Stocks End the Week Down Sharply
After stocks rose sharply for six weeks, many analysts were saying it was time for a breather--and they were right.
The benchmark Standard & Poor’s 500 index slipped 3% last week as investors weighed negative corporate profit reports and fretted that the U.S. economy hasn’t rebounded enough to justify the market’s stunning post-Sept. 11 run-up. It was the S&P; 500’s biggest weekly loss since late September.
The technology-focused Nasdaq composite index suffered its first losing week in the last six, falling 3.4%. And the Dow Jones industrial average fell 2.4%, failing to maintain the toehold above the crucial 10,000 mark that it attained earlier this month.
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Fed Lowers Interest Rate
for 11th Time This Year
Federal Reserve policymakers lowered a key short-term rate for the 11th time this year, continuing their effort to counter the nation’s deepening recession while cautiously noting signs that it might be nearing its end.
The Fed lowered its target for overnight interest rates by a quarter of a percentage point to 1.75%, the lowest level in 40 years.
The action came amid debate by economists over whether the economy will start picking up early next year or continue to slide. Some economists fear that low inflation will worsen the recession. Meanwhile, rising unemployment might cause consumers to spend even less. State officials reported that in November the number of Californians out of work topped 1 million for the first time in nearly five years. That pushed the unemployment rate to 6%, up from 5.8% in October.
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French Bank to Buy
UCB for $2.4 Billion
French bank BNP Paribas, moving to double its presence on the West Coast, agreed to buy United California Bank from its Japanese parent, UFJ Holdings, for $2.4 billion in cash.
The proposed acquisition would be the third major purchase for the French bank in a year and underscores an aggressive push recently by overseas banks into the U.S. financial services sector.
BNP Paribas plans to combine the mid-size United California Bank and its newly acquired Bank of the West to create the state’s fourth-largest bank. Together, the banks, which focus on small-business lending, would have $15 billion in deposits, a staff of 8,000 and more than 350 branches in California and six other Western states.
United California Bank, the largest Los Angeles-based bank serving Los Angeles and Orange counties, was created less than six months ago from the union of Sanwa Bank California and Tokai Bank of California.
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Calpine Shares Tumble
on Enron Fears
San Jose-based Calpine Corp. became the latest victim of the “Enron effect”--investor nervousness that the business operations or accounting practices of other energy companies might resemble those of hobbled energy trader Enron Corp., the largest bankruptcy in U.S. history.
Investors fled Calpine’s stock after reports likened Calpine to Enron. Several analysts rushed to Calpine’s defense, noting that its business model is much different than Enron’s. Calpine shares lost more than 20% last week.
Although Standard & Poor’s reaffirmed Calpine’s debt rating at its highest junk level, Moody’s Investors Service and Fitch Inc., which maintain Calpine at their lowest investment-grade ratings, are considering downgrading the company.
Other independent energy producers suffered stock losses last week and ended at multiyear lows.
Enron, meanwhile, was in the hot seat at a Congressional hearing. Joseph Berardino, chief executive of Arthur Andersen, Enron’s accounting firm, testified that his firm warned Enron directors last month that the company might be guilty of possible illegal acts for withholding critical financial information from Andersen auditors. Enron disputed the account.
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Boeing Says It Will
Keep Making 717s
Boeing Co. has decided against shutting down the 717 jetliner program, although an expected cut in the production rate could mean additional layoffs at Southern California’s last remaining commercial aircraft manufacturing facility.
The Boeing decision grants another reprieve for the Long Beach plant, which has lurched from one crisis to another over the last 20 years amid repeated efforts to squeeze profit from dwindling sales.
The announcement prompted mixed reaction from the 717’s 2,300 workers, who are in the middle of a major layoff the company started earlier this year.
Boeing also said it will take a one-time, after-tax charge of $700 million against earnings in the current quarter, reflecting a dramatic downturn in orders for its entire line of commercial jetliners since the Sept. 11 terrorist attacks.
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HP-Compaq Merger
Comes Under Fire
Hewlett-Packard Co.’s proposed acquisition of rival Compaq Computer Corp. came under increasing assault as dissident director Walter Hewlett, the son of the one of the company’s founders, said more shareholders opposed the $25-billion transaction.
Both companies’ boards rejected his characterization. Nonetheless, the value of each stock continued to erode last week, with HP shares losing 10% and Compaq losing about 3%.
The deal has met opposition from other Hewlett heirs, the Hewlett Foundation as well as heirs of co-founder David Packard and the Packard Foundation, who together have an 18% stake in HP. The David and Lucile Packard Foundation, which holds 10.4% of shares, said it also will oppose the merger.
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Xerox to Spin Off
Research Center
Xerox Corp.’s famed Palo Alto Research Center will become an independent company Jan. 1 as part of a plan to attract strategic partners who can help shoulder the cost of the lab.
The move is part of a company-wide overhaul to refocus the troubled copier maker on core growth areas.
Over the last 30 years, PARC perfected technologies ranging from the computer mouse to the laser printer to the graphical user interface on which all PCs rely, but Xerox has a dismal record of turning such inventions into money-making products.
Xerox said it has talked with 40 potential partners ranging from large corporations to venture capitalists, but it has no timetable for striking any deals.
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Pritzker Family in Record Thrift Settlement
The billionaire Pritzker family and its partner have agreed to pay federal regulators $460 million to help cover losses at an Illinois thrift that collapsed this summer after losing millions of dollars on high-risk loans. It is believed to be the biggest settlement ever in the case of a failed savings and loan.
The settlement resolves claims brought by the Federal Deposit Insurance Corp. against Superior Bank of Hinsdale, Ill., which in July became the largest U.S. financial institution to fail in nearly a decade. The parties admitted no liability in settling the case.
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Nirvana Members Sue Love Over Band’s Legacy
The remaining members of the grunge band Nirvana sued entertainer Courtney Love, accusing the widow of band mate Kurt Cobain of trying to seize control of the trio’s recordings for her ownfinancial gain.
Former Nirvana drummer Dave Grohl and Nirvana bassist Krist Novoselic filed a breach-of-contract lawsuit against Love in King County Superior Court in Seattle.
The legal action is a response to a suit Love filed in May seeking to take charge of Nirvana’s catalog and block the future release of any Nirvana recordings by Novoselic, Grohl or Vivendi Universal, the French music conglomerate she is battling to break her own recording contract. Love’s suit puts the brakes on a greatest-hits package originally scheduled to hit stores during the holiday season.
Love contends that Nirvana’s legacy no longer can be entrusted to Novoselic, Grohl or Vivendi Universal.
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From Times Staff
For a preview of this week’s business and economic events, please see Monday’s Business section.
