TOP STORIES -- May 29 -- June 3
Weak Payroll Report Sparks Market Sell-Off
The weakest monthly payroll report in 21 months renewed fears of a U.S. economic slowdown, sparking a Wall Street sell-off on Friday that clipped the Dow index 92 points.
The Labor Department issued its May data showing that only 78,000 nonfarm jobs were added to payrolls -- less than half the amount economists had expected and a steep drop from the 274,000 created in April.
Another climb in near-term crude futures, lifting oil to $55.03 a barrel on Friday from $54.60 on Thursday, further soured the mood on Wall Street.
The report kicked off a fierce bond rally early in the session as some traders took it to be another sign that the Fed might end its credit tightening sooner rather than later, but profit taking at the end of a torrid week for the Treasury market left yields sharply higher on the day.
In a holiday-shortened week, the Dow lost 0.8%, to 10,460.97, while the S&P; 500 and the Nasdaq both fell 0.2%, to 1,196.02 and 2,071.43, respectively. The loss snapped Nasdaq’s four-week winning streak.
Cox Nominated to Head SEC as Donaldson Exits
President Bush nominated Republican Rep. Christopher Cox of Newport Beach as chairman of the Securities and Exchange Commission, replacing William H. Donaldson, who resigned after aggressively trying to restore investor confidence shaken by corporate scandals.
Cox may be best known on Wall Street for writing a 1995 law that limited the ability of investors to sue companies over alleged securities fraud.
The resignation of Donaldson, who took over as SEC chief in 2003 at Bush’s behest, came as a surprise. He was expected to serve through this year.
His June 30 departure gives the White House an opportunity to shift the course of the SEC, which has been bitterly split on some high-profile issues of regulation and investor protection.
Bush also must pick a successor to Democratic Commissioner Harvey J. Goldschmid, who plans to leave this summer.
Jurors in Scrushy Case Say They’re Deadlocked
Federal prosecutors appeared on the verge of a serious setback in their landmark fraud case against Richard Scrushy, perhaps Alabama’s best-known businessman, as jurors in the case told the judge they were badly deadlocked on all charges.
In its 10th day of deliberations after a nearly four-month trial, a Birmingham, Ala., jury of seven men and five women on Friday told the judge that they were deadlocked on all 36 felony charges against Scrushy, the founder of HealthSouth Corp.
The government alleges that Schrushy masterminded a massive fraud at the health services company, inflating its earnings by $2.7 billion over a period of years to artificially pump up the firms’ stock price.
U.S. District Judge Karon O. Bowdre called the jury panel into her courtroom to issue a so-called Allen charge, exhorting the jurors to keep working to avoid a mistrial.
High Court Overturns Andersen Conviction
The Supreme Court overturned the criminal conviction of accounting firm Arthur Andersen, ruling unanimously that its shredding of two tons of Enron-related documents did not prove its intent to obstruct justice.
The Enron Corp. memos, notes and drafts were destroyed in October 2001 as the firm was collapsing, but before the government launched an official investigation of Enron or Andersen, its auditor. Andersen was driven out of business because of the 2002 conviction.
A jury in Houston debated 10 days before finding Andersen guilty. The Supreme Court said prosecutors had not been forced to prove that Andersen’s staff knew it was breaking the law by destroying old files -- that there had been criminal intent.
The Justice Department said it was disappointed and would study the decision before deciding whether to retry the case.
United Airlines in Pact With Ground Workers
United Airlines reached a tentative agreement on a new cost-saving contract with its 19,500 ground workers, heading off a potentially devastating strike and vastly improving the airline’s chances to emerge from bankruptcy protection.
The proposed contract with the International Assn. of Machinists and Aerospace Workers, which still must be ratified by the union’s members, means United is poised to achieve its goal of saving about $725 million a year by forging new concessionary agreements with all four of its labor groups.
The last-minute agreement with United’s biggest worker group came as the sides were headed for a showdown before U.S. Bankruptcy Court Judge Eugene Wedoff in Chicago. Wedoff was set to rule on United’s request to scrub the old contract and impose lower wages and benefits itself.
Wedoff gave both sides until June 17 to iron out the details of their new five-year contract, which would then be submitted to union members.
Titan to Be Acquired by L-3 Communications
San Diego-based defense contractor Titan Corp. said it has agreed to be acquired by military electronics maker L-3 Communications Holdings Inc. for $1.97 billion in cash.
The deal had been rumored for weeks and came nearly a year after Lockheed Martin Corp. abandoned a $1.66-billion takeover of the company because Titan was then under federal investigation over a foreign-bribery scandal.
New York-based L-3 will pay $23.10 per Titan share and assume about $680 million in debt. It is L-3’s largest deal, which has been on a spending spree and has acquired 27 defense and electronic companies since being formed in 1997.
The deal also marks the latest move by defense contractors to acquire companies heavily loaded with employees that have lucrative “top secret” security clearances.
Sun to Buy StorageTek in $4.1-Billion Deal
Sun Microsystems Inc. said that it would buy another former high-flier -- Storage Technology Corp. -- for $4.1 billion, spending most of its cash hoard in a defensive move to join with a slow-growing but profitable ally.
The step reflects what Sun Chief Executive Scott McNealy said was a determination by the Santa Clara, Calif.-based computer maker to be a buyer -- rather than a target or bystander -- as the technology industry consolidates.
Sun would pay $37 in cash for each share of StorageTek, as the company is known.
Regulators and shareholders of StorageTek, which provides tape-based data storage, have yet to approve the deal, which is expected to be completed in late summer or early fall.
Fight Intensifies Over Airbus, Boeing Subsidies
The U.S. and Europe moved a step closer to a multibillion-dollar trade war after both sides asked the World Trade Organization to review complaints accusing each other of giving billions of dollars in improper government aid to Boeing Co. and Airbus.
Citing an impasse after five months of negotiations, U.S. and European trade officials formally requested that the WTO convene a panel to resolve the long-simmering dispute between the world’s largest makers of commercial aircraft.
The U.S. wants European Union member countries to stop providing low-interest government loans to help Airbus develop new civilian aircraft. The EU wants the U.S. to stop giving Boeing tax breaks and research and development assistance.
Watts Health Files for Bankruptcy Protection
Watts Health Foundation Inc., a nonprofit health plan that covers about 90,000 elderly and low-income Southern California residents, has filed for bankruptcy protection, owing an estimated $50 million or more to creditors, including doctors and hospitals.
It is the third time in three decades that the organization, which provides medical and dental care through its UHP Healthcare HMO, has been in financial turmoil. The latest petition nevertheless caught both hospitals and regulators by surprise. Watts Health failed to give the state 10 days’ notice before filing the petition as required by law, said Cindy Ehnes, director of the state Department of Managed Health Care.
Watts Health executives aid they intended to work with regulators. Gary Klausner, a lawyer representing Watts Health, said the HMO would use bankruptcy protections to reorganize and conduct “business as usual” in the meantime.
For a preview of this week’s business news, please see Monday’s Business section.
