court could decide whether to hear the case. (California vs.American Stores Co.) Court in Brief In other action yesterday, the high court: -- Agreed to decide whether people arrested for drunken driving must be advised of their right to decline to answer questions and to consult a lawyer before police may videotape them to preserve a record of their condition. (Pennsylvania vs.Muniz) -- Agreed to decide whether a federal court may fine a lawyer for filing a frivolous lawsuit although the lawyer and client voluntarily dismiss the lawsuit. (Cooper & Gell vs.Hartmarx Corp.) Right-to-Die Appeal The Bush administration, in a friend-of-the-court brief, said that the Constitution gives states broad flexibility to require that medical patients in permanent, vegetative conditions continue to receive artificial feeding and fluids.The brief, filed by Solicitor General Kenneth Starr, said the family of a Missouri woman in such a vegetative state doesn't have the constitutional right to insist the state cut off artificial feeding. The brief makes roughly the same argument the government made last week in a brief urging more leeway for states to restrict abortions.The brief filed yesterday says state regulations need only be "reasonable" to withstand federal court review, an easy standard for states to satisfy.Moreover, the brief is critical of arguments for a constitutional right to privacy, saying any right for competent individuals to refuse medical treatment should be rooted in tradition and based on the 14th Amendment "due process" protection of "liberty," not on "abstract notions" of privacy, which the Constitution doesn't mention. Abortion Case Organizations supporting the constitutional right to abortion filed a friend-of-the-court brief in two Supreme Court cases in behalf of an unprecedented number of groups.The brief, coordinated by the American Civil Liberties Union and Planned Parenthood Federation of America, was filed in behalf of 274 groups, although many of them were small community religious organizations rather than national in membership.The brief argued that the 1973 decision recognizing the right to abortion, Roe vs.Wade, was correct and shouldn't be reconsidered.
After a long day tending the searing, blackened furnaces of the Panzhihua Iron & Steel Co., Li Wankui would like to relax away from the factory.But in these parts, the factory is everywhere. It is employer, political czar and dance-committee chairman.Inside the sprawling compounds that house 55,000 workers and their families, the factory operates the schools, restaurants, hospital and activities center.The factory sells Mr. Li his food and furniture and publishes his newspaper.It even restricts him and his wife to one child. Sitting at home with his family around the dining table, Mr. Li turns on the evening news. "This is the Panzhihua Factory broadcasting station," a perky anchorwoman says. "And here's what happened today at our factory." Panzhihua is the ultimate company town.Nestled in the remote mountains of southern Sichuan province about 1,200 miles southwest of Beijing, it is virtually cut off from the rest of China.With few businesses nearby, it's up to factory leaders to build high-rise housing and organize sports meets.They truck in fresh fish from the east coast and import television sets from Japan. "A Chinese factory director could be a mayor in the U.S.," says Mr. Li. "But I don't think an American mayor could handle a Chinese factory." Despite a decade-long attempt to revamp the socialist economy, China's mega-welfare state is alive and well.Health care is free, housing costs just pennies and food is heavily subsidized.At Panzhihua, as in other big state-run factories, workers still can count on a cradle-to-grave safety net.Factory officials estimate that more than 10% of the work force here is redundant, but layoffs aren't allowed.Even factory workers' children are guaranteed jobs.The industrial monoliths are so deeply involved in the welfare system that China's leaders may never be able to modernize them, despite their glaring economic inefficiency.Though the Panzhihua factory itself is profitable, many such enterprises aren't.Subsidies for money-losing enterprises totaled $18 billion last year, or about one-third the total state revenue. Life in the Panzhihua factory beats a regular rhythm, and fully absorbs workers such as Mr. Li.A muscular 38-year-old, he rises each morning at 6 a.m. to prepare for his shift. (He is entitled to one day off after each seven days of work.) Throwing on sweat pants and a T-shirt, he pops downstairs to a food shop, one of dozens run by the factory in Panzhihua's residential area.Mr. Li, whose pay is the equivalent of about $80 a month, buys steamed buns and rice porridge for his family.Breakfast for three costs a quarter. After eating, he heads to the factory.Panzhihua provides free bus service, but he prefers the 20-minute walk.At the gate of the factory, a huge sign greets Mr. Li and his co-workers: "Happily, happily come to work!" Donning denims and a hard hat, he heads to the steel-making furnace.Since the temperature next to it can reach 540 degrees Fahrenheit, Panzhihua Iron & Steel provides workers as many free orange-flavored soft drinks as they want.The factory produces the drinks in-house. At lunchtime, Mr. Li walks to one of the 59 cafeterias the factory operates.It's a chaotic scene.Scraps of meat and bones litter the bare concrete floor.A slop-bucket at the doorway is filled with a liquid turned blood-red from Sichuan peppers and hot sauce.The place doesn't look like much, but the food is good, and cheap.For about 30 cents, Mr. Li buys a bowl of pork, vegetables and rice. At the end of Mr. Li's workday, as a new shift prepares to take over, the factory's propaganda officials go to work.For half an hour they relate to groups of workers the latest news and views from the Communist Party.They read speeches from top leaders and slam U.S. sanctions on China imposed after the June 4 massacre of pro-democracy protesters in Beijing. "We want to make sure that workers have a correct opinion about events," says Yuan Changyong, the local Party chief. The propagandists also do their part in the national effort to limit births.Teams of officials track the contraceptive methods their workers employ and even chart menstrual cycles of female employees.They work by persuasion and coercion, alternating doses of propaganda with threats of financial penalties for "unplanned" second births. Zhang Shanyun, one of Mr. Li's bosses, knows the system well.Like many married workers, Mr. Zhang lives alone at the factory.His wife remains in the countryside, tending the farm land they possess.Whenever Mr. Zhang wants to return to his farm, he must fill out a form detailing what kind of birth-control device he and his wife will use.The document must be certified by factory officials and shown to leaders in his wife's village. "No document, no visit," smiles Li Jihong, who heads birth-control efforts at the factory. Mr. Li, however, is able to live with his wife full-time.When he returns home, he ties on an apron and begins to prepare dinner for his family.Most of the food comes to him via the factory, which buys 80 million tons of produce a year.The factory sells to workers at cost, which means prices are about 50% below what the handful of independent local merchants charge. For big occasions, the factory brings in special treats.Earlier this year, officials shipped in fresh crabs from Guangdong province.It turned out that few workers here in the hills of Sichuan had ever seen them, so the factory TV station ran a broadcast on the correct way to eat Guangdong crabs. The Li family home is a simple, two-room apartment with bare concrete floors and whitewashed walls.The basic furniture is provided by the factory, for five cents a month.Most workers get a bed, desk and bureau.Engineers also get a bookcase. Mr. Li's wife, Xia Huaqiong, also works at the factory, tending the water meters during the graveyard shift.There are few prospects for upward mobility, and Mr. Li's daughter, seven-year-old Li Shu, is certain to toil at the factory too someday, as are more than 10,000 of the workers' children. Li Shu is in the second grade at the Xiangyang Village Elementary School for Workers' Children, one of 31 schools subsidized by the factory at a cost of more than half a million dollars a year.Her tuition is about $1 a semester. Mr. Li says he is content living in this one-company town.But he concedes that the pressures of the all-powerful factory sometimes are tough to bear.He could do with more excitement, he says.Most evenings after the news, he leaves his wife in front of the TV set and wanders restlessly around his quiet neighborhood.He pauses frequently to greet familiar faces: co-workers from the factory. Inevitably, he is drawn to the Cultural Center, a drab, five-story structure with meeting rooms, stores, coffee shops, a large swimming pool and a dance hall.The center, built and run by Panzhihua Iron & Steel, is the beginning and end of social life in this town. Mr. Li walks upstairs to the center's second-floor library, a poorly lit room where he spends many hours leafing through a thin selection of state-controlled periodicals.He pulls out a newspaper: The Panzhihua Iron & Steel Co. Daily. "It's a good read," Mr. Li says. "Quite informative." Today's lead story: "Manager Zhao Inspects Operation of No. 4 Furnace." Not surprisingly in this remote outpost, many of the single factory workers here fall in love with each other. "We have a very small social circle," says Ma Yongjian, the company secretary general. "A lot of the young workers end up getting married." To facilitate such productive arrangements, the factory organizes dances each night, often outdoors on a concrete promenade along the banks of the Jinshajiang River. On this evening, the dancers seem reluctant, as a sour eight-piece band plods through a series of Chinese pop songs.But things come to life when a slender woman in a slinky black dress takes the microphone.The band starts in, and she begins to sing "Happy birthday to you," even though it isn't anyone's birthday.Immediately, hundreds of couples leap to their feet and rush onto the floor, dancing their well-rehearsed three-step, cheek-to-cheek.Happy Birthday, apparently a big hit in Panzhihua, lasts for 10 glorious minutes. As the band plays, and with romance in the air, Mr. Li recalls how he came to Panzhihua.The factory, one of Chairman Mao's oddest follies, dates to 1965.Mao was sure that the U.S., or perhaps the Soviet Union, was planning to attack China's coast, so he decided to set up vital industries deep in the remote interior. Like tens of thousands of others, Mr. Li was ordered to go to Panzhihua, in 1971. "I lived in a straw-and-mud house at the time," he says. "But I was happy to be here, to carry on the fight against the imperialists and the revisionists." Today the perceived threat has passed, but the factory is thriving. What keeps Mr. Li in Panzhihua?Partly the system.While workers can't easily be fired, they also can't easily quit to find jobs elsewhere.The Li family could apply for permission to do so, but hasn't tried. "I expect I'll be in Panzhihua for the rest of my life," Mr. Li says. "The No. 1 high school is pretty good, and I have to think of my daughter's future." Others have fled the remote factory.Beginning in 1979, it offered its original settlers a chance to leave.Many had been forced to come, often leaving their families and possessions behind.When the opportunity finally arose, thousands of workers departed, including virtually all of the factory's college graduates and senior engineers. Ma Zhijie, deputy general manager of the factory's trading department, wants his eight-year-old son to have broader horizons, and believes education is the best ticket out of Panzhihua.He is pushing his child to excel in school and teaches him English at home. "I dream that my son will attend college and find a good job somewhere else," Mr. Ma says. Panzhihua's isolation is immediately apparent.The area was off limits to foreign visitors and reporters until 1987, and remains effectively sealed off from contact with the outside.What the factory's workers know of the world comes filtered through the propaganda machine of official newspapers and television, as well as political study sessions.Workers have a very sketchy knowledge, for example, about the pro-democracy movement, and its bloody suppression, in Beijing this spring. At one point, Mr. Li repeats the theme of a recent political study class and harangues his American visitor about U.S. sanctions against China. "The Chinese and American people have great warmth for each other," Mr. Li says, "but I must tell you frankly that I disagree with President Bush's policy toward China." His visitor explains that, to many in the U.S., the sanctions were considered too moderate.Many of these Americans were incensed by the killings in Beijing and denounced the Chinese government. "Well, I certainly didn't know any of that," Mr. Li says, and abruptly closes the conversation. As Mr. Li begins his walk back home, he displays a slight limp, the result of a back injury.Last year, the factory sent him to northeast China to recuperate for six months, all expenses paid.The factory provides free medical care to all workers and their families.It runs a modern, 500-bed hospital and eight clinics, supported by $2.5 million a year in subsidies.When Mr. Li dies, Panzhihua Iron & Steel will pay for his cremation. And the next generation will carry on.At the hospital, Zhong Desheng, the director, dons a doctor's smock and leads a visitor into the maternity ward.A factory worker who has just given birth to a baby girl lies on a bed, looking bewildered.Her baby has been snatched up by the nurses and placed alongside nine others, each tied up in a tight cotton bundle. Mr. Zhong motions to the wriggling bundles. "These," he says, "are the future workers of Panzhihua Iron & Steel." Four of Britain's biggest banks said they plan to sell jointly owned Yorkshire Bank Group in an auction that could raise between #850 million ($1.33 billion) and #1 billion ($1.57 billion). National Westminster Bank PLC, Yorkshire Bank's biggest holder with a 40% stake, said it, Barclays PLC, Lloyds Bank PLC and Royal Bank of Scotland Group PLC decided to sell the 250-branch U.K. bank after receiving "a number of approaches" from potential purchasers.They declined to identify possible bidders. At a news conference here yesterday, NatWest officials said they expect potential interest from banks throughout continental Europe, Australia and the U.S. Yorkshire Bank, which had pretax profit of #100.4 million and #3.19 billion in assets last year, has Britain's ninth-largest branch network.It is viewed by market analysts as a potential target for banks aiming to boost their U.K. presence prior to the 1992 development of a single market in financial services in the European Community.Analysts have said the bank could fetch a price of between 8.5 and 10 times pretax profit -- or between #850 million and #1 billion. Bill Barron, a NatWest general manager, said the banks decided to push ahead with the sale despite yesterday's sharp stock-market fall in London because the decision was strategic and independent of market valuations. The consortium-ownership arrangement, which dates from a financial reconstruction of Yorkshire Bank in 1911, is outmoded for the increasingly competitive U.K. market, analysts say.Barclays owns 32%, Lloyds owns 20% and Royal Bank of Scotland owns 8% of Yorkshire Bank.
Congressman Lee Hamilton, an Indiana Democrat who chairs the the Joint Economic Committee, plans hearings next week on his bill to subject the Fed to greater political control.The Fed already is experiencing political pressure to supply lower interest rates and easy money.Former Senator William Proxmire has called the Hamilton bill the most dangerous economic legislation now before Congress, because it would give U.S. economic policy a further inflationary bias.It isn't given much chance of passing, but its mere existence is cause for anxiety. The U.S. and the world are not in need of new doubts about the future soundness of the dollar.Attempts in late September to drive the dollar down through central bank interventions were ill-timed, particularly since we now know that the dollar was then in the process of taking another dive relative to oil and other producer goods.The sharp rise in the September Producer-Price Index announced Friday fueled the stock market debacle. The Hamilton bill would put the Treasury Secretary on the Fed's board and Open Market Committee, which charts monetary policy.More worrisome, Congress would have a stronger supervisory role, with the Fed audited by the General Accounting Office, which Congress runs. Those sound like innocuous changes, but they're not.Both the Treasury and Congress traditionally have pushed for easy money, the Treasury to reduce its debt management problems and Congress to satisfy powerful producer constituencies who want a weak dollar for short-term competitive gains in world markets.Congressional pressures on the Fed similar to those that produced the savings and loan mess are an awful thought. Even now, the Fed cannot simply thumb its nose at the President and Congress.But it can resist.Paul Volcker found subtle ways to take his case to the people, with good results. Easy money advocates, however, are adept at spreading economic myths.There is the constant insistence that the Fed could lower interest rates were it not so obstinate.The Fed indeed can lower short-term interest rates by pumping reserves into the banks, but it can't do much about them from there on.If the reserves generate inflation, which is what the Fed fears most right now, interest rates will go up as lenders demand a premium.Enough inflation can ultimately even wipe out the bond market, as it did in Britain in the 1970s, thereby crippling the economy. The other myth is that inflation generates economic growth.It may do that temporarily but it also sows the seeds for stagnation. These two myths have caused the republic untold damage.The U.S. economy took on an inflationary bias when the Fed was forced to finance an incredible spending spree by Lyndon Johnson.Richard Nixon exacerbated the problem when, in response to pressures from Congress, he applied price and wage controls in August 1971, thereby discouraging production.Jimmy Carter ultimately hired Mr. Volcker to kill inflation, which was reaching dangerous levels.He did, too late to save Mr. Carter from forced retirement. But all that was a long time ago and politicians have a way of forgetting such things.The 1970s inflation yielded great benefits to some producer interests, including Arab sheiks, at the expense of the American middle class.It was a classic example of how inflation transfers income to the wealthy from the middle class.That explains why there are always powerful political interests pushing for a soft currency.In some countries, Argentina for example, those interests have overwhelmed the government and what remains of a middle class. The claim that inflation generates economic growth is seductive.In fact it does the opposite.As the charts show, the 1975-80 inflation destroyed both productivity and economic growth (see accompanying charts -- WSJ Oct. 17, 1989).It was only after Mr. Volcker killed inflation, at the cost of a sharp but brief recession, that growth and productivity started rising once more.Producers were forced by the discipline of sound money to slash away organizational fat and acquire more efficient equipment.After having performed that admirable feat, however, they were back in 1985 demanding a dollar devaluation that would make it still easier for them to compete in international markets.They got the devaluation and, as is usually the case, began picking up fat again.So now they want another one. Many corporate executives don't understand or don't want to understand that their own companies eventually become victims of such policies.Inflation destroys capital investment.Corporate depreciation reserves lose value relative to equipment replacement costs.Investors are reluctant to invest long term.Corporations, in effect, decapitalize themselves.That was reflected in the stagnant stock market of the 1970s.Strikes increase as workers demand raises to cope with rising prices, make up for what they already have lost and hedge against what they will lose in the months ahead.Productivity falls, and weaker production further fans inflation.The middle class gets poorer, and the poor feel greater pain than ever.All of which explains why stock and foreign exchange markets get jittery when the Fed comes under political pressure.Particularly so when it comes at a time when the Fed has done well.When it tightened up last spring, the price indexes fell and the economy began to pick up speed again, which is of course exactly counter to the "inflation-fuels-growth" theory. But not all the news is bad.Rep. Stephen Neal (D., N.C.) wants Congress to instruct the Fed to do one thing: prevent inflation.Nothing could be more to the point.
LAC Minerals Ltd. said it agreed to buy 65% of Denver-based Bond International Gold Inc. for $10 a share, or $373.8 million. The stake in the gold-mining company is held by companies controlled by Australian financier Alan Bond, who has been selling assets to reduce debt. LAC, a gold-mining company, said the transaction is to close Nov. 21, subject to regulatory approval and other customary conditions.In composite trading on the New York Stock Exchange, Bond International closed unchanged at $8.75. The purchase helps LAC make up for a court decision earlier this year in which it lost a long legal battle with Toronto-based Corona Corp. for control of Canada's richest gold mine.The Bond International stake would roughly double LAC's gold production and substantially reduce its average cost of producing gold. Bond International is expected to produce about 600,000 ounces of gold in the fiscal year ending June 30, of which roughly two-thirds would be attributable to LAC from the date the acquisition is completed.LAC itself is expected to produce about 400,000 ounces this year. Last year, Bond International spent an average $204 to produce an ounce of gold at mines in North and South America and in Australia, significantly lower than LAC's own average cost of $260 an ounce.Analysts say the real jewel in the Bond International crown is its 83% stake in Chile's El Indio mine, which they say had production costs of below $100 an ounce. A LAC spokesman said the company has "enough cash" to pay for the Bond International stake without borrowing. The spokesman said LAC has no intentions "right now" to further increase its stake in Bond International.
Dallas investor Harold Simmons says he hasn't decided to sell his Lockheed Corp. shares, after all. In a terse news release responding to an article yesterday in The Wall Street Journal, which credited a front-page interview story in the Sunday Los Angeles Daily News, Valhi Inc. said the quotes in the articles "do not accurately reflect Valhi's and Mr. Simmons's intentions" concerning their interests in Lockheed.Through Valhi and its affiliates, Mr. Simmons holds a 10.43% stake in the aerospace and electronics concern, and his plans concerning Lockheed have been the subject of much speculation among securities analysts. In the Daily News story, Mr. Simmons was quoted as saying, among other things: "Actually, I wish I were out of Lockheed.The defense industry seems to be getting more uncertain all the time.So I'm a seller.Put it in big black letters and underline it." Yesterday's statement by Valhi said the quotes "take out of context and paraphrase statements made by Mr. Simmons in jest at the conclusion of a lengthy interview." The true position is that Valhi and its affiliates, as they have said in public filings, "may increase, decrease or retain their Lockheed holdings" depending on a number of conditions. In composite trading on the New York Stock Exchange, Lockheed shares closed yesterday at $46.25 a share, off $1.75. Douglas R. Dowie, Daily News managing editor for news, said "the quotes in the Daily News were in context and were not in jest." The report of the interview, which was recorded, was "absolutely correct," he added. A spokesman for Mr. Simmons declined to elaborate on the Valhi statement, and said Mr. Simmons wouldn't be available to answer questions about his remarks to the Daily News.
The Federal Reserve gave comfort to the financial markets yesterday by allowing a key interest rate to drift downward. In addition, Fed Chairman Alan Greenspan attempted to calm the markets by denying reports he was publicly feuding with the Treasury. The Fed allowed the key federal funds interest rate to dip to about 8 5/8% from its levels of just below 9% last week.That was a sign to financial markets that, at least for now, the Fed was easing its grip on credit.Because the markets remained relatively calm, however, the Fed didn't have to inject massive amounts of money into the banking system, as it did in October 1987. The fed funds rate is the rate banks charge on loans to each other.The Federal Reserve can heavily influence that rate by buying and selling securities to financial institutions. "I view this morning's action as hand holding for the financial markets," said Steven Wood, an economist with Bank of America.He said the Fed showed it was willing to provide more money to the financial system, but it wasn't clear "how much or for how long." Mr. Greenspan appeared in public briefly yesterday morning to deliver a speech to the American Bankers Association convention here.In a brief comment before the speech, he said he was "surprised" that some people interpreted his recent comments in Moscow "as endeavoring to say something about current monetary or foreign exchange policies." While visiting Moscow last week, the Fed chairman had warned that "attempts to maintain unrealistic exchange rates" may be destabilizing -- a comment some interpreted as criticism of the Treasury's efforts to push down the dollar. "I hope my colleagues at the Gosbank {the Soviet central bank} don't misinterpret anything I said today," the Fed chairman joked before beginning the prepared text of his speech. Mr. Greenspan also tried to reassure the markets by saying that "we at the Federal Reserve are watching the financial markets rather closely." He said the Fed was coordinating its activities with foreign officials, and that "coordination exists at a detailed level here in the U.S. among the Federal Reserve, the SEC, the CFTC and the Treasury." The Fed's move to ease credit wasn't an aggressive one, but it did signal a clear change of policy from before the stock market's swoon.Government officials say it's unclear, however, where the bellwether fed funds rate, which influences other interest rates, will come to rest.If the financial markets continue to show nervousness, the Fed may keep it close to 8 5/8%.If problems quickly disappear, the Fed may nudge the rate up to 8 3/4. Bush administration officials were pleased with the Fed's action, and shared Mr. Greenspan's view that there was close coordination among the various government agencies. On Sunday, for instance, Treasury Secretary Nicholas Brady held a lengthy meeting with Mr. Greenspan and SEC Chairman Richard Breeden to evaluate information on Friday's market plunge.At that time, they concluded that the drop was concentrated among takeover stocks, and that there were no fundamental reasons it should turn into a rout Monday morning. The administration also benefited from the expertise of Treasury Undersecretary Robert Glauber and Assistant Secretary David Mullins, two former Harvard professors who had headed up the Brady Commission's effort to investigate the 1987 crash.The two men studied the order imbalances in the stock markets and the level of stock index futures to determine what might happen Monday morning.That led administration officials to predict, accurately, that on Monday the market would have to drop 60 to 100 points before any recovery could begin. Some analysts have said disagreements between the Treasury and the Fed added to an environment that allowed Friday's steep market decline to occur.For weeks prior to the market's drop, the Treasury had been urging the Fed to bring down short-term interest rates, and the Fed had been resisting.Also, Fed Vice Chairman Manuel Johnson and Wayne Angell, another member of the reserve board, had objected, in a vote made public Oct. 6, to the Treasury's efforts to push down the dollar by selling currency in foreign exchange markets. Mr. Greenspan was also known to be privately unenthusiastic about the Treasury's orders for massive dollar sales.His comments in Moscow last week were interpreted by some as a subtle attempt to make those concerns public. Separately, David Ruder, who left the chairmanship of the Securities and Exchange Commission two weeks ago, says investors should view market volatility as a fact of modern market life. "I do not regard the amount of the decline on Friday as unexpected or unlikely," he said in a telephone interview. "With the market being up to 2,700 or 2,800 and the existence of derivative products . . . one can expect volatility of the magnitude we had." But he asked that institutional investors take a socially responsible role in supporting the market. "Institutional investors bear a responsibility to not only not sell but to step up and buy without waiting for the market to bottom," Mr. Ruder said. Mr. Ruder, now a professor at the Northwestern University School of Law in Chicago, also expressed concern about two pauses in the Chicago Mercantile Exchange futures pits after prices had fallen and circuit breakers kicked in.Noting that the Dow Jones industrials continued to fall as the futures were spared further carnage, Mr. Ruder said, "I think that's something that needs to be looked at very carefully." Kevin G. Salwen contributed to this article.
Tokyo share prices dropped sharply in early Monday morning trading following Wall Street's plunge on Friday.After the initial slide, the market appeared to be turning around but by early afternoon was headed lower. At 1:30 p.m. Tokyo time, the Nikkei index of 225 selected stocks was off 1.4%, or 482.39 points, to 34633.63.In the first 20 minutes of trading in the morning, the Nikkei index had fallen 611.62 points or 1.7%, as nervous investors sold large capital issues. Traders remained guarded.Yoshiro Inoue, an analyst at Nomura Securities Co., described the steep decline in the beginning as "a New York shock." He predicted that "there would be no steep recovery but at the same time there would be no further decline." Said a Japanese equities trader at Jardine Flemings Securities Ltd., in Tokyo: "There is still a lot of weakness and nervousness in the market." Last Friday, the Dow Jones Industrial Average plunged 190.58 points to close at 2569.26, its worst loss in points since the October 1987 crash.The announcement that a group of takeover bidders for UAL Corp. had failed to raise enough money to acquire the U.S. airline was one of the main factors that triggered the sell-off, analysts said. World stock markets, bracing over the weekend for a sharp fall in share prices Monday, were watching Tokyo closely for signals.How far share prices fall in other markets will depend to a great extent on how the Tokyo market reacts, analysts and investors said. "I'm hoping Japan holds tight," said Allen Wheat, head of trading at Bankers Trust Co. in London, before the Tokyo opening. "But if Japan is wobbly, London will probably take a beating." Prior to the Tokyo opening, few were expecting panic to set in, mainly because today's market conditions are different from those that led to the world-wide downward spiral in October 1987. The French market could be harder hit than the London market, European analysts said, because recent unmaterialized takeover speculation in Paris has left some blue-chip stocks poised for markdowns. "Paris has had an awful lot of froth in the past two weeks and so is probably going to be hit a bit worse than London," said David Band, chief executive officer of Barclays Bank PLC's Barclays de Zoete Wedd investment banking unit. The Tokyo market's opening behavior seemed to be in line with predictions that a blood bath could be avoided.Analysts in Tokyo had said over the weekend that a drop is unavoidable, but they predicted that Japan's traditionally cautious institutional investors will keep things from spinning out of control. "The Tokyo market can't help but go down," said Hiroaki Hanao, deputy general manager of the equity department at Daiwa Securities Co. "But it won't be such a big crash." The Ministry of Finance and the Bank of Japan appear to be eager to put out the fire before it spreads.Japanese newspapers reported Saturday that the Ministry of Finance and the Bank of Japan view the plunge on Wall Street as a result of U.S. domestic concerns about financing acquisitions, not as a sign of weak economic fundamentals. There were also rumors that the Japanese financial authorities warned large brokerage firms and institutional investors over the weekend against taking any hasty actions Monday.How effective such guidance might be remains to be seen.One analyst said that with all eyes on the Japanese market it will be difficult this time for the Finance Ministry to try anything that could be seen as artificially propping up the market. As Japanese investors prepare for some rough waters this week, they will be paying close attention to the foreign exchange markets. "Tokyo is most worried about the currency," said Daiwa Securities' Mr. Hanao.If the yen rebounds against the dollar, he said, there is less chance of an additional increase in interest rates, which could help stabilize Tokyo share prices. Last Wednesday, the Bank of Japan raised the discount rate 0.5 percentage point to 3.75% to stem the dollar's rise.Of ficials said they were concerned that a weaker yen will contribute to greater inflation in Japan.In New York trading on Friday the dollar dropped 1.4% to close at 142.10 yen.Dealers are expecting the dollar to be skittish, as the market waits for U.S. authorities to indicate their monetary policy plans.The dollar opened in Tokyo at 139.95, down 4.05 from last Friday's Tokyo finish. Despite currency market concerns, analysts stressed that Tokyo market conditions today aren't what they were in 1987.Then, many market watchers in the U.S. worried that the highly speculative Tokyo market would be the one to send world markets reeling.Now, many look to Tokyo as a potential stabilizing factor because of its resilience and quick recovery following Black Monday.Analysts say one point in Tokyo's favor this time is the fact that for the past several weeks the market has been in relatively low gear, driven by fundamental concerns about earnings and interest rates rather than wild speculation.On Friday, the Nikkei index rose 320.97 to close at 35116.02.Trading volume has also fallen off in recent weeks. "A lot of the speculative fat has been trimmed," said one analyst. Some analysts predict that Japanese institutions may look at this as a good time to hunt for bargains.Many Japanese funds, which closed their books at the end of September, now have huge cash positions. "There's still lots of idle money sitting around here," said Hiroshi Ohira, chief analyst at New Japan Securities Co., citing a frequently stated reason for Tokyo's strength. Said another foreign stock analyst: "All the Japanese brokers will try to look for the positive aspects of this." Whatever happens in Tokyo, the powerful ripple effects are sure to be felt first in other Asian markets.A severe drop in Japanese stock prices or a steep fall in the dollar would exacerbate price declines in smaller markets such as Hong Kong, money managers say. In Hong Kong, brokers and fund managers expect the widely watched Hang Seng index, which closed Friday at 2782.30, to shed at least 100 points, or 5%.Some think a sharper decline is possible.The Hang Seng index opened at 2736, down 46.3 points, or 1.7%. Investors have already been treating the market with some caution.In late May and early June, when political turmoil overwhelmed China, the Hang Seng index plummeted 37% to 2093. (Hong Kong reverts to China in 1997.) Since then, international fund managers decreased their exposure to the market and only recently have begun to tiptoe back in. "It's not like the crash in October 1987, when there was lots of optimism," said Phillip Niem, research director in Hong Kong for British-based Hoare Govette Asia Ltd. "This time around there's lots of caution.People are already scared.Institutions' weighting in Hong Kong are low now anyway." After a 108-point decline in the Dow Jones industrials on Friday, Oct. 16, 1987, the Hang Seng index plunged 420.81 points, or 11.3%, the following Monday.Later that day Black Monday unfolded in New York, and officials closed the Hong Kong exchange for four days, a move that shook investor confidence in the market.This time around, government and market officials said, the territory's revamped equity market will remain open regardless of what happens in New York today. London's stock market, already wheezing under stresses of its own, is also casting a nervous eye toward Tokyo and bracing for a shock. Many London traders planned an allnight vigil on developments in the Tokyo market. "A lot of our guys will be sitting up all night at home, and a couple of our guys will be in the office overnight," said Mr. Wheat of Bankers Trust. Authorities, including the Bank of England and the Securities Association, are gearing up in case a crisis wallops the London market.The bank was in touch with other major central banks over the weekend and was preparing to make capital available to dealers if needed, as it did in the 1987 crash, according to people familiar with the bank's strategy. However, in an unusual public statement, the bank sought to play down any note of crisis.Said a spokesman: "There's no reason for such an exaggerated fall in London, where share values aren't underpinned in the same degree as New York by highly leveraged situations." The Securities Association, which regulates London's stock markets, said that if prices plunge today all dealers will be ordered to report their capital and market positions daily. "We're monitoring things very closely," a spokeswoman said. Even before Friday's New York nosedive, the London market had been facing heavy uncertainty because of worries over the British economy.After the one-point rise Oct. 5 to 15%, Britain's base interest rate stands at its highest level in eight years.Many economists have been predicting that the country's economic growth will be little more than 1% in Responding to the developments, the Financial Times 100-share index, which had been slightly higher most of the day, closed at 2233.9, down 3.9 points from Thursday. The impending stock market troubles could pose a dilemma for already embattled Chancellor of the Exchequer Nigel Lawson.A market plunge in Britain could bring pressure for him to lower interest rates.But a rate cut could weaken the recently depressed pound, which late Friday staged a sharp rally against the dollar after news of the New York market sell-off. One person who firmly believes London is headed for trouble no matter what happens elsewhere is Peter Thompson.This widely followed stock market forecaster achieved fame by predicting, in July 1987, the October crash of that year.Mr. Thompson, a consultant to Barclay de Zoete Wedd Securities Ltd., jolted the London market last Monday by predicting that another bear market is at hand. "London will open lower {today} whether or not Tokyo opens lower," Mr. Thompson said in an interview. "Market makers will mark down prices so bears can't go short to them at too advantageous a price." By going short, a market pessimist sells borrowed shares in the hope of buying them back later at a profit. Any big drop in London prices will further cool the already jaded British appetite for leveraged buy-outs, analysts said. Here are price trends on the world's major stock markets, as calculated by Morgan Stanley Capital International Perspective, Geneva.To make them directly comparable, each index is based on the close of 1969 equaling 100.The percentage change is since year-end.
Dallas investor Harold Simmons, who has been gobbling up Lockheed Corp. shares and only two months ago told this newspaper that he was in the stock for the long term, now insists he wants to sell. In an interview published yesterday with the Los Angeles Daily News, Mr. Simmons said: "Lockheed is actually just a decoy.I have several decoys out there because there's really something else that I want to slip up on.You've got to put out misinformation if you really want to buy something for a fair price." Mr. Simmons, who holds 6.6 million shares, or a 10.43% stake, in Lockheed, added that he isn't at all interested in taking over the Calabasas, Calif., aerospace concern. "Not now and not ever," he told the newspaper. "Actually, I wish I were out of Lockheed.The defense industry seems to be getting more uncertain all the time.So I'm a seller.Put it in big black letters and underline it." Lockheed's share price on the New York Stock Exchange has been propped up in recent weeks, despite disappointing earnings, because of Mr. Simmons's interest in the company.In composite trading on the New York Stock Exchange, Lockheed slipped $1 in Friday's market slump to close at $48 a share. Michael Lamb, who closely tracks Mr. Simmons's holdings for a Kansas City, Mo., firm called Wealth Monitors, said he is skeptical about the stated intention to sell off Lockheed shares.He added that while one Simmons holding company, Valhi Inc., has sold 272,000 Lockheed shares in recent months, his other companies have bought up 880,000. "Does that sound like a seller to you?" Mr. Lamb said yesterday. "It just doesn't make any sense." Mr. Simmons couldn't be reached to elaborate, and Lockheed officials couldn't be reached to comment on the Daily News article. But Mr. Lamb said it's Mr. Simmons's style to try and leave Wall Street befuddled.He said Mr. Simmons knows the arbitrage community "can be a detriment by driving the share price up." Mr. Lamb said if the arbitrageurs get confused, maybe they'll move out of the stock and leave more for Mr. Simmons to grab.
Vitro S.A. said it signed a definitive agreement to acquire Anchor Glass Container Corp. for $21.25 a share, or $265 million, in the largest takeover of an American company by a Mexican concern. Anchor was relatively unaffected by Friday's market plunge, perhaps because Vitro was bidding for the company.In composite trading on the New York Stock Exchange, Anchor closed at $18.375, down $1.375. Yesterday's announcement of the accord culminated a two-month long battle for the Tampa, Fla., maker of bottles and other glass containers.Anchor had been fighting Vitro's earlier $20-a-share tender offer and agreed to the sweetened bid after a special committee of Anchor's board put the company on the block.Anchor said previously that it held talks with other parties, but no other bids emerged. Vitro, which already owns 1,430,000 Anchor shares, agreed to buy the remaining 12,470,000 shares outstanding through THR Corp., an indirect subsidiary of Vitro.The Monterrey, Mexico, conglomerate also confirmed a previous announcement that it would acquire closely held Latchford Glass Co. of Huntington Park, Calif., in a separate transaction expected to close at the same time as the completion of the Anchor takeover.The purchase price of the Latchford transaction wasn't disclosed. Vitro said Security Pacific National Bank committed $139 million to finance the purchase of Anchor and an affiliate of Donaldson, Lufkin & Jenrette Securities Corp. committed $155 million in a bridge loan to finance the Anchor and Latchford acquisitions. Ernesto Martens R.,Vitro's chief executive officer, said the company intends to keep Anchor based in Tampa and that the unit would be run independently by U.S. managers. Mr. Martens called the takeover a "unique strategic opportunity" for Vitro to become "a world player" in the glass-container industry.Among other things, Vitro makes glass containers, flat glass and glass-making machinery.
From the professional money manager to the big overseas currency player to the little guy with his IRA in a mutual fund, the bulletin from Wall Street came as a shock -- followed swiftly by a sickening recollection of the pattern played out in the '87 crash: a 100-point-plus plunge on a Friday, a weekend of worrying in between, and then disaster on Monday.Who could be blamed for wondering if it is all happening again, in another nervous October? "It's scaring the hell out of me," says Tom Loughlin, a systems analyst and small investor in Boston. Friday's events demonstrate that despite all the post-1987 studies and reforms, the stock market can still plunge with dizzying steepness.The 190.58-point drop was the second-largest in magnitude ever, and the 12th worst on a percentage basis.But what was most terrifying was its speed: The market dropped 154 points in only 65 minutes, pausing only as the close neared. Moreover, this plunge came in a time of relatively benign economic conditions, raising the question of how the markets might react when a serious economic upset, such as a recession, is on the horizon. But despite its hair-trigger edginess, whether the market today will in fact mirror 1987 with a further dive is a far different matter.There are many reasons to think that what appeared Friday is another species of bear, and a less vicious one.The reasons include the obvious differences in the market between this fall and 1987: Interest rates haven't been rising this time, as they were in 1987; the dollar, though hit Friday, hasn't been eroding dangerously; the economy isn't overheating; and, above all, stocks are far from being as wildly overpriced: They are selling at only about 13 times per-share earnings, compared with about 20 two years ago. And this time, the regulators are moving with more dispatch.The Federal Reserve has already indicated that it will provide the credit needed to see that there isn't a liquidity squeeze today.Many traders think the Fed will quickly lower interest rates, a move that would be a plus for stocks. -- The levels of selling of U.S and foreign stocks in Asian and European markets, which open well before New York's.In early trading in Tokyo Monday, share prices fell 1.7%.After the initial slide, the market appeared to be turning around but by early afternoon was headed lower. -- Whether the buy-out of United Airlines parent UAL Corp., whose financing failure triggered Friday's free fall, can be put back together.Late yesterday, it wasn't clear the buyers could make a new bid by today.The lower UAL opens, the more traders who've bought with borrowed money will have to sell UAL and other takeover stocks to meet margin calls. -- The levels of early stock-index futures trading in Chicago.That market shut down early on Friday, leaving millions of dollars of sell orders unexecuted.Heavy index-futures selling often pulls the stock market down. -- The pressures on mutual-fund companies to sell stock in order to meet demands from customers for redemptions.On Black Monday, some funds sold hundreds of millions of dollars in stocks after being inundated with redemptions.But late yesterday, the biggest fund group, Fidelity Investments, said this weekend's redemptions were running at under one-third the level before Oct. 19, 1987. -- Any action by the Federal Reserve.Any move to lower interest rates, for example, would be a positive for stocks, by making fixed-income investments less competitive with them. Much as in the 1987 crash, the spark that lit the fuse on Friday was a news announcement that, at first blush, seemed to have little bearing on the market as a whole.When the UAL buy-out group said it couldn't get bank financing for its $6.79 billion deal, the announcement sent takeover-stock traders scrambling to sell United, other airline stocks and then other real or rumored takeover stocks. The Standard & Poor's 500-stock index futures took only 15 minutes from the UAL announcement, at 2:54 p.m., to hit their first "circuit breaker," a 30-minute trading halt that kicks in when the futures drop the equivalent of 100 points on the Dow.When the futures reopened at 3:30, it took only 15 minutes more for them to hit the next 100-point-equivalency limit, when S&P trading halted for the day. At the stock market's 4 p.m. close, the Dow Jones Industrial average was withing 60 points of another circuit breaker.Had the Dow fallen 250 points, trading on the New York Stock Exchange would have been halted for an hour. Many investors say the circuit breakers, instituted following the 1987 collapse, provided little reassurance.One Big Board specialist complains that the Friday futures halt, which was supposed to give the markets time to regain their equilibrium because futures prices are reported faster, was "ridiculous; anything artificial that gets in the way of this market is very hard to work with." Some traders fear circuit breakers hold the risk of making matters worse, especially if they should halt stock trading.But Big Board Chairman John J. Phelan Jr. maintains that the safeguards were a success Friday. There were also complaints that the specialists on the floor of the Big Board, who are charged with making markets in individual stocks, performed poorly during the plunge.Trading was halted in 10 stocks when specialists couldn't balance buy and sell orders in some stocks, such as entertainment giant Walt Disney Co.Seven never reopened. One futures executive, Christopher Pedersen of Twenty-First Securities Corp., says the specialists "were not able to handle the imbalances on the floor of the New York Stock Exchange." But James Maguire, chairman of Henderson Brothers Inc., a Big Board specialist, retorts: "It is easy to say the specialist isn't doing his job.When the dollar is in free fall, even central banks can't stop it." One of the most puzzling aspects of Friday's drop was the speed with which the damage to UAL spilled over to other stocks.Market professionals say that major arbitragers and others such as hedge funds, which were heavily invested in UAL and highly leveraged, couldn't get any cash out of their UAL positions because trading halted.Once UAL were to reopen, such speculators faced the likelihood of margin calls -- demands from lenders to put up more cash for stock positions bought with borrowed funds.So such traders quickly tried to raise cash by selling other so-called deal stocks, like AMR (American Airlines) and USAir. But then trading was halted because of order imbalances -- there were far more sellers than buyers.So the "arbs" started dumping positions in their entire portfolios, including major blue-chip stocks that have had large price runups this year, in a desperate race for cash. AMR, subject of a $120-a-share bid from Donald Trump, saw trading in its stock halted at $98.625 a share, down $.125, but was quoted in off-exchange trading at only $81.50.Paramount Communications Inc., the subject of takeover whispers, plunged $6.625 a share to $56.625.Shares of Hilton Hotels Corp., which has put itself up for sale, nosedived $21.50 to $85 a share. The deluge left some investors shaken and angry. "Don't ask me how I am," said Marshall Front, a money manager at Stein Roe & Farnham Inc. in Chicago. "This is incredible.You have a classic panic." Frederick A. Moran, president of Moran Asset Management in Greenwich, Conn., said computer-aided "program traders are the reason we had the last crash, they're the reason we're having this crash, and they're why we'll have the next crash.They're a total outrage." Stephen B. Timbers, chief investment officer of Kemper Financial Services Inc. in Chicago, agrees that none of Friday's events by themselves added up to a 190-point decline. "Programs took it down.Without the programs, I can't imagine it would have been down 50," he says. Many market professionals say it is still too soon to know whether it was program traders, per se, who were to blame, but they generally agree that the computerized trading programs that have now been embraced by an array of professional investors and money managers accounted for the speed of the drop.Traders say that Friday's big sellers included Salomon Brothers Inc., which was reportedly executing trades for a client switching from stocks to bonds, and Tudor Investments, a prominent player in the futures markets.Tudor wouldn't comment; a spokesman for Salomon denied that it was a heavy seller. Michael Steinhardt, who only last Monday was threatening a takeover of USAir using his 8.4% stake as a club, says he wished he didn't own the stock when Friday's market left him with a $12.9 million paper loss. "This market is a mile wide and an inch deep," he says.But Mr. Steinhardt disputed that he had been a heavy seller of other stocks Friday to make up for the USAir losses. Several big firms that do index arbitrage, in which traders buy and sell stocks and stock-index futures simultaneously to take advantage of price differentials, say they couldn't execute trades because they couldn't be sure of prices they would get on the stock exchange floor. One takeover stock speculator says that with individual investors frightened away from the market, the remaining participants are mainly institutions, all with instant access to the same information, and the same ability to sell in an instant -- that is, until all try to sell at once. "If this is something that had happened over the last few weeks, nobody would have noticed," the speculator says. "But now it just happens in an hour.The information is very quick; it's often inaccurate; and reactions can be irrational." The speed of Friday's drop is likely to reinforce the perception of many small investors that the markets are even more of a casino and haven't devised a manner for comfortably handling the awesome forces that technology has heaped upon them.Despite two years of study, the marketplace remains one where ever-anxious large investors, haunted by memories of the 508-point plunge in 1987 and aided by powerful computers, can turn minor market upsets into major calamities in the space of a few hours. Many are quick to emphasize that just because the market can fall as fast as it did Friday doesn't mean it will tank again, despite some disquieting similarities between now and October 1987.As in 1987, this latest market slide was preceded by sparring between nations and government officials over the dollar. In 1987, then-Treasury Secretary James Baker was threatening a big drop in the dollar if West Germany raised interest rates.This year, Federal Reserve Chairman Alan Greenspan seemed to warn he wouldn't lower interest rates merely to keep the dollar within an agreed-on exchange range. In another similarity to 1987, the government was threatening a crackdown on highly leveraged takeovers.Then it was House Budget Committee Chairman Daniel Rostenkowski threatening to eliminate the tax deductibility of interest for certain debt-financed takeovers.This year it was Transportation Secretary Samuel Skinner voicing concern about airline buy-outs and threatening to force changes in the United deal. (Some think another Washington factor this time was the Senate's failure to pass capital-gains tax cut.) But market observers point out that long-term government bond interest rates, currently at 7.85%, are 2.5 percentage points lower than the level that prevailed in October 1987, when interest rates had been rising for most of the year. Another difference this year is that stocks' price-earnings ratios are much lower, which implies that they may not be so overpriced.In 1987, the average P-E ratio fell from a peak of more than 20 to about 13 just after the crash.This year, the average ratio was 14 at the market peak one week ago, and finished Friday at 13. On the other hand, one reason those ratios were so high in 1987 was that the stock market had been anticipating an enormous rise in corporate earnings, which did in fact occur.Between 1987 and 1989, those profits were projected to rise by 50%.But now those earnings are hitting a plateau.Just last week a string of earnings disappointments unnerved some market participants.Next year, earnings are expected to inch up only 2.4%. Another factor that has been dominating the thinking of many stock analysts is the current plight of the junk-bond market.Although UAL, the second-largest leveraged buy-out ever, was to have been financed with bank debt instead of junk bonds, its failure to obtain financing focused attention on the entire market for leveraged deals, underscoring just how dependent the entire market has become on junk bonds.Many stocks owe at least part of their market valuation to the perception that they could soon be the subject of a takeover or buy-out.Attention is focused on the so-called breakup value of the stock in the hands of an imagined acquirer who would buy the company at a big premium, perhaps planning to sell it piece by piece. Takeover specialist Carl Icahn, whose 13.1% stake in USX Corp. lost $151.2 million in value on Friday, says the stock market's downturn may reflect the end of a speculative period that has generated many leveraged buy-outs that now face problems as a result of weakness in the junk-bond market. "While a number of LBOs are fine, there are also many where the cash flow cannot pay the interest, but {that} instead are based on the buyer selling divisions to a greater fool to pay off the debt," Mr. Icahn says. However, Mario Gabelli, a takeover-stock investor, says that while some of the most speculative deals may now prove impossible to finance, "Companies are still going to buy companies around the world." As on any day on Wall Street, there are plenty of people who think the market will go up, and plenty who predict a downturn. "My advice is to buy," says Elaine Garzarelli, a market-timing expert at Shearson Lehman Hutton Inc., who warned clients of danger just before the 1987 crash.She compares the current drop-off to 10%-12% corrections in 1978 and 1979. And Treasury Secretary Nicholas Brady says the market's drop Friday ought to be seen in the context of a 28.7% runup in the Dow since Jan. 1 of this year.In addition, the stocks as a whole are up 60% from the day after the 1987 crash.Since the market hit a record level of 2791.41 on Monday, it has declined by 222.15 points, or 8%.Most of that occurred on Friday. Some think the selling has a way to go.James Awad, president of BMI Capital Corp. in New York, says that despite the more favorable valuation levels, stocks could still tumble several hundred points in the event of a breakdown in "the internal structure of the market." Although professionals were bracing themselves for some heavy early selling on overseas markets, many didn't detect any widespread panic over the weekend among U.S. institutions and individual investors. Many mutual funds have big cash reserves -- which they lacked in 1987 -- as a cushion against a possible cascade of telephone sell orders today.Fidelity, which was forced to sell $800 million of stocks in the 1987 crash, has quadrupled the cash level of the giant Magellan fund.The Boston firm says redemptions in stock funds since the Friday market drop have equaled less than 15% of those funds' total cash position of about $2 billion. "Two years ago there were massive redemption levels over the weekend and a lot of fear around," says C. Bruce Johnstone, who runs Fidelity's $5 billion Equity-Income Fund. "This feels more like a one-shot deal -- people aren't panicking." Liquidity also appears to be far healthier than it was in 1987, when a lack of it brought the financial system close to break-down.Over the weekend, Federal Reserve Chairman Greenspan phoned officials in the U.S. and abroad to reassure them that the Fed was prepared to inject massive amounts of money into the banking system if needed to prevent a financial crisis.And Mr. Phelan, the Big Board's chairman, says that the exchange hasn't turned up any capital problems among its 49 specialist firms, suggesting that the Big Board will have the capacity to make orderly markets even if volume is heavy.
If one thing was clear in the chaos of Friday's market sell-off, it was that the collapse of the buy-out of UAL Corp. set the whole thing off.But, it turns out, Wall Street -- quick to read tea leaves and quick to panic -- may have reached the wrong conclusion about the buy-out's unraveling. As word spread Friday that many of the world's biggest banks had refused to participate in the $6.79 billion leveraged transaction, the financial markets assumed the worst: If the management of a blue-chip outfit like the parent of United Airlines can't get financing, then takeovers in general must be headed toward extinction.The market, already chastened by a number of leveraged buy-outs gone bad, responded in a flood of sell orders. Yet interviews with the bankers who turned down the UAL proposal suggest the market may have misinterpreted its significance.The buy-out of UAL by a group made up of management, the pilots union and British Airways PLC, ran into difficulty because of its own unique problems, they say.Banks didn't suddenly become unwilling to finance takeovers, they just didn't like the looks of this particular deal. Specifically, the bankers said that UAL's management and advisers pushed too hard, trying to keep too much of the potential profit for themselves.The airline's top two officers, chief executive Stephen M. Wolf and chief financial officer John C. Pope, for example, would have made a total of more than $100 million on the buy-out through stock options they hold, even though their proposal called for them to put only $15 million of their own funds into the deal. Moreover, fees and interest rates paid to the banks would have been stingy -- far below those in comparable takeovers.The banks also said they were worried that United's rosy projections of future income -- and therefore its ability to pay off the debt -- didn't adequately take into account the bumpy nature of the airline industry. From a lender's point of view, "it's one of the worst big takeover proposals we've seen," said an official of First Chicago Corp., one of the banks asked to finance the buy-out, which notably didn't include junk bonds.Even so, banks such as First Chicago, which has a long history of ties to UAL, stretched their lending guidelines as far as possible in hopes of making the proposal work. "We really gave this thing nine looks," the First Chicago officer said. It was the job of A.D. Frazier, First Chicago's commercial lending chief, to call the buy-out group and put the best possible face on the news. "We called them back and said if they needed us -- if it would make a difference -- we'd come in," another officer familiar with the matter said. Of course, it wasn't even close.Other U.S. banks and, more importantly, those in Japan, also said no.In the end, the proposal never got far beyond the original financing promises made by Citicorp and Chase Manhattan Corp., which together had agreed to commit $3 billion and said they were "highly confident" they could raise an additional $4.2 billion. Representatives and advisers to the buy-out group, called Airline Acquisition Corp., met throughout the weekend in an effort to revise their $300-a-share offer.But prospects of quickly putting together a new deal appeared bleak.It is "still unclear whether this can be easily fixed," one official close to the transaction said yesterday afternoon.A pilots union official said the group is likely to wait and see what the stock market does Monday before making any decisions. "We've got a lot of homework to do, a lot of work ahead of us," said H. Bruce Bernstein, a lawyer at Sidley & Austin in Chicago, which is representing the bank group. Both the banks' decision to decline financing and the stock market's reaction caught the buy-out group off guard.Friday's dominoes began falling at 2:30 p.m., when the stock exchange halted trading in UAL, pending news.The news came at 2:54.Funds committed by banks for the buy-out "are not sufficient," the acquisition group announced.UAL was trading at $279.75 at the time of the halt and never reopened for trading Friday.However, it was later quoted by off-exchange market makers at as low as $230 a share. At 3:30, with the market now in a free fall, representatives of the buy-out group scrambled to a hastily called meeting at Citicorp's offices at 399 Park Avenue in New York.The group was trying to assess what it would take to resuscitate the deal.On the way to the session, some huddled around a Quotron machine that was in the hallway outside the meeting room. "The Dow's going down, down, down," said one observer in amazement. The meeting itself, held in the corporate finance department on the ninth floor, was disorganized, as members of Citicorp's and Chase's syndication departments called other banks trying to figure out why they had rejected the deal.At 3:55, five minutes before the market closed, the meeting began.Gathered around a long table that filled the huge conference room were about 30 people, including representatives of Citicorp, Chase Manhattan, United Airlines, British Airways, Lazard Freres & Co., Salomon Brothers Inc., Skadden Arps (Mr.Wolf's counsel) and Paul Weiss (lawyer for the pilots union).One person who wasn't present: Mr. Wolf himself who, confident that the deal would go through, was returning from Europe, where he had pitched the proposal to several big European banks. "People were surprised, shocked and upset," said an official at the meeting.Mr. Wolf, reached at his Chicago home Saturday, declined to comment. As they met to review what had gone wrong, the buy-out group quickly discovered that one of the big roadblocks had been Japanese lenders.Although they had provided the lion's share of the financing on the Northwest Airlines buy-out just a few months before, Japanese banks had said no to UAL. The Japanese apparently balked at several aspects of the proposal.A senior executive at one of Japan's biggest banks says the UAL deal "was stretched.It's a cyclical industry, and all the projections that the banks are working off are straight up.So where's the cycle?" Japanese lenders also recently have grown more conservative toward highly leveraged transactions, partly because of the recent cash-squeeze at Canada's Campeau Corp. following its leveraged purchase of Federated Department Stores Inc. last year.Japanese banks are worried that the government might issue restrictive guidelines unless the banks hold down the number of risky leveraged-buy-out loans they make, says a Japanese monetary official. "So, they are very cautious," he says. A third problem was the potential for labor unrest at UAL, something that makes the Japanese particularly skittish.The Japanese banks were reminded of the labor tensions at UAL all last week.On Wednesday, the machinists union asked the U.S. Labor Department to step in to stop the buy-out.On Thursday, at their national convention in Las Vegas, machinists union leaders discussed launching an allout campaign against UAL Chairman Wolf specifically.The machinists have opposed the buy-out because they weren't invited to participate in the deal and because they fear all the debt that would be taken on in the transaction would overburden the company. Machinists union leader John Peterpaul also made the union's views known in telephone conversations with representatives of Mitsubishi Bank, one of the Japanese banks that was considering participating in the financing.In those conversations, he reiterated the union's position that it would seek significant wage increases in the round of contract talks set to begin next month. The Japanese banks, however, weren't the only ones worried.At First Chicago, executives were sharply divided on whether the bank should participate -- and what consequences there would be if it rejected its longtime client. Among other things, the bank feared "we'd look like dogs" if United was able to piece together the financing and First Chicago was absent, a top lending officer said.United's Mr. Pope was warning that just that could happen. "Pope told us there's no question the banks are going to sign up." As the Thursday afternoon deadline for banks neared, some lending officers at First Chicago remained in favor of joining the financing group, but the bank's "credit police" were opposed, citing the high degree of risk associated with the loan.A vote of top officers, including Chairman Barry F. Sullivan, Thursday morning was strongly against the loan. One official close to the transaction said banks were worried about the amount of assets the buy-out group had to cover the loans.He said in the NWA Inc. acquisition, banks were secured with well over $1 in assets for every $1 of loan exposure.In the UAL transaction, however, a banker's loans would have been secured with less than $1 in assets for every dollar of loans. Another problem: The buy-out group's financial projections didn't assume any type of recession in the near future.For instance, the group projected that revenue would increase nearly 10% annually over the next few years.It estimated that yields -- the amount of income the airline takes in on ticket sales -- would increase an average of 3.5% a year, despite the ups and downs the industry has suffered in the last 10 years. The projections also assumed that load factors -- the number of seats filled per aircraft -- would remain a stable 66.7% or thereabouts, even though domestic travel has been weakening. According to a machinists union analysis of the transaction that will be presented to the Department of Transportation and a House Aviation subcommittee later this week, a "mild recession" would result in the company's taking in $3.5 billion less cash in the next four years than forecast by the buy-out group. Clearly, any new bid will have to include more profit for lenders and that probably means less cash for UAL shareholders, including the heavily stock-optioned Messrs.Wolf and Pope. Citicorp, the lead bank on the financing proposal, meanwhile, has a resounding flop on its hands.It agreed to put up $2 billion itself, while co-lead Chase Manhattan agreed to provide $1 billion.The two New York banks have already been paid combined fees of $8 million for the commitments. Citicorp and Chase told the buy-out group they were "highly confident" they could raise the remaining $4.2 billion needed to finance the deal. (The $7.2 billion the banks said they needed includes some refinancing of existing debt, and is therefore greater than the $6.79 billion offered for UAL.) Citibank's confidence was bolstered as recently as 10 days ago when representatives of 120 banks that had expressed interest in the UAL transaction attended a meeting with Citibank representatives. "Ninety percent of the questions asked were friendly," said a person who attended. "There were a lot of indications both before and after that this was a deal people thought well of." But Citibank's confidence may also have bordered on arrogance, other bankers contend.The recent buy-out financing of NWA, Northwest Airlines' parent, for instance, was a much more collaborative effort among several U.S. banks.It was a far safer deal for lenders, since NWA had a healthier cash flow and more collateral on hand.And banks' fees were much higher as well.No wonder, then, that lenders lined up to participate. "Perhaps lenders are finally recognizing that the stream of airline cash flow may be less predictable and a higher risk than previously considered," said Karen Firestone, a money manager at Fidelity Investments in Boston. Ms. Firestone added, "In the same week that USAir announces they might lose money in the quarter, United is trying to get money for a $300-a-share buy-out.It's kind of like, what's wrong with this picture?" According to bankers and others familiar with the financing proposal, several things need to be fixed: Fees paid to the banks, set at about 1.5% of loans, are low compared with other buy-outs, which have paid 2% to 2.5%.Because buy-out loans often get refinanced -- and thus paid off -- ahead of schedule, banks can't count on years of interest income from these loans.They like deals to be "front-loaded" with fees.What's more, fees in the UAL proposal weren't structured to encourage banks to commit to lending large amounts of money. The interest rate promised the banks was also relatively low; 2% over the rate banks charge each other in London, known as LIBOR.And bankers were concerned that there weren't any junk bondholders or other buyers of subordinated debt standing between potential losses and the banks' senior loans. "Most of these leveraged deals have been done with a pretty heavy layer of junk," a First Chicago executive said. "This one has zippo." Because the junk bond market has ground to a halt since Campeau's problems were made manifest, so-called bridge loans from Wall Street firms or other sources could be used for subordinated debt in the UAL deal. In the meantime, though, airline executives, union officials, lawyers, investment bankers and even the machinists will have one eye on United and one eye on the stock market they helped to tank.Says an official working on the buy-out: "As time goes by, you have to get more worried." Randall Smith and Michael R. Sesit contributed to this article.
The dollar's fall on Friday could signal a new bout of weakness for the U.S. currency and -- if it declines much further -- possibly the end of the U.S. currency's long-term climb that began in early 1988. "The entire sentiment has changed; the dollar bulls definitely have been shaken," says Jack Kessler, senior vice president in charge of New York foreign-exchange operations for Chase Manhattan Bank. He and others cite Friday's plunge in U.S. stock prices and the narrowing difference between interest rates in the U.S. and some of its major trading partners, particularly West Germany and Japan.Many analysts also suspect that the Federal Reserve has begun to reduce interest rates and could go further.Lower interest rates usually diminish a currency's appeal to international investors and speculators. By very late in New York on Friday, the dollar had tumbled to 1.8655 West German marks and 141.50 yen -- its lows for the day -- from 1.9083 marks and 144.17 yen on Thursday.The British pound rose to $1.5840 from $1.5523 a day earlier. In Tokyo Monday, the dollar opened for trading at 139.30 yen, down from Friday's Tokyo close of 144 yen, and 1.8340 marks down from Friday's close of 1.8720.By late morning, the dollar had recovered somewhat and was trading at 140.90 yen and 1.8535 marks. "If the stock market keeps going down on Monday, you're going to see a lot of people selling dollars," says Robert Fio Rito, a trader at Harris Trust & Savings Bank in Chicago.He added: "The mark is a good place to be." In the short-run, the dollar's fate depends largely on the performance of the U.S. stock market today as well as the Fed's and other central banks' reaction to what happens in all world equity markets, say traders and analysts. Not only does the dollar play a key role in determining the direction and health of the U.S. economy, but the speed with which it rises or falls is also of major concern to U.S. and foreign policy makers. A precipitous fall by the dollar could reignite U.S. inflationary pressures by raising the price of imports and prompting U.S. manufacturers to increase domestic prices. But if the U.S. currency were to decline in a controlled manner, it would contribute to the four-year effort by the U.S. and its major trading partners to reduce the U.S. trade deficit and correspondingly large Japanese and West German surpluses.That's because a weaker dollar makes U.S. exports less expensive while raising the price of imports to American consumers. Furthermore, in the current stock market climate, the dollar is the wire through which foreigners telegraph their preference -- or distaste -- for U.S. securities and signal their confidence in the American economy and financial system. If foreigners dump U.S. stocks and return to the safety of their home markets -- as they did in October 1987 -- they must simultaneously also sell dollars for their own currencies.Those transactions, in turn, could weaken the dollar.Even if foreigners just withhold from buying additional U.S. securities, they reduce the demand for dollars. Conversely, when foreigners buy American securities, they increase the demand for the U.S. currency.However, foreigners who merely sell their American shares and buy U.S. bonds don't affect the exchange rate. Initially on Friday, the dollar shot up in early New York activity after both the producer price index and retail sales for September came out higher than most analysts expected. Traders concluded that U.S. interest rates would remain firm, and the dollar quickly climbed to its intraday highs of 1.9140 marks and 144.80 yen. But the rally quickly fizzled under the weight of trader chagrin that the currency hadn't risen further, profit-taking and unconfirmed reports that the Fed was selling dollars. A few hours later with the dollar trading at 1.8895 marks and 143 yen, the stock market began plunging, taking the U.S. currency with it.Surprisingly, while trading was hectic, dealers say that volume was unexpectedly moderate. "You're talking about a really thin and volatile Friday the 13th," says Carmine Rotondo, chief corporate dealer for Security Pacific National Bank. "The decline of the dollar was more a function of market makers dragging bids down than people massively selling," adds Richard Witten, vice president in charge of foreign-exchange operations at Goldman, Sachs & Co. From its intraday highs four weeks ago, the U.S. currency has fallen almost 7% against the mark and 5% against the yen.In Friday's trading alone the dollar fell more than 2.5% against the mark and 2.3% against the yen from its high in early New York trading.Currently, the dollar stands close to the upper limits of its so-called Louvre trading ranges of 1.70-to-1.90 marks and 120-140 yen, within which most traders and economists believe the Group of Seven major industrial countries have tried to keep it since February 1987.The G-7 includes the U.S., Japan, West Germany, France, Britain, Italy and Canada. "For all of its unfortunate aspects, Friday's events make it easier for the G-7 process to continue," says Robert Feldman, an international economist at Salomon Brothers Inc. He added:"Until Friday morning, market people were contending that further interest-rate hikes were necessary to keep the dollar bulls from running over {the central banks}; there seemed to be a sense of the dollar bulls coming back and taking control again." In the past week and a half, major European countries -- led by West Germany and Japan -- raised official domestic interest rates, mostly to keep their currencies from falling further and to stem the inflationary impact of those declines. Mr. Feldman added: "But that's not the way things look now; the G-7 have some breathing room." Analysts say that the dollar's future depends on whether U.S. stock prices keep falling; whether the Fed is forced to ease credit to ease any crisis; whether foreign equity markets also fall, and how central banks abroad react to those circumstances. Many dealers are betting that the Fed will have to ease monetary policy, if it hasn't already.The questions are how much and under what circumstances. "If nothing happens abroad and the Fed is forced to ease here to calm markets, the dollar is going to go down; there would be a flight to quality as people start to worry about the U.S. financial system," says Michael D. Andrews, a vice president at Merrill Lynch & Co.The dollar, he adds, "could take a pretty big hit," if the Fed were perceived as "being in a very difficult situation where it was fighting a fire." In fact, Mr. Andrews and some other traders and analysts say that it isn't impossible to paint a scenario where the Fed might have to intervene to support the dollar.Analysts believe that the Fed can tolerate a dollar as low as 1.80 marks, a level at which U.S. companies are competitive in overseas markets and yet isn't too inflationary domestically. Much depends on how foreigners react.If they merely sell American shares and buy U.S. bonds, that won't affect the dollar.But if, as in October 1987, they dump dollar-denominated securities and run to foreign markets, they will increase pressure on the dollar to fall. Some of that already began on Friday. "Many of the banks in the U.S. called their counterparts in the Far East and Europe," says Chase Manhattan's Mr. Kessler. "And dealers who had gone home in the Far East and Europe long dollars started selling when they were awakened during the night and told that the stock market was down, that Fed funds were at 8 3/4% and that the Fed might begin to ease," Mr. Kessler adds. Salomon Brothers' Mr. Feldman says that further evidence of foreign selling was the dollar's plunge Friday at the same time the bond market was rallying -- which hasn't occurred in months. "That may be a signal of a turning point in the strategies of international portfolio managers," he says. Harris Trust's Mr. Fio Rito predicts that "an equity market hit will trigger further liquidation; with the Japanese and Germans raising {interest} rates, the fundamentals changed for the dollar." Indeed, Salomon's Mr. Feldman notes that in September yields on three-month Eurodollar deposits were 1.5 percentage points more than on three-month marks.By late Friday, that spread had narrowed to 0.19 percentage point. "People began to question shifting {funds} for differences this small," he adds. Many dealers are looking to see if the dollar tumbles below 1.85 marks, a key psychological and technical level to the many traders who use charts to predict currency movements. "It breaks through 1.85, then you begin to question whether the dollar's long-term uptrend that began in early 1988 is still in place," says Merrill Lynch's Mr. Andrews. The dollar isn't without its boosters, who point to reduced U.S. budget and trade deficits as well as its value as a so-called haven currency in a world rife with political instability. "I see a stronger dollar mid to long-term," says Gilles Bazy-Sire, a first vice president at Societe Generale Securities Corp. in New York.He says that based on the price of a similar basket of goods and services in major industrial countries, the dollar currently "is very cheap." That, he says, "should increase the demand for dollars" by investors who want to buy real U.S. assets, such as real estate and companies. Dollar doubters point to the prospects of a bumpy U.S. stock market at best, and the prospect of lower U.S. interest rates.What's more, many forecasters predict that the U.S. trade deficit will begin to widen again in 1990.In fact, many analysts estimate that the trade gap for August -- to be released tomorrow -- widened to as much as $9.6 billion from $7.6 billion the previous month. Barring a catastrophe in the U.S. stock market, Mr. Kessler believes that the dollar in the near term should weaken further to about 1.8650-1.8850 marks and 142-143.50 yen.But he adds: "My gut feeling is that we can even see it go lower." On the Commodity Exchange in New York Friday, gold for current delivery settled at $363.30 an ounce, down 10 cents.Estimated volume was a light two million ounces. In early trading in Hong Kong Monday, gold was quoted at about $368.27 an ounce, up $2.81 an ounce from Saturday's close of $365.46.
ARBITRAGE: Technically, the simultaneous buying and selling of related securities to take advantage of small differences in price.The term has come to be applied to buying stocks in companies that are, or are rumored to be, takeover targets. INDEX ARBITRAGE: The simultaneous trading in stock-index markets and the underlying groups of stocks to take advantage of temporary discrepancies in prices. JUNK BONDS: High-yielding, high-risk debt securities rated double-B or lower by the credit-rating agencies. LEVERAGED BUY-OUT: The purchase of a company by a small group of investors financed largely by debt, often junk bonds. MARGIN CALL: A demand upon an investor to put up more collateral for securities bought on credit.The lender, usually a bank or brokerage firm, makes the call when the equity in the investor's account falls below a standard set by a stock exchange or firm. OPTIONS: A "put" option permits a holder to sell a stock at a specified price within a limited period.A "call" option permits an investor to buy stock at a specified price within a limited period.An index option lets the investor buy or sell the "basket" of stocks represented by a stock-market index. PORTFOLIO INSURANCE: A method of hedging a stock portfolio, usually by selling futures contracts on stock indexes when the market falls. STOCK-INDEX FUTURES: Contracts for future delivery of an amount of cash based on an index of stock prices, such as the Standard & Poor's 500 index or the Major Market Index.A trader buying a December S&P 500 stock-index futures contract at a price of $200 today, for instance, would be agreeing to take delivery next month of 500 times that amount in cash, or $100,000.Traders would almost always close out that position by selling an offsetting futures contract. If the stock market -- and correspondingly the stock index -- rose before the trader closed out his position, he would make a profit because he could sell an offsetting contract at a higher price, taking in more money than he had to spend.If the market fell, the trader would lose money because he would have to sell an offsetting contract at a lower price.Futures are used to hedge against fluctuations in stock prices or to speculate on market moves. (The Major Market Index encompasses 20 blue-chip stocks, including 17 that are also in the Dow Jones Industrial Average.Futures on the MMI are traded on the Chicago Board of Trade.Options on the index are traded on the American Stock Exchange.)
"Circuit-breaker" trading halts on this city's futures and options exchanges may have speeded the stock market's fall on Friday. Stock-index futures trading on the Chicago Mercantile Exchange and stock-index options trading on the Chicago Board Options Exchange initially closed within a few minutes of each other Friday afternoon.But trading in the nation's most active stock-index option on the CBOE didn't reopen for the day.As a result, options traders were forced to sell elsewhere, driving futures and stock prices lower, traders said.And when trading in the Chicago Merc's stock-index futures had finally halted for the day as well, sell orders cascaded onto the floor of the New York Stock Exchange, adding to the rout. What's more, in anticipation of the trading halts many traders -- worried about being unable to trade at lower prices -- sold futures and options contracts, thereby knocking prices still lower. The wildly fluctuating markets appeared to have claimed at least one victim.Fossett Corp., an options-trading firm, said last night that it is transferring all of its customer accounts to First Options of Chicago.Stephen Fossett, president and sole owner of the company, said that he was making the transfers as a result of a substantial cash squeeze stemming from numerous calls for cash and margin money on Friday by several stock-option and futures exchanges. "All of our obligations were met," Mr. Fossett said. Although few other trading firms here or in New York appeared to be in immediate financial difficulty, Friday's volatility also underscored the need for exchanges in Chicago to hasten the common clearing of futures and options contracts, traders said. "I'm very disappointed.The trading halts in futures and options may have done more harm than good," said Jeffrey Tabak, a partner in the investment firm of Miller Tabak Hirsch & Co., and a member of the presidential commission that recommended intermarket circuit breakers be adopted. The situation "is clearly uncorrected," said Glenn W. Clark, a Washington, D.C., author on the futures markets. "All {a trading halt} does is smooth the movement." The stock-index futures and options also are likely to weigh heavily on the stock market this morning.The S&P 500 index future that expires in December closed at 328.85, nearly five index points below the 333.65 closing price of the S&P 500 index itself, which is based on the value of the 500 stocks in the index. The wide discount of the index futures price against the actual index may tempt program traders, who profit from price discrepancies between stocks and futures, to buy the relatively cheap futures and sell stocks, sending the stock market still lower.That selling could pull futures prices lower as well, triggering another round of program selling. Traders emphasized, however, that the price relationship between stocks and futures could change substantially by this morning's start of trading, based on trading overnight in Japan, an influx of new orders or other events. Trading first halted in the Standard & Poor's 500-stock index futures contract on the Chicago Mercantile Exchange at 2:07 p.m. CST, after the contract had fallen 12 index points.It reopened at 2:30 p.m., but traded freely for only 15 minutes before hitting its daily limit of 30 points below the previous day's close.Sporadic trading occurred at that level for the next half-hour until the contract's normal closing time of 3:15 p.m. The trading halts' main effect, as designed, was to permit the stock market to catch up with the futures markets.When the Merc imposed its first halt in the S&P 500 futures contract after the 12-point drop, the stock index on which the contract is based went down from eight points to 13 points, roughly in line with the futures contract. But conflicting steps by some Chicago exchanges caused consternation among traders.Chicago Board Options Exchange officials, for instance, halted trading in their S&P 100-stock index option contract, as expected, shortly after the Merc imposed its initial trading halt.The CBOE decided not to reopen the nation's largest stock-index option market after the S&P 500 index contract reopened and halted again a short time later. The CBOE said in a statement that "the interests of fair and orderly markets wouldn't be served by a resumption of trading." But some options traders said they were furious that they had been denied a chance to trade while other markets were open. The CBOE action also may have driven prices lower in the Chicago Merc's huge S&P 500 index futures pit, traders said.As much as 25% of the volume in S&P 500 futures on most days comes from CBOE traders hedging their risks in the options markets.With their own market closed late Friday, some options traders deluged the S&P 500 futures pit with sell orders to hedge their frozen options positions, traders said. As a result, one of the largest options-trading firms in the country offered to sell 1,000 S&P 500 contracts at the limit of 30 index points below the previous day's close, an S&P 500 futures trader said.That offer and others like it killed any chance of a late rally and drove down stock-index futures prices to the daily limit, the trader added. With the Chicago markets closed, traders were left with no choice but to "bang the bids {sell stocks} in New York," Mr. Tabak said. The Major Market Index futures contract on the Chicago Board of Trade, traded much less actively, touched its daily limit of 50 points below the previous day's close several times Friday, but bounced back slightly and never halted trading. To provide an added cash cushion to compensate for the increased price volatility in their markets, the Chicago Merc required traders to increase the margin, or amount of cash they put up to trade S&P 500 contracts, by one-third to $12,000 a contract from $9,000, effective this morning.The Board of Trade doubled margin requirements for the Major Market Index futures to $8,000 a contract. Officials of the exchanges said they communicated well with each other and with government regulators during Fri day's sell-off, compared with the sense of chaos that prevailed at times on Black Monday two years ago.But while top offi cials are talking, the exchange's clearing arms are still largely in the dark about the financial risks their members may be exposed to in other markets. The Chicago Merc has begun limited cross-margining of stock-index futures accounts with the Options Clearing Corp., which processes all options trades for U.S. exchanges.But for the most part, stock, options and futures markets still each have different clearing and margin systems.That means that brokers and institutions trading on several exchanges face different cash requirements on each, making it extremely difficult during a crisis for an exchange to ascertain a firm's overall, or net, financial position. Just such a cash squeeze two years ago, at a leading Wall Street firm that was facing duplicate margin calls for futures and options positions, led several studies of the markets to call for the coordinated margining of positions in different markets.
Take $10 out of your wallet.That's how much the collapse of Lincoln Savings & Loan will cost you and every other American.Liquidating the Irvine, Calif., thrift will drain the federal deposit insurance fund by more than $2.5 billion, making it the largest thrift failure in history.Now, finally, there may be an investigation to explore how five senatorial shills helped perpetuate this fiscal black hole. Back in June, we recounted how five U.S. Senators -- Alan Cranston of California, Dennis DeConcini and John McCain of Arizona, John Glenn of Ohio and Donald Riegle of Michigan -- intervened with regulators to ease up on Lincoln, whose risk-fraught loans were more worthy of a casino than a federally insured thrift. Last Friday, Common Cause, a political-reform lobby, asked for a Senate Ethics Committee probe of the five Senators.It wants both an outside counsel to conduct the probe and a parallel Justice Department investigation, things it has not initially asked for in previous ethics cases.Perhaps Common Cause has come to recognize that Congress is generally incapable of investigating itself. Charles Keating Jr., the chairman of American Continental, Lincoln's parent company, needed the Senators' help in his running battle with federal regulators.He admits he made large contributions to each of them so they would "take up my cause." In one case, 57 Keating executives gave $66,100 to Senator Riegle at the same March 1987 fund-raiser.Mr. Riegle later returned the money. In April 1987, the Senators,, absent Mr. Riegle, asked to meet with Ed Gray, then head of the Federal Home Loan Bank Board, and according to Mr. Gray, unsuccessfully pressed him to drop a key regulation detrimental to Lincoln -- "a clear subversion of the regulatory process." Senator McCain now calls the meeting "improper" and after several previous denials, Senator Cranston now admits the regulation probably came up.Days later, the four senators -- joined by Mr. Riegle -- met with other regulators to press Lincoln's case. Senators Glenn, Riegle and McCain apparently stopped doing favors for Mr. Keating after that, but Senators Cranston and DeConcini persisted, intervening on behalf of Lincoln until just before its closure this year. It now turns out that at least four of the five Senators may have been indebted to Mr. Keating far beyond mere campaign contributions: -- The Arizona Republic reports that two of Senator DeConcini's top aides received more than $50 million in real-estate loans from Lincoln. -- Senator McCain recently reimbursed Mr. Keating for $13,400 in previously unreported airplane trips, and revealed that his wife and father-in-law invested $359,100 in a Keating shopping-center partnership in 1986. -- Senator Cranston solicited $850,000 in contributions from Mr. Keating for three "nonpartisan" voter-registration groups, which some former employees now say were fronts for the Democratic Party. -- Senator Glenn solicited $200,000 in contributions from Mr. Keating for a political committee he controlled that paid him to travel around the country.Some $43,000 was used for the Glenn Senate campaign -- a possible violation of federal election law. The lack of attention to the Keating drama is astonishing in light of the magnitude of the savings-and-loan disaster.The S&L bailout promises to cost the taxpayers some $200 billion, with Lincoln accounting for $2.5 billion alone.By contrast, the extensively covered HUD political scandals may cost the taxpayers $2.0 billion, the centerpiece being a $0.0003 billion check to James Watt, the legality of which seems to be uncontested. Similarly, the spate of dubious prosecutions in finance obscures the seriousness of the allegations against Mr. Keating and his associates.This is not a matter of whispering "bunny." The 160-page civil suit filed against Mr. Keating last month by the Resolution Trust Corp., the vehicle for the S&L bailout, traces a clear thread.Money was taken into Lincoln, for example by selling $250 million in uninsured debentures near retirement communities, and allegedly taken out of the parent company by insiders, for example by the sale of their personal stock to the company's employee stock ownership plan.The case remains to be tested in court, of course, but if the allegations hold up the Senators were defending a classic scam. Common Cause isn't the only body that thinks the Keating Five's interventions deserve scrutiny.The House Banking Committee has voted to subpoena Mr. Keating and top federal regulators to testify about Lincoln.The hearings begin tomorrow, and will focus on why thrift regulator M. Danny Wall, a former Senate staffer, overruled staff recommendations to close Lincoln and transferred regulatory oversight of Lincoln to Washington.Between April, 1987, when the five senators intervened, and April, 1988, when Lincoln was finally closed, the losses to taxpayers grew by some $1.5 billion. It was Common Cause's demand last year for a House Ethics Committee probe of Speaker Jim Wright that prompted the committee to hire Richard Phelan as an outside counsel.Mr. Phelan found that Mr. Wright had improperly intervened with federal regulators on behalf of S&Ls, but the Ethics Committee disagreed, saying such actions were an integral part of a Member's job and it could not second-guess "the technique and personality of the legislator." If the Senate Ethics Committee chooses to investigate, it will be interesting to see if it reaches the same conclusion in the case of the five Senators.
No, it wasn't Black Monday. But while the New York Stock Exchange didn't fall apart Friday as the Dow Jones Industrial Average plunged 190.58 points -- most of it in the final hour -- it barely managed to stay this side of chaos. Some "circuit breakers" installed after the October 1987 crash failed their first test, traders say, unable to cool the selling panic in both stocks and futures.The 49 stock specialist firms on the Big Board floor -- the buyers and sellers of last resort who were criticized after the 1987 crash -- once again couldn't handle the selling pressure. Big investment banks refused to step up to the plate to support the beleaguered floor traders by buying big blocks of stock, traders say.Heavy selling of Standard & Poor's 500-stock index futures in Chicago relentlessly beat stocks downward. Seven Big Board stocks -- UAL, AMR, BankAmerica, Walt Disney, Capital Cities/ABC, Philip Morris and Pacific Telesis Group -- stopped trading and never resumed. The finger-pointing has already begun. "The equity market was illiquid.Once again {the specialists} were not able to handle the imbalances on the floor of the New York Stock Exchange," said Christopher Pedersen, senior vice president at Twenty-First Securities Corp. Countered James Maguire, chairman of specialists Henderson Brothers Inc.: "It is easy to say the specialist isn't doing his job.When the dollar is in a free-fall, even central banks can't stop it.Speculators are calling for a degree of liquidity that is not there in the market." Many money managers and some traders had already left their offices early Friday afternoon on a warm autumn day -- because the stock market was so quiet.Then in a lightning plunge, the Dow Jones industrials in barely an hour surrendered about a third of their gains this year, chalking up a 190.58-point, or 6.9%, loss on the day in gargantuan trading volume.Final-hour trading accelerated to 108.1 million shares, a record for the Big Board.At the end of the day, 251.2 million shares were traded.The Dow Jones industrials closed at 2569.26. The Dow's decline was second in point terms only to the 508-point Black Monday crash that occurred Oct. 19, 1987.In percentage terms, however, the Dow's dive was the 12th-worst ever and the sharpest since the market fell 156.83, or 8%, a week after Black Monday.The Dow fell 22.6% on Black Monday. Shares of UAL, the parent of United Airlines, were extremely active all day Friday, reacting to news and rumors about the proposed $6.79 billion buy-out of the airline by an employee-management group.Wall Street's takeover-stock speculators, or "risk arbitragers," had placed unusually large bets that a takeover would succeed and UAL stock would rise. At 2:43 p.m. EDT, came the sickening news: The Big Board was halting trading in UAL, "pending news." On the exchange floor, "as soon as UAL stopped trading, we braced for a panic," said one top floor trader.Several traders could be seen shaking their heads when the news flashed. For weeks, the market had been nervous about takeovers, after Campeau Corp. 's cash crunch spurred concern about the prospects for future highly leveraged takeovers.And 10 minutes after the UAL trading halt came news that the UAL group couldn't get financing for its bid.At this point, the Dow was down about 35 points. The market crumbled.Arbitragers couldn't dump their UAL stock -- but they rid themselves of nearly every "rumor" stock they had.For example, their selling caused trading halts to be declared in USAir Group, which closed down 3 7/8 to 41 1/2, Delta Air Lines, which fell 7 3/4 to 69 1/4, and Philips Industries, which sank 3 to 21 1/2. These stocks eventually reopened.But as panic spread, speculators began to sell blue-chip stocks such as Philip Morris and International Business Machines to offset their losses.When trading was halted in Philip Morris, the stock was trading at 41, down 3 3/8, while IBM closed 5 5/8 lower at 102. Selling snowballed because of waves of automatic "stop-loss" orders, which are triggered by computer when prices fall to certain levels.Most of the stock selling pressure came from Wall Street professionals, including computer-guided program traders.Traders said most of their major institutional investors, on the other hand, sat tight. Now, at 3:07, one of the market's post-crash "reforms" took hold as the S&P 500 futures contract had plunged 12 points, equivalent to around a 100-point drop in the Dow industrials.Under an agreement signed by the Big Board and the Chicago Mercantile Exchange, trading was temporarily halted in Chicago. After the trading halt in the S&P 500 pit in Chicago, waves of selling continued to hit stocks themselves on the Big Board, and specialists continued to notch prices down.As a result, the link between the futures and stock markets ripped apart.Without the guidepost of stock-index futures -- the barometer of where traders think the overall stock market is headed -- many traders were afraid to trust stock prices quoted on the Big Board.The futures halt was even assailed by Big Board floor traders. "It screwed things up," said one major specialist. This confusion effectively halted one form of program trading, stock index arbitrage, that closely links the futures and stock markets, and has been blamed by some for the market's big swings. (In a stock-index arbitrage sell program, traders buy or sell big baskets of stocks and offset the trade in futures to lock in a price difference.) "When the airline information came through, it cracked every model we had for the marketplace," said a managing director at one of the largest program-trading firms. "We didn't even get a chance to do the programs we wanted to do." But stocks kept falling.The Dow industrials were down 55 points at 3 p.m. before the futures-trading halt.At 3:30 p.m., at the end of the "cooling off" period, the average was down 114.76 points.Meanwhile, during the the S&P trading halt, S&P futures sell orders began piling up, while stocks in New York kept falling sharply. Big Board Chairman John J. Phelan said yesterday the circuit breaker "worked well mechanically.I just think it's nonproductive at this point to get into a debate if index arbitrage would have helped or hurt things." Under another post-crash system, Big Board President Richard Grasso (Mr.Phelan was flying to Bangkok as the market was falling) was talking on an "inter-exchange hot line" to the other exchanges, the Securities and Exchange Commission and the Federal Reserve Board.He camped out at a high-tech nerve center on the floor of the Big Board, where he could watch updates on prices and pending stock orders. At about 3:30 p.m. EDT, S&P futures resumed trading, and for a brief time the futures and stock markets started to come back in line.Buyers stepped in to the futures pit.But the build-up of S&P futures sell orders weighed on the market, and the link with stocks began to fray again. At about 3:45, the S&P market careened to still another limit, of 30 points down, and trading was locked again.Futures traders say the S&P was signaling that the Dow could fall as much as 200 points. During this time, small investors began ringing their brokers, wondering whether another crash had begun.At Prudential-Bache Securities Inc., which is trying to cater to small investors, some demoralized brokers thought this would be the final confidence-crusher. That's when George L. Ball, chairman of the Prudential Insurance Co. of America unit, took to the internal intercom system to declare that the plunge was only "mechanical." "I have a hunch that this particular decline today is something `more ado about less. ' It would be my inclination to advise clients not to sell, to look for an opportunity to buy," Mr. Ball told the brokers. At Merrill Lynch & Co., the nation's biggest brokerage firm, a news release was prepared headlined "Merrill Lynch Comments on Market Drop." The release cautioned that "there are significant differences between the current environment and that of October 1987" and that there are still "attractive investment opportunities" in the stock market. However, Jeffrey B. Lane, president of Shearson Lehman Hutton Inc., said that Friday's plunge is "going to set back" relations with customers, "because it reinforces the concern of volatility.And I think a lot of people will harp on program trading.It's going to bring the debate right back to the forefront." As the Dow average ground to its final 190.58 loss Friday, the S&P pit stayed locked at its 30-point trading limit.Jeffrey Yass of program trader Susquehanna Investment Group said 2,000 S&P contracts were for sale on the close, the equivalent of $330 million in stock.But there were no buyers. While Friday's debacle involved mainly professional traders rather than investors, it left the market vulnerable to continued selling this morning, traders said.Stock-index futures contracts settled at much lower prices than indexes of the stock market itself.At those levels, stocks are set up to be hammered by index arbitragers, who lock in profits by buying futures when futures prices fall, and simultaneously sell off stocks.But nobody knows at what level the futures and stocks will open today. The de-linkage between the stock and futures markets Friday will undoubtedly cause renewed debate about whether Wall Street is properly prepared for another crash situation.The Big Board's Mr. Grasso said, "Our systemic performance was good." But the exchange will "look at the performance of all specialists in all stocks.Obviously we'll take a close look at any situation in which we think the dealer-community obligations weren't met," he said. (See related story: "Fed Ready to Inject Big Funds" -- WSJ Oct. 16, 1989) But specialists complain privately that just as in the 1987 crash, the "upstairs" firms -- big investment banks that support the market by trading big blocks of stock -- stayed on the sidelines during Friday's blood-letting.Mr. Phelan said, "It will take another day or two" to analyze who was buying and selling Friday. (See related story: "Fed Is Prepared To Offer Banks Massive Funds" -- WSJ Oct. 16, 1989)
A consortium of private investors operating as LJH Funding Co. said it has made a $409 million cash bid for most of L.J. Hooker Corp. 's real-estate and shopping-center holdings. The $409 million bid includes the assumption of an estimated $300 million in secured liabilities on those properties, according to those making the bid. The group is led by Jay Shidler, chief executive officer of Shidler Investment Corp. in Honolulu, and A. Boyd Simpson, chief executive of the Atlanta-based Simpson Organization Inc. Mr. Shidler's company specializes in commercial real-estate investment and claims to have $1 billion in assets; Mr. Simpson is a developer and a former senior executive of L.J. Hooker. "The assets are good, but they require more money and management" than can be provided in L.J. Hooker's current situation, said Mr. Simpson in an interview. "Hooker's philosophy was to build and sell.We want to build and hold." L.J. Hooker, based in Atlanta, is operating with protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code.Its parent company, Hooker Corp. of Sydney, Australia, is currently being managed by a court-appointed provisional liquidator.Sanford Sigoloff, chief executive of L.J. Hooker, said yesterday in a statement that he has not yet seen the bid but that he would review it and bring it to the attention of the creditors committee. The $409 million bid is estimated by Mr. Simpson as representing 75% of the value of all Hooker real-estate holdings in the U.S.Not included in the bid are Bonwit Teller or B. Altman & Co., L.J. Hooker's department-store chains. The offer covers the massive 1.8 million-square-foot Forest Fair Mall in Cincinnati, the 800,000 square-foot Richland Fashion Mall in Columbia, S.C., and the 700,000 square-foot Thornton Town Center mall in Thornton, Colo.The Thornton mall opened Sept. 19 with a Bigg's hypermarket as its anchor; the Columbia mall is expected to open Nov. 15. Other Hooker properties included are a 20-story office tower in midtown Atlanta, expected to be completed next February; vacant land sites in Florida and Ohio; L.J. Hooker International, the commercial real-estate brokerage company that once did business as Merrill Lynch Commercial Real Estate, plus other shopping centers. The consortium was put together by Hoare Govett, the London-based investment banking company that is a subsidiary of Security Pacific Corp. "We don't anticipate any problems in raising the funding for the bid," said Allan Campbell, the head of mergers and acquisitions at Hoare Govett, in an interview.Hoare Govett is acting as the consortium's investment bankers. According to people familiar with the consortium, the bid was code-named Project Klute, a reference to the film "Klute" in which a prostitute played by actress Jane Fonda is saved from a psychotic businessman by a police officer named John Klute. L.J. Hooker was a small home-building company based in Atlanta in 1979 when Mr. Simpson was hired to push it into commercial development.The company grew modestly until 1986, when a majority position in Hooker Corp. was acquired by Australian developer George Herscu, currently Hooker's chairman. Mr. Herscu proceeded to launch an ambitious, but ill-fated, $1 billion acquisition binge that included Bonwit Teller and B. Altman & Co., as well as majority positions in Merksamer Jewelers, a Sacramento chain; Sakowitz Inc., the Houston-based retailer, and Parisian Inc., the Southeast department-store chain. Eventually Mr. Simpson and Mr. Herscu had a falling out over the direction of the company, and Mr. Simpson said he resigned in 1988.Since then, Hooker Corp. has sold its interest in the Parisian chain back to Parisian's management and is currently attempting to sell the B. Altman & Co. chain.In addition, Robert Sakowitz, chief executive of the Sakowitz chain, is seeking funds to buy out the Hooker interest in his company.The Merksamer chain is currently being offered for sale by First Boston Corp. Reached in Honolulu, Mr. Shidler said that he believes the various Hooker malls can become profitable with new management. "These aren't mature assets, but they have the potential to be so," said Mr. Shidler. "Managed properly, and with a long-term outlook, these can become investment-grade quality properties."
As small investors peppered their mutual funds with phone calls over the weekend, big fund managers said they have a strong defense against any wave of withdrawals: cash. Unlike the weekend before Black Monday, the funds weren't swamped with heavy withdrawal requests.And many fund managers have built up cash levels and say they will be buying stock this week. At Fidelity Investments, the nation's largest fund company, telephone volume was up sharply, but it was still at just half the level of the weekend preceding Black Monday in 1987.The Boston firm said stock-fund redemptions were running at less than one-third the level two years ago.As of yesterday afternoon, the redemptions represented less than 15% of the total cash position of about $2 billion of Fidelity's stock funds. "Two years ago there were massive redemption levels over the weekend and a lot of fear around," said C. Bruce Johnstone, who runs Fidelity Investments' $5 billion Equity-Income Fund. "This feels more like a one-shot deal.People aren't panicking." The test may come today.Friday's stock market sell-off came too late for many investors to act.Some shareholders have held off until today because any fund exchanges made after Friday's close would take place at today's closing prices.Stock fund redemptions during the 1987 debacle didn't begin to snowball until after the market opened on Black Monday. But fund managers say they're ready.Many have raised cash levels, which act as a buffer against steep market declines.Mario Gabelli, for instance, holds cash positions well above 20% in several of his funds.Windsor Fund's John Neff and Mutual Series' Michael Price said they had raised their cash levels to more than 20% and 30%, respectively, this year. Even Peter Lynch, manager of Fidelity's $12.7 billion Magellan Fund, the nation's largest stock fund, built up cash to 7% or $850 million.One reason is that after two years of monthly net redemptions, the fund posted net inflows of money from investors in August and September. "I've let the money build up," Mr. Lynch said, who added that he has had trouble finding stocks he likes. Not all funds have raised cash levels, of course.As a group, stock funds held 10.2% of assets in cash as of August, the latest figures available from the Investment Company Institute.That was modestly higher than the 8.8% and 9.2% levels in August and September of 1987.Also, persistent redemptions would force some fund managers to dump stocks to raise cash. But a strong level of investor withdrawals is much more unlikely this time around, fund managers said.A major reason is that investors already have sharply scaled back their purchases of stock funds since Black Monday.Stock-fund sales have rebounded in recent months, but monthly net purchases are still running at less than half 1987 levels. "There's not nearly as much froth," said John Bogle, chairman of Vanguard Group Inc., a big Valley Forge, Pa., fund company. Many fund managers argue that now's the time to buy.Vincent Bajakian, manager of the $1.8 billion Wellington Fund, added to his positions in Bristol-Myers Squibb, Woolworth and Dun & Bradstreet Friday.And today he'll be looking to buy drug stocks like Eli Lilly, Pfizer and American Home Products whose dividend yields have been bolstered by stock declines. Fidelity's Mr. Lynch, for his part, snapped up Southern Co. shares Friday after the stock got hammered.If the market drops further today, he said he'll be buying blue chips such as Bristol-Myers and Kellogg. "If they croak stocks like that," he said, it presents an opportunity that is "the kind of thing you dream about." Major mutual-fund groups said phone calls were arriving at twice the normal weekend pace yesterday.But most investors were seeking share prices and other information.Trading volume was only modestly higher than normal. Still, fund groups aren't taking any chances.They hope to avoid the jammed phone lines and other snags that infuriated some fund investors in October 1987. Fidelity on Saturday opened its 54 walk-in investor centers across the country.The centers normally are closed through the weekend.In addition, East Coast centers will open at 7:30 EDT this morning, instead of the normal 8:30. T. Rowe Price Associates Inc. increased its staff of phone representatives to handle investor requests.The Baltimore-based group noted that some investors moved money from stock funds to money-market funds.But most investors seemed to be "in an information mode rather than in a transaction mode," said Steven Norwitz, a vice president. And Vanguard, among other groups, said it was adding more phone representatives today to help investors get through. In an unusual move, several funds moved to calm investors with recordings on their toll-free phone lines. "We view {Friday's} market decline as offering us a buying opportunity as long-term investors," a recording at Gabelli & Co. funds said over the weekend.The Janus Group had a similar recording for investors. Several fund managers expect a rough market this morning before prices stabilize.Some early selling is likely to stem from investors and portfolio managers who want to lock in this year's fat profits.Stock funds have averaged a staggering gain of 25% through September, according to Lipper Analytical Services Inc. Elaine Garzarelli, who runs Shearson Lehman Hutton Inc. 's $335 million Sector Analysis Portfolio, predicts the market will open down at least 50 points on technical factors and "some panic selling." But she expects prices to rebound soon and is telling investors she expects the stock market won't decline more than 10% to 15% from recent highs. "This is not a major crash," she said. Nevertheless, Ms. Garzarelli said she was swamped with phone calls over the weekend from nervous shareholders. "Half of them are really scared and want to sell," she said, "but I'm trying to talk them out of it." She added, "If they all were bullish, I'd really be upset." The backdrop to Friday's slide was markedly different from that of the October 1987 crash, fund managers argue.Two years ago, unlike today, the dollar was weak, interest rates were rising and the market was very overvalued, they say. "From the investors' standpoint, institutions and individuals learned a painful lesson . . . by selling at the lows" on Black Monday, said Stephen Boesel, manager of the $580 million T. Rowe Price Growth and Income Fund.This time, "I don't think we'll get a panic reaction."
Atco Ltd. said its utilities arm is considering building new electric power plants, some valued at more than one billion Canadian dollars (US$851 million), in Great Britain and elsewhere. C.S. Richardson, Atco's senior vice president, finance, said its 50.1%-owned Canadian Utilities Ltd. unit is reviewing cogeneration projects in eastern Canada, and conventional electric power generating plants elsewhere, including Britain, where the British government plans to allow limited competition in electrical generation from private-sector suppliers as part of its privatization program. "The projects are big.They can be C$1 billion plus," Mr. Richardson said. "But we wouldn't go into them alone," and Canadian Utilities' equity stake would be small, he said. "Ideally, we'd like to be the operator {of the project} and a modest equity investor.Our long suit is our proven ability to operate" power plants, he said. Mr. Richardson wouldn't offer specifics regarding Atco's proposed British project, but he said it would compete for customers with two huge British power generating companies that would be formed under the country's plan to privatize its massive water and electric utilities. Britain's government plans to raise about #20 billion ($31.05 billion) from the sale of most of its giant water and electric utilities, beginning next month.The planned electric utility sale, scheduled for next year, is alone expected to raise #13 billion, making it the world's largest public offering. Under terms of the plan, independent generators would be able to compete for 15% of customers until 1994, and for another 10% between 1994 and 1998. Canadian Utilities had 1988 revenue of C$1.16 billion, mainly from its natural gas and electric utility businesses in Alberta, where the company serves about 800,000 customers. "There seems to be a move around the world to deregulate the generation of electricity," Mr. Richardson said, and Canadian Utilities hopes to capitalize on it. "This is a real thrust on our utility side," he said, adding that Canadian Utilities is also mulling projects in underdeveloped countries, though he would be specific. Canadian Utilities isn't alone in exploring power generation opportunities in Britain, in anticipation of the privatization program. "We're certainly looking at some power generating projects in England," said Bruce Stram, vice president, corporate strategy and corporate planning, with Enron Corp., Houston, a big natural gas producer and pipeline operator. Mr. Stram said Enron is considering building gas-fired power plants in the U.K. capable of producing about 500 megawatts of power at a cost of about $300 million to $400 million.
Kaufman & Broad Home Corp. said it formed a $53.4 million limited partnership subsidiary to buy land in California suitable for residential development. The partnership, Kaufman & Broad Land Development Venture Limited Partnership, is a 50-50 joint venture with a trust created by institutional clients of Heitman Advisory Corp., a unit of Heitman Financial Corp., a real estate advisory, management and development company with offices in Chicago and Beverly Hills, Calif.Kaufman & Broad, a home building company, declined to identify the institutional investors. The land to be purchased by the joint venture hasn't yet received zoning and other approvals required for development, and part of Kaufman & Broad's job will be to obtain such approvals. The partnership runs the risk that it may not get the approvals for development, but in return, it can buy land at wholesale rather than retail prices, which can result in sizable savings, said Bruce Karatz, president and chief executive officer of Kaufman & Broad. "There are really very few companies that have adequate capital to buy properties in a raw state for cash.Typically, developers option property, and then once they get the administrative approvals, they buy it," said Mr. Karatz, adding that he believes the joint venture is the first of its kind. "We usually operate in that conservative manner." By setting up the joint venture, Kaufman & Broad can take the more aggressive approach of buying raw land, while avoiding the negative impacts to its own balance sheet, Mr. Karatz said.The company is putting up only 10% of the capital, although it is responsible for providing management, planning and processing services to the joint venture. "This is one of the best ways to assure a pipeline of land to fuel our growth at a minimum risk to our company," Mr. Karatz said.
When the price of plastics took off in 1987, Quantum Chemical Corp. went along for the ride. The timing of Quantum's chief executive officer, John Hoyt Stookey, appeared to be nothing less than inspired, because he had just increased Quantum's reliance on plastics.The company outpaced much of the chemical industry as annual profit grew fivefold in two years.Mr. Stookey said of the boom, "It's going to last a whole lot longer than anybody thinks." But now prices have nose-dived and Quantum's profit is plummeting.Some securities analysts are looking for no better than break-even results from the company for the third quarter, compared with year-earlier profit of $99.8 million, or $3.92 a share, on sales of $724.4 million.The stock, having lost nearly a quarter of its value since Sept. 1, closed at $34.375 share, down $1.125, in New York Stock Exchange composite trading Friday. To a degree, Quantum represents the new times that have arrived for producers of the so-called commodity plastics that pervade modern life.Having just passed through one of the most profitable periods in their history, these producers now see their prices eroding. Pricing cycles, to be sure, are nothing new for plastics producers.And the financial decline of some looks steep only in comparison with the heady period that is just behind them. "We were all wonderful heroes last year," says an executive at one of Quantum's competitors. "Now we're at the bottom of the heap." At Quantum, which is based in New York, the trouble is magnified by the company's heavy dependence on plastics.Once known as National Distillers & Chemical Corp., the company exited the wine and spirits business and plowed more of its resources into plastics after Mr. Stookey took the chief executive's job in 1986.Mr. Stookey, 59 years old, declined to be interviewed for this article, but he has consistently argued that over the long haul -- across both the peaks and the troughs of the plastics market -- Quantum will prosper through its new direction. Quantum's lot is mostly tied to polyethylene resin, used to make garbage bags, milk jugs, housewares, toys and meat packaging, among other items.In the U.S. polyethylene market, Quantum has claimed the largest share, about 20%.But its competitors -- including Dow Chemical Co., Union Carbide Corp. and several oil giants -- have much broader business interests and so are better cushioned against price swings. When the price of polyethylene moves a mere penny a pound, Quantum's annual profit fluctuates by about 85 cents a share, provided no other variables are changing.In recent months the price of polyethylene, even more than that of other commodity plastics, has taken a dive.Benchmark grades, which still sold for as much as 50 cents a pound last spring, have skidded to between 35 cents and 40 cents. Meanwhile, the price of ethylene, the chemical building block of polyethylene, hasn't dropped nearly so fast.That discrepancy hurts Quantum badly, because its own plants cover only about half of its ethylene needs. By many accounts, an early hint of a price rout in the making came at the start of this year.China, which had been putting in huge orders for polyethylene, abruptly halted them.Calculating that excess polyethylene would soon be sloshing around the world, other buyers then bet that prices had peaked and so began to draw down inventories rather than order new product. Kenneth Mitchell, director of Dow's polyethylene business, says producers were surprised to learn how much inventories had swelled throughout the distribution chain as prices spiraled up. "People were even hoarding bags," he says. Now producers hope prices have hit bottom.They recently announced increases of a few cents a pound to take effect in the next several weeks.No one knows, however, whether the new posted prices will stick once producers and customers start to haggle. One doubter is George Krug, a chemical-industry analyst at Oppenheimer & Co. and a bear on plastics stocks.Noting others' estimates of when price increases can be sustained, he remarks, "Some say October.Some say November.I say 1992." He argues that efforts to firm up prices will be undermined by producers' plans to expand production capacity. A quick turnaround is crucial to Quantum because its cash requirements remain heavy.The company is trying to carry out a three-year, $1.3 billion plant-expansion program started this year.At the same time, its annual payments on long-term debt will more than double from a year ago to about $240 million, largely because of debt taken on to pay a $50-a-share special dividend earlier this year. Quantum described the payout at the time as a way for it to share the bonanza with its holders, because its stock price wasn't reflecting the huge profit increases.Some analysts saw the payment as an effort also to dispel takeover speculation. Whether a cash crunch might eventually force the company to cut its quarterly dividend, raised 36% to 75 cents a share only a year ago, has become a topic of intense speculation on Wall Street since Mr. Stookey deflected dividend questions in a Sept. 29 meeting with analysts. Some viewed his response -- that company directors review the dividend regularly -- as nothing more than the standard line from executives.But others came away thinking he had given something less than his usual straight-from-the-shoulder performance.In any case, on the day of the meeting, Quantum's shares slid $2.625 to $36.625 in Big Board trading. On top of everything else, Quantum confronts a disaster at its plant in Morris, Ill.After an explosion idled the plant in June, the company progressed in September to within 12 hours of completing the drawn-out process of restarting it.Then a second explosion occurred.Two workers died and six remain in the hospital. This human toll adds the most painful dimension yet to the sudden change in Quantum's fortunes.Until this year, the company had been steadily lowering its accident rate and picking up trade-group safety awards. A prolonged production halt at the plant could introduce another imponderable into Quantum's financial future.When a plant has just been running flat out to meet demand, calculating lost profit and thus claims under business-interruption insurance is straightforward.But the numbers become trickier -- and subject to dickering between insured and insurer -- when demand is shifting. "You say you could have sold X percent of this product and Y percent of that," recalls Theodore Semegran, an analyst at Shearson Lehman Hutton who went through this exercise during his former career as a chemical engineer. "And then you still have to negotiate." Quantum hopes the Morris plant, where limited production got under way last week, will resume full operation by year's end.The plant usually accounts for 20% to 25% of Quantum's polyethylene production and 50% of its ethylene production. Not everything looks grim for Quantum.The plant expansion should strengthen the company's sway in the polyethylene business, where market share is often taken through sheer capacity.By lifting ethylene production, the expansion will also lower the company's raw material costs. Quantum is also tightening its grip on its one large business outside chemicals, propane marketing.Through a venture with its investment banker, First Boston Corp., Quantum completed in August an acquisition of Petrolane Inc. in a transaction valued at $1.18 billion.Petrolane is the second-largest propane distributor in the U.S.The largest, Suburban Propane, was already owned by Quantum. Still, Quantum has a crisis to get past right now.Some analysts speculate the weakening stock may yet attract a suitor.The name surfacing in rumors is British Petroleum Co., which is looking to expand its polyethylene business in the U.S. Asked about a bid for Quantum, a BP spokesman says, "We pretty much have a policy of not commenting on rumors, and I think that falls in that category."
RJR Nabisco Inc. is disbanding its division responsible for buying network advertising time, just a month after moving 11 of the group's 14 employees to New York from Atlanta. A spokesman for the New York-based food and tobacco giant, taken private earlier this year in a $25 billion leveraged buy-out by Kohlberg Kravis Roberts & Co., confirmed that it is shutting down the RJR Nabisco Broadcast unit, and dismissing its 14 employees, in a move to save money.The spokesman said RJR is discussing its network-buying plans with its two main advertising firms, FCB/Leber Katz and McCann Erickson. "We found with the size of our media purchases that an ad agency could do just as good a job at significantly lower cost," said the spokesman, who declined to specify how much RJR spends on network television time.An executive close to the company said RJR is spending about $140 million on network television time this year, down from roughly $200 million last year. The spokesman said the broadcast unit will be disbanded Dec. 1, and the move won't affect RJR's print, radio and spot-television buying practices. The broadcast group had been based in New York until a year ago, when RJR's previous management moved it to Atlanta, the company's headquarters before this summer.One employee with the group said RJR moved 11 employees of the group back to New York in September because "there was supposed to be a future." He said the company hired three more buyers for the unit within the past two weeks, wooing them from jobs with advertising agencies. The RJR spokesman said the company moved the 11 employees to New York last month because the group had then been in the midst of purchasing ad time for the networks' upcoming season. "The studies {on closing the unit} couldn't be completed until now," he said. The group's president, Peter Chrisanthopoulos, wasn't in his office Friday afternoon to comment.
The U.S., which is finalizing its steel-import quotas, is allocating a larger share of its steel market to developing and newly industrialized countries which have relatively unsubsidized steel industries. Meanwhile, the U.S. has negotiated a significant cut in Japan's steel quota, and made only a minor increase to the steel allotment for the European Community. Brazil, similar to Mexico and South Korea, is expected to negotiate a somewhat bigger share of the U.S. market than it had under the previous five-year steel quotas, which expired Sept. 30.Brazil and Venezuela are the only two countries that haven't completed steel talks with the U.S. for the year ending Oct. 1, 1990. In recent years, U.S. steelmakers have supplied about 80% of the 100 million tons of steel used annually by the nation.Of the remaining 20% needed, the steel-quota negotiations allocate about 15% to foreign suppliers, with the difference supplied mainly by Canada -- which isn't included in the quota program.Other countries that don't have formal steel quotas with the U.S., such as Taiwan, Sweden and Argentina, also have supplied steel.Some of these countries have in recent years made informal agreements with the U.S. that are similar to quotas. The Bush administration earlier this year said it would extend steel quotas, known as voluntary restraint agreements, until March 31, 1992.It also said it would use that two-and-a-half year period to work toward an international consensus on freeing up the international steel trade, which has been notoriously managed, subsidized and protected by governments.The U.S. termed its plan, a "trade liberalization program," despite the fact that it is merely an extension. Mexico, which was one of the first countries to conclude its steel talks with the U.S., virtually doubled its quota to 0.95% of the U.S. steel market from 0.48% under the previous quotas.South Korea, which had 1.9% under the previous quotas, is set to get a small increase to about 1.95%.That increase rises to slightly more than 2% of the U.S. market if a joint Korean-U.S. steel project is included.Meanwhile, Brazil is expected to increase its allowance from the 1.43% share it has had in recent years. The EC and Japan -- the U.S.'s largest steel suppliers -- haven't been filling their quotas to the full extent.The EC steel industry, which has been coping with strong European demand, has been supplying about 5% of the U.S. market compared with recent quotas of about 6.7%.Japan has been shipping steel to total about 4.5% of the U.S. market compared with a quota of 5.9%. In the recent talks, the EC had its quota increased about 300,000 tons, to 7% of the U.S. market from 6.7% in 1988.But its quota has been as high as 6.9% in 1984.Japan, however, has agreed to cut its quota to about 5% from 5.9% previously. Japan, the EC, Brazil, Mexico and South Korea provide about 80% of the steel imported to the U.S. under the quota program.The balance is supplied by a host of smaller exporters, such as Australia and Venezuela. The U.S. had about an extra 2% of the domestic steel market to give to foreign suppliers in its quota talks.That was essentially made up of a 1% increase in the overall quota program and 1% from cutting Japan's allowance. Negotiators from the White House trade office will repeat these quota negotiations next year when they will have another 1% of the U.S. steel market to allocate. These optional 1%-a-year increases to the steel quota program are built into the Bush administration's steel-quota program to give its negotiators leverage with foreign steel suppliers to try to get them to withdraw subsidies and protectionism from their own steel industries.
Elcotel Inc. expects fiscal second-quarter earnings to trail 1988 results, but anticipates that several new products will lead to a "much stronger" performance in its second half. Elcotel, a telecommunications company, had net income of $272,000, or five cents a share, in its year-earlier second quarter, ended Sept. 30.Revenue totaled $5 million.George Pierce, chairman and chief executive officer, said in an interview that earnings in the most recent quarter will be about two cents a share on revenue of just under $4 million. The lower results, Mr. Pierce said, reflect a 12-month decline in industry sales of privately owned pay telephones, Elcotel's primary business.Although Mr. Pierce expects that line of business to strengthen in the next year, he said Elcotel will also benefit from moving into other areas. Foremost among those is the company's entrance into the public facsimile business, Mr. Pierce said.Within the next year, Elcotel expects to place 10,000 fax machines, made by Minolta in Japan, in hotels, municipal buildings, drugstores and other public settings around the country.Elcotel will provide a credit-card reader for the machines to collect, store and forward billing data. Mr. Pierce said Elcotel should realize a minimum of $10 of recurring net earnings for each machine each month. Elcotel has also developed an automatic call processor that will make further use of the company's system for automating and handling credit-card calls and collect calls.Automatic call processors will provide that system for virtually any telephone, Mr. Pierce said, not just phones produced by Elcotel. The company will also be producing a new line of convenience telephones, which don't accept coins, for use in hotel lobbies, office lobbies, hospitality lounges and similar settings. Mr. Pierce estimated that the processors and convenience phones would produce about $5 of recurring net earnings for each machine each month.
Measuring cups may soon be replaced by tablespoons in the laundry room. Procter & Gamble Co. plans to begin testing next month a superconcentrated detergent that will require only a few spoonfuls per washload. The move stems from lessons learned in Japan where local competitors have had phenomenal success with concentrated soapsuds.It also marks P&G's growing concern that its Japanese rivals, such as Kao Corp., may bring their superconcentrates to the U.S. The Cincinnati consumer-products giant got clobbered two years ago in Japan when Kao introduced a powerful detergent, called Attack, which quickly won a 30% stake in the Japanese markets. "They don't want to get caught again," says one industry watcher. Retailers in Phoenix, Ariz., say P&G's new powdered detergent -- to be called Cheer with Color Guard -- will be on shelves in that market by early November.A P&G spokeswoman confirmed that shipments to Phoenix started late last month.She said the company will study results from this market before expanding to others. Superconcentrates aren't entirely new for P&G.The company introduced a superconcentrated Lemon Cheer in Japan after watching the success of Attack.When Attack hit the shelves in 1987, P&G's share of the Japanese market fell to about 8% from more than 20%.With the help of Lemon Cheer, P&G's share is now estimated to be 12%. While the Japanese have embraced the compact packaging and convenience of concentrated products, the true test for P&G will be in the $4 billion U.S. detergent market, where growth is slow and liquids have gained prominence over powders.The company may have chosen to market the product under the Cheer name since it's already expanded its best-selling Tide into 16 different varieties, including this year's big hit, Tide with Bleach.With superconcentrates, however, it isn't always easy to persuade consumers that less is more; many people tend to dump too much detergent into the washing machine, believing that it takes a cup of powder to really clean the laundry. In the early 1980s, P&G tried to launch here a concentrated detergent under the Ariel brand name that it markets in Europe.But the product, which wasn't as concentrated as the new Cheer, bombed in a market test in Denver and was dropped. P&G and others also have tried repeatedly to hook consumers on detergent and fabric softener combinations in pouches, but they haven't sold well, despite the convenience. But P&G contends the new Cheer is a unique formula that also offers an ingredient that prevents colors from fading.And retailers are expected to embrace the product, in part because it will take up less shelf space. "When shelf space was cheap, bigger was better," says Hugh Zurkuhlen, an analyst at Salomon Bros.But with so many brands vying for space, that's no longer the case.If the new Cheer sells well, the trend toward smaller packaging is likely to accelerate as competitors follow with their own superconcentrates.Then retailers "will probably push the {less-established} brands out altogether," he says. Competition is bound to get tougher if Kao introduces a product like Attack in the U.S.To be sure, Kao wouldn't have an easy time taking U.S. market share away from the mighty P&G, which has about 23% of the market. Kao officials previously have said they are interested in selling detergents in the U.S., but so far the company has focused on acquisitions, such as last year's purchase of Andrew Jergens Co., a Cincinnati hand-lotion maker.It also has a product-testing facility in California. Some believe P&G's interest in a superconcentrated detergent goes beyond the concern for the Japanese. "This is something P&G would do with or without Kao," says Mr. Zurkuhlen.
With economic tension between the U.S. and Japan worsening, many Japanese had feared last week's visit from U.S. Trade Representative Carla Hills.They expected a new barrage of demands that Japan do something quickly to reduce its trade surplus with the U.S. Instead, they got a discussion of the need for the U.S. and Japan to work together and of the importance of the long-term view.Mrs. Hills' first trip to Japan as America's chief trade negotiator had a completely different tone from last month's visit by Commerce Secretary Robert A. Mosbacher. Mr. Mosbacher called for concrete results by next spring in negotiations over fundamental Japanese business practices that supposedly inhibit free trade.He said such results should be "measurable in dollars and cents" in reducing the U.S. trade deficit with Japan. But Mrs. Hills, speaking at a breakfast meeting of the American Chamber of Commerce in Japan on Saturday, stressed that the objective "is not to get definitive action by spring or summer, it is rather to have a blueprint for action." She added that she expected "perhaps to have a down payment . . . some small step to convince the American people and the Japanese people that we're moving in earnest." How such remarks translate into policy won't become clear for months.American and Japanese officials offered several theories for the difference in approach betwen Mr. Mosbacher and Mrs. Hills.Many called it simply a contrast in styles.But some saw it as a classic negotiating tactic.Others said the Bush administration may feel the rhetoric on both sides is getting out of hand.And some said it reflected the growing debate in Washington over pursuing free trade with Japan versus some kind of managed trade. Asked to compare her visit to Mr. Mosbacher's, Mrs. Hills replied: "I didn't hear every word he spoke, but as a general proposition, I think we have a very consistent trade strategy in the Bush administration." Yet more than one American official who sat in with her during three days of talks with Japanese officials said her tone often was surprisingly "conciliatory." "I think my line has been very consistent," Mrs. Hills said at a news conference Saturday afternoon. "I am painted sometimes as ferocious, perhaps because I have a ferocious list of statutes to implement.I don't feel very ferocious.I don't feel either hard or soft.I feel committed to the program of opening markets and expanding trade." When she met the local press for the first time on Friday, Mrs. Hills firmly reiterated the need for progress in removing barriers to trade in forest products, satellites and supercomputers, three areas targeted under the Super 301 provision of the 1988 trade bill.She highlighted exclusionary business practices that the U.S. government has identified.But her main thrust was to promote the importance of world-wide free trade and open competition.She said the trade imbalance was mainly due to macroeconomic factors and shouldn't be tackled by setting quantitative targets. At her news conference for Japanese reporters, one economics journalist summed up the Japanese sense of relief. "My impression was that you would be a scary old lady," he said, drawing a few nervous chuckles from his colleagues. "But I am relieved to see that you are beautiful and gentle and intelligent and a person of integrity." Mrs. Hills' remarks did raise questions, at least among some U.S. officials, about what exactly her stance is on U.S. access to the Japanese semiconductor market.The U.S. share of the Japanese market has been stuck around 10% for years.Many Americans have interpreted a 1986 agreement as assuring U.S. companies a 20% share by 1991, but the Japanese have denied making any such promise. At one of her news conferences, Mrs. Hills said, "I believe we can do much better than 20%." But she stressed, "I am against managed trade.I will not enter into an agreement that stipulates to a percentage of the market."
The oil industry's middling profits could persist through the rest of the year. Major oil companies in the next few days are expected to report much less robust earnings than they did for the third quarter a year ago, largely reflecting deteriorating chemical prices and gasoline profitability.The gasoline picture may improve this quarter, but chemicals are likely to remain weak, industry executives and analysts say, reducing chances that profits could equal their year-earlier performance. The industry is "seeing a softening somewhat in volume and certainly in price in petrochemicals," Glenn Cox, president of Phillips Petroleum Co., said in an interview. "That change will obviously impact third and fourth quarter earnings" for the industry in general, he added.He didn't forecast Phillips's results. But securities analysts say Phillips will be among the companies hard-hit by weak chemical prices and will probably post a drop in third-quarter earnings.So, too, many analysts predict, will Exxon Corp., Chevron Corp. and Amoco Corp. Typical is what happened to the price of ethylene, a major commodity chemical produced in vast amounts by many oil companies.It has plunged 13% since July to around 26 cents a pound.A year ago ethylene sold for 33 cents, peaking at about 34 cents last December. A big reason for the chemical price retreat is overexpansion.Beginning in mid-1987, prices began accelerating as a growing U.S. economy and the weak dollar spurred demand.Companies added capacity furiously.Now, greatly increased supplies are on the market, while the dollar is stronger, and domestic economic growth is slower. Third-quarter profits from gasoline were weaker. "Refining margins were so good in the third quarter of last year and generally not very good this year," said William Randol, a securities analyst at First Boston Corp. Oil company refineries ran flat out to prepare for a robust holiday driving season in July and August that didn't materialize.The excess supply pushed gasoline prices down in that period.In addition, crude oil prices were up some from a year earlier, further pressuring profitability. Refiners say margins picked up in September, and many industry officials believe gasoline profits will rebound this quarter, though still not to the level of 1988's fourth quarter.During the 1988 second half, many companies posted record gasoline and chemical profits. Crude oil production may turn out to be the most surprising element of companies' earnings this year.Prices -- averaging roughly $2 a barrel higher in the third quarter than a year earlier -- have stayed well above most companies' expectations.Demand has been much stronger than anticipated, and it typically accelerates in the fourth quarter. "We could see higher oil prices this year," said Bryan Jacoboski, an analyst at PaineWebber Inc. That will translate into sharply higher production profits, particularly compared with last year when oil prices steadily fell to below $13 a barrel in the fourth quarter. While oil prices have been better than expected, natural gas prices have been worse.In the third quarter, they averaged about 5% less than they were in 1988.The main reason remains weather.Last summer was notable for a heat wave and drought that caused utilities to burn more natural gas to feed increased electrical demand from air conditioning use.This summer, on the other hand, had milder weather than usual. "We've been very disappointed in the performance of natural gas prices," said Mr. Cox, Phillips's president. "The lagging gas price is not going to assist fourth quarter performance as many had expected." Going into the fourth quarter, natural gas prices are anywhere from 8% to 17% lower than a year earlier.For instance, natural gas currently produced along the Gulf Coast is selling on the spot market for around $1.47 a thousand cubic feet, down 13% from $1.69 a thousand cubic feet a year ago.
The Bush administration, trying to blunt growing demands from Western Europe for a relaxation of controls on exports to the Soviet bloc, is questioning whether Italy's Ing.C. Olivetti & Co. supplied militarily valuable technology to the Soviets. Most of the Western European members of Coordinating Committee on Multilateral Export Controls, the unofficial forum through which the U.S. and its allies align their export-control policies, are expected to argue for more liberal export rules at a meeting to be held in Paris Oct. 25 and 26.They plan to press specifically for a relaxation of rules governing exports of machine tools, computers and other high-technology products. But the Bush administration says it wants to see evidence that all Cocom members are complying fully with existing export-control procedures before it will support further liberalization.To make its point, it is challenging the Italian government to explain reports that Olivetti may have supplied the Soviet Union with sophisticated computer-driven devices that could be used to build parts for combat aircraft. The London Sunday Times, which first reported the U.S. concerns, cited a U.S. intelligence report as the source of the allegations that Olivetti exported $25 million in "embargoed, state-of-the-art, flexible manufacturing systems to the Soviet aviation industry." Olivetti reportedly began shipping these tools in 1984. A State Department spokesman acknowledged that the U.S. is discussing the allegations with the Italian government and Cocom, but declined to confirm any details.Italian President Francesco Cossiga promised a quick investigation into whether Olivetti broke Cocom rules.President Bush called his attention to the matter during the Italian leader's visit here last week. Olivetti has denied that it violated Cocom rules, asserting that the reported shipments were properly licensed by the Italian authorities. Although the legality of these sales is still an open question, the disclosure couldn't be better timed to support the position of export-control hawks in the Pentagon and the intelligence community. "It seems to me that a story like this breaks just before every important Cocom meeting," said a Washington lobbyist for a number of U.S. computer companies. The Bush administration has sent conflicting signals about its export-control policies, reflecting unhealed divisions among several competing agencies.Last summer, Mr. Bush moved the administration in the direction of gradual liberalization when he told a North Atlantic Treaty Organization meeting that he would allow some exceptions to the Cocom embargo of strategic goods.But more recently, the Pentagon and the Commerce Department openly feuded over the extent to which Cocom should liberalize exports of personal computers to the bloc. However, these agencies generally agree that the West should be cautious about any further liberalization. "There's no evidence that the Soviet program to (illegally) acquire Western technology has diminished," said a State Department spokesman.
If a hostile predator emerges for Saatchi & Saatchi Co., co-founders Charles and Maurice Saatchi will lead a management buy-out attempt, an official close to the company said. Financing for any takeover attempt may be problematic in the wake of Friday's stock-market sell-off in New York and turmoil in the junk-bond market.But the beleaguered British advertising and consulting giant, which last week named a new chief executive officer to replace Maurice Saatchi, has been the subject of intense takeover speculation for weeks. Last week, Saatchi's largest shareholder, Southeastern Asset Management, said it had been approached by one or more third parties interested in a possible restructuring.And Carl Spielvogel, chief executive officer of Saatchi's big Backer Spielvogel Bates advertising unit, said he had offered to lead a management buy-out of the company, but was rebuffed by Charles Saatchi.Mr. Spielvogel said he wouldn't launch a hostile bid. The executive close to Saatchi & Saatchi said that "if a bidder came up with a ludicrously high offer, a crazy offer which Saatchi knew it couldn't beat, it would have no choice but to recommend it to shareholders.But {otherwise} it would undoubtedly come back" with an offer by management.The executive said any buy-out would be led by the current board, whose chairman is Maurice Saatchi and whose strategic guiding force is believed to be Charles Saatchi.Mr. Spielvogel isn't part of the board, nor are any of the other heads of Saatchi's big U.S.-based ad agencies. The executive didn't name any price, but securities analysts have said Saatchi would fetch upward of $1.3 billion. The executive denied speculation that Saatchi was bringing in the new chief executive officer only to clean up the company financially so that the brothers could lead a buy-back.That speculation abounded Friday as industry executives analyzed the appointment of the new chief executive, Robert Louis-Dreyfus, who joins Saatchi and becomes a member of its board on Jan. 1.Mr. Louis-Dreyfus, formerly chief executive of the pharmaceutical research firm IMS International Inc., has a reputation as a savvy financial manager, and will be charged largely with repairing Saatchi's poor financial state. Asked about the speculation that Mr. Louis-Dreyfus has been hired to pave the way for a buy-out by the brothers, the executive replied, "That isn't the reason Dreyfus has been brought in.He was brought in to turn around the company." Separately, several Saatchi agency clients said they believe the company's management shakeup will have little affect on them. "It hasn't had any impact on us, nor do we expect it to," said a spokeswoman for Miller Brewing Co., a major client of Backer Spielvogel.John Lampe, director of advertising at PaineWebber Inc., a Saatchi & Saatchi Advertising client, said: "We have no problem with the announcement, because we don't know what change it's going to bring about.We aren't going to change agencies because of a change in London." Executives at Backer Spielvogel client Avis Inc., as well as at Saatchi client Philips Lighting Co., also said they saw no effect.Executives at Prudential-Bache Securities Inc., a Backer Spielvogel client that is reviewing its account, declined comment.Mr. Spielvogel had said that Prudential-Bache was prepared to finance either a management buy-out and restructuring, or a buy-out of Backer Spielvogel alone, led by him. Ad Notes. . . . NEW ACCOUNT: California's Glendale Federal Bank awarded its $12 million to $15 million account to the Los Angeles office of Omnicom Group's BBDO agency.The account was previously handled by Davis, Ball & Colombatto Advertising Inc., a Los Angeles agency. ACCOUNT REVIEW: Royal Crown Cola Co. has ended its relationship with the Boston office of Hill, Holliday, Connors, Cosmopulos.The account had billed about $6 million in 1988, according to Leading National Advertisers. NOT-GUILTY PLEA: As expected, Young & Rubicam Inc. along with two senior executives and a former employee, pleaded not guilty in federal court in New Haven, Conn., to conspiracy and racketeering charges.The government has charged that they bribed Jamaican officials to win the Jamaica Tourist Board ad account in 1981.A spokesman for the U.S. Attorney's office said extradition proceedings are "just beginning" for the other two defendants in the case, Eric Anthony Abrahams, former Jamaican tourism minister, and Jamaican businessman Arnold Foote Jr. KOREAN AGENCY: The Samsung Group and Bozell Inc. agreed to establish a joint venture advertising agency in South Korea.Bozell Cheil Corp., as the new agency will be called, will be based in Seoul and is 70% owned by Samsung and 30% owned by Bozell.Samsung already owns Korea First Advertising Co., that country's largest agency.Bozell joins Backer Spielvogel Bates and Ogilvy Group as U.S. agencies with interests in Korean agencies.
Ideal Basic Industries Inc. said its directors reached an agreement in principle calling for HOFI North America Inc. to combine its North American cement holdings with Ideal in a transaction that will leave Ideal's minority shareholders with 12.8% of the combined company. HOFI, the North American holding company of Swiss concern Holderbank Financiere Glaris Ltd., previously proposed combining its 100% stake in St. Lawrence Cement Inc. and its 60% stake in Dundee Cement Co. with its 67% stake in Ideal. But HOFI's first offer would have given Ideal's other shareholders about 10% of the combined company.Ideal's directors rejected that offer, although they said they endorsed the merger proposal. Under the agreement, HOFI will own 87.2% of the combined company.Ideal's current operations will represent about 39.2% of the combined company. The transaction is subject to a definitive agreement and approval by Ideal shareholders.Ideal said it expects to complete the transaction early next year.
Financial Corp. of Santa Barbara filed suit against former stock speculator Ivan F. Boesky and Drexel Burnham Lambert Inc., charging they defrauded the thrift by concealing their relationship when persuading it to buy $284 million in high-yield, high-risk junk bonds. In a suit filed in federal court Thursday, the S&L alleged that a "disproportionate number" of the bonds it purchased in 1984 declined in value.Financial Corp. purchased the bonds, the suit alleged, after Mr. Boesky and Drexel negotiated an agreement for Vagabond Hotels to purchase a 51% stake in the thrift for about $34 million. Vagabond Hotels was controlled by Mr. Boesky, who currently is serving a prison term for securities violations.Officials at Drexel said they hadn't seen the suit and thus couldn't comment. In addition to $33 million compensatory damages, the suit seeks $100 million in punitive damages. Also named in the suit is Ivan F. Boesky Corp. and Northview Corp., the successor company to Vagabonds Hotels.Northview officials couldn't be located. Financial Corp. said it agreed to buy the bonds after a representative of Ivan F. Boesky Corp. visited it in November 1983 and said Financial Corp. could improve its financial condition by purchasing the bonds.Shortly before the visit, Mr. Boesky and Drexel representives had met with Financial Corp. officials and had signed a letter of intent to acquire the 51% stake in the company.However, the agreement was canceled in June 1984. Financial Corp. purchased the bonds in at least 70 different transactions in 1984 and since then has realized $11 million in losses on them, the company said.
While corn and soybean prices have slumped well below their drought-induced peaks of 1988, wheat prices remain stubbornly high.And they're likely to stay that way for months to come, analysts say. For one thing, even with many farmers planting more winter wheat this year than last, tight wheat supplies are likely to support prices well into 1990, the analysts say.And if rain doesn't fall soon across many of the Great Plains' wheat-growing areas, yields in the crop now being planted could be reduced, further squeezing supplies.Also supporting prices are expectations that the Soviet Union will place substantial buying orders over the next few months. By next May 31, stocks of U.S. wheat to be carried over into the next season -- before the winter wheat now being planted is harvested -- are projected to drop to 443 million bushels.That would be the lowest level since the early 1970s.Stocks were 698 million bushels on May 31 of this year. In response to dwindling domestic supplies, Agriculture Secretary Clayton Yeutter last month said the U.S. government would slightly increase the number of acres farmers can plant in wheat for next year and still qualify for federal support payments.The government estimates that the new plan will boost production next year by about 66 million bushels.It now estimates production for next year at just under 2.6 billion bushels, compared with this year's estimated 2.04 billion and a drought-stunted 1.81 billion in 1988. But the full effect on prices of the winter wheat now being planted won't be felt until the second half of next year.Until then, limited stocks are likely to keep prices near the $4-a-bushel level, analysts say.On the Chicago Board of Trade Friday, wheat for December delivery settled at $4.0675 a bushel, unchanged. In theory at least, tight supplies next spring could leave the wheat futures market susceptible to a supply-demand squeeze, said Daniel Basse, a futures analyst with AgResource Co. in Chicago.Such a situation can wreak havoc, as was shown by the emergency that developed in soybean futures trading this summer on the Chicago Board of Trade. In July, the CBOT ordered Ferruzzi Finanziaria S.p.A. to liquidate futures positions equal to about 23 million bushels of soybeans.The exchange said it feared that some members wouldn't be able to find enough soybeans to deliver and would have to default on their contractual obligation to the Italian conglomerate, which had refused requests to reduce its holdings.Ferruzzi has denied it was trying to manipulate the soybean futures market. Unseasonably hot, dry weather across large portions of the Great Plains and in wheat-growing areas in Washington and Oregon is threatening to reduce the yield from this season's winter wheat crop, said Conrad Leslie, a futures analyst and head of Leslie Analytical in Chicago.For example, in the Oklahoma panhandle, 40% or more of the topsoil is short of moisture.That figure climbs to about 47% in wheat-growing portions of Kansas, he said. The Soviet Union hasn't given any clear indication of its wheat purchase plans, but many analysts expect Moscow to place sizable orders for U.S. wheat in the next few months, further supporting prices. "Wheat prices will increasingly pivot off of Soviet demand" in coming weeks, predicted Richard Feltes, vice president, research, for Refco Inc. in Chicago. Looking ahead to other commodity markets this week: Orange Juice Traders will be watching to see how long and how far the price decline that began Friday will go. Late Thursday, after the close of trading, the market received what would normally have been a bullish U.S. Department of Agriculture estimate of the 1989-90 Florida orange crop.It was near the low range of estimates, at 130 million 90-pound boxes, compared with 146.6 million boxes last season. However, as expected, Brazil waited for the crop estimate to come out and then cut the export price of its juice concentrate to about $1.34 a pound from around $1.55.Friday's consequent selling of futures contracts erased whatever supportive effect the U.S. report might have had and sent the November orange juice contract down as much as 6.55 cents a pound at one time.It settled with a loss of 4.95 cents at $1.3210 a pound. Brazilian juice, after a delay caused by drought at the start of its crop season, is beginning to arrive in the U.S. in large quantities.Brazil wants to stimulate demand for its product, which is going to be in plentiful supply. The price cut, one analyst said, appeared to be aimed even more at Europe, where consumption of Brazilian juice has fallen.It's a dollar-priced product, and the strong dollar has made it more expensive in Europe, the analyst said. New York futures prices have dropped significantly from more than $2 a pound at midyear.Barring a cold snap or other crop problems in the growing areas, downward pressure on prices is likely to continue into January, when harvesting and processing of oranges in Florida reach their peak, the analyst said. Energy Although some analysts look for profit-taking in the wake of Friday's leap in crude oil prices, last week's rally is generally expected to continue this week. "I would continue to look for a stable crude market, at least in futures" trading, said William Hinton, an energy futures broker with Stotler & Co. Friday capped a week of steadily rising crude oil prices in both futures and spot markets.On the New York Mercantile Exchange, West Texas Intermediate crude for November delivery finished at $20.89 a barrel, up 42 cents on the day.On European markets, meanwhile, spot prices of North Sea crudes were up 35 to 75 cents a barrel. "This market still wants to go higher," said Nauman Barakat, a first vice president at Shearson Lehman Hutton Inc.He predicted that the November contract will reach $21.50 a barrel or more on the New York Mercantile Exchange. There has been little news to account for such buoyancy in the oil markets.Analysts generally cite a lack of bearish developments as well as rumors of a possible tightening of supplies of some fuels and crudes.There also are recurring reports that the Soviet Union is having difficulties with its oil exports and that Nigeria has about reached its production limit and can't produce as much as it could sell.Many traders foresee a tightening of near-term supplies, particularly of high-quality crudes such as those produced in the North Sea and in Nigeria.
Newspaper publishers are reporting mixed third-quarter results, aided by favorable newsprint prices and hampered by flat or declining advertising linage, especially in the Northeast. Adding to unsteadiness in the industry, seasonal retail ad spending patterns in newspapers have been upset by shifts in ownership and general hardships within the retail industry.In New York, the Bonwit Teller and B. Altman & Co. department stores have filed for protection from creditors under Chapter 11 of the federal Bankruptcy Code, while the R.H. Macy & Co., Bloomingdale's and Saks Fifth Avenue department-store chains are for sale. Many papers throughout the country are also faced with a slowdown in classified-ad spending, a booming category for newspapers in recent years. Until recently, industry analysts believed decreases in retail ad spending had bottomed out and would in fact increase in this year's third and fourth quarters.All bets are off, analysts say, because of the shifting ownership of the retail chains. "Improved paper prices will help offset weakness in linage, but the retailers' problems have affected the amount of ad linage they usually run," said Edward J. Atorino, industry analyst for Salomon Brothers Inc. "Retailers are just in disarray." For instance, Gannett Co. posted an 11% gain in net income, as total ad pages dropped at USA Today, but advertising revenue rose because of a higher circulation rate base and increased rates.Gannett's 83 daily and 35 non-daily newspapers reported a 3% increase in advertising and circulation revenue.Total advertising linage was "modestly" lower as classified-ad volume increased, while there was "softer demand" for retail and national ad linage, said John Curley, Gannett's chief executive officer. At USA Today, ad pages totaled 785 for the quarter, down 9.2% from the 1988 period, which was helped by increased ad spending from the Summer Olympics.While USA Today's total paid ad pages for the year to date totaled 2,735, a decrease of 4% from last year, the paper's ad revenue increased 8% in the quarter and 13% in the nine months.In the nine months, Gannett's net rose 9.5% to $270 million, or $1.68 a share, from $247 million, or $1.52 a share.Revenue gained 6% to $2.55 billion from $2.4 billion. At Dow Jones & Co., third-quarter net income fell 9.9% from the year-earlier period.Net fell to $28.8 million, or 29 cents a share, from $32 million, or 33 cents a share.The year-earlier period included a one-time gain of $3.5 million, or four cents a share.Revenue gained 5.3% to $404.1 million from $383.8 million. The drop in profit reflected, in part, continued softness in financial advertising at The Wall Street Journal and Barron's magazine.Ad linage at the Journal fell 6.1% in the third quarter. Affiliated Publications Inc. reversed a year-earlier third quarter net loss.The publisher of the Boston Globe reported net of $8.5 million, or 12 cents a share, compared with a loss of $26.5 million, or 38 cents a share, for the third quarter in 1988. William O. Taylor, the parent's chairman and chief executive officer, said earnings continued to be hurt by softness in ad volume at the Boston newspaper. Third-quarter profit estimates for several companies are being strongly affected by the price of newsprint, which in the last two years has had several price increases.After a supply crunch caused prices to rise 14% since 1986 to $650 a metric ton, analysts are encouraged, because they don't expect a price increase for the rest of this year. Companies with daily newspapers in the Northeast will need the stable newsprint prices to ease damage from weak ad linage.Mr. Atorino at Salomon Brothers said he estimates that Times Mirror Co. 's earnings were down for the third quarter, because of soft advertising levels at its Long Island Newsday and Hartford Courant newspapers.Trouble on the East Coast was likely offset by improved ad linage at the Los Angeles Times, which this week also unveiled a redesign. New York Times Co. is expected to report lower earnings for the third quarter because of continued weak advertising levels at its flagship New York Times and deep discounting of newsprint at its affiliate, Forest Products Group. "Times Co. 's regional daily newspapers are holding up well, but there is little sign that things will improve in the New York market," said Alan Kassan, an analyst with Shearson Lehman Hutton. Washington Post Co. is expected to report improved earnings, largely because of increased cable revenue and publishing revenue helped by an improved retail market in the Washington area.According to analysts, profits were also helped by successful cost-cutting measures at Newsweek.The news-weekly has faced heightened competition from rival Time magazine and a relatively flat magazine advertising market. Knight-Ridder Inc. is faced with continued uncertainty over the pending joint operating agreement between its Detroit Free Press and Gannett's Detroit News, and has told analysts that earnings were down in the third quarter.However, analysts point to positive advertising spending at several of its major daily newspapers, such as the Miami Herald and San Jose Mercury News. "The Miami market is coming back strong after a tough couple of years" when Knight-Ridder "was starting up a Hispanic edition and circulation was falling," said Bruce Thorp, an analyst for Provident National Bank.
General Motors Corp., in a series of moves that angered union officials in the U.S. and Canada, has signaled that as many as five North American assembly plants may not survive the mid-1990s as the corporation struggles to cut its excess vehicle-making capacity. In announcements to workers late last week, GM effectively signed death notices for two full-sized van assembly plants, and cast serious doubt on the futures of three U.S. car factories. GM is under intense pressure to close factories that became unprofitable as the giant auto maker's U.S. market share skidded during the past decade.The company, currently using about 80% of its North American vehicle capacity, has vowed it will run at 100% of capacity by 1992.Just a month ago, GM announced it would make an aging assembly plant in Lakewood, Ga., the eighth U.S. assembly facility to close since 1987. Now, GM appears to be stepping up the pace of its factory consolidation to get in shape for the 1990s.One reason is mounting competition from new Japanese car plants in the U.S. that are pouring out more than one million vehicles a year at costs lower than GM can match.Another is that United Auto Workers union officials have signaled they want tighter no-layoff provisions in the new Big Three national contract that will be negotiated next year.GM officials want to get their strategy to reduce capacity and the work force in place before those talks begin. The problem, however, is that GM's moves are coming at a time when UAW leaders are trying to silence dissidents who charge the union is too passive in the face of GM layoffs.Against that backdrop, UAW Vice President Stephen P. Yokich, who recently became head of the union's GM department, issued a statement Friday blasting GM's "flagrant insensitivity" toward union members.The auto maker's decision to let word of the latest shutdowns and product reassignments trickle out in separate communiques to the affected plants showed "disarray" and an "inability or unwillingness to provide consistent information," Mr. Yokich said. GM officials told workers late last week of the following moves: Production of full-sized vans will be consolidated into a single plant in Flint, Mich.That means two plants -- one in Scarborough, Ontario, and the other in Lordstown, Ohio -- probably will be shut down after the end of 1991.The shutdowns will idle about 3,000 Canadian assembly workers and about 2,500 workers in Ohio.Robert White, Canadian Auto Workers union president, used the impending Scarborough shutdown to criticize the U.S.-Canada free trade agreement and its champion, Prime Minister Brian Mulroney. But Canadian auto workers may benefit from a separate GM move that affects three U.S. car plants and one in Quebec. Workers at plants in Van Nuys, Calif., Oklahoma City and Pontiac, Mich., were told their facilities are no longer being considered to build the next generation of the Pontiac Firebird and Chevrolet Camaro muscle cars.GM is studying whether it can build the new Camaro-Firebird profitably at a plant in St. Therese, Quebec, company and union officials said. That announcement left union officials in Van Nuys and Oklahoma City uncertain about their futures.The Van Nuys plant, which employs about 3,000 workers, doesn't have a product to build after 1993.Jerry Shrieves, UAW local president, said the facility was asked to draw up plans to continue working as a "flex plant," which could build several different types of products on short notice to satisfy demand. At the Oklahoma City plant, which employs about 6,000 workers building the eight-year-old A-body mid-sized cars, Steve Featherston, UAW local vice president, said the plant has no new product lined up, and "none of us knows" when the A-body cars will die.He said he believes GM has plans to keep building A-body cars into the mid-1990s. At Pontiac, however, the Camaro-Firebird decision appears to erase UAW hopes that GM would reopen the shuttered assembly plant that last built the plastic-bodied, two-seater Pontiac Fiero model. The Fiero plant was viewed as a model of union-management cooperation at GM before slow sales of the Fiero forced the company to close the factory last year.Union officials have taken a beating politically as a result.Dissident UAW members have used the Fiero plant as a symbol of labor-management cooperation's failure.
Institut Merieux S.A. of France said the Canadian government raised an obstacle to its proposed acquisition of Connaught BioSciences Inc. for 942 million Canadian dollars (US$801.6 million). Merieux said the government's minister of industry, science and technology told it that he wasn't convinced that the purchase is likely to be of "net benefit" to Canada.Canadian investment rules require that big foreign takeovers meet that standard. The French company said the government gave it 30 days in which to submit information to further support its takeover plan. Both Merieux and Connaught are biotechnology research and vaccine manufacturing concerns. The government's action was unusual.Alan Nymark, executive vice president of Investment Canada, which oversees foreign takeovers, said it marked the first time in its four-year history that the agency has made an adverse net-benefit decision about the acquisition of a publicly traded company.He said it has reached the same conclusions about some attempts to buy closely held concerns, but eventually allowed those acquisitions to proceed. "This isn't a change in government policy; this provision has been used before," said Jodi Redmond, press secretary for Harvie Andre, Canada's minister of industry, science and technology.Mr. Andre issued the ruling based on a recommendation by Investment Canada. Spokesmen for Merieux and Connaught said they hadn't been informed of specific areas of concern by either the government or Investment Canada, but added they hope to have more information early this week. Investment Canada declined to comment on the reasons for the government decision. Viren Mehta, a partner with Mehta & Isaly, a New York-based pharmaceutical industry research firm, said the government's ruling wasn't unexpected. "This has become a very politicized deal, concerning Canada's only large, world-class bio-research or pharmaceutical company," Mr. Mehta said. Mr. Mehta said the move that could allow the transaction to go ahead as planned could be an out-of-court settlement of Connaught's dispute with the University of Toronto.The University is seeking to block the acquisition of Connaught by foreign interests, citing concerns about the amount of research that would be done in Canada. The university is considering a settlement proposal made by Connaught.While neither side will disclose its contents, Mr. Mehta expects it to contain more specific guarantees on research and development spending levels in Canada than Merieux offered to Investment Canada. Some analysts, such as Murray Grossner of Toronto-based Richardson Greenshields Inc., believe the government ruling leaves the door open for other bidders, such as Switzerland's Ciba-Geigy and Chiron Corp. of Emeryville, Calif.Officials for the two concerns, which are bidding C$30 a share for Connaught, couldn't be reached for comment. French state-owned Rhone-Poulenc S.A. holds 51% of Merieux.
Earnings for most of the nation's major pharmaceutical makers are believed to have moved ahead briskly in the third quarter, as companies with newer, big-selling prescription drugs fared especially well. For the third consecutive quarter, however, most of the companies' revenues were battered by adverse foreign-currency translations as a result of the strong dollar abroad. Analysts said that Merck & Co., Eli Lilly & Co., Warner-Lambert Co. and the Squibb Corp. unit of Bristol-Myers Squibb Co. all benefited from strong sales of relatively new, higher-priced medicines that provide wide profit margins.Less robust earnings at Pfizer Inc. and Upjohn Co. were attributed to those companies' older products, many of which face stiffening competition from generic drugs and other medicines. Joseph Riccardo, an analyst with Bear, Stearns & Co., said that over the past few years most drug makers have shed their slow-growing businesses and instituted other cost savings, such as consolidating manufacturing plants and administrative staffs.As a result, "major new products are having significant impact, even on a company with very large revenues," Mr. Riccardo said. Analysts said profit for the dozen or so big drug makers, as a group, is estimated to have climbed between 11% and 14%.While that's not spectacular, Neil Sweig, an analyst with Prudential Bache, said that the rate of growth will "look especially good as compared to other companies if the economy turns downward." Mr. Sweig estimated that Merck's profit for the quarter rose by about 22%, propelled by sales of its line-up of fast-growing prescription drugs, including its anti-cholesterol drug, Mevacor; a high blood pressure medicine, Vasotec; Primaxin, an antibiotic, and Pepcid, an anti-ulcer medication.Profit climbed even though Merck's sales were reduced by "one to three percentage points" as a result of the strong dollar, Mr. Sweig said.In the third quarter of 1988, Merck earned $311.8 million, or 79 cents a share. In Rahway, N.J., a Merck spokesman said the company doesn't make earnings projections. Mr. Sweig said he estimated that Lilly's earnings for the quarter jumped about 20%, largely because of the performance of its new anti-depressant Prozac.The drug, introduced last year, is expected to generate sales of about $300 million this year. "It's turning out to be a real blockbuster," Mr. Sweig said. In last year's third quarter, Lilly earned $171.4 million, or $1.20 a share.In Indianapolis, Lilly declined comment. Several analysts said they expected Warner-Lambert's profit also to increase by more than 20% from $87.7 million, or $1.25 a share, it reported in the like period last year.The company is praised by analysts for sharply lowering its costs in recent years and shedding numerous companies with low profit margins.The company's lean operation, analysts said, allowed sharp-rising sales from its cholesterol drug, Lopid, to power earnings growth.Lopid sales are expected to be about $300 million this year, up from $190 million in 1988.In Morris Plains, N.J., a spokesman for the company said the analysts' projections are "in the ballpark." Squibb's profit, estimated by analysts to be about 18% above the $123 million, or $1.25 a share, it earned in the third quarter of 1988, was the result of especially strong sales of its Capoten drug for treating high blood pressure and other heart disease.The company was officially merged with Bristol-Myers Co. earlier this month.Bristol-Myers declined to comment. Mr. Riccardo of Bear Stearns said that Schering-Plough Corp. 's expected profit rise of about 18% to 20%, and Bristol-Meyers's expected profit increase of about 13% are largely because "those companies are really managed well." ScheringPlough earned $94.4 million, or 84 cents a share, while Bristol-Myers earned $232.3 million, or 81 cents a share, in the like period a year earlier. In Madison, N.J., a spokesman for Schering-Plough said the company has "no problems" with the average estimate by a analysts that third-quarter earnings per share rose by about 19%, to $1.The company expects to achieve the 20% increase in full-year earnings per share, as it projected in the spring, the spokesman said. Meanwhile, analysts said Pfizer's recent string of lackluster quarterly performances continued, as earnings in the quarter were expected to decline by about 5%.Sales of Pfizer's important drugs, Feldene for treating arthritis, and Procardia, a heart medicine, have shrunk because of increased competition. "The (strong) dollar hurt Pfizer a lot, too," Mr. Sweig said.In the third quarter last year, Pfizer earned $216.8 million, or $1.29 a share.In New York, the company declined comment. Analysts said they expected Upjohn's profit to be flat or rise by only about 2% to 4% as compared with $89.6 million, or 49 cents a share, it earned a year ago.Upjohn's biggest-selling drugs are Xanax, a tranquilizer, and Halcion, a sedative. Sales of both drugs have been hurt by new state laws restricting the prescriptions of certain tranquilizing medicines and adverse publicity about the excessive use of the drugs.Also, the company's hair-growing drug, Rogaine, is selling well -- at about $125 million for the year, but the company's profit from the drug has been reduced by Upjohn's expensive print and television campaigns for advertising, analysts said.In Kalamazoo, Mich., Upjohn declined comment.
Amid a crowd of crashing stocks, Relational Technology Inc. 's stock fell particularly hard Friday, dropping 23% because its problems were compounded by disclosure of an unexpected loss for its fiscal first quarter. The database software company said it expects a $2 million net loss for the fiscal first quarter ended Sept. 30.It said analysts had been expecting a small profit for the period.Revenue is expected to be "up modestly" from the $26.5 million reported a year ago.Relational Technology reported net income of $1.5 million, or 12 cents a share, in the year-earlier period. "While our international operations showed strong growth, our domestic business was substantially below expectations," said Paul Newton, president and chief executive officer.A spokesman said the company's first quarter is historically soft, and computer companies in general are experiencing slower sales. Mr. Newton said he accepted the resignation of Thomas Wilson, vice president of corporate sales, and that his marketing responsibilities have been reassigned.The company said Mr. Wilson's resignation wasn't related to the sales shortfall. Relational Technology went public in May 1988 at $14 a share.It fell $1.875 a share Friday, to $6.25, a new low, in over-the-counter trading.Its high for the past year was $16.375 a share. In the previous quarter, the company earned $4.5 million, or 37 cents a share, on sales of $47.2 million.
The Bronx has a wonderful botanical garden, a great zoo, its own charming Little Italy (on Arthur Avenue) and, of course, the Yankees.However, most people, having been subjected to news footage of the devastated South Bronx, look at the borough the way Tom Wolfe's Sherman McCoy did in "Bonfire of the Vanities" -- as a wrong turn into hell. But Laura Cunningham's Bronx, her childhood Bronx of the '50s, is something else altogether.In a lovely, novelistic memoir, "Sleeping Arrangements" (Knopf, 195 pages, $18.95), she remembers an exotic playground, peopled mainly by Jewish eccentrics and the occasional Catholic (real oddballs like her sexpot friend, the hell-kitten Diana, age five). Ms. Cunningham, a novelist and playwright, has a vivid and dramatically outsized sense of recall.She transforms her "Bronx of the emotions, a place where the flats of mediocrity are only relieved by steep descents into hysteria" into the "Babylonian Bronx," a world simmering with sex and death and intrigue.In the Babylonian Bronx, Jewish working-class people lived in drab, Soviet-style buildings "glamorized" with names like AnaMor Towers (after owners Anna and Morris Snezak), whose lobbies and hallways were decorated with murals of ancient Syrians and Greeks, friezes of Pompeii. For Ms. Cunningham the architectural discombobulation matched the discrepancy she felt living in the AnaMor Towers as a little girl: ". . . outwardly ordinary, inwardly ornate, owing all inspiration to heathen cultures." Sharp-witted and funny but never mean, she's a memorialist a bit like Truman Capote, if he'd been Jewish and female and less bitchy. Little Lily, as Ms. Cunningham calls herself in the book, really wasn't ordinary.She was raised, for the first eight years, by her mother, Rosie, whom she remembers as a loving liar, who realigned history to explain why Lily's father didn't live with them.Rosie reinvented this man, who may or may not have known about his child, as a war hero for Lily's benefit. Rosie died young and Lily has remembered her as a romantic figure, who didn't interfere much with her child's education on the streets.The games Bronx children played (holding kids down and stripping them, for example) seem tame by today's crack standards, but Ms. Cunningham makes it all sound like a great adventure. "Without official knowledge of sex or death, we flirted with both," she writes.She analyzed families by their sleeping arrangements.Her friend Susan, whose parents kept reminding her she was unwanted, slept on a narrow bed wedged into her parents' bedroom, as though she were a temporary visitor.Her friend Diana's father was a professional thief; they didn't seem to have any bedrooms at all. Maybe Lily became so obsessed with where people slept and how because her own arrangements kept shifting.When Rosie died, her uncles moved in -- and let her make the sleeping and other household arrangements.They painted the apartment orange, pink and white, according to her instructions.With loving detail she recalls her Uncle Gabe, an Orthodox Jew and song lyricist (who rhymed river with liver in a love song); and Uncle Len, a mysterious part-time investigator who looked like Lincoln and carried a change of clothing in a Manila envelope, like an "undercover President on a good-will mission." They came by their strangeness honestly.Lily's grandmother, no cookie baker, excised the heads of disliked relatives from the family album, and lugged around her perennial work-in-progress, "Philosophy for Women." The book loses some momentum toward the end, when Lily becomes more preoccupied with dating boys and less with her delightfully weird family.For the most part, though, there's much pleasure in her saucy, poignant probe into the mysteries of the Babylonian Bronx. The Bronx also figures in Bruce Jay Friedman's latest novel, which flashes back to the New York of the '50s.But both the past and present worlds of "The Current Climate" (Atlantic Monthly Press, 200 pages, $18.95) feel cramped and static. For his sixth novel, Mr. Friedman tried to resuscitate the protagonist of his 1972 work, "About Harry Towns." Harry is now a 57-year-old writer, whose continuing flirtation with drugs and marginal types in Hollywood and New York seems quaintly out-of-synch.Harry fondly remembers the "old" days of the early '70s, when people like his friend Travis would take a psychiatrist on a date to analyze what Travis was doing wrong. "An L.A. solution," explains Mr. Friedman. Line by line Mr. Friedman's weary cynicism can be amusing, especially when he's riffing on the Hollywood social scheme -- the way people size each other up, immediately canceling the desperate ones who merely almost made it.Harry has avoided all that by living in a Long Island suburb with his wife, who's so addicted to soap operas and mystery novels she barely seems to notice when her husband disappears for drug-seeking forays into Manhattan. But it doesn't take too many lines to figure Harry out.He's a bore.
Many of the nation's highest-ranking executives saluted Friday's market plunge as an overdue comeuppance for speculators and takeover players. Assuming that the market doesn't head into a bottomless free fall, some executives think Friday's action could prove a harbinger of good news -- as a sign that the leveraged buy-out and takeover frenzy of recent years may be abating. "This is a reaction to artificial LBO valuations, rather than to any fundamentals," said John Young, chairman of Hewlett-Packard Co., whose shares dropped $3.125 to $48.125. "If we get rid of a lot of that nonsense, it will be a big plus." A few of the executives here for the fall meeting of the Business Council, a group that meets to discuss national issues, were only too happy to personalize their criticism. "People wish the government would do something about leveraged buy-outs, do something about takeovers, do something about Donald Trump," said Rand Araskog, chairman of ITT Corp., whose stock dropped $3.375. "Where's the leadership?Where's the guy who can say: `Enough is enough'"? The executives were remarkably unperturbed by the plunge even though it lopped billions of dollars off the value of their companies -- and millions off their personal fortunes. "I'm not going to worry about one day's decline," said Kenneth Olsen, Digital Equipment Corp. president, who was leisurely strolling through the bright orange and yellow leaves of the mountains here after his company's shares plunged $5.75 to close at $86.50. "I didn't bother calling anybody; I didn't even turn on TV." "There hasn't been any fundamental change in the economy," added John Smale, whose Procter & Gamble Co. took an $8.75 slide to close at $120.75. "The fact that this happened two years ago and there was a recovery gives people some comfort that this won't be a problem." Of course, established corporate managements often tend to applaud the setbacks of stock speculators and takeover artists.Indeed, one chief executive who was downright delighted by Friday's events was Robert Crandall, chairman of AMR Corp., the parent of American Airlines and the target of a takeover offer by Mr. Trump.Asked whether Friday's action could help him avoid being Trumped by the New York real estate magnate, Mr. Crandall smiled broadly and said: "No comment." On Friday morning, before the market's sell-off, the business leaders issued a report predicting the economy would grow at roughly an inflation-adjusted 2% annual rate, through next year, then accelerate anew in 1991.Of the 19 economists who worked on the Business Council forecast, only two projected periods of decline in the nation's output over the next two years, and in "both instances the declines are too modest to warrant the phrase recession," said Lewis Preston, chairman of J.P. Morgan & Co. and vice chairman of the Business Council.
The real estate slump that's pushing down the price of New York office space and housing is also affecting the city's retail real estate market. In Manhattan, once-desirable store sites sit vacant and newly constructed space has been slow to fill.Retail real estate brokers say tenants are reluctant to sign leases because of uncertainty about the local economy, turmoil in their own industries and a belief that rents have not yet hit bottom. "There is an unbelievable amount of space available," says Faith Consolo, senior vice president at Garrick-Aug Associates Store Leasing Inc.There are about 2,000 stores for rent, up from a more typical range of 1,200 to 1,500. "This further confuses retailers," she says. "They wonder should they sign a lease if prices are still coming down?Is this the wrong time to open a store?Who is going to be in the space next door?" In addition, Ms. Consolo says, tenants usually can negotiate to pay rents that are about one-quarter lower than landlords' initial asking price. A handful of hot retail locations, such as the 57th Street and Madison and Fifth Avenue areas, have been able to sustain what many see as astronomical rents.And, in some neighborhoods, rents have merely hit a plateau.But on average, Manhattan retail rents have dropped 10% to 15% in the past six months alone, experts say.That follows a more subtle decline in the prior six months, after Manhattan rents had run up rapidly since 1986. The same factors limiting demand for office space have affected retailing. "As businesses contract or depart, the number of employees who might use retail services shrinks," says Edward A. Friedman, senior vice president of Helmsley Spear Inc. He says financial problems plaguing electronics, fur and furniture companies -- key categories in the local retail economy -- have further deflated the market.Hardest hit are what he calls "secondary" sites that primarily serve neighborhood residents.In these locations, Mr. Friedman says, "Retailers are increasingly cautious about expanding and rents have remained steady or in some cases have declined." Weakness in the restaurant industry, which is leaving retail space vacant, exacerbates the problem for landlords. It is also no comfort to landlords and small New York retailers when the future of larger department stores, which anchor retail neighborhoods, are in doubt.Hooker Corp., parent of Bonwit Teller and B. Altman's, is mired in bankruptcy proceedings and Bloomingdale's is for sale by its owner, Campeau Corp. The trend toward lower rents may seem surprising given that some communities in New York are bemoaning the loss of favorite local businesses to high rents.But, despite the recent softening, for many of these retailers there's still been too big a jump from the rental rates of the late 1970s, when their leases were signed. Certainly, the recent drop in prices doesn't mean Manhattan comes cheap.New York retail rents still run well above the going rate in other U.S. cities.Madison and Fifth Avenues and East 57th Street can command rents of up to $500 a square foot, and $250 is not uncommon.The thriving 34th Street area offers rents of about $100 a square foot, as do up-and-coming locations along lower Fifth Avenue.By contrast, rentals in the best retail locations in Boston, San Francisco and Chicago rarely top $100 a square foot.And rents on Beverly Hills' Rodeo Drive generally don't exceed about $125 a square foot. The New York Stock Exchange said two securities will begin trading this week. Precision Castparts Corp., Portland, Ore., will begin trading with the symbol PCP.It makes investment castings and has traded over-the-counter. Royal Bank of Scotland Group PLC, an Edinburgh, Scotland, financial services company, will list American depositary shares, representing preferred shares, with the symbol RBSPr.It will continue to trade on the International Stock Exchange, London. The American Stock Exchange listed shares of two companies. AIM Telephones Inc., a Parsippany, N.J., telecommunications equipment supply company, started trading with the symbol AIM.It had traded over-the-counter. Columbia Laboratories Inc., Miami, began trading with the symbol COB.The pharmaceuticals maker had traded over-the-counter. The National Market System of the Nasdaq over-the-counter market listed shares of one company. Employee Benefit Plans Inc., a Minneapolis health-care services company, was listed with the symbol EBPI.
When Justice William Brennan marks the start of his 34th year on the Supreme Court today, the occasion will differ sharply from previous anniversaries of his tenure. For the first time, the 83-year-old justice finds his influence almost exclusively in dissent, rather than as a force in the high court's majority.This role reversal holds true, as well, for his three liberal and moderate allies, Justices Thurgood Marshall, Harry Blackmun and John Stevens. But are these four players, three of them in their 80s, ready to assume a different role after 88 years, collectively, of service on the high court? Every indication is that the four are prepared to accept this new role, and the frustrations that go with it, but in different ways.Justices Brennan and Stevens appear philosophical about it; Justices Marshall and Blackmun appear fighting mad. The four justices are no newcomers to dissent, often joining forces in the past decade to criticize the court's conservative drift.But always, in years past, they have bucked the trend and have been able to pick up a fifth vote to eke out a number of major victories in civil rights and liberties cases.Now, however, as the court's new five-member conservative majority continues to solidify, victories for the liberals are rare. The change is most dramatic for Justice Brennan, the last survivor of the mid-1960s liberal majority under Chief Justice Earl Warren.In the seven Supreme Court terms from the fall of 1962 through the spring of 1967, the height of the Warren Court's power, Justice Brennan cast only 25 dissenting votes in 555 cases decided by the court.Last term alone he cast 52 dissenting votes in 133 decisions, with the contentious flag-burning ruling as his only big victory. But Justice Brennan foresaw his new role, strongly defending the importance of dissents in a 1985 speech. "Each time the court revisits an issue, the justices will be forced by a dissent to reconsider the fundamental questions and to rethink the result," he said.Moreover, in recent months he has said that when he was on the winning side in the 1960s, he knew that the tables might turn in the future.He has said that he now knows how Justice John Harlan felt, a reference to the late conservative justice who was the most frequent dissenter from the Warren Court's opinions. Associates of 81-year-old Justice Marshall say he was "depressed" about the court's direction last spring, but is feisty about his role and determined to speak out against the court's cutbacks in civil rights. "We could sweep it under the rug and hide it, but I'm not going to do it," he said in a speech last month. He, like Justice Brennan, considers dissents highly important for the future, a point that hasn't escaped legal scholars.Harvard Law School Professor Laurence Tribe says there is a "generation-skipping" flavor to current dissents.The dissenters in the Warren Court, he says, appeared to be writing for the short-term, suggesting that the court's direction might change soon. "Brennan and Marshall are speaking in their dissents to a more distant future," he says. Justice Blackmun, who will turn 81 next month, also seems feisty about his new role.Associates say he takes some defeats more personally than his colleagues, especially attempts to curtail the right to abortion first recognized in his 1973 opinion, Roe vs.Wade. Friends and associates who saw Justice Blackmun during the summer said he was no more discouraged about the court than in recent years.And his outlook improved after successful cataract surgery in August. But his level of frustration showed in a recent, impassioned speech to a group of hundreds of lawyers in Chicago.He concluded his remarks by quoting, emotionally and at some length, according to those present, the late Martin Luther King's famous "I Have a Dream" speech from the 1963 March on Washington. Justice Stevens, 69, is probably the most philosophical of the dissenters about his role, in part because he may be the least liberal of the four, but also because he enjoys the intellectual challenge of arguing with the majority more than the others. If the role these four dissenters are assuming is a familiar one in modern Supreme Court history, it also differs in an important way from recent history, court watchers say. "The dissenters of the Warren Court were often defending a legal legacy that they inherited," says Prof.A.E. Dick Howard of the University of Virginia Law School, "but the dissenters today are defending a legacy that they created."
The government sold the deposits of four savings-and-loan institutions, in its first wave of sales of big, sick thrifts, but low bids prevented the sale of a fifth. The four S&Ls were sold to large banks, as was the case with most of the 28 previous transactions initiated by the Resolution Trust Corp. since it was created in the S&L bailout legislation two months ago. Two of the four big thrifts were sold to NCNB Corp., Charlotte, N.C., which has aggressively expanded its markets, particularly in Texas and Florida.A Canadian bank bought another thrift, in the first RTC transaction with a foreign bank. Under these deals, the RTC sells just the deposits and the healthy assets.These "clean-bank" transactions leave the bulk of bad assets, mostly real estate, with the government, to be sold later.In these four, for instance, the RTC is stuck with $4.51 billion in bad assets.Acquirers paid premiums ranging from 1.5% to 3.7% for the deposits and branch systems, roughly in line with what analysts were expecting. The buyers will also be locked into deposit rates for just two weeks, as has been the case with previous deals.After that, the buyers may repudiate the rates paid by the former thrifts.But it's uncertain whether these institutions will take those steps.NCNB, for example, has been one of the highest rate payers in the Texas market, and in Florida, rates are especially sensitive in retirement communities. The RTC had previously targeted five thrifts for quick sales in order to spend cash by certain budgetary deadlines, but the delays illustrate the tough chore facing the agency. "These thrifts are beached whales," said Bert Ely, an industry consultant based in Alexandria, Va.For example, the delay in selling People's Heritage Savings, Salina, Kan., with $1.7 billion in assets, has forced the RTC to consider selling off the thrift branch-by-branch, instead of as a whole institution. NCNB continued its foray into the Florida and Texas markets.NCNB will acquire University Federal Savings Association, Houston, which had assets of $2.8 billion.NCNB Texas National Bank will pay the RTC a premium of $129 million for $3.5 billion in deposits.As a measure of the depths to which the Texas real estate market has sunk, the RTC will pay $3.8 billion to NCNB to take $750 million of bad assets. NCNB also acquired Freedom Savings & Loan Association, Tampa, Fla., which had total assets of $900 million.NCNB will pay the RTC a premium of $40.4 million for $1.1 billion in deposits.NCNB will also acquire $266 million of Freedom's assets from the RTC, which will require $875 million in assistance. Meridian Bancorp Inc., Reading, Pa., will acquire Hill Financial Savings Association, Red Hill, Pa., which had $2.3 billion in assets.Meridian will pay a premium of $30.5 million to assume $2 billion in deposits.It will also purchase $845 million of the thrift's assets, with $1.9 billion in RTC assistance. In the first RTC transaction with a foreign buyer, Royal Trustco Ltd., Toronto, will acquire Pacific Savings Bank, Costa Mesa, Calif., which had $949 million in assets.Royal Trustco will pay the RTC $25 million to assume $989 million in deposits.It will also purchase $473 million in assets, and receive $550 million in assistance from the RTC.
The following issues were recently filed with the Securities and Exchange Commission: American Cyanamid Co., offering of 1,250,000 common shares, via Merrill Lynch Capital Markets. Limited Inc., offering of up to $300 million of debt securities and warrants. Nuveen California Performance Plus Municipal Fund Inc., initial offering of five million common shares, via Alex.Brown & Sons Inc., John Nuveen & Co., Prudential-Bache Capital Funding, and Bateman Eichler, Hill Richards. PacifiCare Health Systems Inc., proposed offering of 1.5 million common shares, of which 700,000 shares will be offered by PacifiCare and 800,000 shares by UniHealth America Inc.(PacifiCare's 71%), via Dillon, Read & Co. Inc., Goldman, Sachs & Co. and Dean Witter Reynolds Inc. Pricor Inc., offering of one million new shares of common stock and 300,000 shares by holders, via Drexel Burnham Lambert Inc. and J.C. Bradford & Co. Trans World Airlines Inc., offering of $150 million senior notes, via Drexel Burnham.
Ripples from the strike by 55,000 Machinists union members against Boeing Co. reached air carriers Friday as America West Airlines announced it will postpone its new service out of Houston because of delays in receiving aircraft from the Seattle jet maker. Peter Otradovec, vice president for planning at the Phoenix, Ariz., carrier, said in an interview that the work stoppage at Boeing, now entering its 13th day, "has caused some turmoil in our scheduling" and that more than 500 passengers who were booked to fly out of Houston on America West would now be put on other airlines. Mr. Otradovec said Boeing told America West that the 757 it was supposed to get this Thursday wouldn't be delivered until Nov. 7 -- the day after the airline had been planning to initiate service at Houston with four daily flights, including three nonstops to Phoenix and one nonstop to Las Vegas.Now, those routes aren't expected to begin until Jan. Boeing is also supposed to send to America West another 757 twin-engine aircraft as well as a 737 by year's end.Those, too, are almost certain to arrive late. At this point, no other America West flights -- including its new service at San Antonio, Texas; Newark, N.J.; and Palmdale, Calif. -- have been affected by the delays in Boeing deliveries. Nevertheless, the company's reaction underscores the domino effect that a huge manufacturer such as Boeing can have on other parts of the economy.It also is sure to help the machinists put added pressure on the company. "I just don't feel that the company can really stand or would want a prolonged walkout," Tom Baker, president of Machinists' District 751, said in an interview yesterday. "I don't think their customers would like it very much." America West, though, is a smaller airline and therefore more affected by the delayed delivery of a single plane than many of its competitors would be. "I figure that American and United probably have such a hard time counting all the planes in their fleets, they might not miss one at all," Mr. Otradovec said. Indeed, a random check Friday didn't seem to indicate that the strike was having much of an effect on other airline operations.Southwest Airlines has a Boeing 737-300 set for delivery at the end of this month and expects to have the plane on time. "It's so close to completion, Boeing's told us there won't be a problem," said a Southwest spokesman. A spokesman for AMR Corp. said Boeing has assured American Airlines it will deliver a 757 on time later this month.American is preparing to take delivery of another 757 in early December and 20 more next year and isn't anticipating any changes in that timetable. In Seattle, a Boeing spokesman explained that the company has been in constant communication with all of its customers and that it was impossible to predict what further disruptions might be triggered by the strike. Meanwhile, supervisors and non-striking employees have been trying to finish some 40 aircraft -- mostly 747 and 767 jumbo jets at the company's Everett, Wash., plant -- that were all but completed before the walkout.As of Friday, four had been delivered and a fifth plane, a 747-400, was supposed to be flown out over the weekend to Air China. No date has yet been set to get back to the bargaining table. "We want to make sure they know what they want before they come back," said Doug Hammond, the federal mediator who has been in contact with both sides since the strike began. The investment community, for one, has been anticipating a speedy resolution.Though Boeing's stock price was battered along with the rest of the market Friday, it actually has risen over the last two weeks on the strength of new orders. "The market has taken two views: that the labor situation will get settled in the short term and that things look very rosy for Boeing in the long term," said Howard Rubel, an analyst at Cyrus J. Lawrence Inc. Boeing's shares fell $4 Friday to close at $57.375 in composite trading on the New York Stock Exchange. But Mr. Baker said he thinks the earliest a pact could be struck would be the end of this month, hinting that the company and union may resume negotiations as early as this week.Still, he said, it's possible that the strike could last considerably longer. "I wouldn't expect an immediate resolution to anything." Last week, Boeing Chairman Frank Shrontz sent striking workers a letter, saying that "to my knowledge, Boeing's offer represents the best overall three-year contract of any major U.S. industrial firm in recent history." But Mr. Baker called the letter -- and the company's offer of a 10% wage increase over the life of the pact, plus bonuses -- "very weak." He added that the company miscalculated the union's resolve and the workers' disgust with being forced to work many hours overtime. In separate developments: -- Talks have broken off between Machinists representatives at Lockheed Corp. and the Calabasas, Calif., aerospace company.The union is continuing to work through its expired contract, however.It had planned a strike vote for next Sunday, but that has been pushed back indefinitely. -- United Auto Workers Local 1069, which represents 3,000 workers at Boeing's helicopter unit in Delaware County, Pa., said it agreed to extend its contract on a day-by-day basis, with a 10-day notification to cancel, while it continues bargaining.The accord expired yesterday. -- And Boeing on Friday said it received an order from Martinair Holland for four model 767-300 wide-body jetliners valued at a total of about $326 million. The planes, long range versions of the medium-haul twin-jet, will be delivered with Pratt & Whitney PW4060 engines.Pratt & Whitney is a unit of United Technologies Inc. Martinair Holland is based in Amsterdam. A Boeing spokeswoman said a delivery date for the planes is still being worked out "for a variety of reasons, but not because of the strike." Bridget O'Brian contributed to this article.
Time magazine, in a move to reduce the costs of wooing new subscribers, is lowering its circulation guarantee to advertisers for the second consecutive year, increasing its subscription rates and cutting back on merchandise giveaways. In an announcement to its staff last week, executives at Time Warner Inc. 's weekly magazine said Time will "dramatically de-emphasize" its use of electronic giveaways such as telephones in television subscription drives; cut the circulation it guarantees advertisers by 300,000, to four million; and increase the cost of its annual subscription rate by about $4 to $55. In a related development, the news-weekly, for the fourth year in a row, said it won't increase its advertising rates in 1990; a full, four-color page in the magazine costs about $120,000.However, because the guaranteed circulation base is being lowered, ad rates will be effectively 7.5% higher per subscriber, according to Richard Heinemann, Time associate publisher. Time is following the course of some other mass-circulation magazines that in recent years have challenged the publishing myth that maintaining artificially high, and expensive, circulations is the way to draw advertisers.In recent years, Reader's Digest, New York Times Co. 's McCall's, and most recently News Corp. 's TV Guide, have cut their massive circulation rate bases to eliminate marginal circulation and hold down rates for advertisers. Deep discounts in subscriptions and offers of free clock radios and watches have become accepted forms of attracting new subscribers in the hyper-competitive world of magazine news-weeklies.But Time, as part of the more cost-conscious Time Warner, wants to wean itself away from expensive gimmicks.Besides, Time executives think selling a news magazine with a clock radio is tacky. "Giveaways just give people the wrong image," said Mr. Heinemann. "That perception takes the focus off the magazine." Time magazine executives predictably paint the circulation cut as a show of strength and actually a benefit to advertisers. "What we are doing is screening out the readers who are only casually related to the magazine and don't really read it," said Mr. Heinemann. "We are trying to create quality and involvement." However, Time executives used the same explanation when in October 1988 the magazine cut its guaranteed circulation from 4.6 million to 4.3 million.And Time's paid circulation, according to Audit Bureau of Circulations, dropped 7.3% to 4,393,237 in the six months ended June 30, 1989. Still, Time's move is being received well, once again. "It's terrific for advertisers to know the reader will be paying more," said Michael Drexler, national media director at Bozell Inc. ad agency. "A few drops in circulation are of no consequence.It's not a show of weakness; they are improving the quality of circulation while insuring their profits." Mr. Heinemann said the changes represent a new focus in the magazine industry: a magazine's net revenue per subscriber, or the actual revenue from subscribers after discounts and the cost of premiums have been stripped away. "The question is how much are we getting from each reader," said Mr. Heinemann. Time's rivals news-weeklies, Washington Post Co. 's Newsweek and U.S. News & World Report, are less reliant on electronic giveaways, and in recent years both have been increasing their circulation rate bases.Both magazines are expected to announce their ad rates and circulation levels for 1990 within a month.
When the news broke of an attempted coup in Panama two weeks ago, Sen. Christopher Dodd called the State Department for a briefing. "They said, `follow CNN,'" he told reporters. That shows how far Ted Turner's Cable News Network has come since its birth nine years ago, when it was considered the laughingstock of television news.It is bigger, faster and more profitable than the news divisions of any of the three major broadcast networks.Its niche as the "network of record" during major crises draws elite audiences around the world. But for all its success, CNN has hit a plateau.Although viewership soars when big news breaks, it ebbs during periods of calm.CNN executives worry that the network's punchy but repetitive news format may be getting stale and won't keep viewers coming back as the alternatives multiply for news and information on cable-TV. "Just the fact we're on 24 hours is no longer bulletin," says Ed Turner, CNN's executive vice president, news gathering (and no relation to Ted Turner). "You can't live on that." So CNN, a unit of Atlanta-based Turner Broadcasting System Inc., is trying to reposition itself as a primary channel, or what people in the television industry call a "top of mind" network.Tonight, to kick off the effort, CNN will premiere its first prime-time newscast in years, an hourlong show at 6 p.m. Eastern time to air head-to-head against the network newscasts.The show will be co-anchored by Bernard Shaw and Catherine Crier, a 34-year-old former Texas judge and campus beauty queen who has never held a job in television or journalism. The new show is perhaps the boldest in a number of steps the network is taking to build audience loyalty by shifting away from its current format toward more full-length "signature" programming with recognizable stars.To distinguish itself, CNN is also expanding international coverage and adding a second global-news program.It is paying higher salaries -- after years of scrimping -- to lure and keep experienced staffers.And it is embarking on an expensive gamble to break major stories with a large investigative-reporting team. "The next stage is to get beyond the opinion leaders who use us as a point of reference to become a point of reference at ordinary dinner tables," says Jon Petrovich, executive vice president of Headline News, CNN's sister network. But that won't be easy.Networks, like other consumer products, develop images in peoples' minds that aren't easy to change.It also takes money that CNN has been reluctant to spend to make programs and hire talent that viewers will tune in specially to see.And the cable-TV operators -- CNN's distributors and part owners -- like things just the way they are. The repositioning bid is aimed at CNN's unsteady viewership -- and what may happen to it as the cable-TV news market grows more competitive.Already, CNN is facing stronger competition from Financial News Network Inc. and General Electric Co. 's Consumer News and Business Channel, both of which are likely to pursue more general news in the future.In addition, many cable-TV systems themselves are airing more local and regional news programs produced by local broadcast stations. CNN wants to change its viewers' habits.Its watchers are, on the whole, a disloyal group of channel-zapping "grazers" and news junkies, who spend an average of just 26 minutes a day watching CNN, according to audience research.That's less than one-third the time that viewers watch the major broadcast networks.The brief attention viewers give CNN could put it at a disadvantage as ratings data, and advertising, become more important to cable-TV channels. CNN's viewer habits have been molded by its format.Its strategy in the past has been to serve as a TV wire service.It focused on building up its news bureaus around the world, so as events took place it could go live quicker and longer than other networks.It filled its daily schedule with newscasts called "Daybreak," "Daywatch," "Newsday," and "Newsnight," but the shows varied little in content, personality or look. Now, the push is on for more-distinctive shows. "Our goal is to create more programs with an individual identity," says Paul Amos, CNN executive vice president for programming. Accordingly, CNN is adding a world-affairs show in the morning because surveys show its global-news hour in the afternoon is among its most "differentiated" programs in viewers' minds, says Mr. Amos.And it is exploring other original programs, similar to its "Larry King Live" and "Crossfire" talk shows, which executives hope will keep people tuned in. Then there's "The World Today," the prime-time newscast featuring Mr. Shaw and Ms. Crier.Until now, CNN has featured its Hollywood gossip show during the key evening period.But 70% of the cable-television-equipped households that watch news do so between 6:30 p.m. and 7 p.m., the network discovered, so CNN wants in.Mr. Amos says the Shaw-Crier team will probably do two live interviews a day, with most of the program, at least for now, appearing similar to CNN's other newcasts. Some in the industry are skeptical. "I find it hard to conceive of people switching over to CNN for what, at least in the public's mind, is the same news," says Reuven Frank, the former two-time president of NBC News and creator of the Huntley-Brinkley Report. The evening news is also slated as CNN's stage for its big push into investigative journalism.In August, the network hired award-winning producer Pamela Hill, the former head of news specials at ABC.She's assembling a staff of about 35 investigative reporters who will produce weekly, in-depth segments, with an eye toward breaking big stories.CNN executives hope the headlines created by such scoops will generate excitement for its "branded" programs, in the way "60 Minutes" did so well for CBS. That's such a departure from the past that many in the industry are skeptical CNN will follow through with its investigative commitment, especially after it sees the cost of producing in-depth pieces. "They've never shown any inclination to spend money on production," says Michael Mosettig, a senior producer with MacNeil-Lehrer NewsHour, who notes that CNN is indispensable to his job. The network's salaries have always ranged far below industry standards, resulting in a less-experienced work force.CNN recently gave most employees raises of as much as 15%, but they're still drastically underpaid compared with the networks.Says Mr. Mosettig: "CNN is my wire service; they're on top of everything.But to improve, they've really got to make the investment in people." In any case, cable-TV-system operators have reason to fear any tinkering with CNN's format.They market cable-TV on the very grazing opportunities CNN seeks to discourage. "We would obviously be upset if those kinds of services evolved into more general-interest, long-format programming," says Robert Stengel, senior vice president, programming, of Continental Cablevision Inc., which holds a 2% stake in Turner Broadcasting. million households were tuned to CNN during an average viewing minute
Call it the "we're too broke to fight" defense. Lawyers for dozens of insolvent savings and loan associations are trying a new tack in their efforts to defuse suits filed by borrowers, developers and creditors. The thrifts' lawyers claim that the suits, numbering 700 to 1,000 in Texas alone, should be dismissed as moot because neither the S&Ls nor the extinct Federal Savings and Loan Insurance Corp. has the money to pay judgments. Though the argument may have a common-sense ring to it, even the S&L lawyers concede there's little precedent to back their position. Still, one federal appeals court has signaled it's willing to entertain the notion, and the lawyers have renewed their arguments in Texas and eight other states where the defense is permitted under state law. The dismissal of the pending suits could go a long way toward clearing court dockets in Texas and reducing the FSLIC's massive legal bills, which topped $73 million last year. The S&L lawyers were encouraged last month by an appellate-court ruling in two cases brought against defunct Sunbelt Savings & Loan Association of Dallas by the developers of the Valley Ranch, best known as the training center for the Dallas Cowboys football team.Sunbelt foreclosed on the ranch. Sunbelt and the FSLIC argued to the Fifth U.S. Circuit Court of Appeals "that there will never be any assets with which to satisfy a judgment against Sunbelt Savings nor any means to collect from any other party, including FSLIC." "If true," the court wrote, "this contention would justify dismissal of these actions on prudential grounds." But the court said it lacked enough financial information about Sunbelt and the FSLIC and sent the cases back to federal district court in Dallas. Charles Haworth, a lawyer for Sunbelt, says he plans to file a brief this week urging the district judge to dismiss the suits, because Sunbelt's liabilities exceeded its assets by about $2 billion when federal regulators closed it in August 1988. "This institution is just brain dead," says Mr. Haworth, a partner in the Dallas office of Andrews & Kurth, a Houston law firm. But a lawyer for Triland Investment Group, the developer of Valley Ranch, dismisses such arguments as a "defense du jour." Attorney Richard Jackson of Dallas says a judgment for Triland could be satisfied in ways other than a monetary award, including the reversal of Sunbelt's foreclosure on Valley Ranch. "We're asking the court for a number of things he can grant in addition to the thrill of victory," he says. "We'd take the Valley Ranch free and clear as a booby prize."
SOUTH AFRICA FREED the ANC's Sisulu and seven other political prisoners. Thousands of supporters, many brandishing flags of the outlawed African National Congress, gave the anti-apartheid activists a tumultuous reception upon their return to black townships across the country.Most of those freed had spent at least 25 years in prison.The 77-year-old Sisulu, sentenced to life in 1964 along with black nationalist Nelson Mandela for plotting to overthrow the government, said equality for blacks in South Africa was in reach.The releases, announced last week by President de Klerk, were viewed as Pretoria's tacit legalization of the ANC. Mandela, considered the most prominent leader of the ANC, remains in prison.But his release within the next few months is widely expected. The Soviet Union reported that thousands of tons of goods needed to ease widespread shortages across the nation were piled up at ports and rail depots, and food shipments were rotting because of a lack of people and equipment to move the cargo.Strikes and mismanagement were cited, and Premier Ryzhkov warned of "tough measures." Bush indicated there might be "room for flexibility" in a bill to allow federal funding of abortions for poor women who are vicitims of rape and incest.He reiterated his opposition to such funding, but expressed hope of a compromise.The president, at a news conference Friday, also renewed a call for the ouster of Panama's Noriega. The White House said minors haven't any right to abortion without the consent of their parents.The administration's policy was stated in a friend-of-the-court brief urging the Supreme Court to give states more leeway to restrict abortions.Ten of the nation's governors, meanwhile, called on the justices to reject efforts to limit abortions. The Justice Department announced that the FBI has been given the authority to seize U.S. fugitives overseas without the permission of foreign governments.Secretary of State Baker emphasized Friday that the new policy wouldn't be invoked by the Bush administration without full consideration of foreign-policy implications. NASA pronounced the space shuttle Atlantis ready for launch tomorrow following a five-day postponement of the flight because of a faulty engine computer.The device was replaced.The spacecraft's five astronauts are to dispatch the Galileo space probe on an exploration mission to Jupiter. South Korea's President Roh traveled to the U.S. for a five-day visit that is expected to focus on ties between Washington and Seoul.Roh, who is facing calls for the reduction of U.S. military forces in South Korea, is to meet with Bush tomorrow and is to address a joint session of Congress on Wednesday. China's Communist leadership voted to purge the party of "hostile and anti-party elements" and wealthy private businessmen, whom they called exploiters.The decision, reported by the official Xinhua News Agency, indicated that the crackdown prompted by student-led pro-democracy protests in June is intensifying. Hundreds of East Germans flocked to Bonn's Embassy in Warsaw, bringing to more than 1,200 the number of emigres expected to flee to the West beginning today.More than 2,100 others escaped to West Germany through Hungary over the Weekend.In Leipzig, activists vowed to continue street protests to demand internal change. Zaire's President Mobutu met in southern France with Angolan rebel leader Savimbi and a senior U.S. envoy in a bid to revive an accord to end Angola's civil war.Details of the talks, described by a Zairean official as "very delicate," weren't disclosed. PLO leader Arafat insisted on guarantees that any elections in the Israeli-occupied territories would be impartial.He made his remarks to a PLO gathering in Baghdad.In the occupied lands, underground leaders of the Arab uprising rejected a U.S. plan to arrange Israeli-Palestinian talks as Shamir opposed holding such discussions in Cairo. Lebanese Christian lawmakers presented to Arab mediators at talks in Saudi Arabia proposals for a new timetable for the withdrawal of Syria's forces from Lebanon.A plan currently under study gives Damascus two years to pull back to eastern Lebanon, starting from the time Beirut's legislature increases political power for Moslems. Hurricane Jerry threatened to combine with the highest tides of the year to swamp the Texas-Louisiana coast.Thousands of residents of low-lying areas were ordered to evacuate as the storm headed north in the Gulf of Mexico with 80 mph winds.
A group of Arby's franchisees said they formed an association to oppose Miami Beach financier Victor Posner's control of the restaurant chain. The decision is the latest move in an escalating battle between the franchisees and Mr. Posner that began in August.At the time, a group called R.B. Partners Ltd., consisting of eight of Arby's largest franchisees, offered more than $200 million to buy Arby's Inc., which is part of DWG Corp. DWG is a holding company controlled by Mr. Posner.One week later, Leonard H. Roberts, president and chief executive officer of Arby's, was fired in a dispute with Mr. Posner. Friday, 42 franchisees announced the formation of an association -- called A.P. Association Inc. -- to "preserve the integrity of the Arby's system." The franchisees, owners or operators of 1,000 of the 1,900 franchised Arby's in the U.S., said: "We have concluded that continued control of Arby's by Victor Posner is totally unacceptable to us, because it is extremely likely to cause irreparable damage to the Arby's system.We support all efforts to remove Victor Posner from control of Arby's Inc. and the Arby's system." The group said it would consider, among other things, withholding royalty payments and initiating a class-action lawsuit seeking court approval for the withholdings. In Florida, Renee Mottram, a senior vice president at DWG, responded: "We don't think any individual or group should disrupt a winning system or illegally interfere with existing contractual relationships for their own self-serving motives."
September's steep rise in producer prices shows that inflation still persists, and the pessimism over interest rates caused by the new price data contributed to the stock market's plunge Friday. After falling for three consecutive months, the producer price index for finished goods shot up 0.9% last month, the Labor Department reported Friday, as energy prices jumped after tumbling through the summer. Although the report, which was released before the stock market opened, didn't trigger the 190.58-point drop in the Dow Jones Industrial Average, analysts said it did play a role in the market's decline.Analysts immediately viewed the price data, the grimmest inflation news in months, as evidence that the Federal Reserve was unlikely to allow interest rates to fall as many investors had hoped. Further fueling the belief that pressures in the economy were sufficient to keep the Fed from easing credit, the Commerce Department reported Friday that retail sales grew 0.5% in September, to $145.21 billion.That rise came on top of a 0.7% gain in August, and suggested there is still healthy consumer demand in the economy. "I think the Friday report, combined with the actions of the Fed, weakened the belief that there was going to be an imminent easing of monetary policy," said Robert Dederick, chief economist at Northern Trust Co. in Chicago. But economists were divided over the extent of the inflation threat signaled by the new numbers. "The overall 0.9% increase is serious in itself, but what is even worse is that excluding food and energy, the producer price index still increased by 0.7%," said Gordon Richards, an economist at the National Association of Manufacturers. But Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis, blamed rising energy prices and the annual autumn increase in car prices for most of the September jump. "I would say this is not bad news; this is a blip," he said. "The core rate is not really out of line." All year, energy prices have skewed the producer price index, which measures changes in the prices producers receive for goods.Inflation unquestionably has fallen back from its torrid pace last winter, when a steep run-up in world oil prices sent the index surging at double-digit annual rates.Energy prices then plummeted through the summer, causing the index to decline for three consecutive months. Overall, the index has climbed at a 5.1% compound annual rate since the start of the year, the Labor Department said.While far more restrained than the pace at the beginning of the year, that is still a steeper rise than the 4.0% increase for all of 1988. Moreover, this year's good inflation news may have ended last month, when energy prices zoomed up 6.5% after plunging 7.3% in August.Some analysts expect oil prices to remain relatively stable in the months ahead, leaving the future pace of inflation uncertain. Analysts had expected that the climb in oil prices last month would lead to a substantial rise in the producer price index, but the 0.9% climb was higher than most anticipated. "I think the resurgence {in inflation} is going to continue for a few months," said John Mueller, chief economist at Bell Mueller Cannon, a Washington economic forecasting firm.He predicted that inflation will moderate next year, saying that credit conditions are fairly tight world-wide. But Dirk Van Dongen, president of the National Association of Wholesaler-Distributors, said that last month's rise "isn't as bad an omen" as the 0.9% figure suggests. "If you examine the data carefully, the increase is concentrated in energy and motor vehicle prices, rather than being a broad-based advance in the prices of consumer and industrial goods," he explained. Passenger car prices jumped 3.8% in September, after climbing 0.5% in August and declining in the late spring and summer.Many analysts said the September increase was a one-time event, coming as dealers introduced their 1990 models.Although all the price data were adjusted for normal seasonal fluctuations, car prices rose beyond the customary autumn increase. Prices for capital equipment rose a hefty 1.1% in September, while prices for home electronic equipment fell 1.1%.Food prices declined 0.6%, after climbing 0.3% in August. Meanwhile, the retail sales report showed that car sales rose 0.8% in September to $32.82 billion.But at least part of the increase could have come from higher prices, analysts said. Sales at general merchandise stores rose 1.7% after declining 0.6% in August, while sales of building materials fell 1.8% after rising 1.7%. Producer prices for intermediate goods grew 0.4% in September, after dropping for three consecutive months.Prices for crude goods, an array of raw materials, jumped 1.1% after declining 1.9% in August and edging up 0.2% in July. Here are the Labor Department's producer price indexes (1982=100) for September, before seasonal adjustment, and the percentage changes from September, 1988.
CityFed Financial Corp. said it expects to report a loss of at least $125 million to $150 million for the third quarter. In the year-earlier period, CityFed had net income of $485,000, but no per-share earnings. CityFed's president and chief executive officer, John Atherton, said the loss stems from several factors.He said nonperforming assets rose to slightly more than $700 million from $516 million between June and September.Approximately 85% of the total consisted of nonperforming commercial real estate assets.Accordingly, CityFed estimated that it will provide between $85 million and $110 million for credit losses in the third quarter. CityFed added that significant additional loan-loss provisions may be required by federal regulators as part of the current annual examination of City Federal Savings Bank, CityFed's primary subsidiary, based in Somerset, N.J. City Federal operates 105 banking offices in New Jersey and Florida. Mr. Atherton said CityFed will also mark its portfolio of high-yield corporate bonds to market as a result of federal legislation requiring that savings institutions divest themselves of such bonds.That action, CityFed said, will result in a charge against third-quarter results of approximately $30 million. CityFed also said it expects to shed its remaining mortgage loan origination operations outside its principal markets in New Jersey and Florida and, as a result, is taking a charge for discontinued operations. All these actions, Mr. Atherton said, will result in a loss of $125 million to $150 million for the third quarter.He added, however: "Depending on the resolution of certain accounting issues relating to mortgages servicing and the outcome of the annual examination of City Federal currently in progress with respect to the appropriate level of loan loss reserves, the total loss for the quarter could significantly exceed this range."
CenTrust Savings Bank said federal thrift regulators ordered it to suspend dividend payments on its two classes of preferred stock, indicating that regulators' concerns about the troubled institution have heightened. In a statement, Miami-based CenTrust said the regulators cited the thrift's operating losses and "apparent losses" in its junk-bond portfolio in ordering the suspension of the dividends.Regulators also ordered CenTrust to stop buying back the preferred stock. David L. Paul, chairman and chief executive officer, criticized the federal Office of Thrift Supervision, which issued the directive, saying it was "inappropriate" and based on "insufficient" reasons.He said the thrift will try to get regulators to reverse the decision. The suspension of a preferred stock dividend is a serious step that signals that regulators have deep concerns about an institution's health. In March, regulators labeled CenTrust a "troubled institution," largely because of its big junk-bond holdings and its operating losses.In the same month, the Office of Thrift Supervision ordered the institution to stop paying common stock dividends until its operations were on track. For the nine months ended June 30, CenTrust had a net loss of $21.3 million, compared with year-earlier net income of $52.8 million.CenTrust, which is Florida's largest thrift, holds one of the largest junk-bond portfolios of any thrift in the nation.Since April, it has pared its high-yield bond holdings to about $890 million from $1.35 billion.Mr. Paul said only about $150 million of the current holdings are tradeable securities registered with the Securities and Exchange Commission.The remainder, he said, are commercial loan participations, or private placements, that aren't filed with the SEC and don't have a ready market. CenTrust and regulators have been in a dispute over market valuations for the junk bonds.The Office of Thrift Supervision has been hounding CenTrust to provide current market values for its holdings, but CenTrust has said it can't easily obtain such values because of the relative illiquidity of the bonds and lack of a ready market. Regulators have become increasingly antsy about CenTrust's and other thrifts' junk-bond holdings in light of the recent federal thrift bailout legislation and the recent deep decline in the junk-bond market.The legislation requires thrifts to divest themselves of junk bonds in the new, somber regulatory climate. In American Stock Exchange composite trading Friday, CenTrust common shares closed at $3, down 12.5 cents. In a statement Friday, Mr. Paul challenged the regulators' decision, saying the thrift's operating losses and "apparent" junk-bond losses "have been substantially offset by gains in other activities of the bank." He also said substantial reserves have been set aside for possible losses from the junk bonds.In the third quarter, for instance, CenTrust added $22.5 million to its general reserves. Mr. Paul said the regulators should instead move ahead with approving CenTrust's request to sell 63 of its 71 branches to Great Western Bank, a unit of Great Western Financial Corp. based in Beverly Hills, Calif. The branch sale is the centerpiece of CenTrust's strategy to transform itself into a traditional S&L from a high-flying institution that relied heavily on securities trading for profits, according to Mr. Paul.Most analysts and thrift executives had expected a decision on the proposed transaction, which was announced in July, long before now.Many interpret the delay as an indication that regulators are skeptical about the proposal.Branches and deposits can be sold at a premium in the event federal regulators take over an institution. CenTrust, however, touts the branch sale, saying it would bring in $150 million and reduce the thrift's assets to $6.7 billion from $9 billion.It said the sale would give it positive tangible capital of $82 million, or about 1.2% of assets, from a negative $33 million as of Sept. 30, thus bringing CenTrust close to regulatory standards. CenTrust said the branch sale would also reduce the company's large amount of good will by about $180 million.Critics, however, say the branch sale will make CenTrust more dependent than ever on brokered deposits and junk bonds. Mr. Paul counters that he intends to further pare the size of CenTrust by not renewing more than $1 billion of brokered certificates of deposit when they come due.The thrift is also working to unload its junk-bond portfolio by continuing to sell off the bonds, and it plans to eventually place some of them in a separate affiliate, as required under the new thrift law.
On a recent Saturday night, in the midst of West Germany's most popular prime-time show, a contestant bet the host that she could name any of 100 different cheeses after just one nibble, while blindfolded. The woman won the bet.But perhaps even more remarkable, the three-hour-show, "Wetten Dass" (Make a Bet), regularly wins the top slot in the country's TV ratings, sometimes drawing as many as 50% of West German households. As the 1992 economic integration approaches, Europe's cultural curators have taken to the ramparts against American "cultural imperialism," threatening to impose quotas against such pop invaders as "Dallas," "Miami Vice" and "L.A.Law." But much of what the Europeans want to protect seems every bit as cheesy as what they are trying to keep out. The most militant opposition to American TV imports has come from French television and movie producers, who have demanded quotas ensuring that a full 60% of Europe's TV shows be produced in Europe.So far, the French have failed to win enough broad-based support to prevail. A glance through the television listings and a few twists of the European television dial suggest one reason why.While there are some popular action and drama series, few boast the high culture and classy production values one might expect.More European air time is filled with low-budget game shows, variety hours, movies and talk shows, many of which are authorized knock-offs of their American counterparts. One of France's most popular Saturday night programs features semi-celebrities seeking out their grammar-school classmates for on-air reunions.A Flemish game show has as its host a Belgian pretending to be Italian.One of Italy's favorite shows, "Fantastico," a tepid variety show, is so popular that viewers clamored to buy a chocolate product, "Cacao Fantastico," whose praises were sung each week by dancing showgirls -- even though the product didn't exist. Topping the cheese stunt, on another typical evening of fun on "Wetten Dass," a contestant won a bet with the show's host, Thomas Gottschalk, that he could identify 300 German dialects over the telephone.A celebrity guest, U.S. Ambassador to West Germany Richard Burt, also won a bet that someone could pile up $150 worth of quarters on a slanted coin.Mr. Burt nonetheless paid the penalty as if he had lost, agreeing to spend a day with West German Foreign Minister Hans-Dietrich Genscher frying and selling their combined weight in potato pancakes. If this seems like pretty weak stuff around which to raise the protectionist barriers, it may be because these shows need all the protection they can get.European programs usually target only their own local audience, and often only a small portion of that.Mega-hits in Germany or Italy rarely make it even to France or Great Britain, and almost never show up on U.S. screens. Attempts to produce "pan-European" programs have generally resulted in disappointment.One annual co-production, the three-hour-long "Eurovision Song Contest," featuring soft-rock songs from each of 20 European countries, has been described as the world's most boring TV show.Another, "Jeux Sans Frontieres," where villagers from assorted European countries make fools of themselves performing pointless tasks, is a hit in France.A U.S.-made imitation under the title "Almost Anything Goes" flopped fast. For the most part, what's made here stays here, and for good reason.The cream of the British crop, the literary dramas that are shown on U.S. public television as "Masterpiece Theater," make up a relatively small part of British air time.Most British programming is more of an acquired taste.There is, for instance, "One Man and His Dog," a herding contest among sheep dogs.Also riveting to the British are hours of dart-throwing championships, even more hours of lawn bowling contests and still more hours of snooker marathons. European drama has had better, though still mixed, fortunes.The most popular such shows focus on narrow national concerns.A French knock-off of "Dallas," called "Chateauvallon" and set in a French vineyard, had a good run in France, which ended after the female lead was injured in a real-life auto accident. "Schwarzwaldklinik," (Black Forest Clinic), a kind of German "St.Elsewhere" set in a health spa, is popular in Germany, and has spread into France. Italy's most popular series is a drama called "La Piovra," or "The Octopus," which chronicles the fight of an idealistic young investigator in Palermo against the Mafia.It was front-page news in Italy earlier this year when the fictional inspector was gunned down in the series.Spain's most popular mini-series this year was "Juncal," the story of an aging bullfighter. "The trend is pretty well established now that local programs are the most popular, with American programs second," says Brian Wenham, a former director of programs for the British Broadcasting Corp. "Given a choice, everybody will watch a home-produced show." But frequently there isn't much choice.Thus, Europe has begun the recent crusade to produce more worthy shows of its own, programs with broader appeal. "We've basically got to start from scratch, to train writers and producers to make shows that other people will want to see," concedes Colin Young, head of Britain's National Film Theatre School. While some in the U.S. contend that advertising is the bane of television, here many believe that its absence is to blame for the European TV industry's sluggish development.Until recently, national governments in Europe controlled most of the air time and allowed little or no advertising.Since production costs were guaranteed, it didn't matter that a program couldn't be sold abroad or put into syndication, as most American programs are.But not much money was spent on the shows, either, a situation that encouraged cheap-to-make talk and game shows, while discouraging expensive-to-produce dramas. Now, however, commercial channels are coming to most European countries, and at the same time, satellite and cable technology is spreading rapidly.Just last week, Greece authorized two commercial channels for the first time; Spain earlier began to allow commercial television alongside its state channels.The result is a new and huge appetite for programming. But perhaps to the consternation of those calling for quotas, most of this void is likely to be filled with the cheapest and most plentiful programming now available -- reruns -- usually of shows made in the U.S. Sky Channel, a British-based venture of Australian-American press tycoon Rupert Murdoch, offers what must be a baffling cultural mix to most of its audience.The financially struggling station offers programs obviously made available cheaply from its boss's other ventures.In a Madrid hotel room recently, a viewer caught the end of a badly acted series about a fishing boat on Australia's Great Barrier Reef, only to be urged by the British announcer to "stay tuned for the further adventures of Skippy the Kangaroo." Lisa Grishaw-Mueller in Bonn, Laura Colby in Milan, Tim Carrington in London and Carlta Vitzhum in Madrid contributed to this article.
British Aerospace PLC and France's Thomson-CSF S.A. said they are nearing an agreement to merge their guided-missile divisions, greatly expanding collaboration between the two defense contractors. The 50-50 joint venture, which may be dubbed Eurodynamics, would have combined annual sales of at least #1.4 billion ($2.17 billion) and would be among the world's largest missile makers.After two years of talks, plans for the venture are sufficiently advanced for the companies to seek French and British government clearance.The companies hope for a final agreement by year-end. The venture would strengthen the rapidly growing ties between the two companies, and help make them a leading force in European defense contracting.In recent months, a string of cross-border mergers and joint ventures have reshaped the once-balkanized world of European arms manufacture. Already, British Aerospace and French government-controlled Thomson-CSF collaborate on a British missile contract and on an air-traffic control radar system.Just last week they announced they may make a joint bid to buy Ferranti International Signal PLC, a smaller British defense contractor rocked by alleged accounting fraud at a U.S. unit. The sudden romance of British Aerospace and Thomson-CSF -- traditionally bitter competitors for Middle East and Third World weapons contracts -- is stirring controversy in Western Europe's defense industry.Most threatened by closer British Aerospace-Thomson ties would be their respective national rivals, including Matra S.A. in France and Britain's General Electric Co. PLC.But neither Matra nor GEC -- unrelated to Stamford, Conn.-based General Electric Co. -- are sitting quietly by as their competitors join forces. Yesterday, a source close to GEC confirmed that his company may join the Ferranti fight, as part of a possible consortium that would bid against British Aerospace and Thomson-CSF.Companies with which GEC has had talks about a possible joint Ferranti bid include Matra, Britain's Dowty Group PLC, West Germany's Daimler-Benz AG, and France's Dassault group. But it may be weeks before GEC and its potential partners decide whether to bid, the source indicated.GEC plans first to study Ferranti's financial accounts, which auditors recently said included #215 million in fictitious contracts at a U.S. unit, International Signal & Control Group, with which Ferranti merged last year.Also, any GEC bid might be blocked by British antitrust regulators; Ferranti is GEC's main competitor on several key defense-electronics contracts, and its purchase by GEC may heighten British Defense Ministry worries about concentration in the country's defense industry.A consortium bid, however, would diminish GEC's direct role in Ferranti and might consequently appease ministry officials. A British Aerospace spokeswoman appeared unperturbed by the prospect of a fight with GEC for Ferranti: "Competition is the name of the game," she said. At least one potential GEC partner, Matra, insists it isn't interested in Ferranti. "We have nothing to say about this affair, which doesn't concern us," a Matra official said Sunday. The missile venture, the British Aerospace spokeswoman said, is a needed response to the "new environment" in defense contracting.For both Thomson and British Aerospace, earnings in their home markets have come under pressure from increasingly tight-fisted defense ministries; and Middle East sales, a traditional mainstay for both companies' exports, have been hurt by five years of weak oil prices. The venture's importance for Thomson is great.Thomson feels the future of its defense business depends on building cooperation with other Europeans.The European defense industry is consolidating; for instance, West Germany's Siemens AG recently joined GEC in a takeover of Britain's Plessey Co., and Daimler-Benz agreed to buy Messerschmitt-Boelkow Blohm G.m.b.H. In missiles, Thomson is already overshadowed by British Aerospace and by its home rival, France's Aerospatiale S.A.; to better compete, Thomson officials say, they need a partnership.To justify 50-50 ownership of the planned venture, Thomson would make a cash payment to British Aerospace. Annual revenue of British Aerospace's missile business is about #950 million, a Thomson spokesman said.British Aerospace's chief missile products include its 17-year-old family of Rapier surface-to-air missiles.Thomson missile products, with about half British Aerospace's annual revenue, include the Crotale surface-to-air missile family.
Interprovincial Pipe Line Co. said it will delay a proposed two-step, 830 million Canadian-dollar (US$705.6 million) expansion of its system because Canada's output of crude oil is shrinking. Interprovincial, Canada's biggest oil pipeline operator and a major transporter of crude to the U.S., said revised industry forecasts indicate that Canadian oil output will total about 1.64 million barrels a day by 1991, 8% lower than a previous estimate.Canadian crude production averaged about 1.69 million barrels a day during 1989's first half, about 1% below the 1988 level. "The capability of existing fields to deliver oil is dropping," and oil exploration activity is also down dramatically, as many producers shift their emphasis to natural gas, said Ronald Watkins, vice president for government and industry relations with Interprovincial's parent, Interhome Energy Inc. Mr. Watkins said volume on Interprovincial's system is down about 2% since January and is expected to fall further, making expansion unnecessary until perhaps the mid-1990s. "There has been a swing of the pendulum back to the gas side," he said. Many of Canada's oil and gas producers say the outlook for natural gas is better than it is for oil, and have shifted their exploration and development budgets accordingly.The number of active drilling rigs in Canada is down 30% from a year ago, and the number of completed oil wells is "down more than that, due to the increasing focus on gas exploration," said Robert Feick, manager of crude oil with Calgary's Independent Petroleum Association of Canada, an industry group. Mr. Watkins said the main reason for the production decline is shrinking output of light crude from mature, conventional fields in western Canada.Interprovincial transports about 75% of all crude produced in western Canada, and almost 60% of Interprovincial's total volume consists of light crude. Nearly all of the crude oil that Canada exports to the U.S. is transported on Interprovincial's system, whose main line runs from Edmonton to major U.S. and Canadian cities in the Great Lakes region, including Chicago, Buffalo, Toronto and Montreal. Canada's current oil exports to the U.S. total about 600,000 barrels a day, or about 9.1% of net U.S. crude imports, said John Lichtblau, president of the New York-based Petroleum Industry Research Foundation.That ranks Canada as the fourth-largest source of imported crude, behind Saudi Arabia, Nigeria and Mexico. Mr. Lichtblau said Canada's declining crude output, combined with the fast-shrinking output of U.S. crude, will help intensify U.S. reliance on oil from overseas, particularly the Middle East. "It's very much a growing concern.But when something is inevitable, you learn to live with it," he said. Mr. Lichtblau stressed that the delay of Interprovincial's proposed expansion won't by itself increase U.S. dependence on offshore crude, however, since Canadian imports are limited in any case by Canada's falling output. Under terms of its proposed two-step expansion, which would have required regulatory approval, Interprovincial intended to add 200,000 barrels a day of additional capacity to its system, beginning with a modest expansion by 1991.The system currently has a capacity of 1.55 million barrels a day.
Predicting the financial results of computer firms has been a tough job lately. Take Microsoft Corp., the largest maker of personal computer software and generally considered an industry bellwether.In July, the company stunned Wall Street with the prediction that growth in the personal computer business overall would be only 10% in 1990, a modest increase when compared with the sizzling expansion of years past. Investors -- taking this as a sign that a broad industry slump was in the offing -- reacted by selling the company's stock, which lost $3.25 that day to close at $52 in national over-the-counter trading. But that was all of three months ago. Last week, Microsoft said it expects revenue for its first quarter ended Sept. 30 to increase 34%.The announcement caused the company's stock to surge $6.50 to close at $75.50 a share. Microsoft's surprising strength is one example of the difficulty facing investors looking for reassurances about the financial health of the computer firms. "It's hard to know what to expect at this point," said Peter Rogers, an analyst at Robertson Stephens & Co. "The industry defies characterization." To illustrate, Mr. Rogers said that of the 14 computer-related firms he follows, half will report for their most recent quarter earnings below last year's results, and half above those results. Among those companies expected to have a down quarter are Hewlett-Packard Co., Amdahl Corp. and Sun Microsystems Inc., generally solid performers in the past.International Business Machines Corp. also is expected to report disappointing results.Apple Computer Inc., meanwhile, is expected to show improved earnings for the period ended Sept. Another contradictory message comes from Businessland Inc., a computer retailer.In July, the company reported that booming sales of new personal computers from Apple and IBM had resulted in net income more than doubling for its fourth quarter ended June 30 to $7.4 million, or 23 cents a share. This month, however, Businessland warned investors that results for its first quarter ended Sept. 30 hadn't met expectations.The company said it expects earnings of 14 to 17 cents a share, down from 25 cents a share in the year-earlier period. While the earnings picture confuses, observers say the major forces expected to shape the industry in the coming year are clearer. Companies will continue to war over standards.In computer publishing, a battle over typefaces is hurting Adobe Systems Inc., which sells software that controls the image produced by printers and displays.Until recently, Adobe had a lock on the market for image software, but last month Apple, Adobe's biggest customer, and Microsoft rebelled.Now the two firms are collaborating on an alternative to Adobe's approach, and analysts say they are likely to carry IBM, the biggest seller of personal computers, along with them. The short-term outlook for Adobe's business, however, appears strong.The company is beginning to ship a new software program that's being heralded as a boon for owners of low-end printers sold by Apple.The program is aimed at improving the quality of printed material.John Warnock, Adobe's chief executive officer, said the Mountain View, Calif., company has been receiving 1,000 calls a day about the product since it was demonstrated at a computer publishing conference several weeks ago. Meanwhile, competition between various operating systems, which control the basic functions of a computer, spells trouble for software firms generally. "It creates uncertainty and usually slows down sales," said Russ Crabs, an analyst at Soundview Financial Group. Mr. Crabs said this probably is behind the expected weak performance of Aldus Corp., maker of a widely used computer publishing program.He expects Aldus to report earnings of 21 cents a share on revenues of $19.5 million for its third quarter, compared with earnings of 30 cents a share on revenue of 20.4 million in the year-earlier period.Aldus officials couldn't be reached for comment. On the other hand, the battle of the bus is expected to grow increasingly irrelevant.A bus is the data highway within a computer.IBM is backing one type of bus called microchannel, while the nine other leading computer makers, including H-P and Compaq Computer Corp., have chosen another method. "Users don't care about the bus," said Daniel Benton, an analyst at Goldman, Sachs & Co.He said Apple's family of Macintosh computers, for instance, uses four different buses "and no one seems to mind." The gap between winners and laggards will grow.In personal computers, Apple, Compaq and IBM are expected to tighten their hold on their business.At the same time, second-tier firms will continue to lose ground. Some lagging competitors even may leave the personal computer business altogether.Wyse Technology, for instance, is considered a candidate to sell its troubled operation. "Wyse has done well establishing a distribution business, but they haven't delivered products that sell," said Kimball Brown, an analyst at Prudential-Bache Securities.Mr. Brown estimates Wyse, whose terminals business is strong, will report a loss of 12 cents a share for its quarter ended Sept. Personal-computer makers will continue to eat away at the business of more traditional computer firms.Ever-more powerful desk-top computers, designed with one or more microprocessors as their "brains," are expected to increasingly take on functions carried out by more expensive minicomputers and mainframes. "The guys that make traditional hardware are really being obsoleted by microprocessor-based machines," said Mr. Benton. As a result of this trend, longtime powerhouses H-P, IBM and Digital Equipment Corp. are scrambling to counterattack with microprocessor-based systems of their own.But they will have to act quickly.Mr. Benton expects Compaq to unveil a family of high-end personal computers later this year that are powerful enough to serve as the hub for communications within large networks of desk-top machines. A raft of new computer companies also has targeted this "server" market.
Population Drain Ends For Midwestern States IOWA IS MAKING a comeback.So are Indiana, Ohio and Michigan.The population of all four states is on the upswing, according to new Census Bureau estimates, following declines throughout the early 1980s. The gains, to be sure, are rather small.Iowa, for instance, saw its population grow by 11,000 people, or 0.4%, between 1987 and 1988, the Census Bureau says.Still, even that modest increase is good news for a state that hadn't grown at all since 1981. Between 1987 and 1988, North Dakota was the only state in the Midwest to lose population, a loss of 4,000 people.Six of the 12 midwestern states have been growing steadily since 1980 -- Illinois, Kansas, Minnesota, Missouri, South Dakota and Wisconsin. The Northeast has been holding its own in the population race.Seven of nine states have grown each year since 1980, including New York, which lost 4% of its population during the 1970s.And although Pennsylvania and Massachusetts suffered slight declines earlier in the decade, they are growing again. At the same time, several states in the South and West have had their own population turnaround.Seven states that grew in the early 1980s are now losing population -- West Virginia, Mississippi, Louisiana, Oklahoma, Montana, Wyoming and Alaska. Overall, though, the South and West still outpace the Northeast and Midwest, and fast-growing states like Florida and California ensure that the pattern will continue.But the growth gap between the Sun Belt and other regions has clearly started narrowing. More Elderly Maintain Their Independence THANKS TO modern medicine, more couples are growing old together.And even after losing a spouse, more of the elderly are staying independent.A new Census Bureau study of the noninstitutionalized population shows that 64% of people aged 65 to 74 were living with a spouse in 1988, up from 59% in 1970. This doesn't mean they're less likely to live alone, however.That share has remained at about 24% since 1970.What has changed is that more of the young elderly are living with spouses rather than with other relatives, such as children.In 1988, 10% of those aged 65 to 74 lived with relatives other than spouses, down from 15% in 1970. As people get even older, many become widowed.But even among those aged 75 and older, the share living with a spouse rose slightly, to 40% in 1988 from 38% in 1970. Like their younger counterparts, the older elderly are less likely to live with other relatives.Only 17% of those aged 75 and older lived with relatives other than spouses in 1988, down from 26% in 1970. The likelihood of living alone beyond the age of 75 has increased to 40% from 32%.More people are remaining independent longer presumably because they are better off physically and financially. Careers Count Most For the Well-to-Do MANY AFFLUENT people place personal success and money above family. At least that's what a survey by Ernst & Young and Yankelovich, Clancy, Shulman indicates.Two-thirds of respondents said they strongly felt the need to be successful in their jobs, while fewer than half said they strongly felt the need to spend more time with their families.Being successful in careers and spending the money they make are top priorities for this group. Unlike most studies of the affluent market, this survey excluded the super-rich.Average household income for the sample was $194,000, and average net assets were reported as $775,000. The goal was to learn about one of today's fastest-growing income groups, the upper-middle class.Although they represent only 2% of the population, they control nearly one-third of discretionary income. Across the board, these consumers value quality, buy what they like rather than just what they need, and appreciate products that are distinctive. Despite their considerable incomes and assets, 40% of the respondents in the study don't feel financially secure, and one-fourth don't feel that they have made it.Twenty percent don't even feel they are financially well off. Many of the affluent aren't comfortable with themselves, either.About 40% don't feel they're more able than others.While twothirds feel some guilt about being affluent, only 25% give $2,500 or more to charity each year. Thirty-five percent attend religious services regularly; at the same time, 60% feel that in life one sometimes has to compromise one's principles. Odds and Ends THE NUMBER of women and minorities who hold jobs in top management in the nation's largest banks has more than doubled since 1978.The American Bankers Association says that women make up 47% of officials and managers in the top 50 banks, up from 33% in 1978.The share of minorities in those positions has risen to 16% from 12%. . . . Per-capita personal income in the U.S. grew faster than inflation last year, according to the Bureau of Economic Analysis.The amount of income divvied up for each man, woman and child was $16,489 in 1988, up 6.6% from $15,472 in 1987.Per capita personal income ranged from $11,116 in Mississippi to $23,059 in Connecticut. . . . There are 13.1 million students in college this fall, up 2% from 1988, the National Center for Education Statistics estimates.About 54% are women, and 44% are part-time students.
Of all the ethnic tensions in America, which is the most troublesome right now?A good bet would be the tension between blacks and Jews in New York City.Or so it must seem to Jackie Mason, the veteran Jewish comedian appearing in a new ABC sitcom airing on Tuesday nights (9:30-10 p.m. EDT).Not only is Mr. Mason the star of "Chicken Soup," he's also the inheritor of a comedic tradition dating back to "Duck Soup," and he's currently a man in hot water. Here, in neutral language, is the gist of Mr. Mason's remarks, quoted first in the Village Voice while he was a paid spokesman for the Rudolph Giuliani mayoral campaign, and then in Newsweek after he and the campaign parted company.Mr. Mason said that many Jewish voters feel guilty toward blacks, so they support black candidates uncritically.He said that many black voters feel bitter about racial discrimination, so they, too, support black candidates uncritically.He said that Jews have contributed more to black causes over the years than vice versa. Of course, Mr. Mason did not use neutral language.As a practitioner of ethnic humor from the old days on the Borscht Belt, live television and the nightclub circuit, Mr. Mason instinctively reached for the vernacular.He said Jews were "sick with complexes"; and he called David Dinkins, Mr. Giuliani's black opponent, "a fancy shvartze with a mustache." If Mr. Mason had used less derogatory language to articulate his amateur analysis of the voting behavior of his fellow New Yorkers, would the water be quite so hot?It probably would, because few or none of the people upset by Mr. Mason's remarks have bothered to distinguish between the substance of his comments and the fact that he used insulting language.In addition, some of Mr. Mason's critics have implied that his type of ethnic humor is itself a form of racism. For example, the New York state counsel for the NAACP said that Mr. Mason is "like a dinosaur.People are fast leaving the place where he is stuck." These critics fail to distinguish between the type of ethnic humor that aims at disparaging another group, such as "Polish jokes"; and the type that is double-edged, aiming inward as well as outward.The latter typically is the humor of the underdog, and it was perfected by both blacks and Jews on the minstrel and vaudeville stage as a means of mocking their white and gentile audiences along with themselves. In the hands of a zealot like Lenny Bruce, this double-edged blade could cut both the self and the audience to ribbons.But wielded by a pro like Jackie Mason, it is a constructive form of mischief.Why constructive?Because despite all the media prattle about comedy and politics not mixing, they are similar in one respect: Both can serve as mechanisms for easing tensions and facilitating the co-existence of groups in conflict.That's why it's dangerous to have well-intentioned thought police, on college campuses and elsewhere, taboo all critical mention of group differences. As Elizabeth Kristol wrote in the New York Times just before the Mason donnybrook, "Perhaps intolerance would not boil over with such intensity if honest differences were allowed to simmer." The question is, if group conflicts still exist (as undeniably they do), and if Mr. Mason's type of ethnic humor is passe, then what other means do we have for letting off steam? Don't say the TV sitcom, because that happens to be a genre that, in its desperate need to attract everybody and offend nobody, resembles politics more than it does comedy.It is true that the best sitcoms do allow group differences to simmer: yuppies vs. blue-collar Bostonians in "Cheers"; children vs. adults in "The Cosby Show." But these are not the differences that make headlines. In "Chicken Soup," Mr. Mason plays Jackie, a Jewish bachelor courting Maddie (Lynn Redgrave), an Irish widow and mother of three, against the wishes of his mother (Rita Karin) and her brother Michael (Brandon Maggart).It's worth noting that both disapproving relatives are immigrants.At least, they both speak with strong accents, as do Jackie and Maddie.It couldn't be more obvious that "Chicken Soup" is being made from an old recipe.And a safe one -- imagine if the romance in question were between an Orthodox Jew and a member of the Nation of Islam. Back in the 1920s, the play and movie versions of "Abie's Irish Rose" made the theme of courtship between the assimilated offspring of Jewish and Irish immigrants so popular that its author, Anne Nichols, lost a plagiarism suit on the grounds that the plot has entered the public domain.And it has remained there, as evidenced by its reappearance in a 1972 CBS sitcom called "Bridget Loves Bernie," whose sole distinction was that it led to the real-life marriage of Meredith Baxter and David Birney. Clearly, the question with "Chicken Soup" is not whether the pot will boil over, but whether it will simmer at all.So far, the bubbles have been few and far between.Part of the problem is the tendency of all sitcoms, ever since the didactic days of Norman Lear, to preach about social issues.To some extent, this tendency emerges whenever the show tries to enlighten us about ethnic stereotypes by reversing them. For instance, Michael dislikes Jackie not because he's a shrewd Jewish businessman, but because he quits his well-paying job as a salesman in order to become a social worker.Even more problematic is the incompatibility between sitcom preachiness and Mr. Mason's comic persona.The best moments in the show occur at the beginning and the end (and occasionally in the middle), when Mr. Mason slips into his standup mode and starts meting out that old-fashioned Jewish mischief to other people as well as to himself.But too often, these routines lack spark because this sitcom, like all sitcoms, is timid about confronting Mr. Mason's stock in trade-ethnic differences. I'm not suggesting that the producers start putting together episodes about topics like the Catholic-Jewish dispute over the Carmelite convent at Auschwitz.That issue, like racial tensions in New York City, will have to cool down, not heat up, before it can simmer.But I am suggesting that they stop requiring Mr. Mason to interrupt his classic shtik with some line about "caring for other people" that would sound shmaltzy on the lips of Miss America.At your age, Jackie, you ought to know that you can't make soup without turning up the flame.
The Senate's decision to approve a bare-bones deficit-reduction bill without a capital-gains tax cut still leaves open the possibility of enacting a gains tax reduction this year. Late Friday night, the Senate voted 87-7 to approve an estimated $13.5 billion measure that had been stripped of hundreds of provisions that would have widened, rather than narrowed, the federal budget deficit.Lawmakers drastically streamlined the bill to blunt criticism that it was bloated with special-interest tax breaks and spending increases. "We're putting a deficit-reduction bill back in the category of being a deficit-reduction bill," said Senate Budget Committee Chairman James Sasser (D., Tenn.). But Senate supporters of the trimmer legislation said that other bills would soon be moving through Congress that could carry some of the measures that had been cast aside, including a capital-gains tax cut.In addition, the companion deficit-reduction bill already passed by the House includes a capital-gains provision.House-Senate negotiations are likely to begin at midweek and last for a while. "No one can predict exactly what will happen on the House side," said Senate Minority Leader Robert Dole (R., Kan.).But, he added, "I believe Republicans and Democrats will work together to get capital-gains reform this year." White House Budget Director Richard Darman told reporters yesterday that the administration wouldn't push to keep the capital-gains cut in the final version of the bill. "We don't need this as a way to get capital gains," he said. House Budget Committee Chairman Leon Panetta (D., Calif.) said in an interview, "If that's the signal that comes from the White House, that will help a great deal." The Senate's decision was a setback for President Bush and will make approval of a capital-gains tax cut less certain this year.Opponents of the cut are playing hardball.Senate Majority Leader George Mitchell (D., Maine) said he was "confident" that any House-Senate agreement on the deficit-reduction legislation wouldn't include a capital-gains tax cut.And a senior aide to the House Ways and Means Committee, where tax legislation originates, said there aren't any "plans to produce another tax bill that could carry a gains tax cut this year." One obvious place to attach a capital-gains tax cut, and perhaps other popular items stripped from the deficit-reduction bill, is the legislation to raise the federal borrowing limit.Such legislation must be enacted by the end of the month. The Senate bill was pared back in an attempt to speed deficit-reduction through Congress.Because the legislation hasn't been completed, President Bush has until midnight tonight to enact across-the-board spending cuts mandated by the Gramm-Rudman deficit-reduction law. Senators hope that the need to avoid those cuts will pressure the House to agree to the streamlined bill.The House appears reluctant to join the senators.A key is whether House Republicans are willing to acquiesce to their Senate colleagues' decision to drop many pet provisions. "Although I am encouraged by the Senate action," said Chairman Dan Rostenkowski (D., Ill.) of the House Ways and Means Committee, "it is uncertain whether a clean bill can be achieved in the upcoming conference with the Senate." Another big question hovering over the debate is what President Bush thinks.He has been resisting a stripped-down bill without a guaranteed vote on his capital-gains tax cut.But Republican senators saw no way to overcome a procedural hurdle and garner the 60 votes needed to win the capital-gains issue on the floor, so they went ahead with the streamlined bill. The Senate bill was stripped of many popular, though revenue-losing, provisions, a number of which are included in the House-passed bill.These include a child-care initiative and extensions of soon-to-expire tax breaks for low-income housing and research-and-development expenditures.Also missing from the Senate bill is the House's repeal of a law, called Section 89, that compels companies to give rank-and-file workers comparable health benefits to top paid executives. One high-profile provision that was originally in the Senate bill but was cut out because it lost money was the proposal by Chairman Lloyd Bentsen (D., Texas) of the Senate Finance Committee to expand the deduction for individual retirement accounts.Mr. Bentsen said he hopes the Senate will consider that measure soon. To the delight of some doctors, the bill dropped a plan passed by the Finance Committee that would have overhauled the entire physician-reimbursement system under Medicare.To the detriment of many low-income people, efforts to boost Medicaid funding, especially in rural areas, also were stricken. Asked why senators were giving up so much, New Mexico Sen. Pete Domenici, the ranking Republican on the Senate Budget Committee, said, "We're looking like idiots.Things had just gone too far." Sen. Dole said that the move required sacrifice by every senator.It worked, others said, because there were no exceptions: all revenue-losing provisions were stricken. The Senate also dropped a plan by its Finance Committee that would have increased the income threshold beyond which senior citizens have their Social Security benefits reduced.In addition, the bill dropped a plan to make permanent a 3% excise tax on long-distance telephone calls.It no longer includes a plan that would have repealed what remains of the completed-contract method of accounting, which is used by military contractors to reduce their tax burden.It also drops a provision that would have permitted corporations to use excess pension funds to pay health benefits for current retirees. Also stricken was a fivefold increase in the maximum Occupational Safety and Health Administration penalties, which would have raised $65 million in fiscal 1990.A provision that would have made the Social Security Administration an independent agency was excised. The approval of the Senate bill was especially sweet for Sen. Mitchell, who had proposed the streamlining.Mr. Mitchell's relations with Budget Director Darman, who pushed for a capital-gains cut to be added to the measure, have been strained since Mr. Darman chose to bypass the Maine Democrat and deal with other lawmakers earlier this year during a dispute over drug funding in the fiscal 1989 supplemental spending bill. The deficit reduction bill contains $5.3 billion in tax increases in fiscal 1990, and $26 billion over five years.The revenue-raising provisions, which affect mostly corporations, would: -- Prevent companies that have made leveraged buy-outs from getting federal tax refunds resulting from losses caused by interest payments on debt issued to finance the buy-outs, effective Aug. 2, 1989. -- Require mutual funds to include in their taxable income dividends paid to them on the date that the dividends are declared rather than received, effective the day after the tax bill is enacted. -- Close a loophole regarding employee stock ownership plans, effective June 6, 1989, that has been exploited by investment bankers in corporate takeovers.The measure repeals a 50% exclusion given to banks on the interest from loans used to acquire securities for an ESOP, if the ESOP owns less than 30% of the employer's stock. -- Curb junk bonds by ending tax benefits for certain securities, such as zero-coupon bonds, that postpone cash interest payments. -- Raise $851 million by suspending for one year an automatic reduction in airport and airway taxes. -- Speed up the collection of the payroll tax from large companies, effective August 1990. -- Impose a tax on ozone-depleting chemicals, such as those used in air conditioners and in Styrofoam, beginning at $1.10 a pound starting next year. -- Withhold income taxes from the paychecks of certain farm workers currently exempt from withholding. -- Change the collection of gasoline excise taxes to weekly from semimonthly, effective next year. -- Restrict the ability of real estate owners to escape taxes by swapping one piece of property for another instead of selling it for cash. -- Increase to $6 a person from $3 the international air-passenger departure tax, and impose a $3-a-person tax on international departures by commercial ships. The measure also includes spending cuts and increases in federal fees.Among its provisions: -- Reduction of Medicare spending in fiscal 1990 by some $2.8 billion, in part by curbing increases in reimbursements to physicians.The plan would impose a brief freeze on physician fees next year. -- Removal of the U.S. Postal Service's operating budget from the federal budget, reducing the deficit by $1.77 billion.A similar provision is in the House version. -- Authority for the Federal Aviation Administration to raise $239 million by charging fees for commercial airline-landing rights at New York's LaGuardia and John F. Kennedy International Airports, O'Hare International Airport in Chicago and National Airport in Washington. -- Increases in Nuclear Regulatory Commission fees totaling $54 million. -- Direction to the U.S. Coast Guard to collect $50 million from users of Coast Guard services. -- Raising an additional $43 million by increasing existing Federal Communications Commission fees and penalties and establishing new fees for amateur radio operators, ship stations and mobile radio facilities. John E. Yang contributed to this article.
Just when it seemed safe to go back into stocks, Wall Street suffered another severe attack of nerves. Does this signal another Black Monday is coming?Or is this an extraordinary buying opportunity, just like Oct. 19, 1987, eventually turned out to be? Here's what several leading market experts and money managers say about Friday's action, what happens next and what investors should do. Joseph Granville. "I'm the only one who said there would be an October massacre, all through late August and September," says Mr. Granville, once a widely followed market guru and still a well-known newsletter writer. "Everyone will tell you that this time is different from 1987," he says. "Well, in some ways it is different, but technically it is just the same.If you're a technician, you obey the signals.Right now they're telling me to get the hell out and stay out.I see no major support until 2200.I see a possibility of going to 2200 this month." Mr. Granville says he wouldn't even think of buying until at least 600 to 700 stocks have hit 52-week lows; about 100 stocks hit new lows Friday. "Most people," he says, "have no idea what a massacre pattern looks like." Elaine Garzarelli.A quantitative analyst with Shearson Lehman Hutton Inc., Ms. Garzarelli had warned clients to take their money out of the market before the 1987 crash. Friday's big drop, she says, "was not a crash.This was an October massacre" like those that occurred in 1978 and 1979.Now, as in those two years, her stock market indicators are positive.So she thinks the damage will be short-lived and contained. "Those corrections lasted one to four weeks and took the market 10%-12% down," she says. "This is exactly the same thing, as far as I'm concerned." Thus, she says, if the Dow Jones Industrial Average dropped below 2450, "It would just be a fluke.My advice is to buy." As she calculates it, the average stock now sells for about 12.5 times companies' earnings.She says that ratio could climb to 14.5, given current interest rates, and still be within the range of "fair value." Ned Davis.Friday's fall marks the start of a bear market, says Mr. Davis, president of Ned Davis Research Inc.But Mr. Davis, whose views are widely respected by money managers, says he expects no 1987-style crash. "There was a unique combination in 1987," he says. "Margin debt was at a record high.There was tremendous public enthusiasm for stock mutual funds.The main thing was portfolio insurance," a mechanical trading system intended to protect an investor against losses. "A hundred billion dollars in stock was subject" to it.In 1987, such selling contributed to a snowball effect. Today could even be an up day, Mr. Davis says, if major brokerage firms agree to refrain from program trading.Over the next several months, though, he says things look bad. "I think the market will be heading down into November," he says. "We will probably have a year-end rally, and then go down again.Sort of a two-step bear market." He expects the downturn to carry the Dow Jones Industrial Average down to around 2000 sometime next year. "That would be a normal bear market," he says. "I guess that's my forecast." Leon G. Cooperman. "I don't think the market is going through another October '87.I don't think that's the case at all," says Mr. Cooperman, a partner at Goldman, Sachs & Co. and chairman of Goldman Sachs Asset Management. Mr. Cooperman sees this as a good time to pick up bargains, but he doesn't think there's any need to rush. "I expect the market to open weaker Monday, but then it should find some stability." He ticks off several major differences between now and two years ago.Unlike 1987, interest rates have been falling this year.Unlike 1987, the dollar has been strong.And unlike 1987, the economy doesn't appear to be in any danger of overheating. But the economy's slower growth this year also means the outlook for corporate profits "isn't good," he says. "So it's a very mixed bag." Thus, he concludes, "This is not a good environment to be fully invested" in stocks. "If I had come into Friday on margin or with very little cash in the portfolios, I would not do any buying.But we came into Friday with a conservative portfolio, so I would look to do some modest buying" on behalf of clients. "We're going to look for some of the better-known companies that got clocked" Friday. John Kenneth Galbraith. "This is the latest manifestation of the capacity of the financial community for recurrent insanity," says Mr. Galbraith, an economist. "I see this as a reaction to the whole junk bond explosion," he says. "The explosion of junk bonds and takeovers has lodged a lot of insecure securities in the hands of investors and loaded the corporations that are the objects of takeovers or feared takeovers with huge amounts of debt rather than equity.This has both made investors uneasy and the corporations more vulnerable." Nevertheless, he says a depression doesn't appear likely. "There is more resiliency in the economy at large than we commonly suppose," he says. "It takes more error now to have a major depression than back in the Thirties -- much as the financial community and the government may try." Mario Gabelli.New York money manager Mario Gabelli, an expert at spotting takeover candidates, says that takeovers aren't totally gone. "Companies are still going to buy companies around the world," he says.Examples are "Ford looking at Jaguar, BellSouth looking at LIN Broadcasting." These sorts of takeovers don't require junk bonds or big bank loans to finance them, so Mr. Gabelli figures they will continue. "The market was up 35% since {President} Bush took office," Mr. Gabelli says, so a correction was to be expected.He thinks another crash is "unlikely," and says he was "nibbling at" selected stocks during Friday's plunge. "Stocks that were thrown out just on an emotional basis are a great opportunity {this} week for guys like me," he says. Jim Rogers. "It seems to me that this is the pin that has finally pricked the balloon," says Mr. Rogers, a professor of finance at Columbia University and former co-manager of one of the most successful hedge funds in history, Quantum Fund. He sees "economic problems, financial problems" ahead for the U.S., with a fairly strong possibility of a recession. "Friday you couldn't sell dollars," he says.Dealers "would give you a quote, but then refuse to make the trade." If the dollar stays weak, he says, that will add to inflationary pressures in the U.S. and make it hard for the Federal Reserve Board to ease interest rates very much. Mr. Rogers won't decide what to do today until he sees how the London and Tokyo markets go.He recommends that investors sell takeover-related stocks, but hang on to some other stocks -- especially utilities, which often do well during periods of economic weakness. Frank Curzio.Many people now claim to have predicted the 1987 crash.Queens newsletter writer Francis X. Curzio actually did it: He stated in writing in September 1987 that the Dow Jones Industrial Average was likely to decline about 500 points the following month. Mr. Curzio says what happens now will depend a good deal on the Federal Reserve Board.If it promptly cuts the discount rate it charges on loans to banks, he says, "That could quiet things down." If not, "We could go to 2200 very soon." Frank W. Terrizzi.Stock prices "would still have to go down some additional amount before we become positive on stocks," says Mr. Terrizzi, president and managing director of Renaissance Investment Management Inc. in Cincinnati. Renaissance, which manages about $1.8 billion, drew stiff criticism from many clients earlier this year because it pulled entirely out of stocks at the beginning of the year and thus missed a strong rally. Renaissance is keeping its money entirely in cash equivalents, primarily U.S. Treasury bills. "T-bills probably are the right place to be," he says. (See related story: "Your Money Matters: Unloading Stocks Worst Step to Take" -- WSJ Oct. 16, 1989)
Regarding the Oct. 3 letter to the editor from Rep. Tom Lantos, chairman of the House Subcommittee on Employment and Housing, alleging: 1.That your Sept. 28 editorial "Kangaroo Committees" was factually inaccurate and deliberately misleading. I thought your editorial was factually accurate and deliberately elucidative. 2.That Mr. Lantos supported the rights of the witnesses to take the Fifth Amendment. Yes, he did.As I watched him on C-Span, I heard him speak those lovely words about the Bill of Rights, which he quotes from the transcript of the hearings.He did repeat those nice platitudes several times as an indication of his support for the Constitution.He used about 56 words defending the witnesses' constitutional rights. Unfortunately, by my rough guess, he used better than 5,000 words heaping scorn on the witnesses for exercising the Fifth.He sandwiched his praise of constitutional meat between large loaves of bilious commentary.As your editorial rightly pointed out, Samuel Pierce, former HUD secretary, and Lance Wilson, Mr. Pierce's former aide, "are currently being held up to scorn for taking the Fifth Amendment." That certainly is not the supposed "distorted reading" indicated by Mr. Lantos. 3.That his "committee does not deal with any possible criminal activity at HUD.My colleagues and I fully realize we are not a court . . . etc." Absolute rubbish.By any "reasonable man" criterion, Mr. Lantos and his colleagues have a whole bunch of people tried and convicted.Apparently, their verdict is in.Right now they're pursuing evidence.That's not a bad way to proceed, just somewhat different from standard American practice. How was that practice referred to when I was in school?Ah, yes, something called a Star Chamber. Of course, Mr. Lantos doth protest that his subcommittee simply seeks information for legislative change.No doubt that's partially true.Everything that Mr. Lantos says in his letter is partially true.He's right about his subcommittee's responsibilities when it comes to obtaining information from prior HUD officials.But if his explanation of motivation is true, why is his investigation so oriented as to identify criminal activity?Why not simply questions designed to identify sources and causes of waste and inefficiency?Such as, what happened when Congress wanted to know about $400 toilet seats or whatever they supposedly cost?No, Mr. Lantos's complaints simply won't wash. 4.That the Journal defends "the sleaze, fraud, waste, embezzlement, influence-peddling and abuse of the public that took place while Mr. Pierce was secretary of HUD," etc. and so forth. No, to my mind, the Journal did not "defend sleaze, fraud, waste, embezzlement, influence-peddling and abuse of the public trust . . ." it defended appropriate constitutional safeguards and practical common sense. The problem, which the Journal so rightly pointed out in a number of articles, is not the likes of Mr. Lantos, who after all is really a bit player on the stage, but the attempt by Congress to enhance itself into a quasi-parliamentary/judicial body. (Of course, we've also got a judiciary that seeks the same objective.) The system is the problem, not an individual member.Individuals can always have their hands slapped.It's when such slapping doesn't occur that we've got trouble. I do not by any means defend HUD management.But I think the kind of congressional investigation that has been pursued is a far greater danger to American notions of liberty and freedom than any incompetency (and, yes, maybe criminality) within HUD could possibly generate.The last time I saw a similar congressional hearing was when "Tail Gunner Joe" McCarthy did his work. Raymond Weber Parsippany, N.J. I disagree with the statement by Mr. Lantos that one should not draw an adverse inference against former HUD officials who assert their Fifth Amendment privilege against self-incrimination in congressional hearings. The Fifth Amendment states in relevant part that no person "shall be compelled, in any criminal case, to be a witness against himself." This privilege against self-incrimination precludes the drawing of an adverse inference against a criminal defendant who chooses not to testify.Thus, in a criminal case, a prosecutor cannot comment on a defendant's failure to testify nor can the defendant be compelled to take the stand as a witness, thus forcing him to "take the Fifth." The privilege, however, has been limited in accordance with its plain language to protect the defendant in criminal matters only. The Supreme Court and some states have specifically recognized that "the Fifth Amendment does not preclude the inference where the privilege is claimed by a party to a civil cause." Baxter v.Palmingiano, 425 U.S. 308 (1976).Thus, in a civil case, a defendant may be called as a witness, he may be forced to testify or take the Fifth, and his taking of the Fifth may permit the drawing of an adverse inference against him in the civil matter.He may take the Fifth in a civil matter only if he has a good faith and justifiable belief that his testimony may subject him to criminal prosecution.Allowing the defendant to take the Fifth in a civil matter is not based on a constitutional right to refuse to testify where one's testimony harms him in the civil matter, but because the testimony in the civil matter could be unconstitutionally used against him in a subsequent criminal prosecution.Absent the risk of such prosecution, a court may order the defendant to testify. Thus, when Mr. Pierce asserted the Fifth in a noncriminal proceeding, particularly after presumably receiving extensive advice from legal counsel, one must conclude that he held a good-faith, justifiable belief that his testimony could be used against him in a subsequent criminal prosecution.The subcommittee, Congress and the American public have every right to draw the adverse inference and to concur with Mr. Pierce's own belief that his testimony could help convict him of a crime.Drawing the adverse inference in a noncriminal congressional hearing does not offend the Fifth Amendment shield against self-incrimination. Clark S. Spalsbury Jr. Estes Park, Colo.
reminiscent of those during the 1987 crash -- that as stock prices plummeted and trading activity escalated, some phone calls to market makers in over-the-counter stocks went unanswered. "We couldn't get dealers to answer their phones," said Robert King, senior vice president of OTC trading at Robinson-Humphrey Co. in Atlanta. "It was {like} the Friday before Black Monday" two years ago. Whether unanswered phone calls had any effect or not, Nasdaq stocks sank far less than those on the New York and American exchanges.Nonetheless, the Nasdaq Composite Index suffered its biggest point decline of the year and its sixth worst ever, diving 14.90, or 3%, to 467.29.Ten points of the drop occurred during the last 45 minutes of trading.By comparison, the New York Stock Exchange Composite tumbled 5.8% Friday and the American Stock Exchange Composite fell 4%. On Oct. 16, 1987, the Nasdaq Composite fell 16.18 points, or 3.8%, followed by its devastating 46.12-point, or 11% slide, three days later. Nasdaq volume Friday totaled 167.7 million shares, which was only the fifth busiest day so far this year.The single-day record of 288 million shares was set on Oct. 21, "There wasn't a lot of volume because it was just impossible to get stock moved," said E.E. "Buzzy" Geduld, president of Herzog, Heine, Geduld, a New York company that makes markets in thousands of OTC issues. Most of the complaints about unanswered phone calls came from regional brokers rather than individual investors.Mr. King of Robinson-Humphrey and others were quick to add that they believe the problem stemmed more from traders' inability to handle the volume of calls, rather than a deliberate attempt to avoid making trades. The subject is a sore one for Nasdaq and its market-making companies, which were widely criticized two years ago following complaints from investors who couldn't reach their brokers or trade in the chaos of the crash. Peter DaPuzzo, head of retail equity trading at Shearson Lehman Hutton, declared: "It was the last hour of trading on a Friday.There were too many phones ringing and too many things happening to expect market makers to be as efficient as robots.It wasn't intentional, we were all busy." James Tarantino, head of OTC trading at Hambrecht & Quist in San Francisco, said, "It was just like two years ago.Everybody was trying to do the same thing at the same time." Jeremiah Mullins, the OTC trading chief at Dean Witter Reynolds in New York, said proudly that his company executed every order it received by the close of trading.But, he added, "you can only take one call at a time." Market makers keep supplies of stock on hand to maintain orderly trading when imbalances occur.On days like Friday, that means they must buy shares from sellers when no one else is willing to.When selling is so frenzied, prices fall steeply and fast.Two years ago, faced with the possibility of heavy losses on the stocks in their inventories, market makers themselves began dumping shares, exacerbating the slide in OTC stock prices. On Friday, some market makers were selling again, traders said.But, with profits sagging on Wall Street since the crash, companies have kept smaller share stockpiles on hand. Mr. Tarantino of Hambrecht & Quist said some prices fell without trades taking place, as market makers kept dropping the prices at which they would buy shares. "Everyone was hitting everyone else's bid," he said. So, while OTC companies incurred losses on Friday, trading officials said the damage wasn't as bad as it was in 1987. "Two years ago we were carrying huge inventories and that was the big culprit.I don't know of anyone carrying big inventories now," said Mr. King of Robinson-Humphrey. Tony Cecin, head of equity trading at Piper, Jaffray & Hopwood in Minneapolis, said that Piper Jaffray actually made money on Friday.It helped that his inventory is a third smaller now than it was two years ago, he said. Joseph Hardiman, president of the National Association of Securities Dealers, which oversees the Nasdaq computerized trading system, said that despite the rush of selling, he never considered the situation an "emergency." "The pace of trading was orderly," he said.Nasdaq's Small Order Execution System "worked beautifully," as did the automated system for larger trades, according to Mr. Hardiman. Nevertheless, the shock of another steep plunge in stock prices undoubtedly will shake many investors' confidence.In the past, the OTC market thrived on a firm base of small-investor participation.Because Nasdaq's trading volume hasn't returned to pre-crash levels, traders and OTC market officials hope the damage won't be permanent. But they are worried. "We were just starting to get the public's confidence back," lamented Mr. Mullins of Dean Witter. More troubling is the prospect that the overall collapse in stock prices could permanently erode the base of small-investor support the OTC market was struggling to rebuild in the wake of the October 1987 crash. Mr. Cecin of Piper Jaffray says some action from government policy makers would allay investor fears.It won't take much more to "scare the hell out of retail investors," he says. The sellers on Friday came from all corners of the OTC market -- big and small institutional investors, as well as individual investors and market makers.But grateful traders said the sell orders generally ranged from 20,000 shares to 50,000 shares, compared with blocks of 500,000 shares or more two years ago. Shearson's Mr. DaPuzzo said retail investors nervously sold stock Friday and never returned to bargain-hunt.Institutional investors, which had been selling stock throughout last week to lock in handsome gains made through the third quarter, were calmer. "We had a good amount of selling from institutions, but not as much panic," Mr. DaPuzzo said. "If they couldn't sell, some of them put the shares back on the shelf." In addition, he said, some bigger institutional investors placed bids to buy some OTC stocks whose prices were beaten down. In addition, Mr. DaPuzzo said computer-guided program selling of OTC stocks in the Russell Index of 2000 small stocks and the Standard & Poor's 500-stock Index sent occasional "waves " through the market. Nasdaq's biggest stocks were hammered.The Nasdaq 100 Index of the largest nonfinancial issues, including the big OTC technology issues, tumbled 4.2%, or 19.76, to 449.33.The Nasdaq Financial Index of giant insurance and banking stocks dropped 2%, or 9.31, to 462.98. The OTC market has only a handful of takeover-related stocks.But they fell sharply.McCaw Cellular Communications, for instance, has offered to buy LIN Broadcasting as well as Metromedia's New York City cellular telephone interests, and in a separate transaction, sell certain McCaw properties to Contel Cellular.McCaw lost 8%, or 3 1/2, to 40.LIN Broadcasting, dropped 5 1/2, or 5%, to 107 1/2.The turnover in both issues was roughly normal. On a day when negative takeover-related news didn't sit well with investors, Commercial Intertech, a maker of engineered metal parts, said Haas & Partners advised it that it doesn't plan to pursue its previously reported $27.50-a-share bid to buy the company.Commercial Intertech plummeted 6 to 26. The issues of companies with ties to the junk bond market also tumbled Friday.On the OTC market, First Executive, a big buyer of the high-risk, high-yield issues, slid 2 to 12 1/4. Among other OTC issues, Intel, dropped 2 1/8 to 33 7/8; Laidlaw Transportation lost 1 1/8 to 19 1/2; the American depositary receipts of Jaguar were off 1/4 to 10 1/4; MCI Communications slipped 2 1/4 to 43 1/2; Apple Computer fell 3 to 45 3/4 and Nike dropped 2 1/4 to 66 3/4.
Food and Drug Administration spokesman Jeff Nesbit said the agency has turned over evidence in a criminal investigation concerning Vitarine Pharmaceuticals Inc. to the U.S. Attorney's office in Baltimore. Neither Vitarine nor any of the Springfield Gardens, N.Y., company's officials or employees have been charged with any crimes.Vitarine won approval to market a version of a blood pressure medicine but acknowledged that it substituted a SmithKline Beecham PLC product as its own in tests. Mr. Nesbit also said the FDA has asked Bolar Pharmaceutical Co. to recall at the retail level its urinary tract antibiotic.But so far the company hasn't complied with that request, the spokesman said. Bolar, the subject of a criminal investigation by the FDA and the Inspector General's office of the Health and Human Services Department, only agreed to recall two strengths of its version of Macrodantin "as far down as direct customers, mostly wholesalers," Mr. Nesbit said. Bolar, of Copiague, N.Y., earlier began a voluntary recall of both its 100 milligram and 50 milligram versions of the drug. The FDA has said it presented evidence it uncovered to the company indicating that Bolar substituted the brand-name product for its own to gain government approval to sell generic versions of Macrodantin.Bolar has denied that it switched the brand-name product for its own in such testing.
Pension funds, insurers and other behemoths of the investing world said they began scooping up stocks during Friday's market rout.And they plan to buy more today. Rightly or wrongly, many giant institutional investors appear to be fighting the latest war by applying the lesson they learned in the October 1987 crash: Buying at the bottom pays off. To be sure, big investors might put away their checkbooks in a hurry if stocks open sharply lower today.They could still panic and bail out of the market.But their 1987 performance indicates that they won't abandon stocks unless conditions get far worse. "Last time, we got rewarded for going out and buying stocks when the panic was the worst," said John W. Rogers, president of Chicago-based Ariel Capital Management Inc., which manages $1.1 billion of stocks. Mr. Rogers spent half his cash on hand Friday for "our favorite stocks that have fallen apart." He expects to invest the rest if the market weakens further. Denver-based portfolio manager James Craig wasn't daunted when Friday's rout shaved $40 million from the value of the $752 million Janus Fund he oversees. "I waited to make sure all the program trades had kicked through," he said.Then he jumped into the market: "I spent $30 million in the last half-hour." Other money managers also opened their wallets. "I was buying at the close (Friday) and I'll be buying again because I know we're getting good value," said Frederick A. Moran, president of Moran Asset Management Inc., Greenwich, Conn. "There is no justification on the fundamental level for this crash." Unlike mutual funds, which can be forced to sell stockholdings when investors rush to withdraw money, big investors such as pension funds and insurance companies can decide to ride out market storms without jettisoning stock.Most often, they do just that, because stocks have proved to be the best-performing long-term investment, attracting about $1 trillion from pension funds alone. "If you bought after the crash, you did very very well off the bottom," said Stephen B. Timbers, chief investment officer of Chicago-based Kemper Financial Services Inc.The $56 billion California Public Employees Retirement System, for one, added $1 billion to its stock portfolio two years ago. "The last crash taught institutional investors that they have to be long-term holders, and that they can't react to short-term events, good or bad," said Stephen L. Nesbitt, senior vice president for the pension consultants Wilshire Associates in Santa Monica, Calif. "Those that pulled out (of stocks) regretted it," he said, "so I doubt you'll see any significant changes" in institutional portfolios as a result of Friday's decline. Stocks, as measured by the Standard & Poor's 500-stock index, have been stellar performers this year, rising 27.97% before Friday's plunge, excluding dividends.Even Friday's slump leaves investors ahead more than 20%, well above the annual average for stocks over several decades. "You could go down 400 points and still have a good year in the market," said James D. Awad, president of New York-based BMI Capital Corp. Mr. Awad, however, worries that the market "could go down 800 or 900 points in the next few days.It can happen before you can turn around." He said he discerns many parallels with 1987, including the emphasis on takeover stocks and the re-emergence of computerized program trading. "The only thing you don't have," he said, "is the `portfolio insurance' phenomenon overlaid on the rest." Most institutional investors have abandoned the portfolio insurance hedging technique, which is widely thought to have worsened the 1987 crash.Not really insurance, this tactic was designed to soften the blow of declining stock prices and generate an offsetting profit by selling waves of S&P futures contracts.In its severest test, the $60 billion of portfolio insurance in effect in the 1987 crash didn't work, as stock buyers disappeared and stock and futures prices became disconnected. Even without portfolio insurance, market conditions were grim Friday, money managers said.Neil Weisman, whose New York-based Chilmark Capital Partners had converted 85% of its $220 million investment pool to cash in recent months, said he was besieged by Wall Street firms Friday asking him to take stock off their hands. "We got calls from big block houses asking us if we want to make bids on anything," said Mr. Weisman, who, happy with his returns on investments chalked up earlier, declined the offers. Mr. Weisman predicts stocks will appear to stabilize in the next few days before declining again, trapping more investors. "I think it will be a rigor mortis rally," he said.Meanwhile, Friday brought a reprieve for money managers whose investment styles had put them at odds with the market rally.Especially gleeful were the short sellers, who have been pounded by this year's market climb. The shorts sell borrowed shares, hoping to profit by replacing them later at a lower price.The nation's largest short-selling operation is Feshbach Brothers, Palo Alto, Calif., which said last May that its short positions had shown losses of 10% for the year up to that point. All that now has changed. "We're ahead for the year because of Friday," said the firm's Kurt Feshbach. "We're not making a killing, but we had a good day."
Friday, October 13, 1989 The key U.S. and foreign annual interest rates below are a guide to general levels but don't always represent actual transactions. PRIME RATE: 10 1/2%.The base rate on corporate loans at large U.S. money center commercial banks. FEDERAL FUNDS: 8 13/16% high, 8 1/2% low, 8 5/8% near closing bid, 8 3/4% offered.Reserves traded among commercial banks for overnight use in amounts of $1 million or more.Source: Fulton Prebon (U.S.A.) Inc. DISCOUNT RATE: 7%.The charge on loans to depository institutions by the New York Federal Reserve Bank. CALL MONEY: 9 3/4% to 10%.The charge on loans to brokers on stock exchange collateral. COMMERCIAL PAPER placed directly by General Motors Acceptance Corp.: 8.60% 30 to 44 days; 8.55% 45 to 59 days; 8.375% 60 to 79 days; 8.50% 80 to 89 days; 8.25% 90 to 119 days; 8.125% 120 to 149 days; 8% 150 to 179 days; 7.625% 180 to 270 days. COMMERCIAL PAPER: High-grade unsecured notes sold through dealers by major corporations in multiples of $1,000: 8.65% 30 days; 8.55% 60 days; 8.55% 90 days. CERTIFICATES OF DEPOSIT: 8.15% one month; 8.15% two months; 8.13% three months; 8.11% six months; 8.08% one year.Average of top rates paid by major New York banks on primary new issues of negotiable C.D.s, usually on amounts of $1 million and more.The minimum unit is $100,000.Typical rates in the secondary market: 8.65% one month; 8.65% three months; 8.55% six months. BANKERS ACCEPTANCES: 8.52% 30 days; 8.37% 60 days; 8.15% 90 days; 7.98% 120 days; 7.92% 150 days; 7.80% 180 days.Negotiable, bank-backed business credit instruments typically financing an import order. LONDON LATE EURODOLLARS: 8 13/16% to 8 11/16% one month; 8 13/16% to 8 11/16% two months; 8 13/16% to 8 11/16% three months; 8 3/4% to 8 5/8% four months; 8 11/16% to 8 9/16% five months; 8 5/8% to 8 1/2% six months. LONDON INTERBANK OFFERED RATES (LIBOR): 8 3/4% one month; 8 3/4% three months; 8 9/16% six months; 8 9/16% one year.The average of interbank offered rates for dollar deposits in the London market based on quotations at five major banks. FOREIGN PRIME RATES: Canada 13.50%; Germany 8.50%; Japan 4.875%; Switzerland 8.50%; Britain 15%.These rate indications aren't directly comparable; lending practices vary widely by location. TREASURY BILLS: Results of the Tuesday, October 10, 1989, auction of short-term U.S. government bills, sold at a discount from face value in units of $10,000 to $1 million: 7.63% 13 weeks; 7.60% 26 weeks. FEDERAL HOME LOAN MORTGAGE CORP. (Freddie Mac): Posted yields on 30-year mortgage commitments for delivery within 30 days. 9.91%, standard conventional fixedrate mortgages; 7.875%, 2% rate capped one-year adjustable rate mortgages.Source: Telerate Systems Inc. FEDERAL NATIONAL MORTGAGE ASSOCIATION (Fannie Mae): Posted yields on 30 year mortgage commitments for delivery within 30 days (priced at par) 9.86%, standard conventional fixed-rate mortgages; 8.85%, 6/2 rate capped one-year adjustable rate mortgages.Source: Telerate Systems Inc. MERRILL LYNCH READY ASSETS TRUST: 8.33%.Annualized average rate of return after expenses for the past 30 days; not a forecast of future returns.
Chase Manhattan Bank Chairman Willard Butcher is a conservative banker and a loyal Republican, but on Friday morning he had few kind words for President Bush's economic policy-making. "There are some very significant issues out there, such as the fiscal deficit, the trade deficit, our relations with Japan, that have to be the subject of major initiatives," he said in an interview. "I'd like to see that initiative, and I haven't.There isn't a big shot, an agenda." A few hours later, the stock market dropped 190 points. Politicians tried to finger each other for the blame, although many analysts doubt that Washington was singly responsible for Wall Street's woes.But Mr. Butcher's comments make one thing clear: Some on Wall Street wonder if anyone is in charge of economic policy. Consider this: -- By 11:59 p.m. tonight, President Bush must order $16 billion of automatic, across-the-board cuts in government spending to comply with the Gramm-Rudman budget law.The cuts are necessary because Congress and the administration have failed to reach agreement on a deficit-cutting bill. "We simply don't have strong leadership to try to reduce the deficit and make tough choices," House Budget Committee Chairman Leon Panetta (D., Calif.) said yesterday on NBC News's "Meet the Press." -- For the last two weeks, the Bush administration and the Federal Reserve have been engaged in a semi-public battle over international economic policy.The administration has been trying to push the dollar lower; the Fed has been resisting. "One of the things that continues to worry me is this monetary warfare between the Treasury Department and the Federal Reserve Board," said Lawrence Kudlow, a Bear, Stearns & Co. economist, on ABC's "This Week." -- The administration has sent out confusing signals about its response to a recent spate of airline takeovers. Last month, Transportation Secretary Sam Skinner forced Northwest Airlines to reduce a stake held by KLM Royal Dutch Airlines.But he has since run into opposition from the Treasury and the White House over that decision.And he has kept mum on how his decision might affect a bid for United Airlines, which includes a big stake by British Airways PLC.Some analysts say uncertainty about Washington's anti-takeover policy was one reason that financing for the United Airlines takeover fell through -- the event that triggered the market drop. In many ways, the backdrop to Friday's stock decline is eerily similar to that of October 1987's 508-point crash.Then, as now, the budget debate was behind schedule and automatic spending cuts were within days of taking hold.The Treasury was locked in a battle over international economic policy, although at that time it was with West German officials rather than the Federal Reserve.And concern about official actions aimed at takeovers -- then by the tax-writing House Ways and Means Committee rather than the Transportation Department -- were making markets nervous. The 1987 crash brought the Reagan administration and Democratic lawmakers to the table for the first budget summit, resulting in a two-year plan to reduce the deficit by more than $76 billion -- even though the deficit actually rose by nearly $12 billion during that period. But, barring further drops in the market this week, a similar outcome doesn't seem likely this year.Lawmakers and administration officials agree that Friday's drop, by itself, isn't enough to force both sides back to the table to try to reach a deficit-reduction agreement that would be more serious and more far-reaching than last spring's gimmick-ridden plan, which still isn't fully implemented. One of the biggest reasons that new talks aren't likely to come about is that, as everyone learned in 1987, the economy and the market can survive a one-day 508-point tumble. "Everybody thought we were looking at a repetition of 1929, that we were looking at a recession," Rep. Panetta said yesterday in an interview. "That did not happen.They learned they could survive it without much problem." But administration officials privately agree with Mr. Panetta, who said a precipitous drop this week "is going to force the president and Congress to take a much harder look at fiscal policy." In that case, there will be plenty of blame to go around. "There is an underlying concern on the part of the American people -- and there should be-that the administration has not gone far enough in cutting this deficit and that Congress has been unwilling to cut what the administration asked us to cut," said Senate Finance Committee Chairman Lloyd Bentsen (D., Texas). Nevertheless, it clearly will take more than Friday's 190-point decline to overcome the bitter feelings that have developed between lawmakers and White House Budget Director Richard Darman over the capital-gains fight.Hill Democrats are particularly angry over Mr. Bush's claim that the capital-gains cut was part of April's budget accord and his insistence on combining it with the deficit-reduction legislation. "There is no prospect of any so-called grand compromise or deal next year because the administration simply didn't live up to this year's deal," Senate Majority Leader George Mitchell (D., Maine) said yesterday on CBS News's "Face the Nation." During last week's maneuverings on the deficit-cutting bill and the capital-gains issue, there were signs that Senate Republicans and the administration were at odds.At the very moment that Senate Republicans were negotiating a deal to exclude capital gains from the deficit-reduction legislation, White House spokesman Marlin Fitzwater told reporters that it was the president's policy to include it. When an agreement was reached to strip capital gains from the legislation, Oregon Sen. Bob Packwood, the ranking GOP member of the tax-writing Senate Finance Committee, hailed it.Asked if the administration agreed, he curtly replied: "The adminstration will have to speak for itself." Friday's market tumble could spur action on reconciling the House and Senate versions of the deficit-reduction measure, a process that isn't expected to begin until tomorrow at the soonest. Senate Republicans expressed the hope that the House would follow the lead of the Senate, which on Friday agreed to drop a variety of spending measures and tax breaks that would have increased the fiscal 1990 deficit. "The market needs a strong signal that we're serious about deficit reduction, and the best way to do that is for the House of Representatives to strip their bill" of similar provisions, Sen. Warren Rudman (R., N.H.). said yesterday. The White House Office of Management and Budget, whose calculations determine whether the Gramm-Rudman targets are met, estimated that the House-passed deficit-reduction measure would cut the fiscal 1990 shortfall by $6.2 billion, almost half of the Congressional Budget Office's estimate of $11.0 billion.Rep. Panetta said that OMB's figure would still be enough to avoid permanent across-the-board cuts, but added: "We're getting very close to the margins here." No one in Washington was willing to take the blame for provoking Friday's drop in the stock market.But some players were quick to seize the moment.Before the sun had set on Friday, Richard Rahn, the supply-side chief economist of the U.S. Chamber of Commerce, issued a statement attributing the drop in stock prices to the Senate decision to postpone action on capital gains. "Investors, who had been holding assets in anticipation of a more favorable time to sell, were spooked," he said. "There have been many preposterous reasons advanced to support a capital-gains tax cut," Sen. Mitchell said during his television appearance, "but I suggest that is perhaps more than any of the others."
The following U.S. Treasury, corporate and municipal offerings are tentatively scheduled for sale this week, according to Dow Jones Capital Markets Report: $15.2 billion of three-month and six-month bills. Two-year notes, refinancing about $9.6 billion in maturing debt. $9.75 billion of 52-week bills. Connecticut Light & Power Co. -- Three million shares of $25 preferred, via competitive bidding. B&H Crude Carriers Ltd. -- Four million common shares, via Salomon Brothers Inc. Baldwin Technology Co. -- 2.6 million Class A shares, via Smith Barney Harris Upham & Co. Blockbuster Entertainment Corp. -- $250 million (face amount) Liquid Yield Option Notes, via Merrill Lynch Capital Markets. Chase Manhattan Corp. -- 14 million common shares, via Goldman, Sachs & Co. Comcast Corp. -- $150 million convertible debentures, via Merrill Lynch. CSS Industries -- 1.3 million common shares, via Merrill Lynch. Eastern Utilities Associates -- 1.5 million common shares, via PaineWebber Inc. Employee Benefit Plans Inc. -- Two million common shares, via Dean Witter Capital Markets. Exabyte Corp. -- 2,850,000 common shares, via Goldman Sachs. Knowledgeware Inc. -- 2.4 million common shares, via Montgomery Securities. Oregon -- $100 million of general obligation veterans' tax notes, Series 1989, via competitive bid. Washington, D.C. -- $200 million of 1990 general obligation tax revenue notes (Series 1990A), via competitive bid. Virginia Public School Authority -- $55,730,000 of school financing bonds, 1989 Series B (1987 resolution), via competitive bid. Austin, Texas -- $68,230,000 of various bonds, including $32 million hotel occupancy tax revenue bonds, Series 1989A, and $36.23 million convention center revenue bonds, Series 1989B, via a Morgan Stanley & Co. group. California Health Facilities Financing Authority -- $144.5 million of Kaiser Permanente revenue bonds, via a PaineWebber group. Connecticut -- $100 million of general obligation capital appreciation bonds, College Savings Plan, 1989 Series B, via a Prudential-Bache Capital Funding group. Pennsylvania Higher Education Facilities Authority -- $117 million of revenue bonds for Hahnemann University, Series 1989, via a Merrill Lynch group. Tennessee Valley Authority -- Three billion of power bonds, via First Boston Corp. University of Medicine And Dentistry of New Jersey -- $55 million of Series C bonds, via a Prudential-Bache group. West Virginia Parkways, Economic Development And Tourism Authority -- $143 million of parkway revenue bonds, Series 1989, via a PaineWebber group. San Antonio, Texas -- $640 million of gas and electric revenue refunding bonds, via a First Boston group. South Dakota Health & Education Facility Authority -- $51.1 million of Rapid City Regional Hospital bonds, via a Dougherty, Dawkins, Strand & Yost Inc. group.
Small investors matched their big institutional brethren in anxiety over the weekend, but most seemed to be taking a philosophical approach and said they were resigned to riding out the latest storm in the stock market. "I'm not losing faith in the market," said Boston lawyer Christopher Sullivan as he watched the market plunge on a big screen in front of a brokerage firm.But he's not so sure about everyone else. "I think on Monday the small (investors) are going to panic and sell," predicted Mr. Sullivan, whose investments include AMR Corp. 's American Airlines unit and several mutual funds. "And I think institutions are going to come in and buy . . . I'm going to hold on.If I sell now, I'll take a big loss." Some evinced an optimism that had been rewarded when they didn't flee the market in 1987. "Oh, I bet it'll be up 50 points on Monday," said Lucy Crump, a 78-year-old retired housewife in Lexington, Ky.Mrs. Crump said her Ashwood Investment Club's portfolio lost about one-third of its value following the Black Monday crash, "but no one got discouraged, and we gained that back -- and more." At the annual congress of the National Association of Investors Corp. at the Hyatt Regency hotel in Minneapolis, the scene was calm.Some 500 investors representing investor clubs from around the U.S. were attending when the market started to slide Friday.But Robert Showalter, an official of the association, said no special bulletins or emergency meetings of the investors' clubs are planned. In fact, some of the association's members -- long-term, buy-and-hold investors -- welcomed the drop in prices. "We hope to take advantage of it," said John Snyder, a member of a Los Angeles investors' club.He has four stocks in mind to buy if the prices drop to the level he wants.Not everyone is reacting so calmly, however, and many wonder about the long-term implications of what is widely viewed as the cause of Friday's slide, reluctance by banks to provide financing for a buy-out of UAL Corp., parent of United Airlines. Marc Perkins, a Tampa, Fla., investment banker, said the market drop is one of "a tremendous number of signs that the leveraged take-out era is ending.There's no question that there's a general distaste for leverage among lenders." Mr. Perkins believes, however, that the market could be stabilized if California investor Marvin Davis steps back in to the United bidding with an offer of $275 a share. Sara Albert, a 34-year-old Dallas law student, says she's generally skittish about the stock market and the takeover activity that seems to fuel it. "I have this feeling that it's built on sand," she says, that the market rises "but there's no foundation to it." She and her husband pulled most of their investments out of the market after the 1987 crash, although she still owns some Texaco stock.Partly because of concern about the economy and partly because she recently quit her job as a legal assistant to go to school, "I think at this point we want to be a lot more liquid." Others wonder how many more of these shocks the small investor can stand. "We all assumed October '87 was a one-time shot," said San Francisco attorney David Greenberg. "We told the little guy it could only happen once in a lifetime, come on back.Now it's happening again." Mr. Greenberg got out just before the 1987 crash and, to his regret, never went back even as the market soared.This time he's ready to buy in "when the panic wears off." Still, he adds: "We can't have this kind of thing happen very often.When the little guy gets frightened, the big guys hurt badly.Merrill Lynch can't survive without the little guy." Small investors have tiptoed back into the market following Black Monday, but mostly through mutual funds.Discount brokerage customers "have been in the market somewhat but not whole hog like they were two years ago," says Leslie Quick Jr., chairman of the Quick & Reilly discount brokerage firm.Hugo Quackenbush, senior vice president at Charles Scwhab Corp., says Schwab customers "have been neutral to cautious recently about stocks." Individual investors are still angry about program trading, Mr. Quackenbush says. Avner Arbel, a Cornell University finance professor, says government regulators will have to more closely control program trading to "win back the confidence of the small investor." But it's not only the stock market that has some small investors worried.Alan Helfman, general sales manager of a Chrysler dealership in Houston, said he and his mother have some joint stock investments, but the overall economy is his chief worry. "These high rollers took a big bath today," he said in his showroom, which is within a few miles of the multi-million dollar homes of some of Houston's richest citizens. "And I can tell you that a high roller isn't going to come in tomorrow and buy a Chrysler TC by Maserati." And, finally, there were the gloaters. "I got out in 1987.Everything," said Pascal Antori, an Akron, Ohio, plumbing contractor who was visiting Chicago and stopped by Fidelity Investments' LaSalle Street office. "I just stopped by to see how much I would have lost." Would Mr. Antori ever get back in? "Are you kidding! When it comes to money: Once bitten, 2,000 times shy."
The crowded field for notebook-sized computers is about to become a lot more crowded. Compaq Computer Corp. 's long-awaited entry today into the notebook field is expected to put immediate heat on others in the market, especially Zenith Electronics Corp., the current market leader, and on a swarm of promising start-ups. Compaq's series of notebooks extends a trend toward downsizing in the personal computer market.One manufacturer already has produced a clipboard-sized computer called a notepad, and two others have introduced even smaller "palmtops." But those machines are still considered novelties, with keyboards only a munchkin could love and screens to match.Compaq's notebooks, by contrast, may be the first in their weight class not to skimp on features found in much bigger machines.Analysts say they're faster and carry more memory than anything else of their size on the market -- and they're priced aggressively at $2,400 to $5,000.All of this comes in a machine that weighs only six pounds and fits comfortably into most briefcases. In recent months, Compaq's competition, including Zenith, Toshiba Corp., Tandy Corp. and NEC Corp. all have introduced portables that weigh approximately the same and that are called notebooks -- perhaps misleadingly.One analyst, noting that most such machines are about two inches thick, takes exception to the name. "This isn't quite a notebook -- I call it a phonebook," he says. That can't be said of the $2,400 notepad computer introduced a few weeks ago by GRiD Systems Corp., a unit of Tandy.Instead of a keyboard, it features a writing surface, an electronic pen and the ability to "read" block printing.At 4 1/2 pounds, it may be too ambitiously named, but it nevertheless opens up the kind of marketing possibilities that make analysts froth. Palmtops aren't far behind.Atari Corp. 's Portfolio, introduced in Europe two months ago and in the U.S. in early September, weighs less than a pound, costs a mere $400 and runs on three AA batteries, yet has the power to run some spreadsheets and word processing programs.Some critics, however, say its ability to run commonplace programs is restricted by a limited memory. Poquet Computer Corp., meanwhile, has introduced a much more sophisticated palmtop that can run Lotus 1-2-3 and other sophisticated software programs, but costs five times as much. At stake is what Mike Swavely, Compaq's president of North America operations, calls "the Holy Grail of the computer industry" -- the search for "a real computer in a package so small you can take it everywhere." The market is so new, nobody knows yet how big it can be. "I've had a lot of people trying to sell me services to find out how big it is," says Tom Humphries, director of marketing for GRiD. "Whether it's $5 billion or $3.5 billion, it doesn't matter.It's huge." Consider the growth of portables, which now comprise 12% of all personal computer sales.Laptops -- generally anything under 15 pounds -- have become the fastest-growing personal computer segment, with sales doubling this year. Responding to that demand, however, has led to a variety of compromises.Making computers smaller often means sacrificing memory.It also has precluded use of the faster, more powerful microprocessors found in increasing numbers of desktop machines.Size and weight considerations also have limited screen displays. The competitive sniping can get pretty petty at times.A Poquet spokesman, for example, criticizes the Atari Portfolio because it requires three batteries while the Poquet needs only two.Both palmtops are dismissed by notebook makers, who argue that they're too small -- a problem Poquet also encountered in focus groups, admits Gerry Purdy, director of marketing.Poquet, trying to avoid the "gadget" label, responded with the tag line, "The Poquet PC -- a Very Big Computer." Despite the sniping, few question the inevitability of the move to small machines that don't make compromises.Toward that end, experts say the real battle will take place between center-stage players like Toshiba, Zenith and now Compaq. Compaq's new machines are considered a direct threat to start-up firms like Dynabook Inc., which introduced in June a computer that, like Compaq's, uses an Intel 286 microprocessor and has a hard disk drive.But the Dynabook product is twice as heavy and costs more than Compaq's. Compaq's announcement also spells trouble for Zenith, which last year had 28% of the U.S. laptop market but recently agreed to sell its computer business to Cie. des Machines Bull, the French government-owned computer maker.Zenith holders will vote in December on the proposed $635 million sale, a price that could slip because it is pegged to Zenith's share and sales. Compaq is already taking aim at Zenith's market share.Rod Canion, Compaq's president and chief executive officer, notes pointedly that Zenith's $2,000 MinisPort uses an "unconventional" two-inch floppy disk, whereas Compaq's new machines use the more common 3 1/2-inch disk.John P. Frank, president of Zenith Data Systems, simply shrugs off such criticism, noting that 3 1/2-inch floppies were also "unconventional" when they first replaced five-inch disks. "We don't look at it as not being a standard, we look at it as a new standard," he argues. Analysts don't see it that way. "I can't imagine that you'll talk to anyone who won't tell you this is dynamite for Compaq and a stopper for everyone else," says Gene Talsky, president of Professional Marketing Management Inc. Adds Bill Lempesis, senior industry analyst for DataQuest, a high-technology market research firm: "We basically think that these are very hot products.The problem Compaq is going to have is that they won't be able to make enough of them." Compaq's machines include the 3 1/2-inch floppy disk drive, a backlit screen that is only 1/4-inch thick and an internal expansion slot for a modem -- in other words, almost all the capabilities of a typical office machine. Others undoubtedly will follow, but most analysts believe Compaq has at least a six-month lead on the competition.Toshiba's line of portables, for example, features the T-1000, which is in the same weight class but is much slower and has less memory, and the T-1600, which also uses a 286 microprocessor, but which weighs almost twice as much and is three times the size.A third model, marketed in Japan, may hit the U.S. by the end of the first quarter of 1990, but by then, analysts say, Compaq will have established itself as one of three major players. What about Big Blue?International Business Machines Corp., analysts say, has been burned twice in trying to enter the laptop market and shows no signs of trying to get into notebooks anytime soon.
Honeywell Inc. and International Business Machines Corp. received Air Force contracts to develop integrated circuits for use in space. Honeywell's contract totaled $69.7 million, and IBM's $68.8 million. Boeing Co. received a $46.7 million Air Force contract for developing cable systems for the Minuteman Missile. General Dynamics Corp. received a $29 million Air Force contract for electronic-warfare training sets. Grumman Corp. received an $18.1 million Navy contract to upgrade aircraft electronics. Avco Corp. received an $11.8 million Army contract for helicopter engines.
Avis Inc., following rival Hertz Corp. 's lead, said it is backing out of frequent-flier programs with three airlines. The Garden City, N.Y., car-rental company said it won't renew contracts with NWA Inc. 's Northwest Airlines unit, Pan Am Corp. 's Pan American World Airways unit and Midway Airlines at the end of this year.But it remains involved in programs with AMR Corp. 's American Airlines unit and Delta Air Lines. Industry estimates put Avis's annual cost of all five programs at between $8 million and $14 million.A spokesman for Avis wouldn't specify the costs but said the three airlines being dropped account for "far less than half" of the total. Budget Rent a Car Corp., of Chicago, and National Car Rental Systems Inc., of Minneapolis, both said they had no plans to follow suit.In fact, Budget indicated it saw some benefit to staying involved in these programs, in which renters earn frequent-flier miles and fliers can get car-rental discounts. "I cannot see how this news by Hertz and Avis cannot benefit Budget's programs," said Bob Wilson, Budget's vice president, marketing planning.Northwest and Midway are two of the five airlines with which Budget has agreements. National also participates in the Northwest frequent-flier program along with four other airlines, including Delta and USAir Group Inc. 's USAir unit. A month ago, Hertz, of Park Ridge, N.J., said that it would drop its marketing agreements at year end with Delta, America West and Texas Air Corp. 's Continental Airlines and Eastern Airlines, and that pacts with American Airlines, UAL Inc's United Airlines and USAir also would be ended. . . sometime after Dec. 31.At the time, Hertz said its annual fees to those airlines amounted to $20 million and that the value of redeemed awards topped $15 million.Analysts and competitors, however, doubt the numbers were that high.Budget said its frequent-flier costs are "substantially below" Avis's level. Robert D. Cardillo, Avis vice president of marketing, said, "The proliferation and costs attached to {frequent-flier programs} have significantly diminished their value." This year has been difficult for both Hertz and Avis, said Charles Finnie, car-rental industry analyst at Alex.Brown & Sons. "They've been looking to get their costs down, and this is a fairly sensible way to do it," he said.
Tandem Computers Inc., preparing to fight with International Business Machines Corp. for a piece of the mainframe business, said it expects to post higher revenue and earnings for its fiscal fourth quarter ended Sept. 30. Tandem said it expects to report revenue of about $450 million and earnings of 35 cents to 40 cents a share.The results, which are in line with analysts' estimates, reflect "a continued improvement in our U.S. business," said James Treybig, Tandem's chief executive officer. In the year-earlier period, Tandem reported net income of $30.1 million, or 31 cents a share, on revenue of $383.9 million. Tandem expects to report the full results for the quarter next week.Analysts have predicted that the Cupertino, Calif., company will report revenue of $430 million to $460 million and earnings of 35 cents to 40 cents a share. Commenting on the results for the quarter, Mr. Treybig said the strength of the company's domestic business came as "a surprise" to him, noting that sales "in every region of the U.S. exceeded our plan." The company's U.S. performance was helped by "a record quarter for new customers," he said. Tandem makes "fault-tolerant" computers -- machines with built-in backup systems -- that run stock exchanges, networks of automatic tellers and other complex computer systems.Tomorrow the company is scheduled to announce its most powerful computer ever, which for the first time will bring it into direct competition with makers of mainframe computers. Tandem's new high-end computer is called Cyclone.Prices for the machine, which can come in various configurations, are $2 million to $10 million. Analysts expect the new computer to wrest a hefty slice of business away from IBM, the longtime leader in mainframes. "We believe they could siphon perhaps two to three billion dollars from IBM" over the next few years, said George Weiss, an analyst at the Gartner group.That will spur Tandem's growth. "I'd be disappointed if the company grew by less than 20% next year," said John Levinson, an analyst at Goldman, Sachs & Co. IBM is expected to respond to Tandem's Cyclone by discounting its own mainframes, which analysts say are roughly three times the price of a comparable system from Tandem. "Obviously IBM can give bigger discounts to users immediately," said Mr. Weiss. But Mr. Treybig questions whether that will be enough to stop Tandem's first mainframe from taking on some of the functions that large organizations previously sought from Big Blue's machines. "The answer isn't price reductions, but new systems," he said. Nevertheless, Tandem faces a variety of challenges, the biggest being that customers generally view the company's computers as complementary to IBM's mainframes.Even Mr. Treybig is reluctant to abandon this notion, insisting that Tandem's new machines aren't replacements for IBM's mainframes. "We're after a little bigger niche," he said.
Don't jump yet.The stock market's swoon may turn out to be good news for the economy. In one wild hour of trading, the market managed to accomplish what the Bush administration has been trying to do, unsuccessfully, for weeks.It is forcing the Federal Reserve to ease its grip on credit and it took the wind out of a previously irrepressible dollar.The resulting decline in interest rates and the value of the dollar could reinvigorate American business -- indeed, the entire economy. This may sound strangely optimistic.After all, until a few years ago, the stock market was viewed as a barometer of the national economy.When it went down, by all tradition, the economy followed. That has changed, partly because the two years following the worst stock-market plunge in history have been reasonably comfortable.The 1987 crash was "a false alarm however you view it," says University of Chicago economist Victor Zarnowitz. The market seems increasingly disconnected from the rest of the nation.Its spasms can't be traced to fundamental business conditions, nor do they appear to presage major shifts in the economy. "The market today has a life of its own," John Akers, chairman of International Business Machines Corp., said Saturday. "There's nothing rational about this kind of action." Of course, the health of the economy will be threatened if the market continues to dive this week.Sharply falling stock prices do reduce consumer wealth, damage business confidence and discourage the foreign investors upon whom the U.S. now relies for financial sustenance.The financial-services industry was battered by the 1987 crash.What's more, although the stock market is far less overvalued today than two years ago, the U.S. economy is weaker.Growth is slower.Profits are softer.Debt burdens are heavier. But if the stock market doesn't continue to plummet, the beneficial effects of lower interest rates and a lower dollar may well dominate.The Fed, which until Friday had been resisting moves to ease credit, is now poised to pour money into the economy if needed to soothe the markets.Fed officials may protest that this doesn't necessarily mean a fundamental change in their interest-rate policies.But the experience of the 1987 crash suggests the Fed is likely to bring down short-term interest rates in its effort to calm markets. Anticipating the Fed's move, money traders lowered a key interest rate known as the Federal Funds rate to 8.625% late Friday, down from 8.820% the day before.Tiny movements in the rate, which is what banks charge each other for overnight loans, are usually among the few visible tracks that the Fed leaves on the monetary markets. The dollar also began to decline Friday as the stock market's plunge caused some investors to reassess their desire to invest in the U.S. Treasury officials have been arguing for months that the dollar's strength was out of whack with economic fundamentals, threatening to extinguish the export boom that has sustained manufacturers for several years.The market drop has now apparently convinced foreign investors that the Treasury was right about the overpriced dollar. A modest drop in the dollar -- only a modest one, mind you -- would be welcomed by the U.S.That wasn't the case in 1987, when the dollar was so weak that some economists and government officials seriously worried that it might collapse, producing panic among foreign investors and diminishing the flow of foreign capital to the U.S. Another big difference between 1987 and 1989 isn't so comforting.In the third quarter of 1987, the economy spurted at an inflation-adjusted annual rate of 5.3%.The consensus among economists is that it grew a much more sluggish 2.3% in the third quarter of 1989, which ended two weeks ago. The plunge in stock prices "is happening at a time when the economy has already slowed down," says economist Lawrence Chimerine of WEFA Group, a Bala Cynwyd, Pa., forecasting company. "A lot of pent-up demand is gone." Consumer spending did drop in the months following Black Monday 1987 -- "but only slightly and for a short period of time," recalls Mr. Zarnowitz, a longtime student of business cycles. "That was offset by strength elsewhere. {The effects} were much less severe and less prolonged than some had feared or expected." Today, he frets, exports and business investment spending may be insufficient to pick up the slack if stock prices sink this week and if consumers retrench in reaction. What's more, the corporate borrowing binge hasn't abated in the past two years. "We've had two more years of significant accumulation of debt . . . just at the time when earnings are being squeezed," Mr. Chimerine notes.The more a company relies on borrowed money, the greater its sensitivity to an economic slowdown.A company with a strong balance sheet can withstand an unanticipated storm; a highly leveraged company may end up in bankruptcy court. The Fed, of course, knows that very well -- hence its readiness to pump credit into the economy this morning.But, in the process, the Fed risks reigniting inflation.Even before Friday's events, Harvard University economist Benjamin Friedman was arguing that the Fed won't be able to live up to its tough words on eliminating inflation because of its responsibility to protect fragile financial markets, banks and highly leveraged corporations.The biggest threat on the economic horizon right now isn't recession, he reasons; it's an outbreak of uncontrolled inflation. In the end, the 1987 collapse suggested, the economy doesn't move in lockstep with stock prices.The economy does, however, depend on the confidence of businesses, consumers and foreign investors.A panic on Wall Street doesn't exactly inspire confidence. Surveys suggested that consumer confidence was high before Friday.A 190-point drop isn't likely to make much of a dent; multiply that a few times over, though, and it will.If the reactions of executives gathered Saturday at Hot Springs, Va., for the Business Council meetings are typical, business leaders weren't overly rattled by Friday's decline.And if foreign investors become a tad more cautious -- well, the dollar's recent strength suggests that the U.S. can stand it. On the bottom line, the most comforting fact for the economic outlook is that we've been through this before.Two years ago, about the only point of comparison was the 1929 crash and the subsequent Depression.The doomsayers had a receptive audience.The prosperity that followed Black Monday permits a more optimistic view today. At the very least, the establishment here is taking comfort from the nation's success in handling the last go-around.As Sen. Lloyd Bentsen (D., Texas) observed yesterday, "The Fed avoided a meltdown last time.They are more sophisticated this time."
The chemical industry is expected to report that profits eroded in the third quarter because of skidding prices in the commodity end of the business. Producers of commodity chemicals, the basic chemicals produced in huge volumes for other manufacturers, have seen sharp inventory cutting by buyers.Once the chief beneficiaries of the industry's now fading boom, these producers also will be reporting against exceptionally strong performances in the 1988 third quarter. "For some of these companies, this will be the first quarter with year-to-year negative comparisons," says Leonard Bogner, a chemical industry analyst at Prudential Bache Research. "This could be the first of five or six down quarters." Perhaps most prominent, Dow Chemical Co., which as of midyear had racked up eight consecutive record quarters, is expected to report that profit decreased in the latest quarter from a year earlier, if only by a shade.Though Dow has aggressively diversified into specialty chemicals and pharmaceuticals, the company still has a big stake in polyethylene, which is used in packaging and housewares. Analysts' third-quarter estimates for the Midland, Mich., company are between $3.20 a share and $3.30 a share, compared with $3.36 a year ago, when profit was $632 million on sales of $4.15 billion.A Dow spokeswoman declined to comment on the estimates. At the investment firm of Smith Barney, Harris Upham & Co., the commodity-chemical segment is seen pulling down overall profit for 20 companies representative of the whole industry by 8% to 10%. "You will find the commodities off more than the others and the diversified companies about even or slightly better," says James Wilbur, a Smith Barney analyst. First Boston Corp. projects that 10 of the 15 companies it follows will report lower profit.Most of the 10 have big commodity-chemical operations. Still, some industry giants are expected to report continuing gains, largely because so much of their business is outside commodity chemicals.Du Pont Co. is thought to have had steady profit growth in white pigments, fibers and polymers.Moreover, the Wilmington, Del., company is helped when prices weaken on the commodity chemicals it buys for its own production needs, such as ethylene. Analysts are divided over whether Du Pont will report much of a gain in the latest quarter from its Conoco Inc. oil company.The estimates for Du Pont range from $2.25 to $2.45 a share.In the 1988 third quarter, the company earned $461 million, or $1.91 a share, on sales of $7.99 billion.Du Pont declined to comment. Monsanto Co., too, is expected to continue reporting higher profit, even though its sales of crop chemicals were hurt in the latest quarter by drought in northern Europe and the western U.S.The St. Louis-based company is expected to report again that losses in its G.D. Searle & Co. pharmaceutical business are narrowing.Searle continued to operate in the red through the first half of the year, but Monsanto has said it expects Searle to post a profit for all of 1989. Most estimates for Monsanto run between $1.70 and $2 a share.A year ago, the company posted third-quarter profit of $116 million, or $1.67 a share, on sales of $2.02 billion.Monsanto declined to comment. But the commodity-chemical producers are caught on the downside of a pricing cycle.By some accounts on Wall Street and in the industry, the inventory reductions are near an end, which may presage firmer demand.But doubters say growing production capacity could keep pressure on prices into the early 1990s. In the latest quarter, at least, profit is expected to fall sharply.For Himont Inc., "how far down it is, we don't know," says Leslie Ravitz at Salomon Brothers.The projections are in the neighborhood of 50 cents a share to 75 cents, compared with a restated $1.65 a share a year earlier, when profit was $107.8 million on sales of $435.5 million. Himont faces lower prices for its mainstay product, polypropylene, while it goes forward with a heavy capital investment program to bolster its raw material supply and develop new uses for polypropylene, whose markets include the packaging and automobile industries.The company, based in Wilmington, Del., is 81%-owned by Montedison S.p.A., Milan, which has an offer outstanding for the Himont shares it doesn't already own. At Quantum Chemical Corp., New York, the trouble is lower prices for polyethylene, higher debt costs and the idling of an important plant due to an explosion.Some analysts hedge their estimates for Quantum, because it isn't known when the company will book certain one-time charges.But the estimates range from break-even to 35 cents a share.In the 1988 third quarter, Quantum earned $99.8 million, or $3.92 a share, on sales of $724.4 million. Another big polyethylene producer, Union Carbide Corp., is expected to post profit of between $1 a share and $1.25, compared with $1.56 a share a year earlier, when the company earned $213 million on sales of $2.11 billion. Himont, Quantum and Union Carbide all declined to comment.
The following were among Friday's offerings and pricings in the U.S. and non-U.S. capital markets, with terms and syndicate manager, as compiled by Dow Jones Capital Markets Report: Dow Chemical Co. -- $150 million of 8.55% senior notes due Oct. 15, 2009, priced at par.The issue, which is puttable back to the company at par on Oct. 15, 1999, was priced at a spread of 50 basis points above the Treasury's 10-year note.Rated single-A-1 by Moody's Investors Service Inc. and single-A by Standard & Poor's Corp., the non-callable issue will be sold through underwriters led by Merrill Lynch Capital Markets. Centel Capital Corp. -- $150 million of 9% debentures due Oct. 15, 2019, priced at 99.943 to yield 9.008%.The non-callable issue, which can be put back to the company in 1999, was priced at 99 basis points above the Treasury's 10-year note.Rated Baa-1 by Moody's and triple-B-plus by S&P, the issue will be sold through underwriters led by Morgan Stanley & Co. Federal Home Loan Mortgage Corp. -- $500 million of Remic mortgage securities offered in 13 classes by Prudential-Bache Securities Inc.The offering, Series 102, backed by Freddie Mac 8 1/2% securities with a weighted average remaining term to maturity of 28.4 years, was priced before the market's afternoon surge.Among classes for which details were available, yields ranged from 8.78%, or 75 basis points over two-year Treasury securities, to 10.05%, or 200 basis points over 10-year Treasurys. Federal Home Loan Mortgage Corp. -- $300 million of Remic mortgage securities offered by Citicorp Securities Markets Inc.The offering, Series 101, is backed by Freddie Mac 9 1/2% securities.Pricing details weren't immediately available. Federal Home Loan Mortgage Corp. -- $200 million of stripped mortgage securities underwritten by BT Securities Corp.The agency's first strips issue, collateralized by Freddie Mac 8% securities pooled into a single security called a Giant, will be divided into interest-only and principal-only securities.The collateral is being sold by a thrift institution.The principal-only securities will be repackaged by BT Securities into a Freddie Mac Remic, Series 103, that will have six classes.The interest-only securities will be sold separately by BT Securities.The principal-only securities pay the principal from the underlying Freddie Mac 8% securities, while the interest-only securities pay only interest.Freddie Mac said the principal-only securities were priced at 58 1/4 to yield 8.45%, assuming an average life of eight years and a prepayment of 160% of the PSA model.The interest-only securities were priced at 35 1/2 to yield 10.72%. There were no major Eurobond or foreign bond offerings in Europe Friday.
Axa-Midi Assurances of France gave details of its financing plans for its proposed $4.5 billion acquisition of Farmers Group Inc., in amended filings with insurance regulators in the nine U.S. states where Farmers operates. The proposed acquisition is part of Sir James Goldsmith's unfriendly takeover attempt for B.A.T Industries PLC, the British tobacco, retailing, paper and financial services concern that is parent of Los Angeles-based Farmers.In an attempt to appease U.S. regulators' concern over a Goldsmith acquisition of Farmers, Sir James in August agreed to sell Farmers to Axa if he is successful in acquiring B.A.T. As part of the agreement, Axa agreed to invest $1 billion in Hoylake Investments Ltd., Sir James's acquisition vehicle. Of the total $5.5 billion to be paid to Hoylake by Axa, about $1 billion will come from available resources of Axa's parent, Axa-Midi Group, $2.25 billion will be in the form of notes issued by Axa, and the remaining $2.25 billion will be in long-term bank loans. In an interview Thursday, Claude Bebear, chairman and chief executive officer of Axa, said his group has already obtained assurances from a group of banks led by Cie.Financiere de Paribas that they can provide the loan portion of the financing.The other banking companies in the group are Credit Lyonnais, Societe Generale, BankAmerica Corp. and Citicorp, he said. Mr. Bebear said Axa-Midi Group has "more than $2.5 billion of non-strategic assets that we can and will sell" to help pay off debt from the acquisition.He said the assets to be sold would be "non-insurance" assets, including a beer company and a real estate firm, and wouldn't include any pieces of Farmers. "We won't put any burden on Farmers," he said. The amended filings also point out that under a new agreement, Hoylake has an absolute obligation to sell Farmers to Axa upon an acquisition of B.A.T. "We hope that with what we did, the regulators will not need to evaluate Hoylake, and they can directly look at the agreement with us, because Hoylake won't be an owner of Farmers at anytime," Mr. Bebear said. Any change of control in Farmers needs approval of the insurance commissioners in the nine states where Farmers and its related companies are incorporated. The amended filings were required because of the new agreement between Axa and Hoylake, and to reflect the extension that Sir James received last month under British takeover rules to complete his proposed acquisition.Hoylake dropped its initial #13.35 billion ($20.71 billion) takeover bid after it received the extension, but said it would launch a new bid if and when the propsed sale of Farmers to Axa receives regulatory approval. A spokesman for B.A.T said of the amended filings that, "It would appear that nothing substantive has changed.The new financing structure is still a very-highly leveraged one, and Axa still plans to take out 75% of Farmers' earnings as dividends to service their debt." That dividend is almost double the 35% currently taken out of Farmers by B.A.T, the spokesman added. "It would have severe implications for Farmers' policy holders." To fend off Sir James's advances, B.A.T has proposed a sweeping restructuring that would pare it to a tobacco and financial services concern.
Assuming the stock market doesn't crash again and completely discredit yuppies and trading rooms, American television audiences in a few months may be seeing Britain's concept of both. "Capital City" is a weekly series that premiered here three weeks ago amid unprecedented hype by its producer, Thames Television. The early episodes make you long for a rerun of the crash of 1987.Let's make that 1929, just to be sure. According to the program's publicity prospectus, "Capital City," set at Shane Longman, a fictional mid-sized securities firm with #500 million capital, "follows the fortunes of a close-knit team of young, high-flying dealers, hired for their particular blend of style, genius and energy.But with all the money and glamour of high finance come the relentless pressures to do well; pressure to pull off another million before lunch; pressure to anticipate the market by a fraction of a second . . ." You needn't be a high-powered securities lawyer to realize the prospectus is guilty of less than full disclosure.The slickly produced series has been criticized by London's financial cognoscenti as inaccurate in detail, but its major weakness is its unrealistic depiction of the characters' professional and private lives. Turned loose in Shane Longman's trading room, the yuppie dealers do little right.Judging by the money lost and mistakes made in the early episodes, Shane Longman's capital should be just about exhausted by the final 13th week. In the opening episode we learn that Michelle, a junior bond trader, has indeed pulled off another million before lunch.Trouble is, she has lost it just as quickly.Rather than keep the loss a secret from the outside world, Michelle blabs about it to a sandwich man while ordering lunch over the phone. Little chance that Shane Longman is going to recoup today.Traders spend the morning frantically selling bonds, in the belief that the U.S. monthly trade figures will look lousy.Ah, perfidious Columbia!The trade figures turn out well, and all those recently unloaded bonds spurt in price.So much for anticipating the market by a fraction of a second.And a large slice of the first episode is devoted to efforts to get rid of some nearly worthless Japanese bonds (since when is anything Japanese nearly worthless nowadays?).Surprisingly, Shane Longman survives the week, only to have a senior executive innocently bumble his way into becoming the target of a criminal insider trading investigation.Instead of closing ranks to protect the firm's reputation, the executive's internal rivals, led by a loutish American, demand his resignation.The plot is thwarted when the firm's major stockholder, kelp farming on the other side of the globe, hurries home to support the executive.But the investigation continues. If you can swallow the premise that the rewards for such ineptitude are six-figure salaries, you still are left puzzled, because few of the yuppies consume very conspicuously.In fact, few consume much of anything.Two share a house almost devoid of furniture.Michelle lives in a hotel room, and although she drives a canary-colored Porsche, she hasn't time to clean or repair it; the beat-up vehicle can be started only with a huge pair of pliers because the ignition key has broken off in the lock.And it takes Declan, the obligatory ladies' man of the cast, until the third episode to get past first base with any of his prey. Perhaps the explanation for these anomalies is that class-conscious Britain isn't ready to come to terms with the wealth created by the Thatcherian free-enterprise regime.After all, this isn't old money, but new money, and in many cases, young money. This attitude is clearly illustrated in the treatment of Max, the trading room's most flamboyant character.Yuppily enough, he lives in a lavishly furnished converted church, wears designer clothes and drives an antique car.But apparently to make him palatable, even lovable, to the masses, the script inflates pony-tailed Max into an eccentric genius, master of 11 Chinese dialects.He takes his wash to the laundromat, where he meets a punky French girl who dupes him into providing a home for her pet piranha and then promptly steals his car and dumps it in Dieppe. In producing and promoting "Capital City," Thames has spent about as much as Shane Longman loses on a good day.The production costs are a not inconsiderable #8 million ($12.4 million), and would have been much higher had not the cost of the trading floor set been absorbed in the budget of "Dealers," an earlier made-for-TV movie.Another half million quid went for a volley of full-page advertisements in six major British newspapers and for huge posters in the London subway. These expenses create a special incentive for "Capital City's" producers to flog it, or a Yank-oriented version of it, in America.Thames's U.S. marketing agent, Donald Taffner, is preparing to do just that.He is discreetly hopeful, citing three U.S. comedy series -- "Three's Company," "Too Close for Comfort" and "Check It Out" -- that had British antecedents. Perhaps without realizing it, Mr. Taffner simultaneously has put his finger on the problem and an ideal solution: "Capital City" should have been a comedy, a worthy sequel to the screwball British "Carry On" movies of the 1960s. The seeds already are in the script.The first episode concluded with a marvelously cute scene in which the trading-room crew minded a baby, the casualty of a broken marriage at the firm.And many in the young cast bear striking resemblances to American TV and movie personalities known for light roles.Joanna Kanska looks like a young Zsa Zsa Gabor; William Armstrong, who plays Max, could pass for Hans Conreid, and Douglas Hodge (Declan) for James Farentino; Rolf Saxon is a passable Tommy Noonan and Dorian Healy could easily double for Huntz Hall, the blank-faced foil of the Bowery Boys comedies. So, OK kids, everybody on stage for "Carry On Trading": The cast is frantically searching the office for misplaced Japanese bonds that suddenly have soared in value because Dai-Ichi Kangyo Bank has just bought the White House.The pressure is too much for Zsa Zsa, who slaps a security guard.He backflips into a desktop computer terminal, which explodes, covering Huntz Hall's face with microchips.And all the while, the bonds are in the baby's diaper. It should run forever. Mr. Rustin is senior correspondent in the Journal's London bureau.
Dismal sales at General Motors Corp. dragged the U.S. car and truck market down below year-ago levels in early October, the first sales period of the 1990 model year. The eight major domestic auto makers sold 160,510 North American-made cars in the first 10 days of October, a 12.6% drop from a year earlier.Domestically built truck sales were down 10.4% to 86,555 pickups, vans and sport utility vehicles. The heavy use of incentives to clear out 1989 models appears to have taken the steam, at least initially, out of 1990 model sales, which began officially Oct. 1.This appears particularly true at GM, which had strong sales in August and September but saw its early October car and truck results fall 26.3% from last year's unusually high level. Overall, sales of all domestic-made vehicles fell 11.9% from a year ago.Without GM, overall sales for the other U.S. automakers were roughly flat with 1989 results. Some of the U.S. auto makers have already adopted incentives on many 1990 models, but they may have to broaden their programs to keep sales up. "We've created a condition where, without incentives, it's a tough market," said Tom Kelly, sales manager for Bill Wink Chevrolet in Dearborn, Mich. Car sales fell to a seasonally adjusted annual selling rate of 5.8 million vehicles, the lowest since October 1987.The poor performance contrasts with a robust selling rate of almost eight million last month.Furthermore, dealers contacted late last week said they couldn't see any immediate impact on sales of Friday's steep market decline. GM's domestic car sales dropped 24.3% and its domestic trucks were down an even steeper 28.7% from the same period a year ago.All of the GM divisions except Cadillac showed big declines.Cadillac posted a 3.2% increase despite new competition from Lexus, the fledging luxury-car division of Toyota Motor Corp. Lexus sales weren't available; the cars are imported and Toyota reports their sales only at month-end. The sales drop for the No. 1 car maker may have been caused in part by the end in September of dealer incentives that GM offered in addition to consumer rebates and low-interest financing, a company spokesman said.Last year, GM had a different program in place that continued rewarding dealers until all the 1989 models had been sold. Aside from GM, other car makers posted generally mixed results.Ford Motor Co. had a 1.8% drop in domestic car sales but a 2.4% increase in domestic truck sales. Chrysler Corp. had a 7.5% drop in car sales, echoing its generally slow performance all year.However, sales of trucks, including the company's popular minivans, rose 4.3%. Honda Motor Co. 's sales of domestically built vehicles plunged 21.7% from a year earlier.Honda's plant in Marysville, Ohio, was gearing up to build 1990 model Accords, a Honda spokesman said. "We're really confident everything will bounce back to normal," he added. Separately, Chrysler said firm prices on its 1990-model domestic cars and minivans will rise an average of 5% over comparably equipped 1989 models.Firm prices were generally in line with the tentative prices announced earlier this fall.At that time, Chrysler said base prices, which aren't adjusted for equipment changes, would rise between 4% and 9% on most vehicle. a-Totals include only vehicle sales reported in period. c-Domestic car d-Percentage change is greater than 999%. x-There were 8 selling days in the most recent period and 8 a year earlier.Percentage differences based on daily sales rate rather than sales volume.
It wasn't so long ago that a radio network funded by the U.S. Congress -- and originally by the Central Intelligence Agency -- was accused by officials here of employing propagandists, imperialists and spies.Now, the network has opened a news bureau in the Hungarian capital. Employees held an open house to celebrate and even hung out a sign: "Szabad Europa Radio" -- Radio Free Europe. "I think this is a victory for the radio," says Barnabas de Bueky, a 55-year-old former Hungarian refugee who works in the Munich, West Germany, headquarters as deputy director of the Hungarian service.In fact, the network hopes to set up offices in Warsaw and anywhere else in the East Bloc that will have it. But the rapid changes brought on by glasnost and open borders are altering the network's life in more ways than one.In fact, Radio Free Europe is in danger of suffering from its success. While the network currently can operate freely in Budapest, so can others.In addition, competition for listeners is getting tougher in many ways than when broadcasting here was strictly controlled.Instead of being denounced as an evil agent of imperialism, Radio Free Europe is more likely to draw the criticism that its programs are too tame, even boring. "They have a lot to do these days to compete with Hungarian radio," says Andrew Deak, a computer-science student at the Technical University in Budapest. "The Hungarian {radio} reporters seem better informed and more critical about about what's going on here." Indeed, Hungary is in the midst of a media explosion.Boys on busy street corners peddle newspapers of every political stripe.Newsstands are packed with a colorful array of magazines.Radio and television are getting livelier and bolder. The British Broadcasting Corp. and the U.S. State Department's Voice of America broadcast over Hungarian airwaves, though only a few hours a day each in Hungarian.Australian press magnate Rupert Murdoch has bought 50% stakes in two popular and gossipy Hungarian newspapers, while Britain's Robert Maxwell has let it be known here that he is thinking about similar moves. But Radio Free Europe doesn't plan to fade away.With its mission for free speech and the capitalist way, the network's staff says it still has plenty to do -- in Hungary and in the "Great Eastern Beyond." Radio Free Europe and its sister station for the Soviet Union, Radio Liberty, say they won't cut back their more than 19 hours of daily broadcasts.They are still an important source of news for 60 million listeners in 23 exotic tongues: from Bulgarian and Belorussian to Kazakh and Kirghiz. The establishment of its first bureau in Warsaw Pact territory shows the depth of some of the changes in Eastern Europe.Months before the decision by the Hungarian Communist Party to rename itself Socialist and try to look more appealing to voters, the country's rulers were trying to look more hospitable.It proved a perfect time for Radio Free Europe to ask for permission to set up office. Not only did the Hungarian Ministry of Foreign Affairs approve Radio Free Europe's new location, but the Ministry of Telecommunications did something even more amazing: "They found us four phone lines in central Budapest," says Geza Szocs, a Radio Free Europe correspondent who helped organize the Budapest location. "That is a miracle." It's a far cry from the previous treatment of the network, which had to overcome jamming of its frequencies and intimidation of local correspondents (who filed reports to the network by phone, secret messengers or letters).In fact, some of the network's Hungarian listeners say they owe Radio Free Europe loyalty because it was responsible in many ways for keeping hope alive through what one writer here calls the "Dark Ages of the 20th Century." "During the past four years, many of us have sat up until late at night listening to our radios," says the writer. "There were some very brave broadcasts." The listeners, too, had to be brave.Through much of the post-World War II period, listening to Western broadcasts was a crime in Hungary. "When we listen to the Europe station, my mother still gets nervous," says a Budapest translator. "She wants to turn down the volume and close the curtains." Now, the toughest competition for Radio Free Europe comes during the late-night slot.Hungarian radio often saves its most politically outspoken broadcasts for around midnight.Television, which most of the time is considered rather tame, has entered the running with a new program, "The End of the Day," which comes on after 11 p.m.It is a talk show with opposition leaders and political experts who discuss Hungary's domestic problems as well as foreign affairs.Those who want to hear even more radical views have to get up at five on Sunday morning for "Sunday Journal," on Hungarian Radio. The competitive spirit is clearly influencing Radio Free Europe, which is trying to beef up programs.The Budapest office plans to hire free-lance reporters to cover the latest happenings in Hungarian country towns from Nagykanizsa in the west to Nyiregyhaza in the east.The Hungarian service has a daily 40-minute news show called Newsreel, with international and domestic news, plus a daily news review of opinions from around the world. There's also a host of new programs, trying to lighten up on the traditional diet of politics.A daily 35-minute program called "The March of Time" tries to find interesting tidbits of lighthearted news and gossip from around the world.There's a program for women and a science show.And to attract younger listeners, Radio Free Europe intersperses the latest in Western rock groups.The Pet Shop Boys are big this year in Budapest. "We are starving for all the news," says Mr. Deak, the student. "Every moment we want to know everything about the world."
Proposals for government-operated "national service," like influenza, flare up from time to time, depress the resistance of the body politic, run their course, and seem to disappear, only to mutate and afflict public life anew. The disease metaphor comes to mind, of course, not as an aspersion on the advocates of national service.Rather, it is born of frustration with having to combat constantly changing strains of a statist idea that one thought had been eliminated in the early 1970s, along with smallpox. It is back with us again, in the form of legislation to pay volunteers under a "National and Community Service Act," a proposal with a serious shot at congressional passage this fall. Why does the national-service virus keep coming back?Perhaps it is because utopian nostalgia evokes both military experience and the social gospel.If only we could get America's wastrel youth into at least a psychic uniform we might be able to teach self-discipline again and revive the spirit of giving. A quarter of a century ago national service was promoted as a way of curing the manifest inequities of the draft -- by, of all things, expanding the draft.Those of us who resisted the idea then suspect today that an obligation of government service for all young people is still the true long-term aim of many national-service backers, despite their protests that present plans contain no coercion. Choice of the volunteer military in the 1970s seemed to doom national service as much as the draft.But the virus was kept alive in sociology departments until a couple of years ago, when it again was let loose.This time it attempted to invade two connected problems, the rising cost of higher education and the rising expense to the federal government of educational grants and loans.Why not keep and even expand the loans and grants, the advocates reasoned, but require some form of service from each recipient?Military service, moreover, could be a national-service option. Thus, undoubtedly it was hoped that the new strain of national service would prove contagious, infecting patriotic conservatives, pay-as-you-go moderates, and idealistic liberals.The Democratic Leadership Council, a centrist group sponsoring the plan, surely thought it might help the party to attract support, especially among college students and their parents.A provision allowing grants to be applied to first-home purchases was added to appeal to those who had had enough of schooling. The DLC plan envisaged "volunteers" planting trees, emptying bedpans, tutoring children, and assisting librarians for $100 a week, tax free, plus medical care.With a tax-free $10,000 voucher payment at the end of each year, the volunteers would be making a wage comparable to $17,500 a year.Mind you, most of "the volunteers" would be unskilled 17- to 18-year-olds, some not even high school graduates, and many saving money by living at home.They would be doing better financially under national service than many taxpayers working at the same kinds of jobs and perhaps supporting families. As it happened, political resistance developed among educational and minority interests that count on the present education grant system, so the national-service devotees decided to abandon the supposedly crucial principle of "give in order to get." Opposition to national service from the Pentagon, which wants to protect its own recruitment process, also led to the military-service option being dropped. Clearly, a new rationale for national service had to be cooked up.What better place to turn than Sen. Edward Kennedy's Labor Committee, that great stove of government expansionism, where many a stagnant pot of porridge is kept on the back burner until it can be brought forward and presented as nouvelle cuisine? In this case, the new recipe for national service called for throwing many assorted legislative leftovers into one kettle: a demonstration project for educational aid (particularly satisfying to the DLC and Sen. Sam Nunn), a similar demonstration program for youth conservation (a la Sen. Chris Dodd), a competitive grants program to states to spark youth and senior citizen volunteer projects (a Kennedy specialty), a community service work-study program for students (pleasing to the palate of Sen. Dale Bumpers, among others), plus engorgement of the VISTA volunteer program and the Retired Senior Volunteer, Foster Grandparent, and Senior Companion programs.Before the menu is printed, the House may add more ingredients, also changing the initial price, now posted at some $330 million. It is widely known that "too many cooks spoil the broth," but that wisdom does not necessarily reflect the view of the cooks, especially if they are senators.The "omnibus" bill coming out of Congress may be unwholesome glop, but the assorted chefs are happy and the restaurant is pushing the dish very hard.The aroma of patronage is in the air. Is the voluntary sector so weak that it needs such unsolicited assistance?On the contrary, it is as robust as ever.According to the Gallup Poll, American adults contribute an average of two hours a week of service, while financial contributions to charity in the 1980s have risen 30% (adjusted for inflation). Even if government does see various "unmet needs," national service is not the way to meet them.If we want to support students, we might adopt the idea used in other countries of offering more scholarships based on something called "scholarship," rather than on the government's idea of "service." Or we might provide a tax credit for working students.What we do not need to do is start a war, and then try to justify it by creating a GI Bill. To the extent we lack manpower to staff menial jobs in hospitals, for example, we should raise pay, pursue labor-saving technology, or allow more legal immigration, rather than overpay high school graduates as short-term workers and cause resentment among permanent workers paid lesser amounts to do the same jobs. Will national service, in the current highly politicized and opportunistic form exert enough appeal to get adopted?Not necessarily.Polls show wide, generalized support for some vague concept of service, but the bill now under discussion lacks any passionate public backing.Nonetheless, Senate Democrats are organizing a roll of supporting "associations," "societies" and "councils," some of which may hope to receive the paid "volunteers." So far, the president seems ill-disposed to substitute any of the omnibus for his own free-standing proposal to endow a "Points of Light" foundation with $25 million to inform citizens of all ages and exhort them to genuine volunteerism. However, even this admirable plan could become objectionable if the White House gives in to congressional Democratic pressure to add to the scope of the president's initiative or to involve the independent foundation in "brokering" federal funds for volunteer projects. There's no need for such concessions.The omnibus can be defeated, the virus controlled, and real service protected.National service, the utopian idea, still won't go away then, of course, but the millions of knee-socked youth performing works of "civic content" will be mobilized only in the imagination of their progenitors. Mr. Chapman is a fellow at the Indianapolis-based Hudson Institute.This article is adapted from remarks at a Hoover Institution conference on national service, in which Mr. Szanton also participated. (See related story: "Target Expenditures Narrowly" -- WSJ Oct. 16, 1989)
Government officials here and in other countries laid plans through the weekend to head off a Monday market meltdown -- but went out of their way to keep their moves quiet. Federal Reserve Chairman Alan Greenspan was on the telephones, making it clear to officials in the U.S. and abroad that the Fed was prepared to inject massive amounts of money into the banking system, as it did in October 1987, if the action were needed to prevent a financial crisis. And at the Treasury, Secretary Nicholas Brady talked with friends and associates on Wall Street while Assistant Secretary David Mullins carefully analyzed data on the Friday market plunge. But the officials feared that any public announcements would only increase market jitters.In addition, officials at the Fed and in the Bush administration decided that avoiding overt actions and statements over the weekend would give them more strength and flexibility should Friday's market drop turn into this morning's rout. "The disadvantage at this point is that anything you do that looks like you are doing too much tends to reinforce a sense of crisis," said one government official, insisting on anonymity. The Fed's efforts at secrecy were partly foiled Sunday morning, when both the New York Times and the Washington Post carried stories quoting a senior Fed official saying the central bank was prepared to pour cash into the banking system Monday morning.Fed Chairman Greenspan was surprised by both stories, according to knowledgeable sources, and insisted he hadn't authorized any public comment.Nevertheless, Fed officials acknowledged the stories were reasonably accurate portrayals of the central bank's game plan.It is prepared to assume the same role it played in October 1987, providing money to the markets if necessary to keep the financial system afloat.The Fed provides money to the banking system by buying government securities from financial institutions. The reticence of federal officials was evident in the appearance Sunday of Budget Director Richard Darman on ABC's "This Week." "Secretary of the Treasury Brady and Chairman Greenspan and the chairman of the SEC and others have been in close contact.I'm sure they'll do what's right, what's prudent, what's sensible," he said. When it was suggested his comment was a "non-answer," Mr. Darman replied: "It is a non-answer.But, in this context, that's the smart thing to do." At the Treasury, Secretary Brady issued a statement minimizing the stock market's drop. "Today's stock market decline doesn't signal any fundamental change in the condition of the economy," he said. "The economy remains well-balanced, and the outlook is for continued moderate growth." But administration officials conceded that Friday's drop carried the chance of further declines this week. "One possibility is that this is a surgical setback, reasonably limited in its breadth, and not a major problem," said one senior administration official, who also asked that he not be named. "The other is that we see another major disaster, like two years ago.I think that's less likely." Nevertheless, Fed Chairman Greenspan and Vice Chairman Manuel Johnson were in their offices Sunday evening, monitoring events as they unfolded in markets around the world.The action was expected to begin with the opening of the New Zealand foreign exchange markets at 5 p.m. EST -- when stocks there plunged -- and to continue as the trading day began later in the evening in Tokyo and through early this morning in Europe.Both the Treasury and the Fed planned to keep market rooms operating throughout the night to monitor the developments.In Tokyo, share prices dropped sharply by 1.7% in early Monday morning trading.After the initial slide, the market appeared to be turning around but by early afternoon was headed lower. In the Bush administration, the lead is being taken by Treasury Secretary Brady, Undersecretary Robert Glauber and Assistant Secretary Mullins.The three men worked together on the so-called Brady Commission, headed by Mr. Brady, which was established after the 1987 crash to examine the market's collapse.As a result they have extensive knowledge in financial markets, and financial market crises. Mr. Brady was at the White House Friday afternoon when the stock market's decline began.He was quickly on the phone with Mr. Mullins, who in turn was talking with the chairmen of the New York and Chicago exchanges.Later, Mr. Brady phoned Mr. Greenspan, SEC Chairman Richard Breeden and numerous contacts in New York and overseas.Aides say he continued to work the phones through the weekend. Administration officials say President Bush was briefed throughout Friday afternoon and evening, even after leaving for Camp David.He had frequent telephone consultations with Mr. Brady and Michael Boskin, chairman of the counsel of economic advisers. Government officials tried throughout the weekend to render a business-as-usual appearance in order to avoid any sense of panic.Treasury Undersecretary David Mulford, for instance, was at a meeting of the Business Council in Hot Springs, Va., when the stock market fell, and remained there through the following day.And as of last night, Fed Chairman Greenspan hadn't canceled his plans to address the American Bankers Association convention in Washington at 10 a.m. this morning. Ironically, Mr. Greenspan was scheduled to address the same convention in Dallas on Oct. 20, 1987.He flew to Dallas on Oct. 19, when the market plummeted 508 points, but then turned around the next morning and returned to Washington without delivering his speech. (See related story: "Abreast of the Market: Special Steps Didn't Cool Fever to Sell" -- WSJ Oct. 16, 1989)
The debate over National Service has begun again.After a decade in which more than 50 localities established their own service or conservation corps and dozens of school systems made community service a prerequisite to high-school graduation, the focus has shifted to Washington. At least 10 bills proposing one or another national program were introduced in Congress this spring.One, co-sponsored by Sen. Sam Nunn (D., Ga.) and Rep. Dave McCurdy (D., Okla.), would have restricted federal college subsidies to students who had served.An omnibus bill assembled by Sen. Edward Kennedy (D., Mass.), and including some diluted Nunn-McCurdy provisions along with proposals by fellow Democratic Sens.Claiborne Pell, Barbara Mikulski and Christopher Dodd, has been reported out of the Senate Labor Committee.It might well win Senate passage.President Bush has outlined his own Youth Entering Service (YES) plan, though its details remain to be specified. What is one to think of all this?Doctrine and special interests govern some responses.People eager to have youth "pay their dues to society" favor service proposals -- preferably mandatory ones.So do those who seek a "re-energized concept of citizenship," a concept imposing stern obligations as well as conferring rights.Then there are instinctive opponents.To libertarians, mandatory service is an abomination and voluntary systems are illegitimate uses of tax money.Devotees of the market question the value of the work national service would perform: If the market won't pay for it, they argue, it can't be worth its cost.Elements of the left are also reflexively opposed; they see service as a cover for the draft, or fear the regimentation of youth, or want to see rights enlarged, not obligations. But what about those of us whose views are not predetermined by formula or ideology?How should we think about national service?Let's begin by recognizing a main source of confusion -- "national service" has no agreed meaning.Would service be voluntary or compulsory?Short or long?Part-time or full-time?Paid or unpaid?Would participants live at home and work nearby or live in barracks and work on public lands?What kinds of work would they do? What does "national" mean?Would the program be run by the federal government, by local governments, or by private voluntary organizations?And who would serve?Only males, as with the draft, or both sexes?Youth only or all ages?Middle-class people, or poor people, or a genuine cross-section?Many or few? Those are not trivial questions, and the label "national service" answers none of them.Then how should we think about national service?As a starting point, here are five propositions: 1.Consider the ingredients, not the name.Ignore "national service" in the abstract; consider specific proposals.They will differ in crucial ways. 2. "Service" should be service.As commonly understood, service implies sacrifice.It involves accepting risk, or giving up income, or deferring a career.It follows that proposals like Nunn-McCurdy, whose benefits to enrollees are worth some $17,500 a year, do not qualify.There is a rationale for such bills: Federal subsidies to college students amount to "a GI Bill without the GI"; arguably those benefits should be earned, not given.But the earnings exceed by 20% the average income of young high-school graduates with full-time jobs.Why call that service? 3.Encouragement is fine; compulsion is not.Compelled service is unconstitutional.It is also unwise and unenforceable. (Who will throw several hundred thousand refusers in jail each year?) But through tax policy and in other ways the federal government encourages many kinds of behavior.It should also encourage service -- preferably by all classes and all ages.Its encouragement should strengthen and not undercut the strong tradition of volunteering in the U.S., should build on the service programs already in existence, and should honor local convictions about which tasks most need doing. 4.Good programs are not cheap.Enthusiasts assume that national service would get important work done cheaply: forest fires fought, housing rehabilitated, students tutored, day-care centers staffed.There is important work to be done, and existing service and conservation corps have shown that even youths who start with few skills can do much of it well -- but not cheaply. Good service programs require recruitment, screening, training and supervision -- all of high quality.They involve stipends to participants.Full-time residential programs also require housing and full-time supervision; they are particularly expensive -- more per participant than a year at Stanford or Yale.Non-residential programs are cheaper, but good ones still come to some $10,000 a year.Are they worth that?Evaluations suggest that good ones are -- especially so if the effects on participants are counted.But the calculations are challengeable. 5.Underclass youth are a special concern.Are such expenditures worthwhile, then?Yes, if targeted.People of all ages and all classes should be encouraged to serve, but there are many ways for middle-class kids, and their elders, to serve at little public cost.They can volunteer at any of thousands of non-profit institutions, or participate in service programs required by high schools or encouraged by colleges or employers. Underclass youth don't have those opportunities.They are not enrolled in high school or college.They are unlikely to be employed.And they have grown up in unprecedentedly grim circumstances, among family structures breaking down, surrounded by self-destructive behaviors and bleak prospects.But many of them can be quite profoundly reoriented by productive and disciplined service. Some won't accept the discipline; others drop out for other reasons.But some whom nothing else is reaching are transformed.Learning skills, producing something cooperatively, feeling useful, they are no longer dependent -- others now depend on them.Even if it is cheaper to build playgrounds or paint apartments or plant dune-grass with paid professionals, the effects on the young people providing those services alter the calculation. Strictly speaking, these youth are not performing service.They are giving up no income, deferring no careers, incurring no risk.But they believe themselves to be serving, and they begin to respect themselves (and others), to take control of their lives, to think of the future.That is a service to the nation.It is what federal support should try hardest to achieve. Mr. Szanton, a Carter administration budget official, heads his own Washington-based strategic planning firm.He is a co-author of "National Service: What Would It Mean?" (Lexington Books, 1986). (See related story: "Put Brakes on the Omnibus" -- WSJ Oct. 16, 1989)
Put down that phone. Walk around the room; take two deep breaths.Resist the urge to call your broker and sell all your stocks. That's the advice of most investment professionals after Friday's 190-point drop in the Dow Jones Industrial Average. No one can say for sure what will happen today.And investment pros are divided on whether stocks will perform well or badly in the next six months.But they're nearly unanimous on one point: Don't sell into a panic. Investors who sold everything after the crash of 1987 lived to regret it.Even after Friday's plunge, the Dow Jones Industrial Average was 48% above where it landed on Oct. 19 two years ago. Panic selling also was unwise during other big declines in the past.The crash of 1929 was followed by a substantial recovery before the great Depression and awful bear market of the 1930s began.The "October massacres" of 1978 and 1979 were scary, but didn't lead to severe or sustained downturns. Indeed, some pros see Friday's plunge, plus any further damage that might occur early this week, as a chance for bargain hunting. "There has been a lot of emotional selling that presents a nice buying opportunity if you've got the cash," says Stephen B. Timbers, chief investment officer of Chicago-based Kemper Financial Services Inc. But most advisers think the immediate course for individual investors should be to stand pat. "When you see a runaway train," says Steve Janachowski, partner in the San Francisco investment advisory firm Brouwer & Janachowski, "you wait for the train to stop." Even for people who expect a bear market in coming months -- and a sizable number of money managers and market pundits do -- the advice is: Wait for the market to bounce back, and sell shares gradually during rallies.The best thing individual investors can do is "just sit tight," says Marshall B. Front, executive vice president and head of investment counseling at Stein Roe & Farnham Inc., a Chicago-based investment counseling firm that manages about $18 billion. On the one hand, Mr. Front says, it would be misguided to sell into "a classic panic." On the other hand, it's not necessarily a good time to jump in and buy. "This is all emotion right now, and when emotion starts to run, it can run further than anyone anticipates," he said. "So it's more prudent to wait and see how things stabilize." Roger Ibbotson, professor of finance at Yale University and head of the market information firm Ibbotson Associates Inc., says, "My real advice would be to just ride through it.Generally, it isn't wise to be in and out" of the stock market. Mr. Ibbotson thinks that this week is "going to be a roller-coaster week." But he also thinks it is "a good week to consider buying." John Snyder, former president of the Los Angeles chapter of the National Association of Investors Corp., an organization of investment clubs and individual investors, says his fellow club members didn't sell in the crash of 1987, and see no reason to sell now. "We're dedicated long-term investors, not traders," he says. "We understand panics and euphoria.And we hope to take advantage of panics and buy stocks when they plunge." One camp of investment pros sees what happened Friday as an opportunity.Over the next days and weeks, they say, investors should look for stocks to buy. Friday's action "was an old-fashioned panic," says Alfred Goldman, director of technical market analysis for A.G. Edwards & Sons in St. Louis. "Stocks were being thrown out of windows at any price." His advice: "You ought to be there with a basket catching them." James Craig, portfolio manager for the Denver-based Janus Fund, which has one of the industry's better track records, started his buying during Friday's plunge.Stocks such as Hershey Foods Corp., Wal-Mart Stores Inc., American International Group Inc. and Federal National Mortgage Association became such bargains that he couldn't resist them, he says. And Mr. Craig expects to pick up more shares today. "It will be chaotic at first, but I would not be buying if I thought we were headed for real trouble," he says.He argues that stocks are reasonably valued now, and that interest rates are lower now than in the fall of 1987. Mr. Front of Stein Roe suggests that any buying should "concentrate in stocks that have lagged the market on the up side, or stocks that have been beaten down a lot more than the market in this correction." His firm favors selected computer, drug and pollution-control stocks. Other investment pros are more pessimistic.They say investors should sell stocks -- but not necessarily right away.Many of them stress that the selling can be orderly, gradual, and done when stock prices are rallying. On Thursday, William Fleckenstein, a Seattle money manager, used futures contracts in his personal account to place a bet that the broad market averages would decline.He thinks the underlying inflation rate is around 5% to 6%, far higher than most people suppose. In the pension accounts he manages, Mr. Fleckenstein has raised cash positions and invested in gold and natural gas stocks, partly as an inflation hedge.He thinks government officials are terrified to let a recession start when government, corporate and personal debt levels are so high.So he thinks the government will err on the side of rekindled inflation. As a result, Mr. Fleckenstein says, "I think the ball game's over," and investors are about to face a bear market. David M. Jones, vice president at Aubrey G. Lanston & Co., recommends Treasury securities (of up to five years' maturity).He says the Oct. 6 employment report, showing slower economic growth and a severe weakening in the manufacturing sector, is a warning sign to investors. One strategy for investors who want to stay in but hedge their bets is to buy "put" options, either on the individual stocks they own or on a broad market index.A put option gives its holder the right (but not the obligation) to sell a stock (or stock index) for a specified price (the strike price) until the option expires. Whether this insurance is worthwhile depends on the cost of an option.The cost, or premium, tends to get fat in times of crisis.Thus, buying puts after a big market slide can be an expensive way to hedge against risk. The prices of puts generally didn't soar Friday.For example, the premium as a percentage of the stock price for certain puts on Eli Lilly & Co. moved up from 3% at Thursday's close to only 3.3% at Friday's close, even though the shares dropped more than $5.50.But put-option prices may zoom when trading resumes today. It's hard to generalize about a reasonable price for puts.But investors should keep in mind, before paying too much, that the average annual return for stock holdings, long-term, is 9% to 10% a year; a return of 15% is considered praiseworthy.Paying, say, 10% for insurance against losses takes a deep bite out of the return. James A. White and Tom Herman contributed to this article. (See related story: "Gurus' Views Vary, But Crash Not Seen" -- WSJ Oct. 16, 1989)
Coldwell Banker Commercial Group said it sold $47 million of common stock to its employees at $10 a share, giving them a total stake of more than 40% in the commercial real estate brokerage firm. The firm, which was acquired in April from Sears, Roebuck & Co. in a management-led buy-out, had planned to sell up to $56.4 million of stock, or a 50% stake in the company, to its 5,000 employees. Though the offering didn't sell out, James J. Didion, chairman and chief executive officer, said, "We're pretty proud of the employees' response." He noted that unlike an employee stock ownership plan, where a company usually borrows money from third party lenders to buy stock that it sets aside to award employees over time, here employees had to fork out their own cash for the stock. "They came up with their own money instead of borrowed money," Mr. Didion said. "It's totally different." He said the offering was designed to create long-term incentives for employees. "We're in a service business, and in that context, it's vital to have your employees involved in the ownership so they have a stake in the success." The brokerage firm won't pay a dividend on the stock. Employees have the right to trade stock among themselves, and the company will establish an internal clearing house for these transactions.They may also eventually sell the shares to third parties, but the outside investors who own the remaining 60% of Coldwell Banker have the right to first refusal. Those outside investors in Coldwell Banker include Carlyle Group, a closely held Washington, D.C., merchant banking firm whose co-chairman is Frank Carlucci, former secretary of defense; Frederic V. Malek, senior adviser to Carlyle Group; Mellon Family Trust of Pittsburgh; Westinghouse Credit Corp., the financial services unit of Westinghouse Electric Corp.; Bankers Trust Co., a unit of Bankers Trust New York Corp.; and a group of Japanese investors represented by the investment banking unit of Tokyo-based Sumitomo Bank.Bankers Trust and Sumitomo financed the $300 million acquisition from Sears Roebuck.Coldwell Banker also named three outside director nominees for its 17 member board.The nominees are Gary Wilson, chief financial officer of Walt Disney Co.; James Montgomery, chief executive officer of Great Western Financial Corp.; and Peter Ubberroth, former commissioner of baseball and now a private investor.
The first major event this morning in U.S. stock and futures trading may be a pause at the Chicago Mercantile Exchange. Under a reform arising from the 1987 crash, trading in the Merc's stock-index futures will break for 10 minutes if the contract opens and stays five points from Friday's close, a move equal to 40 points on the Dow Jones Industrial Average.The aim of the interruption would be to ease the opening of the New York Stock Exchange, which would be hammered by such a volatile move on the Merc. That early-morning breather is just one of a number of safeguards adopted after the 1987 crash.The Big Board also added computer capacity to handle huge surges in trading volume.Several of those post-crash changes kicked in during Friday's one-hour collapse and worked as expected, even though they didn't prevent a stunning plunge.But the major "circuit breakers" have yet to be evaluated.A deeper market plunge today could give them their first test. A further slide also would resurrect debate over a host of other, more sweeping changes proposed -- but not implemented -- after the last crash.Most notably, several of the regulatory steps recommended by the Brady Task Force, which analyzed the 1987 crash, would be revived -- especially because that group's chairman is now the Treasury secretary.The most controversial of the Brady recommendations involved establishing a single overarching regulator to handle crucial cross-market questions, such as setting consistent margin requirements for the stock and futures markets. But for the moment, attention focuses on the reforms that were put into place, and market regulators and participants said the circuit breakers worked as intended.Big Board and Merc officials expressed satisfaction with the results of two limits imposed on of the Merc's Standard & Poor's 500 contract, as well as "hot-line" communications among exchanges.Those pauses -- from 2:07 p.m. to 2:30 p.m. CDT and from 2:45 p.m. until the close of trading a half-hour later -- forced traders to buy and sell contracts at prices at or higher than their frozen levels. During the first halt, after the S&P index had fallen 12 points, the Big Board's "Sidecar" computer program automatically was triggered.That system is designed to separate computer-generated program trades from all other trades to help exchange officials resolve order imbalances in individual stocks. One Merc broker compared the action in the S&P pit during the two freezes to a fire at a well-drilled school. "You don't want the fire but you know what to do," said Howard Dubnow, an independent floor broker and a Merc governor. "There was no panic.The system worked the way we devised it to work." After reopening for about 15 minutes, the S&P index tumbled to its 30-point limit and the second freeze went into effect.Traders then spent the last half-hour "watching to see if the Dow would drop 250 points," Mr. Dubnow added, referring to the level at which the stock market itself would have closed for an hour.One observer estimated that 80% to 90% of the S&P traders "were just standing around watching." But the 250-point circuit breaker never had to kick in, and freezes on the Chicago Board of Trade's Major Market Index also weren't triggered.The MMI and the S&P 500 are the two major indexes used by program traders to run their computerized trading strategies.The programs are considered by many to be a major cause of the 1987 crash. The process of post-crash reforms began with calls to remake the markets and wound up a year later with a series of rather technical adjustments. In October 1987, just after the market drop, Washington was awash in talk of sweeping changes in the way the financial markets are structured and regulated.Over the next year that grand agenda was whittled down to a series of steps to soften big stock drops by interrupting trading to give market players time to pause and reconsider positions.In addition, limits were placed on computer-driven trading, and steps were taken to better link the stock and futures markets.Few changes were made in the way the markets are regulated. At the outset the prime target was program trading, which was much discussed but little understood on Capitol Hill.There were also calls to strip the stock markets of "derivative" products, such as stock-index futures and options, which Federal Judge Stanley Sporkin, for example, likened to "barnacles attached to the basic market." And there was much criticism of the New York Stock Exchange's system of having stock trades flow through specialists, or market makers. When the Brady Task Force's powerful analysis of the crash was released in January 1988, it immediately reshaped the reformers' agenda.Arguing that the separate financial marketplaces acted as one, and concluding that the crash had "raised the possibility of a full-scale financial system breakdown," the presidential task force called for establishing a super-regulator to oversee the markets, to make margins consistent across markets, to unify clearing systems and to install circuit breakers. Only the last of those recommendations ever was implemented.The Reagan White House held the Brady recommendations at arm's length and named a second panel -- the Working Group on the Financial Markets -- to review its analysis and those of other crash studies.In May 1988, the Working Group, made up of representatives from the Federal Reserve, the Treasury, the Securities and Exchange Commission, and the Commodity Futures Trading Commission, finally endorsed only circuit breakers. After several more months of arguments among various stock exchanges and futures markets, circuit breakers were set in place, with the most notable suspending trading after 250 and 400 point drops in the Dow Jones Industrial Average.Privately, some free marketeers dismissed such mechanisms as sops to interventionists.After all, this free-market argument went, the Dow only dropped more than 250 points once this century. "Circuit breakers" set to soften big drops: -- If S&P futures fall 5 points at opening, contract trading pauses for 10 minutes. -- If Dow Industrials fall 25 points at opening, contract trading pauses for 10 minutes. -- If S&P futures fall 12 points (equivalent to about 100 points on DJIA), trading is frozen for half hour to that price or higher.On NYSE program trades are diverted into a separate computer file to determine buy and sell orders. -- If S&P futures fall 30 points, trading is restricted for an hour to that price or higher. -- If Dow Industrials fall 250 points, trading on the Big Board halts for an hour.S&P and MMI contracts also halt. -- If DJIA drops 400 points, Big Board halts trading for two hours.Trading in MMI and S&P futures also halted. Brady Task Force recommendations (Jan. 1988): -- Establish an overarching regulator for financial markets -- Unify trade-clearing systems -- Make margins consistent across stock and futures markets SEC proposals (May 1988): -- Require prompt reports of large securities trades. -- Give SEC authority to monitor risk-taking by affiliates of brokerage firms. -- Transfer jurisdiction over stock-related futures to SEC from CFTC. (Opposed by new SEC chairman) -- Give SEC authority to halt securities trading, (also opposed by new SEC chairman). Congressional proposal: -- Create a task force to review current state of the securities markets and securities laws. Breaking the Soviet government's television monopoly, an independent company has gained rights to show world programming, including American films. "There must not be a monopoly, there must be freedom of choice for both journalists and viewers," Nikolai I. Lutsenko, the president of the Nika TV company, told the weekly newspaper Nedelya.The company is already working on its own programming in several provincial cities and hopes to be on the air regularly in about a year, the newspaper said. Mr. Lutsenko told Nedelya that he recently had been to the U.S. to pick up the rights to show 5,000 U.S. films in the Soviet Union.Nedelya's article was accompanied by a picture of Mr. Lutsenko interviewing singer John Denver in Colorado. Even though it will be independent of official television, Nika will have an oversight board that will include members of the Communist youth league. South Africa's National Union of Mineworkers said that about 10,000 diamond miners struck for higher wages at De Beers Consolidated Mines Ltd. De Beers said that workers at five of the group's mines were on strike, which it said was peaceful, with orderly picketing occurring at one of the mines.The deadlock in negotiations occurred with De Beers offering a 17% increase in the minimum-wage category while the union demanded a 37.6% increase in the minimum wage. Japan's opposition Socialist Party denied that its legislators had been bribed by pinball-parlor owners.The allegation had been raised in Parliament by the governing Liberal Democratic Party following magazine reports suggesting that money from Japanese-style pinball, called pachinko, had infiltrated politics.Tsuruo Yamaguchi, secretary general of the Socialist Party, acknowledged that nine party lawmakers had received donations from the pachinko association totaling 8 million yen (about $55,000) but said the donations were legal and none of its members acted to favor the industry. The World Wide Fund for Nature said that Spain, Argentina, Thailand and Indonesia were doing too little to prevent illegal trade in endangered wildlife across their borders.A report by the conservation group presented at the U.N.-sponsored Convention on International Trade in Endangered Species in Lausanne accused the four of trading protected species ranging from parakeets to orchids.Fund official Simon Lyster said world trade in wildlife was estimated to total $5 billion of business annually. A NATO project to build a frigate for the 1990s was torpedoed by the pull-out of three of its eight participating nations.Britain, France and Italy announced technical reasons for withdrawing, but some officials pointed to growing reluctance among the allies to commit themselves to big defense spending while East-West disarmament talks show signs of success. Small wonder that Britain's Labor Party wants credit controls.A few hours after the party launched its own affinity credit card earlier this month, the Tories raised the nation's base interest rate.Labor's Visa card is believed to be the first linked to a British political party.Labor gets 25 pence (39 cents) for every 100 (about $155) that a user charges to the card.As with other plastic in Britain's high-interest-rate environment, the Labor card, administered by Co-operative Bank, carries a stiff (in this case, 29.8%) annual rate on the unpaid balance. China's year-long austerity program has achieved some successes in harnessing runaway economic growth and stabilizing prices but has failed to eliminate serious defects in state planning and an alarming drain on state budgets. The official China Daily said retail prices of non-staple foods haven't risen since last December but acknowledged that huge government subsidies were a main factor in keeping prices down.The State Statistical Bureau found that more than 1 billion yuan ($270 million) was spent in the first half of the year for pork subsidies. The newspaper quoted experts as saying the subsidies would cause the difference between prices and real values of commodities to "become very unreasonable" and reduce needed funds for investment in the "already difficult state budget." The aim of the austerity measures was to slice economic growth, which soared to 20.7% last year, to 8% in 1990.Economists now predict the growth rate will be about 11.5% for the year. In a sign of growing official tolerance for religion, Russian Orthodox priests were allowed to celebrate the 400th anniversary of the Moscow patriarchate in the Kremlin's 15th-century Uspensky Cathedral, where czars were crowned. . . . A 34-foot-tall, $7.7 million statue of Buddha was completed on a hill outside Hong Kong, facing China.The statue is the brainchild of Sik Chi Wan, director of the Po Lin Monastery, who said: "Hong Kong is such a prosperous place, we also need some kind of religious symbol."
It all seemed innocent enough: Last April, one Steven B. Iken visited Justin Products Inc. here, identified himself as a potential customer and got the word on the little company's new cassette players for children. "It is almost identical to the Sony product," Mr. Iken remarked, after seeing prototypes and pictures.Replied a Justin salesman: "Exactly." The Justin merchandise carried wholesale prices some 40% below those of Sony Corp. of Japan's "My First Sony" line.The visitor waxed enthusiastic and promised to return. But instead of a new customer -- part of a hoped-for bonanza from underselling Sony -- Justin got a costly legal morass.Mr. Iken, it turned out, was a private detective using a hidden tape recorder to gather information for Sony.His recording later turned up as a court exhibit.Seeking to keep Justin's "My Own" product line off the U.S. market, Sony last May filed a suit in Manhattan federal court accusing the upstart of trademark infringement, unfair competition and other violations of business law. Since then, life has changed a lot for 61-year-old Leonard Kaye, Justin's owner. "I haven't been able to get a decent night's sleep since this has been going on," he says. "It's the most distracting thing in my life -- I can't even attend to my business." His company (annual sales: about $25 million) may suffer a costly blow -- losing an estimated 10% of total sales -- if Sony (annual sales: about $16 billion) prevails.Justin's plight shows what can happen when a tiny company suddenly faces the full legal might of a wrathful multinational. With considerable irony, the case also shows how completely Japan has turned the tables on U.S. business.Americans used to complain bitterly about being undersold by look-alike products from Japan.Now Sony, whose innovative, premium-priced products are among the most admired in consumer electronics, is bitterly complaining about a little U.S. firm with a cheap look-alike produced in China. "The gist of this is that Justin knocked off the Sony line and Sony wants to stop it," says Lewis H. Eslinger, Sony's attorney, who previously guarded Rubik's Cube. (Sony itself declines to comment.) If Sony wins, Mr. Eslinger says, its little rival will have to try to sell the products overseas.At worst, he adds, "They'd have to grind them all up and throw them away." Mr. Kaye denies the suit's charges and says his only mistake was taking on Sony in the marketplace. "I made a similar line and I produced it cheaper," he says. Today, U.S. Judge John E. Sprizzo is expected to rule on Sony's renewed request for a pre-trial order blocking sale of the disputed products, on which deliveries began in July.The judge turned down an earlier Sony request for such an order -- a decision upheld on appeal -- but Sony returned with additional evidence and arguments. Though hoping to settle the case, Justin vows to fight on, if necessary.But the battle is more than Justin bargained for. "I had no idea I was getting in so deep," says Mr. Kaye, who founded Justin in 1982.Mr. Kaye had sold Capetronic Inc., a Taiwan electronics maker, and retired, only to find he was bored.With Justin, he began selling toys and electronics made mostly in Hong Kong, beginning with Mickey Mouse radios.The company has grown -- to about 40 employees, from four initially, Mr. Kaye says.Justin has been profitable since 1986, adds the official, who shares his office with numerous teddy bears, all samples from his line of plush toys. Like many others, Mr. Kaye took notice in 1987 when Sony, in a classic example of market segmentation, changed the plastic skin and buttons on the famous Walkman line of portable audio equipment and created the My First Sony line for children.The brightly colored new products looked more like toys than the adult models. (In court papers, Sony says it has spent more than $3 million to promote the line, with resulting sales of over a million units.) Sony found a new market niche, but Mr. Kaye figured that its prices left plenty of room for a lower-priced competitor.His products aren't exact copies of Sony's but strongly resemble them in size, shape and, especially, color.Sony uses mostly red and blue, with traces of yellow -- and so does Justin, on the theory that kids prefer these colors. ("To be successful, a product can be any color whatsoever, as long as it is fire-engine red," says Charles E. Baxley, Justin's attorney.) By last winter, Justin was showing prototypes at toy fairs in Hong Kong and New York -- and Sony noticed.Indeed, concerned that Sony sales personnel were threatening legal action or other retaliation -- such as withholding desirable Sony products -- against Justin's customers, Mr. Baxley fired off a letter to Sony in April.He himself threatened to take the matter to the Federal Trade Commission or U.S. Justice Department.But Justin hasn't pursued those charges (which were without merit, according to Mr. Eslinger, the Sony attorney).Recalls Mr. Baxley: "Our purpose was to influence them to leave us alone.We never intended taking on Sony -- we don't have the resources." Sony answered the empty threat with its real suit.Off and on since then, the companies have skirmished in court.And Justin, in a news release, says, "Once competitive, Sony now resorts to strong-arm tactics in American courtrooms to carve out and protect niche markets." Sony's lawyer insists that the company's tactics -- including the use of a private detective posing as a buyer -- are routine in such matters.He also insists that Sony, no less than others, has a legal right to protect its "trade dress," in this case, mostly the colors that it claims make My First Sony products distinctive. (Justin claims it began using the same colors on electronic goods for children long before Sony entered the children's market.) Whatever its merits, Sony's aggressive defense is debilitating for Justin.It's also costly.Mr. Kaye says he has paid more than $70,000 in legal fees so far. Of Sony, Mr. Kaye says: "They know there's no way for them to lose.They just keep digging me in deeper until I reach the point where I give up and go away." For now, though, he vows to hang in.
Mexican investor Joel Rocha Garza said he sold a block of 600,000 shares of Smith Laboratories Inc. common stock to companies affiliated with him. In a filing with the Securities and Exchange Commission, Mr. Rocha Garza said Biscayne Syndicate Inc., Lahus II Inc., and Lahus III Inc. bought the 600,000 shares on Oct. 11 for $1.4 million, or $2.375 a share. Mr. Rocha Garza said that he, Clarendon Group Ltd., Biscayne, Lahus II, and Lahus III are all affiliated and hold a combined stake of 1,234,100 shares, or 9.33%.Mr. Rocha Garza has said he wants to purchase more shares. In San Diego, Smith Laboratories President Timothy Wollaeger said the transfer of the shares isn't significant.
Friday's 190-point plunge in stocks does not come atop the climate of anxiety that dominated financial markets just prior to their 1987 October crash, and mechanisms have been put in place to keep markets more orderly.Still, the lesson is about the same: On Friday the 13th, the market was spooked by Washington. The consensus along the street seems to be that the plunge was triggered by the financing problems of the UAL takeover, and it's certainly true the rout began immediately after the UAL trading halt.Still, the consensus seems almost as wide that one faltering bid is no reason to write down the value of all U.S. business.This observation leads us to another piece of news moving on the Dow Jones ticker shortly before the downturn: the success of Senate Democrats in stalling the capital gains tax cut. The real value of all shares, after all, is directly impacted by the tax on any profits (all the more so given the limits on deductions for losses that show gains are not "ordinary income").And market expectations clearly have been raised by the capital gains victory in the House last month.An hour before Friday's plunge, that provision was stripped from the tax bill, leaving it with $5.4 billion in tax increases without a capital gains cut. There is a great deal to be said, to be sure, for stripping the garbage out of the reconciliation bill.It would be a good thing if Congress started to decide issues one-by-one on their individual merits without trickery.For one thing, no one doubts that the capital gains cut would pass on an up-or-down vote.Since Senate leaders have so far fogged it up with procedural smokescreens, promises of a cleaner bill are suspect.Especially so since President Bush has been weakened by the Panama fiasco. To the extent that the UAL troubles contributed to the plunge, they are another instance of Washington's sticky fingers.As the best opportunities for corporate restructurings are exhausted of course, at some point the market will start to reject them.But the airlines are scarcely a clear case, given anti-takeover mischief by Secretary of Transportation Skinner, who professes to believe safety will be compromised if KLM and British Airways own interests in companies that fly airplanes. Worse, Congress has started to jump on the Skinner bandwagon.James Oberstar, the Minnesota Democrat who chairs the Public Works and Transportation Committee's aviation subcommittee, has put an anti-airline takeover bill on supersonic speed so that it would be passed in time to affect the American and United Air Lines bids.It would give Mr. Skinner up to 50 days to "review" any bid for 15% or more of the voting stock of any U.S. carrier with revenues of $1 billion or more.So the UAL deal has problems, and the market loses 190 points.Congratulations, Mr. Secretary and Mr. Congressman. In the 1987 crash, remember, the market was shaken by a Danny Rostenkowski proposal to tax takeovers out of existance.Even more important, in our view, was the Treasury's threat to thrash the dollar.The Treasury is doing the same thing today; thankfully, the dollar is not under 1987-style pressure. Also, traders are in better shape today than in 1987 to survive selling binges.They are better capitalized.They are in less danger of losing liquidity simply because of tape lags and clearing and settlement delays.The Fed promises any needed liquidity.The Big Board's liaison with the Chicago Board of Trade has improved; it will be interesting to learn if "circuit breakers" prove to be a good idea.In any event, some traders see stocks as underpriced today, unlike 1987. There is nothing wrong with the market that can't be cured by a little coherence and common sense in Washington.But on the bearish side, that may be too much to expect.
Greece's second bout of general elections this year is slated for Nov. 5.For those hoping to see a modicum of political normalcy restored -- in view of Greece's eight-year misadventure under autocratic pseudosocialism and subsequent three-month hitch with a conservative-communist coalition government -- there is but one bright sign: The scandals still encircling former Prime Minister Andreas Papandreou and his fallen socialist government are like flies buzzing around a rotting carcass. In the mid-June round of voting, Greeks gave no clear mandate to any single political party.The ad interim coalition government that emerged from post-electoral hagglings was, in essence, little more than the ill-conceived offspring of ideological miscegenation: On one side, the center-right New Democracy Party, headed by Constantine Mitsotakis.On the other, the so-called Coalition of the Left and Progress -- a quaint and rather deceptive title for a merger of the pro-Soviet Communist Party of Greece and its Euro-Communist cousin, the Hellenic Left. The unifying bond for this left-right mismatch was plain: PASOK (Mr.Papandreou's party) as common political enemy.The ostensible goal was a mop-up of government corruption, purportedly at all levels, but the main marks were Mr. Papandreou and his closest associates.In point of fact, this catharsis was overdue by decades.When reduced to buzzword status in ex parte pledges, however, the notion transmogrified into a promised assault, with targets primarily for political gains, not justice. With regard to Greece's long-bubbling bank-looting scandal, Mr. Papandreou's principal accuser remains George Koskotas, former owner of the Bank of Crete and self-confessed embezzler, now residing in a jail cell in Salem, Mass., from where he is fighting extradition proceedings that would return him to Greece.Mr. Koskotas's credibility is, at best, problematic.He has ample motive to shift the blame, and his testimony has also been found less than forthright on numerous points.Nevertheless, the New Democracy and Communist parties herald his assertions as proof of PASOK complicity. Among unanswered questions are whether Mr. Papandreou received $23 million of stolen Bank of Crete funds and an additional $734,000 in bribes, as contended; whether the prime minister ordered state agencies to deposit some $57 million in Mr. Koskotas's bank and then skim off the interest; and, what PASOK's cut was from the $210 million Mr. Koskotas pinched. Two former ministers were so heavily implicated in the Koskotas affair that PASOK members of Parliament voted to refer them to the special court.But eluding parliamentary probe was the case of millions of drachmas Mr. Koskotas funneled into New Democracy coffers.In the end, the investigation produced only circumstantial evidence and "indications" that point to PASOK, not clinching proof. On another issue, Greeks were told how their national intelligence agency, the EYP, regularly monitored the telephone conversations of prominent figures, including key opposition politicians, journalists and PASOK cabinet members.Despite convincing arguments, it was never established that Mr. Papandreou personally ordered or directed the wiretaps. The central weakness of the "scandals" debates was pointed up especially well when discussions focused on arms deals and kickbacks.The coalition government tried to show that PASOK ministers had received hefty sums for OKing the purchase of F-16 Fighting Falcon and Mirage 2000 combat aircraft, produced by the U.S.based General Dynamics Corp. and France's Avions Marcel Dassault, respectively.Naturally, neither General Dynamics nor Dassault could be expected to hamper its prospective future dealings by making disclosures of sums paid (or not) to various Greek officials for services rendered. So it seems that Mr. Mitsotakis and his communist chums may have unwittingly served Mr. Papandreou a moral victory on a platter: PASOK, whether guilty or not, can now traipse the countryside condemning the whole affair as a witch hunt at Mr. Papandreou's expense.But while verbal high jinks alone won't help PASOK regain power, Mr. Papandreou should never be underestimated.First came his predictable fusillade: He charged the Coalition of the Left and Progress had sold out its leftist tenets by collaborating in a right-wing plot aimed at ousting PASOK and thwarting the course of socialism in Greece. Then, to buttress his credibility with the left, he enticed some smaller leftist parties to stand for election under the PASOK banner.Next, he continued to court the communists -- many of whom feel betrayed by the left-right coalition's birth -- by bringing into PASOK a well-respected Communist Party candidate.For balance, and in hopes of gaining some disaffected centrist votes, he managed to attract a former New Democracy Party representative and known political enemy of Mr. Mitsotakis.Thus PASOK heads for the polls not only with diminished scandal-stench, but also with "seals of approval" from representatives of its harshest accusers. Crucial as these elections are for Greece, pressing issues of state are getting lost in the shuffle.The country's future NATO participation remains unsure, for instance.Greece also must revamp major pieces of legislation in preparation for the 1992 targets of heightened Common Market cooperation.Greece's bilateral relations with the U.S. need attention soon as well.For one, the current accord concerning U.S. military bases in Greece lapses in May 1990.Negotiations for a new agreement were frozen before the June elections, but the clock is running. Another matter of concern is the extradition of Mohammed Rashid, a Palestinian terrorist who is wanted in the U.S. for the 1982 bombing of a Pan American Airways flight.The Greek courts have decided in favor of extradition in the Rashid case, but the matter awaits final approval from Greece's next justice minister.The Greeks seem barely aware of the importance of the case as a litmus test of whether Greece will be counted in or out for international efforts to combat terrorism. That PASOK could win the elections outright is improbable; the Greek press, previously eager to palm off PASOK's line, has turned on Mr. Papandreou with a wild-eyed vengeance.Yet the possibility of another lash-up government is all too real.If Mr. Papandreou becomes the major opposition leader, he could hamstring a conservative-led coalition.Also, he could force new elections early next year by frustrating the procedures for the election of the president of the republic in March. New Democracy has once again glaringly underestimated the opponent and linked its own prospects to negative reaction against PASOK, forgetting to tend to either program clarity or the rectification of internal squabbles. As for Mr. Papandreou?He's not exactly sitting pretty at this stage.But since he is undoubtedly one of the most proficient bull slingers who ever raked muck, it seems far wiser to view him as sidelined, but certainly not yet eliminated. Mr. Carpenter, a regional correspondent for National Review, has lived in Athens since 1981.
The market for $200 billion of high-risk junk bonds, battered by a succession of defaults and huge price declines this year, practically vanished Friday. Trading ground to a halt as investors rushed to sell bonds, only to find themselves deserted by potential buyers.Stunned, they watched brokerage houses mark down price quotations on their junk holdings while being able to execute very few actual trades. "The junk bond market is in a state of gridlock now -- there are no bids, only offers," says independent investor Martin D. Sass, who manages nearly $4 billion and who recently decided to buy distressed securities for a new fund.This calamity is "far from over," he says. Junk's collapse helped stoke the panicky selling of stocks that produced the deepest one-day dive in the Dow Jones Industrial Average since the Oct. 19, 1987, crash.Simultaneously, it also helped trigger this year's biggest rally in the U.S. government bond market as investors rushed to move capital into the highest-quality securities they could find. But "an eerie silence pervaded" the junk market Friday as prices tumbled on hundreds of high-yield bonds despite "no active trading," says John Lonski, an economist at Moody's Investors Service Inc.For example, the price of Southland Corp. 's $500 million of 16 3/4% bonds due 2002 -- sold less than two years ago by Goldman, Sachs & Co. -- plummeted 25% to just 30 cents on the dollar.But not even Goldman would make a market in the securities of Southland, the owner of the nationwide chain of 7-11 convenience stores that is strapped for cash.Goldman officials declined to comment. Junk bonds, which mushroomed from less than $2 billion at the start of this decade, have been declining for months as issuer after issuer sank beneath the weight of hefty interest payments.The shaky market received its biggest jolt last month from Campeau Corp., which created its U.S. retailing empire with junk financing.Campeau developed a cash squeeze that caused it to be tardy on some interest payments and to put its prestigious Bloomingdales department-store chain up for sale. Now, dozens of corporations, including Ethan Allen, TW Services and York International, that are counting on at least $7 billion of scheduled new junk financings to keep their highly leveraged takeovers and buy-outs afloat, may never get the money. "The music has stopped playing," says Michael Harkins, a principal in the investment firm of Levy Harkins. "You've either got a chair or you don't." In Friday's aftermath, says R. Douglas Carleton, a director of high-yield finance at First Boston Corp., "much of the $7 billion forward calendar could be deferred, depending on the hysteria." In August, First Boston withdrew a $475 million junk offering of Ohio Mattress bonds because potential buyers were "very skittish." The outlook "looks shaky because we're still waiting" for mutual funds, in particular, to dump some of their junk bond holdings to pay off redemptions by individual investors, says King Penniman, senior vice president at McCarthy, Crisanti & Maffei, an investment arm of Xerox Financial Services.Indeed, a Moody's index that tracks the net asset values of 24 high-yield mutual funds declined for the 17th consecutive day Friday. In a stark contrast, the benchmark 30-year Treasury bond climbed more than 2 1/2 points, or about $25 for each $1,000 face amount, to 103 12/32, its biggest gain of the year.The bond's yield dropped to 7.82%, the lowest since March 31, 1987, according to Technical Data Global Markets Group.The yield on three-month Treasury bills, considered the safest of all investments, plummeted about 0.7 percentage point to 7.16%, the largest one-day decline since 1982. The main catalyst for government bond market rally was the 190.58-point drop in the Dow Jones Industrial Average. "When you get panic in one market, you get flight to quality in the other," said Maria Ramirez, money market economist at Drexel Burnham Lambert Inc. Nevertheless, the problems of the junk market could prompt the Federal Reserve to ease credit in the months ahead. "This marks a significant shift in the interest rate outlook," says William Sullivan, director of money market research at Dean Witter Reynolds Inc., New York. Any sustained credit-easing could be a lift for junk bonds as well as other securities.Robert Dow, a partner and portfolio manager at Lord, Abbett & Co., which manages $4 billion of high-yield bonds, says he doesn't "think there is any fundamental economic rationale {for the junk bond rout}.It was herd instinct." He adds: "The junk market has witnessed some trouble and now some people think that if the equity market gets creamed that means the economy will be terrible and that's bad for junk.I don't believe that's the case, but I believe that people are running scared.There is a flight to quality, and the quality is not in equities and not in junk -- it's in Treasurys." Even as trading in high-yield issues dried up over the past month, corporations sold more than $2 billion of new junk bonds.For example, a recent $375 million offering of Petrolane Gas Services L.P. bonds sold by First Boston was three times oversubscribed.A $550 million offering of Turner Broadcasting System Inc. high-yield securities sold last week by Drexel was increased $50 million because of strong demand. First Boston estimates that in November and December alone, junk bond investors will receive $4.8 billion of coupon interest payments. "That's a clear indication that there is and will be an undercurrent of basic business going on," says Mr. Carleton of First Boston. "I don't know how people can say the junk bond market disappeared when there were $1.5 billion of orders for $550 million of junk bonds sold last week by Turner," says Raymond Minella, co-head of merchant banking at Merrill Lynch & Co. "When the rally comes, insurance companies will be leading it because they have billions to invest and invest they will.There is plenty of money available from people who want to buy well-structured deals; it's the stuff that's financed on a shoestring that people are wary of." But such highly leveraged transactions seemed to have multiplied this year, casting a pall over much of the junk market.Michael McNamara, director of fixed-income research at Kemper Financial Services, says the quality of junk issues has been getting poorer, contributing to the slide in prices. "Last year we probably bought one out of every three new deals," he says. "This year, at best, it's in one in every five or six.And our credit standards haven't changed one iota." However, Mr. McNamara said the slide in junk is creating "one hell of a buying opportunity" for selective buyers. For the moment, investors seem more preoccupied with the "bad" junk than the "good" junk. "The market has been weak since" the announcement of the Campeau cash squeeze and the company's subsequent bailout by Olympia & York, says Mr. Minella of Merrill Lynch. "That really affected the market in that people started to ask 'What else is in trouble? '" Well before Campeau, though, there were signs that the junk market was stumbling through one of its worst years ever.Despite the relatively strong economy, junk bond prices did nothing except go down, hammered by a seemingly endless trail of bad news: -- In June, two months before it would default on interest payments covering some of its $1.2 billion of speculative debt securities, New York-based Integrated Resources Inc. said it ran out of borrowed money. -- In July, Southmark Corp., the Dallas-based real estate and financial services company with about $1.3 billion of junk bonds, voluntarily filed for protection under U.S. bankruptcy law. -- By the end of July, the difference in yield between an index of junk bonds and seven-year Treasury notes widened to more than 5.5 percentage points. -- In August, Resorts International Inc., which sold more than $500 million of junk bonds, suspended interest payments. -- In September, just as the cash squeeze hit Campeau, Lomas Financial Corp. defaulted on $145 million of notes and appeared unlikely to pay interest on a total of $1.2 billion of debt securities. Meantime, regulators are becoming increasingly worried as the rush to leverage shows no signs of abating.Moody's says the frequency of corporate credit downgrades is the highest this year since 1982.In addition, there are six times as many troubled banks as there were in the recession of 1981, according to the Federal Deposit Insurance Corp. "The era of the 1980s is about compound interest and the reaching for it," says James Grant, editor of Grant's Interest Rate Observer, an early critic of the junk bond market. "What we've begun to see is the damage to businesses of paying exorbitant compound interest.Businesses were borrowing at interest rates higher than their own earnings.What we're seeing now is the wrenching readjustment of asset values to a future when speculative-grade debt will be hard to obtain rather than easy." Friday's Market Activity Prices of Treasury bonds surged in the biggest rally of the year as investors fled a plummeting stock market. The benchmark 30-year Treasury bond was quoted 6 p.m. EDT at 103 12/32, compared with 100 27/32 Thursday, up 2 1/2 points.The yield on the benchmark fell to 7.82%, the lowest since March 31, 1987, according to Technical Data Global Markets Group. The "flight to quality" began late in the day and followed a precipitous fall in the stock market.Treasurys opened lower, reacting negatively to news that the producer price index -- a measure of inflation on the wholesale level -- accelerated in September.Bond prices barely budged until midday. Many bond market participants will be closely eying the action of the Federal Reserve, which might repeat its October 1987 injection of huge amounts of liquidity to buoy the financial markets and keep the economy from slowing into a recession. Prices of municipals, investment-grade corporates and mortgage-backed bonds also rose, but lagged behind their Treasury counterparts. Mortgage securities rose in hectic trading, with most of the activity concentrated in Government National Mortgage Association 9% coupon securities, the most liquid mortgage issue. The Ginnie Mae November 9% issue ended at 98 25/32, up 7/8 point on the day, to yield about 9.28% to a 12-year average life assumption. Investment-grade corporate bonds were up about 1/2 to 3/4 point.But the yield spread between lower-quality, investment-grade issues and higher-quality bonds widened. And the yields on telephone and utility issues rose relative to other investment-grade bonds in anticipation of this week's $3 billion bond offering by the Tennessee Valley Authority. Despite rumors that the TVA's long-awaited offering would be postponed because of the debacle in the equity markets, sources in the underwriting syndicate said they expect the issue will be priced as scheduled. One of the sources said the smaller portions of $750 million each of five-year and 10-year bonds have already been "substantially oversubscribed." Municipal bonds rose as much as 3/4 point. Roger Lowenstein contributed to this article.
A federal appeals court in San Francisco ruled that shareholders can't hold corporate officials liable for false sales projections on new products if the news media concurrently revealed substantial information about the product's flaws. The ruling stems from a 1984 suit filed by shareholders of Apple Computer Inc., claiming that company officials misled investors about the expected success of the Lisa computer, introduced in 1983. Lawyers specializing in shareholder suits said they are concerned that use of the "press defense" by corporations may become popular as a result of the ruling. According to the suit, Apple officials created public excitement by touting Lisa as an office computer that would revolutionize the workplace and be extremely successful in its first year.The plaintiffs also alleged that prior to the fanfare, the company circulated internal memos indicating problems with Lisa. The suit claimed Apple's stock climbed to a high of $63.50 a share on the basis of the company's optimistic forecasts.But when the company revealed Lisa's poor sales late in 1983, the stock plummeted to a low of $17.37 a share, according to the suit.The shareholders claimed more than $150 million in losses. In 1987, the San Francisco district court dismissed the case largely because newspaper reports had sufficiently counterbalanced the company's statements by alerting consumers to Lisa's problems. Late last month, the appeals court agreed that most of the case should be dismissed.However, it gave the shareholders the right to pursue a small portion of their claim that pertains to Lisa's disk drive, known as Twiggy.The court ruled that the news media didn't reveal Twiggy's problems at the time. Lawyers are worried about the ruling's implication in other shareholder suits but pointed out that the court stressed that the ruling should be regarded as very specific to the Apple case. "The court was careful to say that the adverse information appeared in the very same articles and received the same attention as the company's statements," said Patrick Grannon, a Los Angeles lawyer at the firm of Greenfield & Chimicles, which wasn't involved in the case. "The court is saying that the adverse facts have to be transferred to the market with equal intensity and credibility as the statements of corporate insiders." Shareholders' attorneys at the New York firm of Milberg, Weiss, Bershad, Specthrie & Lerach last week petitioned for a rehearing of the case.They wrote: "The opinion establishes a new rule of immunity -- that if a wide variety of opinions on a company's business are publicly reported, the company can say anything without fear of securities liability." NFL ORDERED to pay $5.5 million in legal fees to defunct The National Football League is considering appealing the ruling stemming from the U.S. Football League's largely unsuccessful antitrust suit against the NFL. A jury in 1986 agreed with the USFL's claims that the NFL monopolized major league football.But the jury awarded the USFL only $1 in damages, trebled because of the antitrust claims. Last week, the U.S. Court of Appeals in New York upheld a $5.5 million award of attorneys fees to the defunct league.Harvey D. Myerson, of Myerson & Kuhn, then of Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, was the lead trial lawyer, and his new firm pursued the application appeal.Douglas R. Pappas of Myerson & Kuhn says about $5.3 million of the award goes directly to the USFL to reimburse it for fees already paid.Myerson & Kuhn will get about $260,000 for the costs of pressing the application. The federal appeals court held that the nominal damages and the failure to prove all claims didn't exclude the USFL from being reimbursed.Antitrust laws provide that injured parties may be reimbursed for lawyers' fees. But Shepard Goldfein, an attorney for the NFL, says his client will consider asking for another hearing or appealing to the U.S. Supreme Court.Mr. Goldfein, of Skadden, Arps, Slate, Meagher & Flom in New York, says the ruling is wrong and the fee award is excessive because the USFL lost its major claims, including its contention that the NFL restrained trade through television contracts. "The USFL was not the prevailing party," Mr. Goldfein insists. HOUSTON-CALGARY ALLIANCE: Fulbright & Jaworski of Houston and Fenerty, Robertson, Fraser & Hatch of Calgary, Alberta, are affiliating to help serve their energy-industry clients.The affiliation is believed to be the first such cross-border arrangement among major law firms.The firms aren't required to refer work exclusively to each other and remain separate organizations.But they will work together on energy-, environmental- and fair-trade-related issues and conduct seminars on topics of mutual interest, said Gibson Gayle Jr. of 585-lawyer Fulbright & Jaworski.In addition, Fulbright & Jaworski's Washington, D.C., office will play a key role as the firms work together on regulatory issues, particularly natural-gas exports, for their clients.The arrangement, reached after about eight months of negotiations, grew out of 80-lawyer Fenerty Robertson's desire to develop ties with a U.S. firm in light of relaxed trade barriers between the U.S. and Canada, said Francis M. Saville of Fenerty Robertson. IN WHAT MAY SIGNAL a turnaround for asbestos manufacturers, W.R. Grace & Co. won a 3 1/2-week trial in Pittsburgh over whether it should be required to remove asbestos fireproofing from a local high school.Mount Lebanon High School, near Pittsburgh, sought $21 million in compensatory damages from Grace, arguing that the asbestos, which can cause respiratory diseases and lung cancer, posed a risk to students.Grace successfully contended that removing the fire retardant would pose a greater health risk than leaving it alone.A spokesman for the company said the verdict is thought to be the first in favor of an asbestos manufacturer where the plaintiff was a school and the asbestos in question was used for fireproofing. FCC COUNSEL JOINS FIRM: Diane S. Killory will join 500-lawyer Morrison & Foerster as a partner in its Washington, D.C., office in mid-November.She will help develop the mass-media practice of the San Francisco-based firm's communications group.Ms. Killory, 35 years old, resigned as Federal Communications Commission general counsel early this month after nearly three years in that post.She was the first woman to be appointed FCC general counsel. RICHARD P. MAGURNO, formerly Eastern Airlines' top lawyer, joined the New York law firm of Lord Day & Lord, Barrett Smith as a partner.Mr. Magurno, 45, spent 17 years at the Miami airline unit of Houston-based Texas Air Corp. and was named general counsel in 1984.He left the company in 1987.Mr. Magurno said he will split his time between the 200-lawyer firm's offices in Washington, D.C., and New York, with specialties in aviation and labor law.
U.S. OFFICIALS MOVED to head off any repeat of Black Monday today following Friday's plunge in stock prices.Fed Chairman Greenspan signaled that the central bank was prepared to inject massive amounts of money into the banking system to prevent a financial crisis.Other U.S. and foreign officials also mapped out plans, though they kept their moves quiet to avoid making the financial markets more jittery. Friday's sell-off was triggered by the collapse of UAL's buy-out plan and a big rise in producer prices.The Dow Jones industrials skidded 190.58, to 2569.26.The junk bond market came to a standstill, while Treasury bonds soared and the dollar fell. Japanese stocks dropped early Monday, but by late morning were turning around.The dollar was trading sharply lower in Tokyo. Prospects for a new UAL buy-out proposal appear bleak.Many banks refused to back the $6.79 billion transaction, but bankers said it was not from any unwillingness to finance takeovers.The decision was based solely on problems with the UAL management-pilot plan, they said. The surge in producer prices in September followed three months of declines, but analysts were divided on whether the 0.9% jump signaled a severe worsening of inflation.Also, retail sales grew 0.5% last month. A capital-gains tax cut was removed from the Senate's deficit reduction bill, but proponents still hope to enact the cut this year.Bush won't press for a capital-gains provision in the final deficit bill when House-Senate conferees meet later this week. General Motors signaled that up to five North American assembly plants may close by the mid-1990s as it tries to cut excess capacity. U.S. car and truck sales fell 12.6% in early October, the first sales period of the 1990-model year, dragged down by a sharp decline in GM sales. Warner and Sony are entangled in a legal battle over movie producers Peter Gruber and Jon Peters.The fight could set back Sony's plans to enter the U.S. movie business. Hooker's U.S. unit received a $409 million bid for most of its real-estate and shopping-center assets from an investor group.The offer doesn't include Bonwit Teller or B. Altman. The Boeing strike is starting to affect airlines.America West said Friday it will postpone its new service out of Houston because of delays in receiving aircraft from Boeing. Saatchi & Saatchi would launch a management buy-out if a hostile suitor emerged, an official said. British Aerospace and France's Thomson-CSF are nearing a pact to merge guided-missile divisions. New U.S. steel-import quotas will give a bigger share to developing nations that have relatively unsubsidized steel industries.Japan's steel quota will be cut significantly. Four ailing S&Ls were sold off by government regulators, but low bids prevented the sale of a fifth. Markets -- Stocks: Volume 251,170,000 shares.Dow Jones industrials 2569.26, off 190.58; transportation 1406.29, off 78.06; utilities 211.96, off 7.29. Bonds: Shearson Lehman Hutton Treasury index 3421.29, up Commodities: Dow Jones futures index 129.87, up 0.01; spot index 129.25, up 0.28. Dollar: 142.10 yen, off 2.07; 1.8740 marks, off 0.0343.
Roger Rosenblatt, editor of U.S. News & World Report, resigned Friday from the weekly news magazine. Mr. Rosenblatt said he resigned because of difficulties with commuting between his home in New York and the magazine's editorial offices in Washington. "Frankly, I missed my family," said Mr. Rosenblatt. In Mr. Rosenblatt's tenure, the magazine's advertising pages and circulation have grown significantly.But at 2.3 million weekly paid circulation, U.S. News still ranks third behind Time Warner Inc. 's Time magazine, with 4.4 million circulation, and Washington Post Co. 's Newsweek, with 3.3 million circulation. Mortimer B. Zuckerman, chairman and editor in chief, said Mr. Rosenblatt would be succeeded starting today by Michael Ruby, the magazine's executive editor, and Merrill McLoughlin, a senior writer.Mr. Ruby and Ms. McLoughlin are married to each other.Mr. Zuckerman said his magazine would maintain its editorial format, which is a mix of analysis and trend stories with service-oriented, how-to articles. Mr. Rosenblatt, a senior writer at Time magazine before joining U.S. News & World Report, said he had numerous job offers from other magazines while he was editor.The offers were to work as a writer, not an editor.He said he will now consider those offers.
Lomas Financial Corp., Dallas, said it will ask a U.S. bankruptcy court to allow it to hire Lazard Freres & Co. to help it sell its leasing unit. Lomas, assisted by Merrill Lynch Capital Markets, has been trying to sell its Equitable Lomas Leasing Co. for several months, apparently without success. The real estate and mortgage banking concern had hoped to use proceeds from the sale to reduce its debt.Without cash from asset sales and unable to reach a new bank-credit agreement, Lomas defaulted on $145 million in notes that became due Sept. 1.It filed for protection from creditors under Chapter 11 of the federal Bankruptcy Code Sept. 24 to give it additional time to work on a plan to restructure its $1.45 billion in senior debt. Lomas said Merrill Lynch, which owns bonds and equity in Lomas, couldn't continue as Lomas's investment banker because it is also a creditor.It said it chose Lazard in part because of Lazard's offices in Europe and Japan, where investors might be interested in a U.S. leasing company.
Canadian Imperial Bank of Commerce said it will increase its loan-loss provisions to cover all its loans to lesser developed countries, except Mexico, resulting in an after-tax charge to 1989 earnings of 300 million Canadian dollars (US$255 million). Don Bowder, senior vice president and chief accountant, said the bank's strong earnings enable it to be the first major Canadian bank to set aside provisions covering all its C$1.17 billion in non-Mexican LDC debt. "It eliminates the continuing uncertainty with respect to the ultimate value of the loans," he said. The bank said about C$525 million will be added to its existing LDC and general loss provisions in its fourth quarter, ending Oct. 31.Mr. Bowder said the C$300 million charge to earnings would amount to about C$1.34 a share.The bank's net income for the nine months ended July 31 was C$577 million, or C$3.10 a share. Mr. Bowder said the bank will restructure its C$604 million of Mexican debt, of which C$255 million is in Mexican notes secured by U.S. government bonds.The bank has a 45% reserve against the remaining C$349 million of Mexican debt and expects to swap that for other Mexican notes supported by U.S. Treasury zero-coupon bonds. Mr. Bowder said the bank's experience with LDC debt has been "painful" and this latest move represents the final phase of a program begun seven years ago to reduce its exposure through provisioning, debt sales and debt swaps.He said the bank will no longer participate in LDC sovereign lending, but will support trade financing and other transactions that meet the bank's standards.
The carnage among takeover stocks Friday doesn't mean the end of mega-mergers but simply marks the start of a less ambitious game, Wall Street's big-time deal makers say. Suitors from now on are more likely to be expansion-minded companies, rather than raiders or debt-happy financiers.And they will be launching lower-priced and perhaps fewer deals, now that it's tougher to finance them. This is an ominous sign for a stock market that lately has been fueled by takeover speculation and bidding wars for companies that put themselves up for sale.Whenever the 1980s merger boom seems to be stalling, shock waves ripple through the stock market. "The market is overvalued, not cheap," says Alan Gaines of the New York money-management firm Gaines Berland.He recently began increasing his cash position to 45% of his portfolio. "I look at where deals can get done," he says, "and they're not getting done" at current prices. Lenders are growing increasingly nervous about debt-financed takeovers, investment bankers say. "You had a week of a deteriorating junk-bond market that ran smack into the news on Friday about what appeared to be happening to the bank debt market," says Steven Rattner, a partner and merger specialist with Lazard Freres & Co. Trading dried up Friday in the market for high-yield junk bonds, often used to finance takeovers.It was the latest in a series of setbacks for the junk bond market, where prices began weakening last month after Campeau hit a cash crunch. And banks appear to be taking an increasingly skeptical view of requests for high-risk takeover loans.The group trying to buy UAL announced Friday that it couldn't arrange the $7.2 billion in bank loans it needs to buy the parent of United Airlines for $300 a share. Takeover-stock traders today will be scrambling to learn of any UAL developments, and other takeover stocks are likely to trade in sympathy.Investment bankers representing the buy-out group and UAL's board spent a frantic weekend trying to hammer out new terms that would be more acceptable to the banks. After UAL, the stock viewed as most vulnerable is American Airlines' parent AMR, the target of a $120-a-share takeover proposal from New York real estate developer Donald Trump.Trading in AMR shares was suspended shortly after 3 p.m. EDT Friday and didn't resume.Before the halt, AMR last traded at 98 5/8.Late Friday night, the London office of Jefferies & Co., a Los Angeles securities firm, traded AMR shares at prices as low as 80.Similarly, Delta Air Lines and USAir Group dropped 10.1% and 8.5%, respectively, on Friday and could weaken further. Over the weeked, however, two developments in other deals indicated that commerical banks and Wall Street firms still are willing to commit billions of dollars to finance takeover bids launched by major companies. Vitro S.A., a major Mexican glass maker, said yesterday that it agreed to buy Anchor Glass Container in a tender offer for $21.25 a share, sweetened from the original $20-a-share offer Vitro launched two months ago.On Friday, Anchor shares fell 1 1/4 to close at 18 1/2. For the broader market, the greatest significance of the Vitro-Anchor deal may be that it was put together late Friday night -- after the market rout -- and involves a $155 million temporary "bridge" loan from Donaldson, Lufkin & Jenrette Securities and a $139 million loan from Security Pacific National Bank. Moreover, to complete the entire Anchor Glass purchase and refinance existing debt, Donaldson said it is "highly confident" that it will be able to sell $400 million of junk bonds for Vitro, despite the current disarray in the junk bond market.Donaldson's statement isn't merely an idle boast, because those bonds will have to be sold before Donaldson's bridge loan can be paid back.Security Pacific, meanwhile, said it expects to arrange $430 million in bank loans for Vitro. In another takeover battle, a spokesman for McCaw Cellular Communications said yesterday that McCaw has been advised by three commercial banks that they remain "highly confident" they can arrange $4.5 billion of bank loans for McCaw's tender offer for about 45% of LIN Broadcasting, "notwithstanding recent events." McCaw is offering $125 a share for 22 million LIN shares, thereby challenging LIN's proposal to spin off its television properties, pay shareholders a $20-a-share special dividend and combine its cellular-telephone operations with BellSouth's cellular business. On Friday, LIN shares were among the few takeover issues that didn't fall much, dropping 5 1/2, or 4.9%, to close at 107 1/2.Traders and investment bankers said LIN shares weren't hurt much because BellSouth is viewed as a well-financed corporate buyer unlikely to be affected by skittishness among bankers or bond buyers. Investment bankers interviewed over the weekend see a silver lining for the merger business in the stock-market drop.Potential bidders for companies "were saying that things were beginning to look expensive," says Mr. Rattner of Lazard. "Nothing makes things look cheaper than a 200-point drop in the Dow," Mr. Rattner says. "Just as there are people waiting to become bargain hunters in the stock market, there are people waiting to become bargain hunters in the deal market." Investment bankers expect most of those bargain hunters to be well-heeled corporations. "In the past, corporate buyers were often discouraged from making bids because of competition from LBO firms, which were often prepared to outbid" the corporations, says J. Tomilson Hill, head of mergers and acquisitions at Shearson Lehman Hutton.Now, "corporate buyers should be willing to re-enter the acquisition market because the competition from junkbond-financed buyers has been reduced." Many takeover stocks plunged Friday, as speculators retained their confidence in corporate buyers but fled from the socalled whisper stocks, the targets of rumored deals. Columbia Pictures Entertainment, which has agreed to a friendly $27-a-share bid from Sony of Japan, fell only 1/8 to close at 26 5/8. But several stocks long rumored to be ripe for a takeover or restructuring fell 10% or more.They include USX, down 11.7%; Upjohn, down 11.1%; Campbell Soup, down 11%; Paramount Communications, off 10.3%; Woolworth, down 10.2%; Delta Air Lines, down 10.1%, and MCA, down 9.7%. The market -- and investment bankers -- are even less sanguine about companies that have had at least one bid, merger agreement or restructuring plan fall through already.Given the weakness in both the junk bond market and the stock market, traders fear that these transactions may be revised yet again. Examples include Kollmorgen, whose agreement to be acquired for $25 a share by Vernitron collapsed last month.Kollmorgen shares fell nearly 20% on Friday to close at 12 7/8. Ramada, which first delayed and then shelved a $400 million junk bond sale that was designed to help finance a restructuring, fell 15.6% to close at 9 1/2.Ramada has said it hopes to propose a new restructuring plan but hasn't indicated when it will do so. Shares of American Medical International, which agreed last week to accept a lower price from a buy-out group that includes First Boston Corp. and the Pritzker family of Chicago, fell 15.8% on Friday to close at 20.The buy-out group is offering $26.50 a share for 63 million American Medical shares, down from its offer in July of $28 a share for 68.8 million shares. But investment bankers say the market may have oversold some takeover-related stocks.Hilton Hotels, for example, was among the worst-hit issues, falling 20.2% to close at 85, down 21 1/2 on Friday. Hilton currently is soliciting bids for a sale of part or all of its hotel and casino businesses.People familiar with Hilton said over the weekend that the depth of the sell-off in Hilton shares was unwarranted because none of the likely buyers would be dependent on junk-bond financing.However, they conceded that some potential bidders would rely on bank loans and would be hurt if the troubles of the UAL buy-out group signified a general unwillingness among banks to provide credit for debt-financed takeovers. Hilton officials said they weren't worried about the drop in the company's stock.William Lebo, Hilton's general counsel, said plans to consider a sale of the company or some of its assets are "on track" for what has been described previously as "a slow and deliberate process." "I can't believe that any potential buyer for Hilton would be affected by one day's trading," Mr. Lebo said. But the stock market as a whole, bolstered as it is by takeover speculation, remains vulnerable to any further pullback by takeover financiers, both in the junkbond market and among commercial banks.For debt-ridden suitors, "the takeover game has been over for some time," says New York money manager Neil Weisman of Chilmark Capital, who has been keeping 85% of his portfolio in cash. "The market is just waking up to that point." Pauline Yoshihashi in Los Angeles contributed to this column.
Of all the one-time expenses incurred by a corporation or professional firm, few are larger or longer term than the purchase of real estate or the signing of a commercial lease. To take full advantage of the financial opportunities in this commitment, however, the corporation or professional firm must do more than negotiate the best purchase price or lease terms.It must also evaluate the real-estate market in the chosen location from a new perspective.Specifically, it must understand how real-estate markets overreact to shifts in regional economies and then take advantage of these opportunities. When a regional economy catches cold, the local real-estate market gets pneumonia.In other words, real-estate market indicators, such as building permits and leasing activity, plummet much further than a local economy in recession.This was seen in the late 1960s in Los Angeles and the mid-1970s in New York.But the reverse is also true: When a region's economy rebounds from a slowdown, these real-estate indicators will rebound far faster than the improving economy. Why do local real-estate markets overreact to regional economic cycles?Because real-estate purchases and leases are such major long-term commitments that most companies and individuals make these decisions only when confident of future economic stability and growth. Metropolitan Detroit was written off economically during the early 1980s, as the domestic auto industry suffered a serious sales depression and adjustment.Area employment dropped by 13% from its 1979 peak and retail sales were down 14%.However, the real-estate market was hurt even more.For example, residential building permits in the trough year of 1982 were off 76% from the 1979 peak level. Once metropolitan Detroit's economy rallied in the mid-1980s, real estate rebounded.Building permits, for example, soared a staggering 400% between 1982 and the peak year of 1986. Where, savvy corporations and professional firms are now asking, are today's opportunities? Look no further than metropolitan Houston and Denver, two of the most depressed, overbuilt and potentially undervalued real-estate markets in the nation.Of course, some observers have touted Houston and Denver for the past five years as a counter-cyclical play.But now appears to be the time to act. Metropolitan Houston's economy did drop and then flatten in the years after its 1982 peak.In the mid-1980s, employment was down as much as 5% from the 1982 peak and retail sales were off 13%. The real-estate market suffered even more severe setbacks.Office construction dropped 97%.The vacancy rate soared more than 20% in nearly every product category, and more than 30% of office space was vacant.To some observers, the empty office buildings of Houston's "see-through skyline" were indicative of a very troubled economy. As usual, the real-estate market had overreacted.Actually, the region's economy retained a firm foundation.Metropolitan Houston's population has held steady over the past six years.And personal income, after slumping in the mid-1980s, has returned to its 1982 level in real dollar terms. Today, metropolitan Houston's real-estate market is poised for a significant turnaround.More than 42,000 jobs were added in metro Houston last year, primarily in biotechnology, petrochemical processing, and the computer industry.This growth puts Houston in the top five metro areas in the nation last year.And forecasts project a 2.5% to 3% growth rate in jobs over the next few years -- nearly twice the national average. Denver is another metropolitan area where the commercial real-estate market has overreacted to the region's economic trends, although Denver has not experienced as severe an economic downturn as Houston.By some measures, metropolitan Denver's economy has actually improved in the past four years.Its population has continued to increase since 1983, the peak year of the economic cycle.Employment is now 4% higher than in 1983.Buying income in real dollars actually increased 15% between 1983 and 1987 (the most recent year available). The rates of increase, however, are less than the rapid growth of the boom years, and this has resulted in a loss of confidence in the economy.In a self-fulfilling prophecy, therefore, the region's real-estate market all but collapsed in recent years.Housing building permits are down more than 75% from their 1983 peaks. Although no one can predict when metropolitan Denver's real-estate market will rebound, major public works projects costing several billion dollars are under way or planned -- such as a new convention center, a major beltway encircling the metropolitan area, and a new regional airport.When Denver's regional economy begins to grow faster -- such a recovery could occur as early as next year -- business and consumer confidence will return, and the resulting explosion of real-estate activity will dwarf the general economic rebound. What real-estate strategy should one follow in a metropolitan area whose economic health is not as easy to determine as Houston's or Denver's?Generally, overcapacity in commercial real estate is dropping from its mid-1980s peak, even in such economically healthy metropolitan areas as Washington, New York and Los Angeles.Vacancy rates in the 15% to 19% range today may easily rise to the low to mid-20% range in a couple of years.Under these conditions, even a flattening out of economic growth -- "catching cold" -- in the healthy metropolitan areas will create significant opportunities for corporations and professional service firms looking for bargains as the realestate industry catches pneumonia. Those looking for real-estate bargains in distressed metropolitan areas should lock in leases or buy now; those looking in healthy metropolitan areas should take a short-term (three-year) lease and wait for the bargains ahead. Mr. Leinberger is managing partner of a real-estate advisory firm based in Beverly Hills, Calif.
Keystone Consolidated Industries Inc. expects to report earnings before extraordinary tax benefits of about $1.5 million, or about 41 cents a share, for the third quarter, compared with a loss last year, said Glenn R. Simmons, chairman and chief executive officer. After a tax benefit of about $780,000, Keystone expects to report net income of $2.3 million, or about 62 cents a share, Mr. Simmons said.For third quarter last year, Keystone reported a $1 million loss from continuing operations and a $200,000 loss from discontinued operations, for a net loss of $1.2 million. Revenue for the latest third quarter was about $70.5 million, up 10% from $63.6 million last year, he said. Mr. Simmons said the results signal a turnaround for the maker of wire and wire products, which has struggled to remain competitive in the face of lower-priced, imported steel.A new $46 million steel rod minimill, which got off to a rocky start in early 1988, now is running efficiently and a new management team is more heavily marketing Keystone's products, Mr. Simmons said. As a result, the company hopes to report net income for the year of about $11.6 million, or about $3.10 to $3.15 a share, compared with a net loss of $24.4 million last year, after a loss from discontinued operations of $18.4 million.Revenue for 1989 is expected to be about $300 million, up about 21% from $247.3 million in 1988. For the nine months ended Sept. 30, Keystone expects to report net income of $9.3 milion, or about $2.53 a share, after an extraordinary gain from $3.2 million in tax benefits.Last year, the company had a net loss of $6.5 million, including a $6.1 million loss from continuing operations and a $400,000 loss from discontinued operations.Revenue for the nine months is expected to be about $230.5 million, up about 21% from $190.4 million last year. Mr. Simmons said Keystone's new mill is expected to produce about 585,000 tons of steel rods this year, up from 413,000 tons in 1988.Production at the mill has exceeded the ability of Keystone's casting operation to supply it, he said, which will force Keystone to purchase billet, or unfinished steel bars, from outside the company during the fourth quarter and next year. Keystone will have to consider expanding its casting operation, at an estimated cost of $8 million to $10 million, within the next 18 to 24 months, Mr. Simmons said. Under Robert W. Singer, who was named president and chief operating officer last year, Keystone has expanded its sales force to about 20 people from about 15 and hopes to expand its sales from the middle portion of the country toward the East and West coasts. "Prior to a year ago, Keystone was an order-taker.Now I think we have a group of marketing people who are out selling to retailers and wholesalers," Mr. Simmons said. Still, he said, the 100-year-old company plans to continue its premium-priced strategy for its distinctive brand of red-tipped wire fencing and other products.The company claims a 40% share of the U.S. field fence business, a 35% share of poultry netting sales and a 30% share of barbed wire sales.
Common Cause asked both the Senate Ethics Committee and the Justice Department to investigate $1 million in political gifts by Arizona businessman Charles Keating to five U.S. senators who interceded with thrift-industry regulators for him. Mr. Keating is currently the subject of a $1.1 billion federal anti-racketeering lawsuit accusing him of bleeding off assets of a California thrift he controlled, Lincoln Savings & Loan Association, and driving it into insolvency. Fred Wertheimer -- president of Common Cause, the self-styled citizens lobby -- said Mr. Keating already has conceded attempting to buy influence with the lawmakers -- Democratic Sens.Dennis DeConcini of Arizona, Alan Cranston of California, John Glenn of Ohio and Donald Riegle of Michigan; and GOP Sen. John McCain of Arizona. Mr. Wertheimer based this on a statement by Mr. Keating that was quoted in a Wall Street Journal story in April: "One question . . . had to do with whether my financial support in any way influenced several political figures to take up my cause.I want to say in the most forceful way I can: I certainly hope so." In a highly unusual meeting in Sen. DeConcini's office in April 1987, the five senators asked federal regulators to ease up on Lincoln.According to notes taken by one of the participants at the meeting, the regulators said Lincoln was gambling dangerously with depositors' federally insured money and was "a ticking time bomb." Mr. Keating had complained that the regulators were being too zealous. The notes show that Sen. DeConcini called the Federal Home Loan Bank Board's regulations "grossly unfair," and that Sen. Glenn insisted that Mr. Keating's thrift was "viable and profitable." For the next two years, the Bank Board, which at the time was the agency responsible for regulating thrifts, failed to act -- even after federal auditors warned in May 1987 that Mr. Keating had caused Lincoln to become insolvent.Lincoln's parent company, American Continental Corp., entered bankruptcy-law proceedings this April 13, and regulators seized the thrift the next day.The newly formed Resolution Trust Corp., successor to the Bank Board, filed suit against Mr. Keating and several others on Sept. 15. Mr. Keating has filed his own suit, alleging that his property was taken illegally. The cost to taxpayers of Lincoln's collapse has been estimated at as much as $2.5 billion. Details of the affair have become public gradually over the past two years, mostly as a result of reporting by several newspapers.In the midst of his 1988 re-election campaign, Sen. Riegle, chairman of the Senate Banking Committee, returned $76,000 in contributions after a Detroit newspaper said that Mr. Keating had gathered the money for him about two weeks before the meeting with regulators. Sen. DeConcini, after months of fending off intense press criticism, returned $48,000 only last month, shortly after the government formally accused Mr. Keating of defrauding Lincoln. In addition, Sen. McCain last week disclosed that he belatedly had paid $13,433 to American Continental as reimbursement for trips he and his family took aboard the corporate jet to Mr. Keating's vacation home at Cat Cay, the Bahamas, from 1984 through 1986.Sen. McCain said he had meant to pay for the trips at the time but that the matter "fell between the cracks." Mr. Keating, his family members and associates also donated $112,000 to Sen. McCain's congressional campaigns over the years, according to press accounts.But Sen. McCain says Mr. Keating broke off their friendship abruptly in 1987, because the senator refused to press the thrift executive's case as vigorously as Mr. Keating wanted. "He became very angry at that, left my office and told a number of people that I was a wimp," Sen. McCain recalls. In July, California newspapers disclosed that Mr. Keating gave $850,000 in corporate funds to three tax-exempt voter registration organizations in 1987 and 1988 at the behest of Sen. Cranston, who conceded that soliciting the money was "a pretty stupid thing to do politically." In addition, Sen. Cranston received $47,000 in campaign donations through Mr. Keating, and the California Democratic party received $85,000 in corporate donations for a 1986 get-out-the-vote drive that benefited the senator's re-election campaign that year. Also in July, Ohio newspapers disclosed $200,000 in corporate donations by Mr. Keating to the National Council on Public Policy, a political committee controlled by Sen. Glenn.That was in addition to $34,000 in direct campaign donations arranged by Mr. Keating to the Ohio senator. Mr. Wertheimer said the Senate Ethics Committee should hire a special outside counsel to conduct an investigation, as was done in the case of former House Speaker James Wright.Wilson Abney, staff director of the ethics panel, wouldn't comment. Sen. Riegle said he would cooperate with any inquiry, but that his conduct had been "entirely proper." Sen. McCain said he had been "deeply concerned" at the time of the meeting that it might seem to be improper, but decided it was "entirely appropriate" for him to seek fair treatment for a constituent. Sen. Glenn said he had already made a complete disclosure of his role in the affair and "I am completely satisfied to let this matter rest in the hands of the Senate Ethics Committee." Sen. DeConcini said, "When all is said and done, I expect to be fully exonerated." Sen. Cranston, who had already volunteered his help to the Federal Bureau of Investigation in any investigation of Mr. Keating, portrayed his role in 1987 as prodding regulators to act. "Why didn't the Bank Board act sooner?" he said. "That is what Common Cause should ask be investigated."
When China opened its doors to foreign investors in 1979, toy makers from Hong Kong were among the first to march in. Today, with about 75% of the companies' products being made in China, the chairman of the Hong Kong Toys Council, Dennis Ting, has suggested a new sourcing label: "Made in China by Hong Kong Companies." The toy makers were pushed across the border by rising labor and land costs in the British colony.But in the wake of the shootings in Beijing on June 4, the Hong Kong toy industry is worrying about its strong dependence on China.Although the manufacturers stress that production hasn't been affected by China's political turmoil, they are looking for additional sites.The toy makers, and their foreign buyers, cite uncertainty about China's economic and political policies. "Nobody wants to have all his eggs in one basket," says David Yeh, chairman and chief executive officer of International Matchbox Group Ltd. Indeed, Matchbox and other leading Hong Kong toy makers were setting up factories in Southeast Asia, especially in Thailand, long before the massacre.Their steps were partly prompted by concern over a deterioration of business conditions in southern China. By diversifying supply sources, the toy makers don't intend to withdraw from China, manufacturers and foreign buyers say.It wouldn't be easy to duplicate quickly the manufacturing capacity built up in southern China during the past decade.A supply of cheap labor and the access to Hong Kong's port, airport, banks and support industries, such as printing companies, have made China's Guangdong province a premier manufacturing site. "South China is the most competitive source of toys in the world," says Henry Hu, executive director of Wah Shing Toys Consolidated Ltd. Hong Kong trade figures illustrate the toy makers' reliance on factories across the border.In 1988, exports of domestically produced toys and games fell 19% from 1987, to HK$10.05 billion (US$1.29 billion).But re-exports, mainly from China, jumped 75%, to HK$15.92 billion.In 1989's first seven months, domestic exports fell 29%, to HK$3.87 billion, while re-exports rose 56%, to HK$11.28 billion. Manufacturers say there is no immediate substitute for southern China, where an estimated 120,000 people are employed by the toy industry. "For the next few years, like it or not, China is going to be the main supplier," says Edmund Young, vice president of Perfecta Enterprises Ltd., one of the first big Hong Kong toy makers to move across the border. In the meantime, as manufacturers and buyers seek new sites, they are focusing mainly on Southeast Asia.Several big companies have established manufacturing joint ventures in Thailand, including Matchbox, Wah Shing and Kader Industrial Co., the toy manufacturer headed by Mr. Ting.Malaysia, the Philippines and Indonesia also are being studied. With the European Community set to remove its internal trade barriers in 1992, several Hong Kong companies are beginning to consider Spain, Portugal and Greece as possible manufacturing sites. Worries about China came just as Hong Kong's toy industry was recovering from a 1987 sales slump and bankruptcy filings by two major U.S. companies, Worlds of Wonder Inc. and Coleco Industries Inc. Hong Kong manufacturers say large debt writeoffs and other financial problems resulting from the 1987 difficulties chastened the local industry, causing it to tighten credit policies and financial management.The industry regards last year and this year as a period of recovery that will lead to improved results.Still, they long for a "mega-hit" toy to excite retail sales in the U.S., Hong Kong's biggest market for toys and games. The closest thing the colony's companies have to a U.S. mega-hit this year is the Teenage Mutant Ninja Turtles series of action figures manufactured by Playmates Holdings Ltd. Introduced in mid-1988, the 15-centimeter-tall plastic turtles are based on an American comic book and television series. Paul Kwan, managing director of Playmates, says 10 million Ninja Turtles have been sold, placing the reptilian warriors among the 10 biggest-selling toys in the U.S.Should sales continue to be strong through the Christmas season, which accounts for about 60% of U.S. retail toy sales, Mr. Kwan said the Ninja Turtles could make 1989 a record sales year for Playmates. Other Hong Kong manufacturers expect their results to improve only slightly this year from 1988.Besides the lack of a fast-selling product, they cite the continued dominance of the U.S. market by Nintendo Entertainment System, an expensive video game made by Nintendo Co. of Japan.Nintendo buyers have little money left to spend on other products. Many of the toy makers' problems started well before June 4 as a result of overstrained infrastructure and Beijing's austerity programs launched late last year.Toy makers complain that electricity in Guangdong has been provided only three days a week in recent months, down from five days a week, as the province's rapid industrialization has outstripped its generating capacity.Manufacturers are upgrading standby power plants. Bank credit for China investments all but dried up following June 4.Also, concern exists that the harder-line Beijing leadership will tighten its control of Guangdong, which has been the main laboratory for the open-door policy and economic reforms. But, toy manufacturers and other industrialists say Beijing will be restrained from tightening controls on export-oriented southern China.They say China's trade deficit is widening and the country is too short of foreign exchange for it to hamper production in Guangdong. "The Chinese leaders have to decide whether they want control or whether the want exports," says Mr. Kwan of Playmates.
Aluminum Co. of America, hit hard by the strength of the dollar overseas, said net income for the third quarter dropped 3.2% to $219 million, or $2.46 a share. The nation's No. 1 aluminum maker earned $226.3 million, or $2.56 a share, a year earlier. Revenue rose 11% to $2.83 billion from $2.56 billion. Analysts, who were expecting Alcoa to post around $2.70 to $3 a share, were surprised at the lackluster third-quarter results. "It's disappointing," said William Siedenburg, an analyst with Smith Barney, Harris Upham & Co. Much of the earnings decline was led by currency-exchange rate adjustments, which affected the bottom line by $15.3 million, or 17 cents a share, compared with $3.6 million, or four cents a share, the previous year. Lower prices for aluminum ingots and certain alloy products and a shift in the product mix also contributed to lower earnings, the company said. "In addition, costs were higher partly due to scheduled plant outages for modernization work," the company said. Excluding the higher tax rate, which rose two percentage points to 38%, and the negative exchange rate adjustment, the company would have met analysts' expectations, said R. Wayne Atwell, an analyst with Goldman, Sachs & Co. Noting that the third quarter is usually the aluminum industry's slowest, Mr. Atwell added, "the third quarter is never a bang up period for them anyway." Nevertheless, the company said shipments were up slightly to 679,000 metric tons from 671,000, buffing the impact of the unexpected earning decline. The results were announced after the stock market closed.In New York Stock Exchange composite trading Friday, Alcoa closed at $72 a share, down $4.75, in a sharply lower market.
For 20 years, federal rules have barred the three major television networks from sharing in one of the most lucrative and fastest-growing parts of the television business.And for six years, NBC, ABC and CBS have negotiated with Hollywood studios in a futile attempt to change that. But with foreign companies snapping up U.S. movie studios, the networks are pressing their fight harder than ever.They hope the foreign deals will divide the Hollywood opposition and prod Congress to push for ending federal rules that prohibit the networks from grabbing a piece of rerun sales and owning part of the shows they put on the air. Even network executives, however, admit privately that victory -- either in Congress or in talks with the studios -- is highly doubtful any time soon.And so the networks also are pushing for new ways to sidestep the "fin-syn" provisions, known formally as the Financial Interest and Syndication Rules. That became clear last week with the disclosure that National Broadcasting Co., backed by the deep pockets of parent General Electric Co., had tried to help fund Qintex Australia Ltd. 's now-scuttled $1.5 billion bid for MGM/UA Communications Co. NBC's interest may revive the deal, which MGM/UA killed last week when the Australian concern had trouble raising cash. Even if that deal isn't revived, NBC hopes to find another. "Our doors are open," an NBC spokesman says.NBC may yet find a way to take a passive, minority interest in a program-maker without violating the rules.And any NBC effort could prompt CBS Inc. and ABC's parent, Capital Cities/ABC Inc., to look for ways of skirting the fin-syn regulations. But the networks' push may only aggravate an increasingly bitter rift between them and Hollywood studios.Both sides are to sit down next month for yet another meeting on how they might agree on reducing fin-syn restraints.Few people privy to the talks expect the studios to budge. The networks still are "uninhibited in their authority" over what shows get on the air, charges Motion Picture Association President Jack Valenti, the most vociferous opponent of rescinding the rules.Studios are "powerless" to get shows in prime-time lineups and keep them there long enough to go into lucrative rerun sales, he contends.And that's why the rules, for the most part, must stay in place, he says. Studio executives in on the talks-including officials at Paramount Communications Inc., Fries Entertainment Inc., Warner Communications Inc. and MCA Inc. -- declined to be interviewed.But Mr. Valenti, who represents the studios, asserts: "The whole production industry, to a man, is on the side of preserving" the rules. Such proclamations leave network officials all the more doubtful that the studios will bend. "They don't seem to have an incentive to negotiate," says one network executive. "And there's no indication that Washington is prepared to address the rules.That's the problem, isn't it?" Indeed it is.Congress has said repeatedly it wants no part of the mess, urging the studios and the networks, which license rights to air shows made by the studios, to work out their own compromise. But recent developments have made the networks -- and NBC President Robert Wright, in particular -- ever more adamant that the networks must be unshackled to survive.The latest provocation: Sony Corp. 's plan to acquire Columbia Pictures Entertainment Inc. for $3.4 billion, and to buy independent producer Guber Peters Entertainment Co. for $200 million. "I wonder what Walter Cronkite will think of the Sony/Columbia Broadcast System Trinitron Evening News with Dan Rather broadcast exclusively from Tokyo," wrote J.B. Holston, an NBC vice president, in a commentary in last week's issue of Broadcasting magazine.In his article, Mr. Holston, who was in Europe last week and unavailable, complained that the "archaic restraints" in fin-syn rules have "contributed directly to the acquisition of the studios by non-U.S. enterprises." (He didn't mention that NBC, in the meantime, was hoping to assist Australia's Qintex in buying An NBC spokesman counters that Mr. Holston's lament was "entirely consistent" with NBC plans because the U.S. rules would limit NBC's involvement in the Qintex deal so severely as to be "light years away from the type of unrestrained deals available to Sony -- and everyone else except the three networks." The Big Three's drumbeat for deregulation began intensifying in the summer when the former Time Inc. went ahead with plans to acquire Warner.Although Time already had a long-term contract to buy movies from Warner, the merger will let Time's largely unregulated pay-cable channel, Home Box Office, own the Warner movies aired on HBO -- a vertical integration that is effectively blocked by fin-syn regulations. NBC's Mr. Wright led the way in decrying the networks' inability to match a Time-Warner combination.He spoke up again when the Sony bid for Columbia was announced.Since NBC's interest in the Qintex bid for MGM/UA was disclosed, Mr. Wright hasn't been available for comment.With a Qintex deal, NBC would move into uncharted territory -- possibly raising hackles at the studios and in Washington. "It's never really been tested," says William Lilley III, who as a top CBS executive spent years lobbying to have the rules lifted.He now runs Policy Communications in Washington, consulting to media companies.Fin-syn rules don't explicitly block a network from buying a passive, small stake in a company that profits from the rerun syndication networks can't enjoy. Hence, NBC might be able to take, say, a 5% stake in a company such as MGM/UA.If the transaction raised objections, the studio's syndication operations could be spun off into a separate firm in which the network doesn't have a direct stake. But such convolutions would still block the networks from grabbing a big chunk of the riches of syndication.Under current rules, even when a network fares well with a 100%-owned series -- ABC, for example, made a killing in broadcasting its popular crime/comedy "Moonlighting" -- it isn't allowed to share in the continuing proceeds when the reruns are sold to local stations.Instead, ABC will have to sell off the rights for a one-time fee. The networks admit that the chances of getting the relief they want are slim -- for several years at the least. Six years ago they were tantalizingly close.The Reagan-era Federal Communications Commission had ruled in favor of killing most of the rules.Various evidence, including a Brookings Institution study of some 800 series that the networks had aired and had partly owned in the 1960s, showed the networks didn't wield undue control over the studios as had been alleged. But just eight days before the rules were to die, former President Ronald Reagan, a one-time actor, intervened on behalf of Hollywood.The FCC effort collapsed. The networks and studios have bickered ever since.Network officials involved in the studio talks may hope the foreign influx builds more support in Washington, but that seems unlikely.In Congress, the issue falters: It's about money, not program quality, and Hollywood has lots of clout given its fund raising for senators and representatives overseeing the issue. A spokesman for Rep. Edward J. Markey (D-Mass.), who heads a subcommittee that oversees the FCC, says Mr. Markey feels "the world has been forever changed by the Sony-Columbia deal." But he said Mr. Markey hopes this pushes the networks and studios to work it out on their own.And at the FCC, meanwhile, new Chairman Alfred C. Sikes has said he wants the two sides to hammer out their own plan.
Recognition Equipment Inc. said it settled a civil action filed against it by the federal government on behalf of the U.S. Postal Service. The government sued the company in April, seeking $23,000 and other unspecified damages related to an alleged contract-steering scheme.The suit named the company, former chief executive officer William G. Moore Jr., former vice president Robert W. Reedy and five defendants who weren't part of the company.The suit charged the defendants with causing Peter E. Voss, an ex-member of the Postal Service board of governors, to accept $23,000 in bribes, kickbacks and gratuities.Mr. Voss was previously sentenced to four years in prison and fined $11,000 for his role in the scheme. In the agreement, Recognition agreed to pay the government $20,000 in return for the release of all claims against the company, Mr. Moore and Mr. Reedy.The five additional defendants weren't parties to the settlement. A trial on criminal allegations against the company and the same two former executives began Sept. 27 in federal court for the District of Columbia.They were indicted last October on charges of fraud, theft and conspiracy related to an effort to win $400 million in Postal Service equipment contracts by the maker of data management equipment.The company and its executives deny the charges. In a related development, Recognition Equipment said the Postal Service has barred the company from bidding on postal contracts for an additional 120 days.The Postal Service originally suspended the company Oct. 7, 1988, and has been renewing the ban ever since.The company said it will continue to pursue a lifting of the suspension.
Bolstered by a robust long-distance business, the telephone industry is expected to post a healthy profit increase for the third quarter. Analysts estimate that third-quarter earnings for the industry will increase as much as 19% from the year-earlier period.If so, their cumulative earnings could hit $4.12 billion. Most of the earnings growth, however, will come from the long-distance sector.American Telephone & Telegraph Co. is expected to post a profit increase of about 18% and MCI Communications Corp. 's earnings are expected to surge 58%. United Telecommunications Inc. reported last Wednesday that third-quarter net income climbed 75% to $94.6 million, or 90 cents a share, on revenue of $1.93 billion.United Telecom's Sprint unit posted operating profit of $60 million. Paul Aran, a telecommunications analyst with Bear, Stearns & Co., said the long-distance companies have been buoyed by strong growth in the facsimile and data-service business.He said declining long-distance prices also have helped stimulate usage. The local telephone companies, however, aren't expected to fare as well.Growth is predicted to be in the 1% to 2% range for most companies, with Southern New England Telephone and GTE Corp. posting profit increases in the neighborhood of 10%. "The long-distance companies have kept their momentum," says Robert Morris III, a telecommunications analyst with Goldman, Sachs & Co., "while the pace of growth for the local telephone companies is slowing." That's especially true for the regional Bell companies. He said regulation is primarily responsible for the Bells' dull earnings growth.Most companies have reached their maximum allowed earnings ceilings, which are set by regulators. "This signals the need for regulatory change," Mr. Morris said. Pacific Telesis Group, which is expected to post earnings of about 75 cents a share, obtained regulatory relief from California regulators last week.Under the plan, the company is allowed to earn more if it can operate more efficiently.In the year-earlier quarter, Pacific Telesis earned $318 million, or 75 cents a share, on revenue of $2.38 billion. Analysts expect installations of new telephone lines to grow about 3%.However, GTE, BellSouth Corp. and Pacific Telesis, which operate in territories with hearty economies, are expected to report new-telephone-line growth in the range of 4% to 5%.Nynex Corp. 's profits could begin to show signs of weakening from the effects of a nearly three-month strike, while other Bell companies, such as Ameritech and Southwestern Bell Corp., could be hurt in the quarter by one-time charges associated with the settlement of new union contracts. Mr. Aran, the Bear Stearns analyst, said that generally, after eight weeks, "A strike starts hurting earnings.I'm waiting to see what the impact is on Nynex." Analysts predict Nynex earnings will be about $1.57 a share, compared with $1.72 a share a year earlier, when the company earned $338.9 million on sales of $3.18 billion. The independent telephone companies also may post third-quarter results that trail the comparable year-ago period.Rochester Telephone Co., for instance, said it expects third-quarter earnings to be "somewhat lower" than the year-earlier quarter -- even though the company expects to post an extraordinary gain of 50 cents during the period.The company said higher expenses and competitive pressures hampered earnings. For the 1988 third quarter, Rochester Telephone reported a net income of $12.9 million, or $1.10 a share, on revenue of $120.2 million.
There's an intense debate in South Korean President Roh Tae Woo's inner circle over his scheduled speech Wednesday to a joint meeting of Congress: Should he give it in English or Korean? It would be more effective with the U.S. politicians and public in English, the president's foreign policy advisers argue.But, counter some domestic political aides, it would hurt Mr. Roh at home if he seems to be pandering to the Americans. U.S. politicians and policy-makers would do well to remember such backhome pressures on the South Korean president as they prepare for an important series of meetings with him this week.For U.S.-South Korean relations, in economic and security terms, are at their most critical stage since the Korean War. When most Americans think about South Korea, they still conjure up images of the war years, popularized by the TV series M*A*S*H.But South Korea no longer is a backwater, Third World country.With a dynamic, growing economy, it is the U.S.'s seventh-largest trading partner.Moreover, the Korean peninsula remains one of the strategic focal points of East Asia; there are 43,000 U.S. troops stationed there.And the country is at a political crossroads now, as it struggles with its new experiment in democracy. South Korea is "critically important to us now, both economically and in terms of security," says Sen. Richard Lugar (R., Ind.), the former chairman of the Senate Foreign Relations Committee. "Unfortunately, many Americans don't think much about Korea.But the miracle of their economic growth and the development of democracy -- imperfect though it is -- are very important to the United States." One major topic during Mr. Roh's visit will be human rights.Due process still is denied in South Korea; a few months ago, Kim Dae Jung, the major opposition leader, was detained and interrogated for 20 hours by security thugs.Just as Pope John Paul II did in Seoul last week, President Bush and members of Congress ought to tell Mr. Roh in no uncertain terms that this kind of behavior is unacceptable. But context is important.South Korea had a free election last year; the liberals lost only because they couldn't unite behind one candidate.Moreover, there is a violent anti-U.S. minority in South Korea -- as demonstrated by the handful of radical students who broke into U.S. Ambassador Donald Gregg's residence in Seoul Friday and vandalized it (the ambassador and his wife were unharmed). Mr. Roh, a former general and a member of the repressive previous regime, has made impressive strides in supporting democratic values and institutions.It isn't a perfect democracy, but it's a far cry from the authoritarian rule of only a few years ago. One thing that hasn't changed in South Korea is paranoia about North Korea; several people are being prosecuted for making unapproved visits to the communist north.But a visit to Panmunjom, where the constant tension between the communists and the joint U.S.-South Korean forces is palpable, makes it easier to understand these feelings.Sometimes U.S. politicians forget that North Korea, a country with a population of only 20 million, has an armed force of over one million troops, the sixth largest in the world. Whatever winds of change are blowing through much of the communist bloc, they haven't reached Pyongyang.As long as it continues to pose a real threat, U.S. critics ought to go slow on demands to reduce troop levels in South Korea. The major topic when Mr. Roh calls on administration and congressional figures this week will be economics and trade.South Korea hardly is without fault for trade frictions with the U.S.; most experts in the administration think that Commerce Secretary Robert Mosbacher got it exactly wrong a few months ago when he declared that South Korea is more open economically than Japan.On agricultural products in particular -- everything from beef to apples -- the Koreans have succumbed to domestic political pressures for protectionism. Yet, earlier this year, South Korea promised to make some real concessions on its investment laws and other trade impediments.They enabled the country to avoid being targeted as an unfair trade partner under the tough "Super 301" section of the 1988 U.S. trade act.Separately, as a result of the revaluation of the won and other measures, the almost $10 billion trade surplus the South Koreans enjoyed with the U.S last year will be cut in half this year. Moreover, just a few days ago, the national assembly, with the governing and opposition parties in an unusual alliance, passed a resolution calling for a gradual opening up of South Korean agricultural markets. It's appropriate for U.S. officials to keep hammering for more open trade policies, as U.S. Trade Representative Carla Hills did in Seoul last week.But there's also sometimes a tendency in American political circles to pick especially on South Korea, out of frustration over our inability to do much about Japan.That's counterproductive. Most importantly, it's time for American policy-makers to better appreciate that our economic future rests more with Asia -- Seoul as well as Tokyo -- than anyplace else. The U.S. always ought to stand up for its interests, but it's essential that U.S. officials have an appreciation of the politics and history of our allies.In the upper echelons of the Roh Tae Woo's government, they're still buzzing about Commerce Secretary Mosbacher's trip to South Korea earlier this year.It seems he learned, for the first time, that South Korea had been occupied for decades by Japan.
Walter Sisulu and the African National Congress came home yesterday. After 26 years in prison, Mr. Sisulu, the 77-year-old former secretary-general of the liberation movement, was dropped off at his house by a prison services' van just as the sun was coming up.At the same time, six ANC colleagues, five of whom were arrested with him in 1963 and sentenced to life imprisonment, were reunited with their families at various places around the country. And as the graying men returned to their homes, the ANC, outlawed in South Africa since 1960 and still considered to be the chief public enemy by the white government, defiantly returned to the streets of the country's black townships.A huge ANC flag, with black, green and gold stripes, was hoisted over the rickety gate at Mr. Sisulu's modest house, while on the street out front, boys displayed the ANC colors on their shirts, caps and scarves.At the small four-room home of Elias Motsoaledi, a leading ANC unionist and a former commander in the group's armed wing, Umkhonto we Sizwe, well-wishers stuck little ANC flags in their hair and a man tooted on an antelope horn wrapped in ANC ribbons. "I am happy to see the spirit of the people," said Mr. Sisulu, looking dapper in a new gray suit.As the crowd outside his home shouted "ANC, ANC," the old man shot his fists into the air. "I'm inspired by the mood of the people." Under the laws of the land, the ANC remains an illegal organization, and its headquarters are still in Lusaka, Zambia.But the unconditional release of the seven leaders, who once formed the intellectual and organizational core of the ANC, is a de facto unbanning of the movement and the rebirth of its internal wing. "The government can never put the ANC back into the bottle again," said Cassim Saloojee, a veteran anti-apartheid activist on hand to welcome Mr. Sisulu. "Things have gone too far for the government to stop them now.There's no turning back." There was certainly no stopping the tide of ANC emotion last night, when hundreds of people jammed into the Holy Cross Anglican Church in Soweto for what became the first ANC rally in the country in 30 years.Deafening chants of "ANC" and "Umkhonto we Sizwe" shook the church as the seven aging men vowed that the ANC would continue its fight against the government and the policies of racial segregation on all fronts, including the armed struggle.And they called on the government to release Nelson Mandela, the ANC's leading figure, who was jailed with them and remains in prison.Without him, said Mr. Sisulu, the freeing of the others "is only a half-measure." President F.W. de Klerk released the ANC men -- along with one of the founding members of the Pan Africanist Congress, a rival liberation group -- as part of his efforts to create a climate of trust and peace in which his government can begin negotiations with black leaders over a new constitution aimed at giving blacks a voice in national government. But Pretoria may instead be creating a climate for more turmoil and uncertainty in this racially divided country.As other repressive governments, particularly Poland and the Soviet Union, have recently discovered, initial steps to open up society can create a momentum for radical change that becomes difficult, if not impossible, to control. As the days go by, the South African government will be ever more hard pressed to justify the continued imprisonment of Mr. Mandela as well as the continued banning of the ANC and enforcement of the state of emergency.If it doesn't yield on these matters, and eventually begin talking directly to the ANC, the expectations and promise raised by yesterday's releases will turn to disillusionment and unrest.If it does, the large number of right-wing whites, who oppose any concessions to the black majority, will step up their agitation and threats to take matters into their own hands. The newly released ANC leaders also will be under enormous pressure.The government is watching closely to see if their presence in the townships leads to increased anti-government protests and violence; if it does, Pretoria will use this as a reason to keep Mr. Mandela behind bars.Pretoria hasn't forgotten why they were all sentenced to life imprisonment in the first place: for sabotage and conspiracy to overthrow the government. In addition, the government is figuring that the releases could create a split between the internal and external wings of the ANC and between the newly freed leaders and those activists who have emerged as leaders inside the country during their imprisonment.In order to head off any divisions, Mr. Mandela, in a meeting with his colleagues before they were released, instructed them to report to the ANC headquarters in Lusaka as soon as possible. The men also will be faced with bridging the generation gap between themselves and the country's many militant black youths, the so-called young lions who are anxious to see the old lions in action.Says Peter Mokaba, president of the South African Youth Congress: "We will be expecting them to act like leaders of the ANC." They never considered themselves to be anything else.At last night's rally, they called on their followers to be firm, yet disciplined, in their opposition to apartheid. "We emphasize discipline because we know that the government is very, very sensitive," said Andrew Mlangeni, another early Umkhonto leader who is now 63. "We want to see Nelson Mandela and all our comrades out of prison, and if we aren't disciplined we may not see them here with us."
The tug of war between Warner Communications Inc. and Sony Corp. over movie producers Peter Guber and Jon Peters has exploded into a legal battle that could prove an embarrassing setback to Sony's plans to enter the U.S. movie business. On Friday, after two weeks of fruitless settlement talks, Warner filed suit in Los Angeles Superior Court against Sony and Guber Peters Entertainment Co., charging Sony with inducing the two producers to breach a five-year contract with Warner.The suit seeks $1 billion in damages and an injunction barring Messrs.Guber and Peters from taking the top management posts at Columbia Pictures Entertainment Inc.As previously reported, Sony has agreed to pay $3.4 billion to acquire Columbia and separately has agreed to pay $200 million for Guber Peters Entertainment to obtain the services of its two co-chief executives. Sony and Guber Peters promptly countersued, charging Warner with attempting to interfere in Sony's acquisition of the two companies and with falsely asserting that the Guber Peters agreement with Warner prevents them from accepting the senior management posts at Columbia. At issue in the lawsuits is the contract signed last March by Messrs.Guber and Peters that requires the two to make movies exclusively for Warner for the next five years.Sony and Messrs.Guber and Peters maintain that the contract doesn't prohibit taking an executive post at another studio.Moreover, they assert, the producers have an oral agreeement with Warner Bros. studio executives that gives them the right to "terminate the producer relationship in the event they were given and chose to accept the opportunity to become senior executives of a motion picture studio," according to their countersuit. Warner, for its part, maintains that the written agreement prevents Messrs.Guber and Peters from doing anything else in the motion picture business.Warner says in its suit that Sony "has unethically and illegally sought to steal the services of Guber and Peters and injure Warner as a major competitor of Columbia." Moreover, Warner says, Sony enticed the producers with "unprecedented financial rewards to breach their binding contractual commitments to Warner." Warner also names in its suit the two producers, Sony Corp. of America Vice Chairman Michael Schulof, and Walter Yetnikoff, head of Sony's CBS Records unit. Sony responded in its countersuit by charging Warner, its chief executive Steven J. Ross, and Warner Bros. unit chairman Robert Daly and President Terry Semel with embarking on an unlawful scheme to interfere with and disrupt Sony's acquisitions.Warner, which is in the process of being acquired by Time Warner Inc., is attempting to "sabotage" Sony's efforts as part of a "plan and scheme to dominate and control the entertainment business," the countersuit from Sony and Guber Peters adds. Warner also appears to be trying to embarrass Sony by accusing the Japanese company's U.S executives, Messrs.Schulof and Yetnikoff, of dishonorable dealings.In its suit, Warner says that Mr. Ross warned Sony's Mr. Schulof on Sept. 26 at a dinner in Washington, "with Guber Peters in mind" that in the U.S. "it is essential that corporations honor written contracts and do not induce breach of contracts by others." Sony went ahead the next day anyway and executed its own five-year agreement with the producers and agreed to buy their company, the suit adds.Moreover, the suit adds that Sony initially said it wouldn't buy Guber Peters unless the Warner contract was settled.On Tuesday, although a settlement wasn't reached, Sony publicly announced it would acquire Guber Peters. "Sony has thus knowingly and willfully, and over Warner's protests, induced Guber and Peters to repudiate their contract with Warner," the suit says. Warner's decision to file suit in the wake of its failure to reach a settlement with Sony didn't surprise executives at rival studios, who say Warner is only protecting its own interests.The outcome of the legal battle, they add, could redefine contractual relationships in Hollywood, where the unwritten rule has often been that contracts were made to be broken. In Warner's case, the studio obviously regards the relationship with Guber Peters as a crucial factor in Warner's recent success and a central part of its future plans.Warner has relied heavily on the two to find and produce movies for the studio, including this summer's hit "Batman." Warner says in its suit that "Guber and Peters claim to have generated over one-half billion dollars in profits for Warner from combined projects," a claim Warner doesn't dispute.And Warner says it is currently financing about 50 new projects being developed by the two producers. Under an earlier agreement with Warner, the producers were allowed to make movies elsewhere.For example, they made the hit "Rainman" for MGM/UA Communications Co.But when Warner signed a new agreement with the two in March, the terms specifically prohibited them from serving as producers or executive producers of movies for any other studio. Sony and the Guber Peters executives say in their countersuit, however, that the new contract eliminated language barring the two from serving "in any other capacity" in the motion picture business.And they appear to be relying heavily on an alleged "oral agreement" the two producers claim to have with Warner that would let them out of their written contract in the event that an actual executive post at another company became available.In their countersuit, they say that on two previous occasions -- once in 1987 when they considered a post at Columbia, and once when Messrs.Guber and Peters tried to buy a stake in MGM/UA in 1988 -- Warner was prepared to release them from their contract.The countersuit also charges Warner with making the oral agreement to "falsely induce" them into a new written contract in 1989.Moreover, they say, Warner is trying to cheat them out of "a unique business opportunity" and the fulfilment of their "long-term dream" to run their own studio. But entertainment industry executives say that the new contract was signed after Guber Peters efforts to take over MGM failed and that Warner may argue in court that the producers' willingness to sign a new long-term contract signaled the end of their search for a movie studio. Mr. Ross and his team at Warner appear to view the move by the two producers to Sony as a personal betrayal after years of support and friendship. "Warner has been nurturing its relationship with Guber and Peters since 1972, long before their recent success," the Warner suit says.That success, the suit adds, "is due in large measure to the trust and confidence that Warner has reposed in these producers, even in the early years of the relationship when the creative partnership was not particularly profitable for Warner." Warner, whose executives are the highest paid in the entertainment industry, also charges that Sony induced the two producers to breach their Warner contract by offering them "the most lucrative and expensive package of financial inducements in the film industry," including $2.7 million each in annual salary, deferred compensation of $50 million, as much as 10% of Columbia's cash flow, and as much as 8% of the future appreciation of Columbia's market value.The producers also stand to get more than $50 million from their combined 28% stake in Guber Peters Entertainment from Sony's $200 million offer for the company. In their countersuit, Messrs.Guber and Peters say they seek $100 million in damages initially from Warner but may seek a higher amount later after determining the extent of damages.
Advertising agencies' third-quarter earnings are expected to be up modestly from a year ago, securities analysts say. Andrew Wallach, an analyst at Drexel Burnham Lambert, is estimating Interpublic Group, for example, at 21 cents a share, up from 18 cents a share a year ago.Greg Ostroff, an analyst at Goldman Sachs, is pegging Omnicom Group at 17 cents a share, up from 15 cents a share, and Foote, Cone & Belding Communications Inc. at 55 cents a share, up from 46 cents. Analysts note, however, that the third period is a minor quarter in terms of absolute profits.Those who watch Madison Avenue say this period, along with the first quarter, is traditionally weak.The fourth quarter is where the real impact is made. "We tend not to read much into third-quarter earnings," Mr. Ostroff says. Also notable is the fact that Saatchi & Saatchi Co. and WPP Group PLC, two British giants that are principal players in the advertising business, don't report quarterly earnings. In the industry overall, "profits will increase unless revenues are disastrously lower," said Alan Gottesman, an analyst at PaineWebber Inc., New York. "There are no external indications" to indicate that will be the case, he said.Mr. Gottesman noted that the employee count for the industry is down and that most agencies are watching staffing levels in a bid to closely monitor costs. Others are cautiously watching the value of the dollar overseas. "From where I sit, the biggest issue for the U.S. agencies is the dollar," said Emma Hill, an analyst at Wertheim Schroder & Co., New York. "For the U.S. companies, the risk is one of disappointment versus better-than-expected because of the dollar." Ad agencies rely heavily on business overseas for their bottom line.The strength of the dollar will hurt the reporting of foreign earnings, many analysts said. Some agencies, including Interpublic Group's Lintas and Saatchi & Saatchi's Backer Spielvogel Bates, have said that their clients are spending less than they had expected.Few agencies are reporting that their clients' ad budgets are expanding. All eyes, however, are on the fourth quarter and to reporting by the giant British companies. "Saatchi & Saatchi is having a very tough year," Drexel Burnham's Mr. Wallach said. "It's real guesswork figuring out what they'll earn." That agency, rumored as a takeover candidate, earlier this year said pretax profit for 1989 would trail 1988's already disappointing level.For WPP Group, on the other hand, most analysts are looking for margin improvement and good results considering its acquisition earlier this year of Ogilvy Group.
The involvement of units of two major U.S. banks in separate loans to China has signaled a growing willingness among foreign bankers to resume lending to the Beijing government. One of the units, BT Asia Ltd., a subsidiary of Bankers Trust New York Corp., this week arranged the syndication of a $50 million, five-year loan to Shortridge Ltd., which is owned by China International Trust & Investment Corp. (Holdings), or Citic.The loan will be used for Shortridge's share of the purchase of a satellite, a BT Asia director said. The other unit, Chase Manhattan Asia Ltd., a Hong Kong subsidiary of Chase Manhattan Corp., of New York, said it is underwriting a $50 million loan for China's biggest trading company, China Resources (Holdings) Co., for general corporate purposes.Of the total, $30 million can be swapped into marks. Amid the international outcry following the shooting of students and bystanders in Beijing on June 4, foreign-bank lending to China came to a halt. Bankers in Hong Kong said this week's Citic loan was an important sign that foreign banks are interested in resuming regular business with China. "It's sort of a benchmark," said a U.S. banker who didn't participate in the loan. Russell L. Magarity, senior managing director of Chase Manhattan Asia, said "it is time" to start considering loans to China again.Mr. Magarity said Chase hopes to assemble an international group of banks in the lending syndicate, including some of U.S. and Japanese banks with which China Resources has had a strong relationship in recent years. "Right now we think we can successfully syndicate this loan because of China Resources' name," he said. Indeed, the reputations of China Resources and Citic played a significant role in the decisions.China Resources and Citic are considered exceptionally good credit risks, bankers said.Other loans to China will have to be considered on a case-by-case basis.Beyond the political considerations, banks are concerned about the state of China's economy and about borrowers' ability to make loan payments.Now that the first major syndication of a Chinese loan has proceeded smoothly, a Japanese banker said it will be easier for foreign banks to consider making loans to China. Citic, which acts as a sort of merchant bank for overseas acquisitions by China, is a relatively independent company.Through Shortridge, it is one of three partners in Asia Satellite Telecommunications Co., which plans to launch a private satellite on a Chinese rocket next year.The other partners are Cable & Wireless PLC of Britain and Hutchison Whampoa Ltd. of Hong Kong.Citic guaranteed the loan. The loan was syndicated to a group of foreign banks from Europe, Hong Kong and Canada, foreign bankers said; they didn't identify the institutions.BT Asia arranged the syndication but didn't underwrite the loan. A BT Asia official wouldn't disclose all the terms of the loan but said it was linked to a currency option that allows banks to receive repayment in yen instead of dollars.The official said Citic will pay an interest rate that will be about 0.5 percentage point higher than the amount Citic would have paid for a similar borrowing before June 4.He said it was difficult to calculate the exact interest rate because of the currency option. Bankers said they believe China Resources' loan costs have risen by about the same amount.
Demand for products in the current quarter should weaken and inflation shouldn't put any upward pressure on prices, say U.S. plant managers in a Dun & Bradstreet Corp. survey. Fewer plant managers expect higher new orders and output this quarter than in the year-earlier period, according to the survey, which polls 1,500 managers of manufacturing facilities on conditions in their factories and industries. Plant managers' optimism "has moderated, which is in line with current economic data that indicate slow but continuing economic growth," said Joseph W. Duncan, corporate economist and chief statistician for Dun & Bradstreet, a financial-data company. The managers expect materials costs to drop in the quarter, leading fewer to forecast higher selling prices, Mr. Duncan said. Dun & Bradstreet calculates several optimism indexes, subtracting the percentage of managers expecting a decline from the percentage expecting growth. For overall demand, the fourth-quarter index fell to 28 from 31 last quarter and 32 in the 1988 fourth period.For output, the index was 29, the same as last quarter, but a three-point drop from a year ago.For new orders, the figure again was flat with the third quarter at 29.The latest figure also is down a point from the year earlier. The U.S. dollar strengthened during the summer and may have damped the managers' hopes for higher demand from overseas.Recent "declines in the dollar should bolster manufacturers' selling opportunities abroad," Mr. Duncan said. For the next 12 months, each of the indexes for overall demand, production and new orders fell one point from last quarter, to 57, 57 and 59, respectively.The year-earlier figures were 60, 60 and 61. Dun & Bradstreet's data measuring fourth-quarter costs of making a single unit of a product indicated that "manufacturers foresee weaker prices" for materials "while wage pressures, though still present, are not expected to escalate," Mr. Duncan said.
Bad real estate loans continued to gnaw at third-quarter profits of Southwestern banks, with the notable exception of institutions that cleansed their books with federal bailouts. "You've got a two-tiered market," said Frank W. Anderson, an analyst with Stephens Inc., Little Rock, Ark.On top, he said, are such dynamos as NCNB Corp. and First City Bancorp of Texas, which acquired big, ailing Texas banks in government-assisted transactions that allowed them to slough off bad loans.They are expected to ring up big profits for the third quarter, Mr. Anderson said. As for the rest, warns James McDermott, an analyst with Keefe Bruyette & Woods, New York, "asset quality concerns are going to dominate third-quarter reports." For example, Cullen/Frost Bankers Inc., San Antonio, Texas, is expecting "an uptick in {non-performing loans} related to real estate" in the third quarter, said Thomas Frost, chairman and chief executive.As the only major bank holding company in Texas to survive without a bailout or merger, Cullen/Frost managed only "very modest" earnings in the period, he said. "If the government handed me a big bucket of money I'd look good, too," Mr. Frost added. NCNB Corp. 's Texas operation, on the other hand, is expected to report an operating profit "in line with {or} perhaps a bit better" than its results in the first two quarters, Timothy Hartman, vice chairman of the Texas unit, said.The Texas unit had an operating profit of $58.7 million in the first quarter and $55.7 million in the second quarter. NCNB, based in Charlotte, N.C., bought the banking assets of failed First Republic Bank Corp. of Dallas last year in a transaction expected to cost the Federal Deposit Insurance Corp. about $3 billion. (First Republic isn't related to First Republic Bancorp of San Francisco.) Robert Rieke, an analyst with Raucher Pierce Refsnes Inc., Dallas, estimates Houston-based First City's third-quarter net was higher than second quarter earnings of $28.1 million.However, he estimated that per-share earnings stayed "relatively flat" at about the second quarter's $1.19 a share because the total number of shares outstanding increased. First City was recapitalized last year by a group led by Chicago banker A. Robert Abboud.The FDIC contributed nearly $1 billion to the new organization. More recent Texas bailouts won't have much impact on the third quarter results of the new parent companies, analysts said.These include the sale of MCorp's failed banks to Banc One Corp., Columbus, Ohio; the sale of National Bancshares Corp. of Texas to Equimark Corp. of Pittsburgh; and the sale of Texas American Bancshares Inc. 's banking assets to Deposit Guaranty Bank of Dallas.The transactions haven't yet been completed and the Texas units are still unprofitable. Said Ronald Steinhart, chairman of Deposit Guaranty: "You won't see the newly cleansed bank in operation until approximately Dec. 1." Outside Texas, the biggest real estate nightmare for banks in the region is probably Arizona. "Arizona is going to be a mess," said Keefe Bruyette's Mr. McDermott. Several banks with operations in Arizona, including First Interstate Bancorp. and Security Pacific Corp., both of Los Angeles, have already indicated they see asset-quality problems.Chase Manhattan Corp., New York, last month took a $126 million charge against earnings related to real estate loans at Chase Bank of Arizona. Several credit rating agencies recently downgraded the senior debt of Valley National Corp., warning that the Phoenix-based bank holding company is vulnerable to the deteriorating real estate market. "Despite the special addition to reserves in the second quarter, Valley remains poorly reserved against its real estate exposure," Moody's Investors Service Inc. said in July. One of the few bright spots in the region is Colorado, where a mild economic recovery has helped several banks staunch the flow of red ink.For instance, United Banks of Colorado Inc., the state's largest multibank holding company, resumed a cash dividend earlier this year after recording eight straight quarters of profitability. More good news comes from New Mexico, where banks didn't have as much opportunity to get into difficulty in the first place. "The state never grew fast enough to get banking organizations in real trouble and the banking organizations were never big enough to lend into trouble," said Mr. Rieke of Raucher Pierce Refsnes.
We don't know who is winning the drug war in Latin America, but we know who's losing it -- the press.Over the past six months, six journalists have been killed and 10 kidnapped by drug traffickers or leftist guerrillas -- who often are one and the same -- in Colombia.Over the past 12 years, at least 40 journalists have died there.The attacks have intensified since the Colombian government began cracking down on the traffickers in August, trying to prevent their takeover of the country. The slaughter in Colombia was very much on the minds of 450 editors and publishers from Latin America, the United States, the Caribbean and Canada attending the 45th general assembly of the Inter-American Press Association in Monterrey, Mexico, this week.On Tuesday the conference got word of another atrocity, the assassination in Medellin of two employees of El Espectador, Colombia's second-largest newspaper.The paper's local administrator, Maria Luz Lopez, was shot dead, and her mother wounded, while her car was stopped for a red light.An hour later, the paper's circulation manager, Miguel Soler, was shot and killed near his home. The drug lords who claimed responsibility said they would blow up the Bogota newspaper's offices if it continued to distribute in Medellin.They bombed the Bogota offices last month, destroying its computer and causing $2.5 million in damage. El Espectador has been a special target because of the extraordinary courage of its publisher and his staff.At Monterrey, publisher Luis Gabriel Cano, although shaken by the murders, issued a statement saying: "We will not cease our fight against drug trafficking.They want to terrify the press and in particular El Espectador because it has always been a torchbearer in this war." This comes from a man whose brother, Guillermo, was murdered in 1986. The publishers in Monterrey command no battalions, but they agreed to express their outrage with editorials in today's editions.Many will use a common editorial.A final statement yesterday said: "While some advances are being made in nations throughout the hemisphere, the state of press freedom in the Americas still must be regarded as grim as long as journalists and their families are subject to the crudest form of censorship: death by assassination." The report charged that Panama's Manuel Noriega is not only in league with the drug traffickers but also is bullying the press as never before. "Noriega has closed every independent newspaper, radio and television station and arrested, tortured or forced into exile a long list of reporters," the statement declared. It added: "In Cuba, public enemy No. 1 of press freedoms in the hemisphere, repression of journalists both Cuban and foreign is worse than ever." And in Nicaragua, promises of press freedom by the Sandinistas "have not materialized." As it happens, the four countries cited, Colombia, Cuba, Panama and Nicaragua, are not only where the press is under greatest attack but also are linked by the drug trade and left-wing politics.Noriega is close to Castro and may once have been his agent.Sandinistas Thomas Borge and the Ortega brothers are Castro proteges; he backed their takeover of Nicaragua.In Colombia, the drug-financed guerrillas trying to seize the country and destroy democracy include M-19, which Castro has clearly backed. Robert Merkel, a former U.S. attorney handling drug indictments in Florida, doesn't think for a minute that Castro's much publicized trials of high officials engaged in the drug trade mean he has broken off with the Medellin drug cartel. "If the cartel succeeds in blackmailing the Colombian authorities into negotiations, the cartel will be in control and Fidel can exploit his past relationships with them," he told the Journal's David Asman recently. The struggle against the drug lords in Colombia will be a near thing.This week, the government arrested Jose Abello Silva, said to be the fourth-ranking cartel leader.He will probably be extradited to the U.S. for trial under an extradition treaty President Virgilia Barco has revived.Later, another high-ranking trafficker, Leonidas Vargas, was arrested and 1,000 pounds of dynamite seized.Mr. Barco has refused U.S. troops or advisers but has accepted U.S. military aid. President Bush has agreed to meet within 90 days with Mr. Barco, President Alan Garcia of Peru and President Jaime Paz Zamora of Bolivia to discuss the drug problem.It might not be a bad idea to do that sooner, rather than later.After the Panama fiasco, they will need some reassurance.Certainly, the Colombian press is much in need of that.
Part of a Series} Marlene Dash would appear to be a marketer's dream come true.The corporate manager likes to dress smartly, both on and off the job.She owns a condominium in Chicago and takes pride in furnishing it well. Yet Ms. Dash, in her mid-30s, loathes shopping.Lousy service and poor selections at many stores have turned a once favorite pastime into what she calls a "frustrating" experience.These days, she would rather exercise, visit friends or read. "If you don't make it reasonably easy for me," she says of shopping, "I'm not going to waste my time." Ms. Dash is far from alone.Shopping has become such a chore that more people hate browsing in stores than hate doing household work, according to The Wall Street Journal's "American Way of Buying" survey.Nearly a third of the 2,064 people interviewed by the pollster Peter D. Hart Research Associates said they "do not enjoy at all" window-shopping or browsing.Yankelovich, Clancy, Shulman, a market research firm in Westport, Conn., warns clients that Americans' love affair with shopping is on the rocks: More than half the women it has surveyed in recent years, and an even larger percentage of men, say shopping for clothes is a hassle. Stressed-out consumers -- juggling jobs, families and leisure activities -- feel they have less time to shop.They also complain about obnoxious and poorly trained salespeople, lower quality merchandise and exorbitant prices. But underlying these complaints is a more far-reaching change: For many shoppers, the thrill is gone. Back in the 1970s, when malls were sprouting across the country, consumers were content to browse away an afternoon and buy whatever struck their fancy.Then in the early 1980s, Americans viewed shopping as a quest for the trendiest merchandise or the best bargains they could brag about to their friends. Now, on the eve of the 1990s, consumer researchers say that for most people, shopping is simply less fun.Retailers hawk look-alike merchandise in stores that are numbingly similar in appearance.Shopping has become "just one of the activities that we have to do," says Susan Hayward of Yankelovich. "It's not an end in itself anymore." In the Journal poll, more than a third of the people interviewed said they probably wouldn't spend a free hour poking around in stores, even if a prime shopping district were nearby. That isn't to say consumers don't like new things.But when they go to a store today, they're more likely to think of the trip as a mission rather than an adventure. "They're buyers as opposed to shoppers," says Thomas Rauh, a retail consultant at the accounting firm of Ernst & Young. Surveys and focus-group research show that most people are indeed shopping more purposefully.Consumers visit fewer stores per trip (an average of three last year, down from 3.6 in 1982, according to consultant Stillerman Jones & Co.) and spend less time in malls (an average of 68 minutes per trip last year, down from 90 minutes in 1982). "I leave rather than hunt for something," snaps Lisa Max, a 46-year-old real estate broker in New York. Despite such negative attitudes, retailers generally say consumers aren't cutting back on what they buy. "If it is dropping off, it would be more likely that they're shopping less often and buying more when they do shop," says Michael Wellman, vice president of marketing at K mart Corp. "There's no question our customers' time has become more valuable than ever," says Stephen Watson, chairman and chief executive officer of Dayton Hudson Corp. 's department store unit.But he contends the company's record sales and profits indicate it is making the shopping experience easier.For example, the company is hiring more sales people than in the past and paying them more.It also is laying out remodeled and new stores with a center-aisle design and installing escalators and elevators in more convenient central locations. Of course, there are still people for whom shopping is a joy, even a passion.But some of those people have complaints, too.Take Cyd Hinman, a mother of two from Norwood, Mass.She often enjoys shopping, but is so fed up with the clerks at a nearby Filene's department store that she refers to them as "idiots." Twice, Mrs. Hinman picked merchandise off Filene's racks labeled with "sale" signs, only to be told when she got to the cash register that the goods weren't on special.The second time, she demanded that she receive the discount anyway, and the clerk gave in. "I'm willing to spend a lot of money," she says, "but not if I feel like I'm getting jerked around." Complaints about service are so widespread that six of 10 people in the Journal survey said they have boycotted stores because of the way they were treated.The percentage was even higher -- roughly three-quarters -- among professionals and those earning more than $50,000 a year. Service has declined just at a time when consumers are more impatient than ever. "The whole tone of voice is different now in terms of what people expect from a store," says William Ress, whose Columbus, Ohio, management consulting firm has surveyed consumers for more than 20 years. Despite the rising resentment, few stores are making shopping more appealing.Sales people spraying perfume still assault shoppers at many department stores, even though some consumers complain that the spritzers could provide a far more useful service if they were trained to operate a cash register. Consumers want selection to be easy and efficient, but that's not what most merchandisers want.Retailers generally go to lengths to keep shoppers in their stores as long as possible.Many stores, for example, require customers to walk through a maze of boutiques designed to show off their wares just to find, say, a simple white blouse.But rather than tempt people to buy more, consumer researchers say, this tactic just irritates many shoppers.Over half the respondents in the Journal survey said they rarely buy on impulse anyway. So what should a retailer do? "Those that do the best job of making the shopping experience enjoyable and making the customer feel like a human being are very well rewarded," says Leo J. Shapiro, a market researcher in Chicago. He cites Nordstrom Inc., the Seattle-based department store.The chain's strategy: pay sales people an incentive to provide good service and keep more merchandise in stock than competitors. Other retailers are trying to mollify miffed shoppers by doing away with their decades-old practice of setting high "regular" prices that can later be cut to "sale" levels.Under a new approach being hyped as "everyday low pricing," retailers such as Sears, Roebuck & Co. now run fewer sales.Instead, they set prices between their old "sale" and "regular" prices. Last month, R.H. Macy & Co. started promising in ads that shoppers in search of women's coats could "cut through all the confusing sales, special buys and clearances out there" and pay what Macy's says is the "lowest prices . . . every day." Sears started its "everyday pricing" approach in March, but so far sales results don't reflect strong consumer response. Still, such a pricing strategy just might appeal to people like Connie Bates, a respondent in the Journal survey.She recently walked out of a furniture store because the salesman offered to cut the price of a sectional couch three times.When a store keeps dropping prices, the Farmington, Mich., resident says, "I get suspicious that they're trying to get the most they can out of you." (See related story: "Diehards Say The Experience Feels Too Good" -- WSJ Oct. 13, 1989)
Chief executive officers in the New York region say they share a national pessimism about the economy, yet are bullish on their own prospects, according to a study of business executives. One particularly positive note in the study of chief executives in the tri-state area, commissioned by National Westminster Bancorp, is that as many as 88% of the executives intend to expand their businesses or at least maintain employment levels in 1990.Employment at financial-related companies in the New York area were hit hard after the 1987 stock market crash. The survey examined the opinions of 550 randomly selected companies in the New York metropolitan area -- Connecticut, Long Island, New York City, Westchester County and New Jersey -- with annual sales between $5 million and $250 million. Executives in the area have grown more pessimistic about the performance of the national economy.When the study was taken in 1988, 32% of the respondents thought the national economy was worse that year than the year before, while in 1989, that stance was taken by 41% of the executives.The pessimism was greater among the larger -- and more national -- companies. Looking ahead, the majority of area officials expect interest rates to decline and inflation to rise, while 44% of the chief executives feel a recession is likely by the end of On the regional level, executives had less good news to report about their own businesses.Only 49% of the executives reported improved company performance this year, down from the 60% in the 1988 study.Predictably, the year ahead looks brighter; 63% of the executives anticipate better company performance in 1990, while only 10% envision a decline. A good sign for the long-term health of the region is that chief executives were generally "quite satisfied" with the region as a business place, saying its benefits consistently outweigh drawbacks.Highest marks went to the availability of professional business services, which 51% of the executives consider the top benefit.The local marketplace and availability of professional employees also were ranked high.Among major drawbacks to the region, 63% consider the level of state taxes at the top of the list, followed by 54% who had the same opinion on local taxes.Coming in third, 40% said it was the cost of non-professional employees. On questions of employment, 40% of the executives increased their work force since last year, and 44% expect to expand next year.Only 9% reduced their payrolls in the past year. For the second year in a row, New Jersey was rated as the region's most desirable place to do business.Among all of the executives surveyed who would consider a move, 50% would look at New Jersey, compared with an average 23% who would consider other states in the region.In one of the highest degrees of loyalty shown in the study, of those New Jersey executives considering a move, 74% would stay within the state.But one-fourth of the state's executives listed transportation problems as a drawback. Chief executives in New York City showed a noticeably high expectation of improved company performance in the next year.In New York, 75% of the executives predict their companies' performance will improve in 1990, compared with an average of 63% from chief executives from the other locales who feel the same way. Westchester executives reflected the most bullish prospects for employment.More companies in Westchester than any other location have increased the number of their employees in the past year.In 1990, Westchester chief executives lead the way in plans to increase their number of employees.In Westchester, 51% of the executives anticipate hiring more, while in Long Island that number was 39% and in Connecticut 42%.
The European Community and Switzerland signed a treaty granting reciprocal access to their markets for most kinds of insurance products and services. The accord is an example "of the kind of relations the community wishes to develop with its European partners," said Edith Cresson, the French minister for European affairs who presided over a recent EC Council of Ministers meeting. As European partners, Mrs. Cresson cited in particular the members of the European Free Trade Association, composed of Switzerland, Austria, Sweden, Norway, Finland and Iceland. EC and association ministers are scheduled to meet Dec. 19 to discuss economic cooperation.Mrs. Cresson said she hopes the talks will show "a common resolve to go beyond bilateral, sectorial agreements," such as the one just signed with Switzerland. Swiss President Jean-Pascal Delamuraz said the insurance pact could "pioneer" a broader agreement between the Community and the association. The treaty allows Swiss insurance companies to open branches in the EC, and vice versa, without restriction.But it doesn't permit selling insurance across borders without establishing branches.The treaty needs to be approved by the European Parliament, which is expected to endorse the measure, EC officials said. The agreement, which had been 16 years in the making, covers general-insurance services and excludes life insurance and reinsurance.Because Swiss and EC insurers are widely present on each other's markets, the accord isn't expected to substantially increase near-term competition. An important element in the accord, EC officials said, is a clause that provides for bilateral consultations when one party decides to modify its internal insurance legislation.A joint panel would decide whether the changes are compatible with the treaty or whether the treaty needs to be amended to cope with the changes. Mrs. Cresson said a similar clause could be useful in future accords between the EC and other countries.
Suzuki Motor Co. 's U.S. sales arm has named Gary Anderson its top U.S. official in the wake of a series of resignations last month. Three senior executives, all Americans, quit in September.Doug Mazza, former vice president and general manager and at the time the top American, said in a prepared statement that his and the other resignations were prompted by "changes in the company's operating goals and philosophies." Mr. Anderson, who joined American Suzuki Motor Corp. in June 1987, gets the title of marketing director for the company's automotive division.He inherits "bits of several positions," said a Suzuki spokeswoman, who added that a reorganization last month has eliminated some previous posts. In his new job, Mr. Anderson will oversee all sales, advertising and dealer development activities in addition to formulating marketing strategies.Some of these duties had been handled by Mr. Mazza and others by John Dorsey, former director of sales, and Larry Messelt, former national sales manager.Messrs.Dorsey and Messelt were the other two executives who resigned in September. Suzuki sales so far this year, at 24,405 cars and sport utility vehicles, are less than half the level of a year ago, despite the introduction of two additional vehicles, including Suzuki's first U.S. car.The company hasn't recovered from claims by Consumer Reports magazine that its Samurai utility vehicle was unsafe, even though the National Highway Traffic Safety Administration refused to open a safety investigation into the allegations. "Suzuki recognizes its responsibility to boost dealer confidence and improve direct communication with its dealers and field personnel on its plans and strategies," said Mr. Anderson in a prepared statement. Mr. Anderson was most recently Suzuki's New York regional sales manager.He also served as manager of dealer development.
I was profoundly moved by the incongruity of modern American life illustrated by your Sept. 20 page-one article "Country Doctor: How a Physician Solved Riddle of Rare Disease in Children of Amish." Here is a young man who honestly understands what being a physician means and what it requires.It requires delivering quality medical care to those in need.It requires doing the utmost within oneself to alleviate the illness and suffering of others.The physician providing such care derives his reward from being fulfilled as a provider, and from realistic charges for his care. Though Holmes Morton fulfills the "requirements" for being a true physician, our so-called sophisticated society and its medical system fail to appreciate the value of such a dedicated physician.Otherwise, why is there not a rush of funds from medical circles or the related medical-support industry -- i.e. pharmaceutical companies, etc. -- or, most significantly, from all of us to support this doctor and his patients, to support a clinic to further the work of resolving human suffering? Ted Ferrier Jr. Dallas Having grown up among the Amish in Iowa, I think I can appreciate more than most the difficulty of Dr. Morton's work.The average person can hardly imagine the suspicion, bred by centuries of isolation and persecution, among the Amish toward outsiders and things modern.This, in my experience, is particularly true of their attitude toward modern medicine.Dr. Morton's success is not only a measure of the outstanding quality of his work, but also of the desperation the Amish must feel in the face of this horrendous disease. Sadly, the article also contains a profound statement about the current state of academe, the professions in particular and American society in general.Some experts were quoted as speculating on the detrimental effects of Dr. Morton's work on his career.According to these experts, he will find it difficult to get grants and will lose access to sophisticated laboratories.They point out that he "will be, at best, on the very outer circle." As a marginal academic myself, I thought we were at least discreet enough to keep our real concerns hidden behind our academic robes and in our faculty cliques. We can only hope that more people will choose to be "on the very outer circle." James E. Groff Associate Professor University of Texas at San Antonio San Antonio How very refreshing to read about Dr. Morton after all the articles about the Boeskys, Millkens, Icahns, Trumps and such like; about S&L officials and self-seeking officials and legislators, federal and state; about corporate executives whose sole concern is the "bottom line," all of which lead to the conclusion that as a society we have a woeful sense of values and give no thought to what "life is all about." Here is an individual to be greatly admired and respected. Sandro Mayer Fishkill, N.Y.
As India gears up for general elections to be held by January, television is emerging as a powerful political tool -- and a highly controversial one. Television is beamed into 74% of the country's villages, up from 49% during the 1984 general-election campaign.The government hopes to get broadcasts into all of India's 57,500 villages eventually. But the government is essentially the only broadcaster.It controls the sole national TV network, Doordarshan, and the only national radio system, All India Radio.TV news coverage has generally favored the government. In recent months, however, critics say the coverage has been so biased toward Prime Minister Rajiv Gandhi and his ruling Congress (I) Party that what is labeled news is merely propaganda.With the elections approaching, critics say the manipulation of such an influential medium poses a threat to India's democratic traditions. "In a country with our measure of literacy, television is becoming a serious impediment in the way of free and fair elections," says Lal Krishna Advani, an opposition-party leader and a former minister of information and broadcasting. "It tilts the balance totally in favor of the ruling party." But Kamal Kant Tewary, minister for information and broadcasting, says: "We are the elected representatives of the people, and we will do whatever we think is fit and in the interests of the people." There is general agreement on one point: The elections are likely to be the most uncertain since 1967.Many say Mr. Gandhi and Congress (I), with seesawing popularity and an arms scandal that has tarnished the government, stand a chance of losing power.The arms scandal involves a report by India's comptroller and auditor general, which cited lapses in the government's evaluation and purchase of artillery guns from a Swedish arms company. Television came to India in 1965, when black-and-white broadcasts began in New Delhi.Broadcasts to other cities didn't start until 1972, and color broadcasts debuted just seven years ago. In 1980, the country had 1.6 million TV sets; today there are 20 million.That's a small number for a nation of 800 million people, but a single set might have much of a village for its audience.A sizable portion of illiterate Indians now rely on television for news they used to hear third or fourth hand, if at all. Doordarshan is controlled by the Ministry of Information and Broadcasting and often takes orders directly from the prime minister's office, some Doordarshan staff members contend. According to critics, the shift in Doordarshan's news coverage from generally favoring the government to outright bias began in May.From around that time, the critics say, items on Mr. Gandhi and Congress (I) have increasingly dominated the nationwide evening news and have been overwhelmingly positive, while the opposition has been given short shrift or blatantly abused. In May, a Doordarshan news bulletin quoted excerpts from a newspaper article by an opposition leader.The article criticized both the government and the opposition, but Doordarshan aired only the parts criticizing the opposition.This was merely news judgment, says Mr. Tewary, the information and broadcasting minister. In the same month, a group of politicians circulated a photo of a top opposition leader, Ajit Singh, socializing with an alleged drug smuggler.Newspapers carried the photo on their front pages.Doordarshan showed it on the nationwide news broadcast.The next day, a different group of politicians produced a photo of Mr. Gandhi standing next to the same alleged drug smuggler.Newspapers again gave it front-page play.Doordarshan ignored it.Mr. Tewary says the prime minister is photographed with many people and that therefore the photograph wasn't news. But a senior reporter at All India Radio, who declines to be identified, says: "We get orders from a chain of people.We are a government news agency and are expected to project the government." For all the criticism of what is seen as government propaganda, many media experts say it could be counterproductive.Says Probhat Chandra Chatterji, one of the pioneers of Indian broadcasting and a former director-general of All India Radio and Doordarshan: "It is debatable whether this propaganda will bring votes to the government.By and large, people think that it will turn the people away."
Major steel companies, stung by soft demand from car makers and eroding prices, are expected to report that third-quarter operating profits plummeted to possibly the lowest levels in two years. "This will be the worst quarter since the third quarter of 1987, when steel companies were just on their way up," predicted John Tumazos, an analyst with Donaldson, Lufkin & Jenrette Securities Corp.The fourth quarter could be even more dismal. "We are in the midst of a very severe price drop that will really hit in the fourth quarter," said Peter Marcus, an analyst with PaineWebber Inc.A rebound in those prices is expected sometime after the winter of 1990. After enjoying a 24-month honeymoon of full production, rising prices and lower costs, steelmakers are facing declining volume from disappointing automotive, appliance and even capital goods markets. The consensus is that major steelmakers earned between $30 and $35 for each ton of steel shipped, compared with $49 in last year's third quarter.The latest quarter is also down from the $51 a ton earned in the second quarter, when the industry benefited from modest price increases and lower raw material costs.Mr. Marcus expects fourth-quarter profits to drop to about $25 a ton. Along with lackluster sales to car makers -- their largest customer -- steelmakers are losing shipments to their second largest customer, steel service centers, which are trying to reduce inventories.The Steel Service Center Institute reported in September that 72% of its members believe inventories were "too high," with 65% planning to reduce those levels during the next six months. Christopher Plummer, an analyst with WEFA Group, noted that the capital goods market, which had been stronger than automotive and appliance markets, is showing signs of weakness as well.Companies, concerned about the economy and trying to slash their own costs, are backing off capital improvement programs, he said. Overall, second-half steel shipments are expected to drop about 15% to 36 million or 37 million tons, which some analysts say could cost the industry $700 million in lost income. Two companies, in particular, were hurt by unusual events in the third quarter.Bethlehem Steel Corp., the nation's second largest steelmaker, was hampered by wildcat coal strikes, a spot strike at its freight car operation and blast furnace problems at its crown jewel Sparrows Point plant.Charles Bradford, an analyst with Merrill Lynch Capital Markets, predicts Bethlehem earnings dropped more than two-thirds to about 50 cents a share, from $2.35 a year ago, excluding major nonrecurring items. National Steel Corp., the nation's sixth largest steel company, predicted at the beginning of 1989 that the third quarter would be its best.However, an initial rejection by steelworkers of a new labor accord sent nervous National Steel customers scrambling for alternative suppliers.Moreover, National Steel is tied closely to the sluggish automobile industry. One other factor for some steelmakers: higher costs associated with new labor contracts.Inland Steel Industries Inc., which recently negotiated an accord that calls for immediate and significant wage increases, is expected to see earnings drop to less than $1 a share from $1.70 a year earlier because of the pact, as well as disappointments in its steel service center operations. About the only major steelmaker expected to post improved results is USX Corp., which once again will post gains from asset sales.Many analysts initially raised earnings forecasts for the nation's largest steelmaker as a result of the coming sale of reserves from its Texas Oil & Gas unit.The expected $1 billion-plus proceeds are expected to be used to reduce debt and buy back shares.One wild card in USX's future earnings is investor Carl Icahn, who boosted his stake in USX and is urging more restructuring. Recent order rates indicate that the fourth quarter, a time shipments usually pick up, will be weak as well.Merrill Lynch's Mr. Bradford said, "We haven't seen the pickup in flat rolled orders that we should have." Flat rolled steel is the industry's major product. Typically, steelmakers would look to the export market to unload excess capacity.But that market is hurting as well.PaineWebber noted that the world steel export price of cold-rolled steel has dropped to $460 to $480 a metric ton from a high of $560 this spring.Moreover, the relative strength of the dollar and lower world prices may result in increased sales in the U.S. by foreign producers offering lower prices. There are some bright spots for the industry.The service center association reports that shipments were up in August, indicating a resurgence in demand for carbon flat rolled and stainless steel products.John Jacobson, an analyst with AUS Consultants, also said he believes steel production costs are coming down because of increased efficiencies at major mills.
The dollar drifted lower in indecisive trading, its strength sapped by concern that the Federal Reserve is gently easing monetary policy. Despite reserve-draining operations by the Fed yesterday and on the three preceding business days, some analysts say the central bank is subtly relaxing credit. They say the Fed's draining operations have been necessary to address a seasonal surfeit of reserves, but note that the actions haven't been tough enough to prevent the federal funds rate from easing to about 8 3/4% from its recent level of 9%.The federal funds rate is the overnight rate banks charge each other. "They're draining in a consistently less aggressive manner and at a lower level," said James T. McGroarty, a senior vice president at Greenwich Capital Markets. But others analysts say opinion differs markedly on whether the Fed is softening its credit stance, noting that the market's muted reaction reflects this division. "We just don't know enough yet to definitively say that the Fed has eased . . . the fed funds rate still is in a band around 9%," said one economist. Speculation that the Fed would sharply ease its credit reins was damped earlier this week when Chairman Alan Greenspan said central banks shouldn't focus too much on intermediate goals for exchange rates and interest rates. In late New York trading Thursday, the dollar was quoted at 1.9083 marks, down from 1.9166 marks late Wednesday, and at 144.17 yen, down from 144.57 yen late Wednesday.Sterling was quoted at $1.5523, up from $1.5463. In Tokyo Friday, the U.S. currency opened for trading at 143.60 yen, down from Thursday's Tokyo close of 144.60 yen. Many foreign exchange traders remain skeptical that a credit-softening is in the offing.They plan to look for clues in two economic indicators due out today, one on the producer-price index and the other on retail sales, both for September. "The market believes PPI will confirm Greenspan's concern about inflation," said Francoise Soares-Kemp, a vice president with Credit Suisse in New York.She said the market has already reacted to "that particular prompting" and is unlikely to bid the dollar significantly higher. Higher energy and auto prices are expected to have pushed producer prices up 0.3% in September after declining in August and July.Retail sales are expected to have remained flat in September, according to economists, following gains of 0.7% in August and 0.5% in July. A long-awaited speech by British Chancellor of the Exchequer Nigel Lawson failed to bolster the flagging pound and left many market participants with a decidedly bearish view of sterling. Vowing to continue his government's strategy of combating inflation with high interest rates, Mr. Lawson told the Conservative Party conference that the battle to rein in inflation required a strong currency.The Tories are "not the party of devaluation," he said. But Mr. Lawson failed to outline specific policy changes or say how the British government planned to support the beleaguered pound.He also avoided any mention of when London would bring sterling into the exchange rate mechanism of the European Monetary System, and warned there are "no easy answers" to Britain's economic problems. Some market analysts see early entry into the EMS exchange rate mechanism as one of the few alternatives left for stabilizing the pound.But entry has been opposed by Prime Minister Thatcher, who insists Britain should join from a position of strength. Wednesday's discount rate increase in Japan continued to dominate trading in Tokyo, with dealers trying to guess what the Bank of Japan and the Fed will do following the failure of the rate boost to depress the dollar. The Bank of Japan entered the market several times in the morning to sell dollars for yen, traders said.European dealings were dominated by cross activity, highlighted by sterling. On the Commodity Exchange in New York, gold for current delivery settled at $363.40 an ounce, up $1.40.Estimated volume was a light 2.2 million ounces. In early trading in Hong Kong Friday, gold was quoted at $363.35 an ounce.
Troubled British defense contractor Ferranti International Signal PLC replaced the head of its scandal-plagued U.S. division. Ferranti said Joseph Zilligen, 49 years old, chairman of Ferranti International USA, is "relinquishing" his post.Succeeding him as chairman of the large, Lancaster, Pa.-based unit, is a longtime Ferranti executive, Albert Dodd.Mr. Dodd, a 53-year-old Briton, is a Ferranti board member and managing director of Ferranti's instrumentation division. The U.S. unit is at the center of what Ferranti has called a "serious fraud" that has rocked the British company for the past month.Ferranti acquired the U.S. business last year, in a merger with the then International Signal & Control Group An International Signal unit, according to Ferranti, reported on its books #215 million ($332.5 million) of weapons contracts that didn't exist.The falsified figures inflated International Signal's reported assets, and increased the price Ferranti paid when it bought the company, according to Ferranti officials. Mr. Zilligen's departure is the latest fallout from the scandal.Ferranti has said it expects an accounting correction that would eliminate nearly half its reported net worth, and it's seeking a buyer to repair its finances. British Aerospace PLC and France's Thomson-CSF S.A. are leading contenders for a joint Ferranti bid.Yesterday, a London brokerage firm, Hoare Govett Ltd., confirmed that it purchased on Wednesday 5.7 million Ferranti shares at 56 pence (87 cents) apiece on behalf of British Aerospace.The purchase boosts the British Aerospace-Thomson stake to 12.98 million shares, or 1.7% of the stock outstanding. A Ferranti spokesman declined to comment on whether the management shuffle is related to the financial scandal, but called it generally part of the "integration" of International Signal into Ferranti since the 1988 merger.He said Mr. Zilligen remains a Ferranti director, but will also be succeeded by Mr. Dodd as chief executive of Ferranti Italia. Mr. Zilligen, through a spokesman in Lancaster, declined to comment.The executive was a colleague since 1980 of International Signal founder James Guerin, who left International Signal and Ferranti last spring.
The nation's biggest beverage companies are expected to report stronger third-quarter earnings, even as the soft-drink giants take their lumps from higher domestic soda prices and brewers' struggle with flat industry volume. Coca-Cola Co., the first of the group to report, said yesterday that earnings rose 10%, excluding a gain from the sale of a bottled water business.PepsiCo Inc. and Anheuser-Busch Cos. will report third-quarter earnings gains of at least 9% and 14%, respectively, while results for Coca-Cola Enterprises Inc. and Adolph Coors Co. will decline, analysts estimate. Since the summer, soft-drink companies have been trying to extract themselves from a price-slashing war designed to steal market share from each other.The battle drove up volumes for several years, but the discounted prices have squeezed bottlers' profit margins.Because raw material costs have been escalating and because Coke and Pepsi have become bigger owners of bottling businesses, the companies have been raising soda pop prices in recent months. That, along with generally cooler, rainier weather this year, has slowed the industry's volume growth.Unlike the 4% to 5% growth rate of recent years, the soft-drink industry is expected to report third-quarter volume was, at worst, flat, and at best, up only 3%.That's a fairly wide range, given the sheer size of the $42 billion soft-drink industry. But analysts, and indeed, some of the soda companies, have had difficulty predicting consumer reaction to higher prices.In August, Coca-Cola Enterprises, Coke's largest bottling operation, said its 1989 earnings would fall as much as 37%, partly because it misjudged consumer resistance to the new prices, which were 2% to 3% higher on average in July and August.Blaming higher prices in part, Coca-Cola said its third-quarter unit case sales were flat. The volume in the summer selling season suffered, too, from the lack of a critical, yet intangible, element in the softdrink industry: excitement.After a controversial flap involving a Madonna music video, Pepsi dropped its plans for a big summer advertising promotion featuring the pop singer.And there have been no major new product introductions, such as cherry-flavored soft drinks, which made sales sizzle two years ago. "What's been hot in the soft-drink business lately?" asks Emanuel Goldman, an analyst with PaineWebber Inc. "Nothing." Still, the beverage industry's slower results in the latest quarter could lead to some positive earnings surprises in next year's third quarter, when comparisons will be easier, said George Thompson, an analyst with Prudential-Bache Securities Inc. "This year's ugly ducklings will be next year's swans," he said. Coca-Cola's earnings were stronger primarily because of sharply improved volume from the company's international operations, which account for the bulk of its business.Volume rose 14%, well ahead of analysts' 10% to 11% projections for the business. Analysts are looking for Pepsi to earn as much as $1.04 a share, with most estimates settling around 99 cents, compared with 91 cents in the year-ago quarter.The latest quarter results, are expected to be a little soft compared with Pepsi's historical earnings growth rate, reflecting some dilution for snack-food and soft-drink bottling acquisitions.Stronger restaurant and snack-food sales helped boost Pepsi's profits, too, analysts said. Anheuser-Busch is expected to report third-quarter earnings between 89 cents and 92 cents a share, compared with 78 cents a year earlier.On the strength of Bud Light, Busch and Michelob Dry, the company's volume in the quarter is estimated to increase about 3% to 4%, while the rest of the industry will be flat, or up slightly.Coors earnings are expected to fall, as its volume declines perhaps 3% to 4%.Coors is expected to achieve greater production efficiencies once it completes its plan, announced last month, to acquire most of the beer-related assets of Stroh Brewery Co.
"In our business," says Groupe Bull Chairman Francis Lorentz, "one and one sometimes add up to 1.1, or 1.2, but rarely two." Mr. Lorentz is talking about mergers, not mathematics.Bull, the French-government-owned computer maker, earlier this month agreed to buy the computer business of Zenith Electronics Corp. for as much as $635 million, but denies this is a merger.Bull says it intends to retain existing management of the U.S. unit and keep the Zenith label, while selling Zenith personal computers -- a product line in which Bull had been lagging -- as part of Bull data-processing systems. Merger or not, the Zenith acquisition is a key part of Mr. Lorentz's plan to grow Bull -- the world's 11th biggest computer company last year -- into a profitable member of the top five or six computer makers.It won't be easy.Bull had a first-half net loss of 537 million francs ($82.7 million) on revenue of 14 billion francs ($2.16 billion).Mr. Lorentz says his objective remains posting a small profit for this year, but he isn't certain the company will make it into the black. He adds that any full-year loss won't be "anywhere as big" as the first-half loss, which was caused in part by production problems, "which are being solved," at the company's Angers, France, circuit-board plant and a squeeze on profit margins because of growing competition.In any event, Bull thus far hasn't had any trouble finding the cash to fund its acquisitions.Bull posted a profit in 1988 of 303 million francs on revenue of 31.55 billion francs. The other key to Bull's future health is its other U.S. leg.Bull last year increased to 69.4% its controlling interest in Honeywell Bull Inc. Honeywell Inc. retains 15.6%, and NEC Corp. of Japan owns the remaining 15%.In addition, Bull renamed the U.S. company Bull HN Information Services Inc. Bull HN reports to Mr. Lorentz as chairman of holding company Cie. des Machines Bull.During the past decade or so, Bull and Honeywell tried various approaches to combining their businesses, none of which really jelled. "We were spending all our energies internally, while externally the world was changing at breakneck speed," Mr. Lorentz says. But now, with Bull in firm control, these U.S. operations are key ingredients in Mr. Lorentz's plans to ensure that Bull remains one of the half-dozen or so world-wide, full-range computer companies likely to survive the 1990s.To do so, Bull is planting itself firmly in the U.S., where, says Mr. Lorentz, a lot of the best people and research are.The Zenith buy means Bull will derive 22% of its revenue from the U.S. -- up from 18% previously -- and the company spends 30% of its 3.64 billion-franc research and development budget in the U.S. Keeping Zenith relatively independant, says Mr. Lorentz, makes sense because "they are completely different cultures, making personal computers, like Zenith, and making mainframes like Bull." He says disarmingly: "We aren't fast enough.We {mainframe makers} live in cycles of four or five years of development and product life.They {PC makers} get six months of development and maybe 12 months of shelf life.They can afford to take some risks and fail." "It is absolutely essential to keep Zenith's originality, its extraordinary force," the 47-year-old Mr. Lorentz adds. "Our vocation is to be able to respond to any question our clients ask," says Mr. Lorentz, who joined Bull seven years ago after stints as chief financial officer of a water company and various posts in the French Treasury. "We want to be able to offer complete systems in specialized areas, like banking, ranging from the automated-teller machines to the front-desk workstation to the back-office equipment to the mainframe computer.To do these we need to make all the basic building blocks." Mr. Lorentz succeeded Jacques Stern as chairman of Bull in June, and like his predecessor, he is a crusader for "open software" -- that is standards that will work on the machines of various makers -- in order to give smaller companies like Bull a chance against industry giants.Mr. Lorentz, Mr. Stern's No. 2 since 1982, inherits the task of making Bull the biggest and healthiest European soup-to-nuts computer company, competing globally with the likes of International Business Machines Corp., Unisys Corp., and a handful of Japanese companies.Counting only sales of computer equipment, Bull is already the biggest in Europe, ahead of Siemens AG of West Germany and Ing.C. Olivetti & Co. of Italy, Mr. Lorentz says. Mr. Lorentz, an intense, cerebral product of France's elite "Ecole National d'Administration" likes to go rock climbing in his spare time, and used to practice the martial art of aikido.He will discuss frankly Bull's past problems; when asked if the company has suffered from an unfocussed image, he readily agrees.He allows that the products of all computer makers are getting more and more alike -- "a certain banalization" he calls it -- and that specialized service will make the difference in the future. "How we manage the problem of service will make all the difference between now and 1995," he says.After having added Zenith PCs to the Bull stable, Mr. Lorentz says, the company will be better armed for battle especially in Europe. "Our biggest asset is that we are well implanted in Europe, and Europe will be the fastest growing market in the world over the next 10 years." But the conquest of Europe will happen, in part, from the U.S. "The information industry is global," says Mr. Lorenz, "but the image of that industry is created in the U.S., so we must be present in the U.S. in order to be known everywhere else.The U.S. represents 45% of the world information market, so it's 45% of our world.The technology and the human resources are there, and since the scarcest resource for us is people, and the people are in the U.S., so are we.That's the whole story."
"Time," says Tamara Geva, "is meaningless.My youth in Petrograd, my father -- whom I never saw again after 1924, when I left Russia for the West -- the whole of my early life, it's all been brought back to me by the arrival, out of a clear blue sky, of this exhibition.The years between Petrograd and New York are the dream.The objects I grew up with, the things I thought I had said goodbye to forever -- that is the reality." The reality to which Ms. Geva refers is the hoard of dance memorabilia currently on view at Eduard Nakhamkin Fine Arts here, under the title, "100 Years of Russian Ballet: 1830-1930." Consisting of roughly 400 items from the Leningrad State Museum of Theater and Music, the show offers tantalizing glimpses of a rich artistic achievement. For Ms. Geva, an actress and author who began her career as a dancer during the early days of the Soviet state under her original name of Gevergeyeva, it offers something more: a sense of completion, the lifting of a curtain on the past.A great deal of what is currently on display in New York belonged to her father.These lithographs, designs, programs, photographs, which she pored over day after day, fed her adolescent yearning to join the ballet.Of this ambition her father disapproved, because, he said, dancers weren't properly educated. Levki Gevergeyev had a passion for learning and for the arts, especially the performing arts.In addition to his holdings of theatrical material, he also owned 50,000 books, among them a great cache of bibles, although, in fact, he was an atheist.That didn't keep him from making a great deal of money manufacturing gold vestments for the Russian Orthodox Church.He owned a 26-room house, in which, according to his daughter, four enormous rooms were filled with his collection. After the Revolution, when everything he owned was sequestered by the Bolsheviks, he was put in charge of the state's first Museum of Theater and Music, situated in Ostrovsky Square.In effect, he became the official curator of his former collection, which grew prodigiously and soon included several thousand costumes. Despite the deprivations to which her father was subject in those years, Ms. Geva imagines that he must have been happy to be allowed to remain with the objects he had assembled so devotedly.While she found out soon after the war that he had perished during the Siege of Leningrad, she didn't know until the curators arrived from the Soviet Union with the contents of this exhibition that he had died of starvation on a sofa in the museum.Though weakened by malnutrition, he was unwilling to budge in case the collection was bombed and needed to be saved. As it happened, the collection survived intact.Today, the Leningrad State Museum of Theater and Music owns some 400,000 items.For Americans, the most interesting of the 400 items on display in New York include designs by the German-born Andrei Roller (1805-91) for the Russian productions of important early 19th-century Paris ballets.No less illuminating are the designs from Petipa's "Sleeping Beauty" (1890), "Nutcracker" (1892) and "Raymonda" (1897), which shed light on the role played by spectacle in the ballets of this great choreographer.There also is much to be learned from the early stage photographs of Petipa's work, which, though posed, extend our knowledge of its theatrical ambiance. Petipa, the fountainhead of balletic classicism, emerges as the show's hero, whether perceived through scenes from his ballets or through glimpses of the dancers whose technique and artistry his choreography played a decisive role in shaping.Among the most important of the Petipa ballerinas is Mathilde Kchessinska, represented in a series of fascinating photographs.The mistress of Nicholas II until his engagement to Alexandra of Hesse-Darmstadt, she dominated the Imperial Ballet of St. Petersburg as much through her dancing as through her connections.Even Isadora Duncan, the self-professed enemy of ballet, found her enchanting.A 1910 photograph shows Kchessinska reclining on a chaise longue in her St. Petersburg mansion.Clearly visible in the background is the balcony from which Lenin was to proclaim the Revolution. The Diaghilev material is less interesting.The Ballets Russes never appeared in Russia and most of the important artifacts are in the West.George Balanchine, to whom Ms. Geva was married as a teenager in 1923 and who began his career as an artistic revolutionary, also gets short shrift.Better by far is the representation accorded the avant-garde dance that flourished in the U.S.S.R. until ruthlessly repressed during the Stalin years.The presence of so much material concerning Feodor Lopukhov, the leading choreographer of the post-Revolutionary Leningrad school, and virtually unknown in this country, is particularly welcome. Less welcome is the random nature of the exhibition, which has no point to make beyond the indisputable fact that there are treasures in the Leningrad State Museum of Theater and Music.Miscellaneous and haphazard -- did we really need to see Anna Pavlova's tea set or Marie Petipa's slipper? -- the show invites uninformed, and thus superficial, viewing. While it's an astonishing achievement for the Nakhamkin gallery to have organized the show in only three months, the time has surely come to present this kind of material in ways that reveal a context and a point of view.Even the title is misleading: The exhibition covers ballet, not in Russia, but only in what is now Leningrad.It also begins before 1830 and ends after 1930.In compiling the catalog, the gallery has missed a great opportunity to document a lot of rare material.Though well-illustrated, the publication is uninformative and often simply untrustworthy.Clearly, no dance lover should skip the show, but it's only a stopgap for the serious, scholarly endeavor we really need. The show closes in New York on Oct. 20 and reopens in Saratoga, N.Y., on May 19 at the National Museum of Dance, its co-sponsor.
With stock prices hovering near record levels, a number of companies have been announcing stock splits. But investors trying to play all the angles may find that stock splits are a lot like cotton candy: They look tempting, but there's hardly any substance.And they can even leave a sticky problem, in the form of higher brokerage commissions. "A stock split unaccompanied by a cash dividend increase is like giving somebody five singles for a $5 bill.You've got a thicker billfold, but it has no economic significance whatsoever," says Leon Cooperman, a partner at Goldman, Sachs & Co. In a typical split, a company increases the number of shares it has outstanding, with each stockholder participating on the basis of existing holdings.With a 2-for-1 split, for example, an investor who owned 100 shares before the split would have 200 shares afterward.The stock's price usually falls to reflect the greater number of shares, assuming no other changes at the company. Companies usually split their shares in the hope that a lower share price will attract more individual investors, increase trading volume and improve the stock's liquidity.The theory is that a stock selling for $20 or $30 a share will be more affordable to individuals than one selling for more than $100 -- especially for investors who like to buy round lots of 100 shares. Take L.A. Gear Inc., a fast-growing designer and marketer of athletic footwear that had a 2-for-1 split last month.The main reason for the split was "to make the stock more attractive to the retail buyer," says Elliott J. Horowitz, the company's executive vice president and chief financial officer. But if a stock suddenly becomes more attractive to the masses, shouldn't that boost its price?After all, L.A. Gear was selling for around $60 a share when the split was announced on Aug. 24, then soared to more than $75 a share before splitting in late September.Yesterday, the stock closed at $41.75. Mr. Horowitz scoffs at the idea that his company's price surge was caused by the split. "If it were that easy to take a stock from 60 to 75, I think a lot of other companies would be doing it," he says.While a split "does create more demand for the stock," he says, "I just don't think it's that much of a factor." Investment managers and others agree.While a stock split accompanied by a dividend increase can pack a powerful punch, a split by itself "has no lasting impact on the stock price," says Mr. Cooperman of Goldman Sachs. Adds James L. Cochrane, senior vice president at the New York Stock Exchange: "We've done research on this, and it shows a split really doesn't to seem to matter significantly." Even if splits did affect stock prices, some academics argue that it would be futile for investors to try to take advantage of them.In their view, financial markets tend to anticipate news.Thus any impact from a split would already be incorporated in a stock's price by the time the split was announced, they argue. "Normally, the investor isn't able to benefit" by buying a company's stock immediately after news of a split, says Frank K. Reilly, a Notre Dame professor of finance and co-author of a 1981 study on splits. "By the time the average investor hears the news, traders already have acted and the stock already has moved." A few money managers even say a stock split sometimes may represent a sell signal. "Remember the old Wall Street adage: Buy on the rumor and sell on the news," says Samuel Thorne Jr., a managing director at Scudder, Stevens & Clark in Boston. Splits can also mean a bigger expense for investors when they buy or sell shares.That's because brokerage houses often calculate their commission rates using a complex formula based partly on the number of shares being traded. For example, a Merrill Lynch official says that firm's commission on 100 shares of a $40 stock would be about $97.But the commission would jump to about $115 to trade 200 shares of a $20 stock -- even though the dollar amount of the trade would be exactly the same.Another large firm gave similar figures: The standard commission on 100 shares of a $40 stock would be $91, but the commission would jump to $112.50 to trade 200 shares of a $20 stock. "Stock splits are the biggest ripoff on Wall Street," contends Hans R. Reinisch, a New York investor. "The only thing that changes with a split is the brokerage commissions, and they often go up sharply.If you're an active investor, you have to take into account the transaction costs." Some corporate executives also question the idea that more shares are better.Among these is Warren E. Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., whose stock closed yesterday on the New York Stock Exchange at $8,700 a share. "We often are asked why Berkshire does not split its stock," he wrote in the company's 1983 annual report. "The assumption behind this question usually appears to be that a split would be a pro-shareholder action.We disagree." In the lengthy discussion that followed, Mr. Buffett said: "We want {shareholders} who think of themselves as business owners with the intention of staying a long time.And, we want those who keep their eyes focused on business results, not market prices." Underscoring his feelings on the subject, Mr. Buffett once sent a birthday greeting to a friend, wishing him good health and saying: "May you live until Berkshire splits." Still, many companies like splits as an inexpensive marketing tool that generates favorable publicity and helps broaden their shareholder base. A stock split is "a nice exercise in cosmetics, but that's about all," says James H. Coxon, senior vice president and head of the common-stock division at Cigna Investments Inc. "It's a small net positive because it can improve the marketability of a particular stock.But it's really of very little significance." A split's impact, if any, can depend on the company involved and the price of that company's stock, says John P. Rosenthal, senior partner of Silberberg, Rosenthal & Co.But he adds that any impact from a split "really is very short-term." Advises Michael Metz, a managing director at Oppenheimer & Co: "Just ignore splits." In his view, "They're irrelevant for the long-term investor.Look only at the fundamentals of a company, not whether it splits its stock."
Tokyo stocks fell sharply as the dollar remained strong despite Wednesday's half-point discount rate increase by the Bank of Japan. London shares recovered some lost ground, largely on technical factors as Chancellor Nigel Lawson's speech to the Conservative Party conference was viewed as basically neutral for the market. Tokyo's Nikkei Index of 225 issues, which fell 136.28 points Wednesday, closed at 34795.05, down 445.02.The decline of nearly 1.3% left the index below 35000 for the first time since Sept. 25. In the first hour of trading in Tokyo Friday, the Nikkei Index rose 145.96 points to 34941.01. Thursday's volume on the first section was estimated at 650 million shares, compared with 751 million Wednesday.Declining issues outpaced advancers 857-161, with 110 unchanged.The Tokyo Stock Price Index of all issues in the first section, which lost 13.07 Wednesday, was down 36.89, or 1.4%, to 2623.60. The market opened at what proved to be its high and continued to slip toward the end of the day.Traders said the reason its drop was larger than Wednesday's moderate loss was that investors began selling their holdings when they saw that Wednesday's rise to 3.75% in the discount rate -- the central bank's base rate on loans to commercial banks -- failed to curb the dollar's rise against the yen. A stronger dollar concerns Japanese stock investors because it contributes to Japanese inflation, particularly by raising oil and other energy and natural resource prices, which are denominated in dollars.In addition, higher prices for imports allow domestic manufacturers to increase their own prices. Moreover, the current high level of the U.S. stock market, and the possibility of U.S. interest rates being cut or Japanese rates being raised again to keep the dollar down, might draw funds currently invested in Japanese equities into the U.S. market, some investors fear. Masami Okuma, senior trader at UBS Phillips & Drew International, said expectations of another increase in the discount rate already are causing some investors not only to stop buying but also to dump some of their recently acquired shares. Yoshiaki Mitsuoka, manager of the investment information department at Daiwa Investment Trust & Management Co., said the market had been sustained recently by smaller issues with relatively low price-earnings ratios.Prices of such shares, he said, now have risen an average of 57% in the past six months, making them less attractive for fresh buying. Yukio Itagaki, director of the fund management department at Kokusai Investment Trust Management Co., said the discount rate increase didn't have much effect on the actual market environment, as short-term interest rates already had been above 5%.And as the rate on newly issued three-month certificates of deposit went up to 6.2% Wednesday, institutions and corporations had little incentive to invest new funds in stocks. The higher discount rate discouraged institutions from holding steel and construction shares, traders said.Nippon Steel fell 10 to 698 yen ($4.83) a share, Sumitomo Metal lost 19 to 677, and Kobe Steel was down 9 at 690.Kajima was down 100 at 1,900, while Ohbayashi lost 60 to 1,500. Shipbuilding issues also were sold off.Kawasaki Heavy Industries fell 37 to 903, and Mitsubishi Heavy Industries was down 30 at 1,010.Among housing issues, Misawa Homes lost 140 to 2,830, Sekisui House declined 70 to 2,400, and Daiwa House lost 100 to 2,470. Retail issues, which advanced in September on speculation about mergers and acquisitions in the sector, were sold on profit-taking, traders said.Seiyu was down 240 at 2,710, Daiei fell 70 to 2,980, and Isetan lost 170 to 4,720. Some of the blue-chip issues that had gained in the previous couple of days were lower as investors retreated quickly.Hitachi lost 10 to 1,510, Toshiba was down 40 at 1,130, and Toyota Motor lost 30 to 2,820. Among the few winners was Sharp, which attracted investors because of growing demand for its liquid crystal projectors, traders said.Sharp gained 20 to 1,550.Other gainers included Nippon Shokubai, which rose 70 to 2,270, Nikon, up 30 to 1,620, and Aiwa, which gained 120 to 2,000. In London, the Financial Times-Stock Exchange 100-share index finished 19 points higher at 2237.8.The Financial Times 30-share index rose 20.4 to 1817.7.Volume was 437.4 million shares, down from 503.2 million Wednesday. Chancellor Lawson, who has been under political fire for his decision a week ago to force U.K. banks' base lending rates up to 15%, an eight-year high, addressed the governing Conservatives' annual conference on current economic issues, and dealers said the speech was exactly what the market had expected. "It was a good party political conference speech," a dealer with a large U.K. market-making operation said. "He didn't calm any fears or anxieties, but at least he didn't create any new ones." Dealers attributed the day's advances largely to a technical rebound from the sharp declines that followed last week's base-rate increase.They also cited markdowns by market-makers seeking to generate some business and a general absence of active selling. There was also some speculative energy that helped to support the FT-SE 100 later in the session, when Wall Street showed signs of weakness early in its trading day.That energy came in part from renewed rumors that U.S. takeover specialists Kohlberg Kravis Roberts are preparing to make a takeover bid for industrial concern BTR rather than simply take a 15% stake in it.Dealers also pointed to active options dealing in the stock recently and said some of the options had been exercised.BTR ended 7 higher at 437 pence ($6.76) a share. Ferranti International Signal rose 1 1/2 to 58 on 8.5 million shares.British Aerospace said earlier in the week that it was considering making a joint bid with France's Thomson-CSF for Ferranti. ASDA Group, a U.K. food retailer, closed 4 higher at 163 after holders approved the company's acquisition of 61 stores from Isosceles.ASDA was relatively active at 6.3 million shares. Other companies in the food sector also firmed on active volume, with Argyll Group gaining 8 to 223, Tesco up 1/2 to 194 1/2 and J. Sainsbury advancing 3 to 255. Blue-chip issues attracted institutions looking for defensive positions amid the current doubts about the future of the U.K. economy, dealers said. British Steel edged 2 higher to 126 1/2 on 8.3 million shares, British Telecommuncations settled 6 higher at 268, and British Petroleum gained 1 to 307 1/2. In other European markets, share prices ended higher in Frankfurt, lower in Paris, Brussels and Amsterdam and mixed in Stockholm, Milan and Zurich.South African gold stocks were slightly firmer. Elsewhere, stocks rose in Taipei, Singapore, Seoul and Manila and were lower in Hong Kong, Wellington and Sydney. Here are price trends on the world's major stock markets, as calculated by Morgan Stanley Capital International Perspective, Geneva.To make them directly comparable, each index is based on the close of 1969 equaling 100.The percentage change is since year-end.
Securities analysts are using terms like "kitchen-sink syndrome" and "clearing the decks" to describe the generally disappointing results that commercial banks are expected to report in the coming weeks. A number of major banks have chosen to make huge additions to their loan-loss reserves in the third quarter, either for troubled loans to Latin American nations, soured real-estate loans in this country or bad loans to companies involved in leveraged buy-outs. The banks hope to get the bad news behind them now, so that their earnings -- and their stock prices -- can rebound in the coming quarters. J.P. Morgan & Co. has effectively neutralized any problems that its developing-country loan portfolio could pose in the future by announcing a $2 billion addition to reserves for the quarter.As a result, Morgan will post a loss for the quarter and year. Similarly, Manufacturers Hanover Corp. made a big addition to reserves for developing-country debt that will cause it to post a loss.Chase Manhattan Corp. on Wednesday, as expected, reported a net loss for the third quarter of $1.11 billion, or $12.45 a share, following a massive addition to reserves for possible losses on loans primarily to developing countries. And several regional banks, including Bank of Boston Corp. and First Bank System Inc., are expected to report losses stemming from major additions to reserves for foundering domestic loans. With all this disappointing news, analysts wouldn't be surprised to see other banks, particularly those with loans to developing countries, use the spate of reserve-building by others as an opportunity to clean up their own balance sheets. The nation's biggest banking company, Citicorp, isn't expected to follow the lead of Manufacturers, Chase and Morgan with a massive boost in reserves.Nevertheless, analysts expect Citicorp's third quarter will be near its level for the same period a year ago and therefore somewhat disappointing. Many analysts were expecting generally weak third-quarter results anyway due to continued rises in non-performing loans and pressure on interest-rate margins. Keefe, Bruyette & Woods Inc., a securities firm specializing in bank stocks, estimates that third-quarter results will rise 8% from the year-ago figure for 144 regional banks that it follows.That's the smallest increase this year. The principal reason for the slower growth is the narrowing difference in interest rates on loans and the cost of interest-bearing consumer deposits.Keefe estimates this difference will shrink to 4.39 percentage points in the third quarter, the lowest level in a year. Further deterioration in domestic loan quality is adding to the pressure on earnings.Nonperforming real-estate loans in New England continue to climb, and the number of highly leveraged commercial loans that have gotten into trouble is rising.Hooker International, Seaman Furniture Co., Lomas Financial Group Inc., Integrated Resources Inc. and Resorts International Inc. are some of the more prominent troubled concerns.
The economy's temperature will be taken from several vantage points this week, with readings on trade, output, housing and inflation. The most troublesome report may be the August merchandise trade deficit due out tomorrow.The trade gap is expected to widen to about $9 billion from July's $7.6 billion, according to a survey by MMS International, a unit of McGraw-Hill Inc., New York. Thursday's report on the September consumer price index is expected to rise, although not as sharply as the 0.9% gain reported Friday in the producer price index.That gain was being cited as a reason the stock market was down early in Friday's session, before it got started on its reckless 190-point plunge. Economists are divided as to how much manufacturing strength they expect to see in September reports on industrial production and capacity utilization, also due tomorrow.Meanwhile, September housing starts, due Wednesday, are thought to have inched upward. "There's a possibility of a surprise" in the trade report, said Michael Englund, director of research at MMS.A widening of the deficit, if it were combined with a stubbornly strong dollar, would exacerbate trade problems -- but the dollar weakened Friday as stocks plummeted. In any event, Mr. Englund and many others say that the easy gains in narrowing the trade gap have already been made. "Trade is definitely going to be more politically sensitive over the next six or seven months as improvement begins to slow," he said. Exports are thought to have risen strongly in August, but probably not enough to offset the jump in imports, economists said. Views on manufacturing strength are split between economists who read September's low level of factory job growth as a sign of a slowdown and those who use the somewhat more comforting total employment figures in their calculations.The wide range of estimates for the industrial output number underscores the differences: The forecasts run from a drop of 0.5% to an increase of 0.4%, according to MMS. A rebound in energy prices, which helped push up the producer price index, is expected to do the same in the consumer price report.The consensus view expects a 0.4% increase in the September CPI after a flat reading in August. Robert H. Chandross, an economist for Lloyd's Bank in New York, is among those expecting a more moderate gain in the CPI than in prices at the producer level. "Auto prices had a big effect in the PPI, and at the CPI level they won't," he said. Food prices are expected to be unchanged, but energy costs jumped as much as 4%, said Gary Ciminero, economist at Fleet/Norstar Financial Group.He also says he thinks "core inflation," which excludes the volatile food and energy prices, was strong last month.He expects a gain of as much as 0.5% in core inflation after a summer of far smaller increases. Housing starts are expected to quicken a bit from August's annual pace of 1,350,000 units.Economists say an August rebound in permits for multifamily units signaled an increase in September starts, though activity remains fairly modest by historical standards.
