TOP STORIES--AUG. 11-16
Nation’s Airlines Hit
More Turbulence
The airline industry saw one of the most tumultuous weeks since the terrorist attacks nearly a year ago.
The week began with US Airways Group filing for bankruptcy protection. The nation’s seventh-largest airline intends to continue its service--3,800 flights daily to 204 cities--as it works with creditors and the U.S. Bankruptcy Court to mend its finances. The airline said it hopes to emerge from its reorganization within six to eight months.
AMR Corp.’s American Airlines, the No. 1 carrier, unveiled a major overhaul that would eliminate 7,000 jobs, or 6% of its work force; reduce seating capacity by 9%; ground certain jetliners to simplify its fleet; adjust the classes of service it offers on international routes; and attempt to smooth the flow of planes at its hub airports at Dallas/Fort Worth and Chicago.
Then United Airlines announced that it would seek Bankruptcy Court protection if its unions, creditors and other stakeholders don’t agree to make deeper concessions to stem parent company UAL Corp.’s cash drain.
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Stock Analyst Grubman Resigns Amid Probes
Jack Grubman, once the most powerful telecommunications analyst on Wall Street, resigned from Salomon Smith Barney amid government investigations of whether financial conflicts tainted his stock recommendations.
In what the brokerage called a “mutual agreement,” Grubman resigned after accepting a $13.2-million severance package.
As his unusually close relationship with Salomon’s investment banking department came to light in recent months, critics charged that Grubman’s stock recommendations were aimed primarily at pleasing the managements of the subject companies, in the hope of bringing Salomon more fee-generating underwriting business.
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Stocks End Week With Modest Gains
Stocks overcame a series of lackluster economic reports last week to post modest gains, helped in part by the relatively uneventful passing of the deadline for big U.S. companies to certify their financial results.
The Standard & Poor’s 500 index gained 2.2% for the week. That was the benchmark index’s fourth straight weekly gain, its longest winning streak since May 2001.
Tech stocks did even better, with the Nasdaq composite rising 4.2%. The blue chip Dow industrials inched up 0.4%.
Stock initially slid after Tuesday’s Federal Reserve meeting but rebounded during the next two sessions.
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Executives Certify Corporate Earnings
Executives of most large U.S. companies vouched for their firms’ financial results, meeting a much-anticipated federal deadline.
The declarations by top managers helped to stoke a stock market rally, as a feared wave of earnings restatements by major companies didn’t materialize.
Executives of a relative few companies said accounting problems prevented them from certifying their results, but it appeared that most of those firms already were known to be facing financial probes by regulators.
As hundreds of companies filed the required documents with the Securities and Exchange Commission in Washington, the Dow Jones industrial average jumped 260.92 points, or 3.1%, to 8,743.31.
That raised hopes that investor confidence would be buoyed after a series of major accounting scandals drove Wall Street to five-year lows in July.
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Fed Sees New Risks; Bush Touts Economy
As the Bush administration wrestled with what to do about the economy, Federal Reserve policymakers signaled that they would act to keep the nation from sliding back into a recession, although it was too soon to cut interest rates again.
At his economic forum in Waco, Texas, President Bush tried to restore investor and voter confidence and received a generally upbeat assessment from participants.
But the president didn’t mention the American Airlines layoffs. Democrats continued to criticize the forum as a public relations ploy.
In Washington, the Federal Reserve left its benchmark short-term interest rate unchanged at 1.75%, a 40-year low. The Fed indicated that it is now worrying about whether the economy, hit by slow growth and increasing unemployment, will stall.
Homeowners, on the other hand, got some good news with expectations that mortgage rates, already at 30-year lows, could continue to drop, analysts said.
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Vivendi Reports Loss, Plans Asset Sale
French media conglomerate Vivendi Universal revealed a $12-billion loss for the first half of the year and said it would sell its U.S. publishing house Houghton Mifflin and other assets to help stem a deepening cash crisis.
Vivendi’s new chief executive, Jean-Rene Fourtou, acknowledged that the company “is facing a liquidity problem,” but said he had reached a tentative agreement for a $2.9-billion loan from French banks. He also vowed to raise $9.8 billion from asset sales in the next two years to reduce Vivendi’s sizable debt.
But his assurances did little to calm investors. Vivendi’s shares fell 26% on the Paris market to their lowest level since June 1994. And credit-rating firm Standard & Poor’s lowered Vivendi’s debt to “junk” status.
Moody’s Investors Service also downgraded Vivendi and said that if the company fails to get a bank loan in the next few weeks, “that would lead to a severe short-term liquidity problem.”
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Boeing Lands C-17 Contract
Boeing Co. won a much-anticipated order to build 60 additional C-17 transports under a $9.7-billion Pentagon contract that will extend the life of California’s last remaining military aircraft manufacturing facility.
In what analysts called a shot in the arm for Southern California’s aerospace industry, Boeing executives said the contract--considered one of the largest in recent years--would help it continue operating the C-17 production line in Long Beach until 2008 and keep 7,000 workers employed.
Boeing has built 89 of the 120 aircraft ordered under the original contract. It was facing the prospect of having to close its Long Beach Airport plant in two years.
Former ImClone Chief
Pleads Not Guilty
ImClone Systems Inc. founder and former Chief Executive Samuel D. Waksal pleaded not guilty to insider trading, bank fraud, perjury and obstruction-of-justice charges in connection with an alleged scheme to dump shares of the company days before regulators rejected its highly touted new cancer drug.
The indictment included previous allegations by a federal grand jury of destroying documents, lying to investigators and putting up the same collateral for two different bank loans.
Meanwhile, his former company filed suit against him, claiming he ordered the destruction of documents that may be important to a government investigation.
ImClone said it is demanding that Waksal return $7 million paid in severance when he resigned in May amid accusations he tipped off relatives about the government’s rejection of the company’s experimental cancer drug, Erbitux, before the news was made public.
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Federated Joins Boycott of Myanmar
Federated Department Stores said it cut its ties to Myanmar, handing human rights activists a victory in their fight to unseat the country’s military regime.
Federated, owner of Bloomingdale’s and Macy’s, joined 29 other companies that have agreed not to sell products bearing the “Made in Myanmar” label, according to the Free Burma Coalition, the Washington-based nonprofit that organized the boycott campaign.
A Federated spokeswoman said its decision to quit selling goods produced in Myanmar, formerly known as Burma, was made because “what is going on there is a violation of the philosophy and spirit of our vendor supplier code of conduct.”
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Idealab Shareholders Take Aim at Exemption
A group of Idealab Inc.’s investors asked the Securities and Exchange Commission to rescind the firm’s exemption from rules governing investment companies, a move that could force the Pasadena Internet incubator to return some of the hundreds of millions of dollars the investors gave it.
The move is the latest salvo in the increasingly bitter battle between Idealab and owners of its so-called preferred shares.
The group includes more than three dozen mutual funds, investment partnerships, companies and individuals.
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For a preview of this week’s business and economic news, please see Monday’s Business section.
