Enron, Wall St. Scandals Dog SEC Investor Summit
The fallout from Enron Corp.’s collapse and recent Wall Street scandals dominated the Securities and Exchange Commission’s first investor summit, held Friday at the agency’s Washington headquarters and broadcast over the Internet and on cable television.
SEC Chairman Harvey Pitt, who presided over the event, has been criticized for meeting privately last month with the chairman of KPMG, a big accounting firm that Pitt represented as a private securities lawyer and whose audits of Xerox Corp. are being investigated by the SEC.
Also Friday, government watchdog group Common Cause said Pitt should resign because of “a pattern of actual and apparent conflict of interest ... [that] undermines citizen and investor confidence.”
In a later interview on CNBC, Pitt said he would “absolutely not” resign.
“I will serve as long as the president has confidence in me,” the chairman said.
Pitt, the other SEC commissioners and agency department heads took only written questions from members of the sparse audience and from people around the country using the Internet. The SEC received more than 600 questions, many of them sent before the summit, which was announced last week.
The questions answered Friday covered a wide range of subjects, including whether shareholders should get to approve company executives’ stock options and other compensation, whether mutual funds should be required to disclose social and environmental risks of companies whose stock they have, compensation of financial analysts and the accuracy of companies’ accounting and financial reports.
The SEC is planning to require mutual funds to make more frequent disclosures of their holdings to investors, Pitt said. Such information could make it easier for investors to monitor the performance of their mutual funds.
The mutual fund industry opposes increasing the frequency of portfolio disclosure beyond the twice-a-year disclosures now required.
Pitt questioned New York state Atty. Gen. Eliot Spitzer’s idea to break up the stock research and investment banking businesses at Wall Street firms, calling it “a very drastic remedy.”
The SEC would consider this step “only as a last resort,” Pitt said. Spitzer, who is in settlement talks with Merrill Lynch & Co. after an investigation of its analyst practices, has been considering a separation of Merrill’s research and banking operations. His investigation turned up Merrill e-mails showing that analysts at the U.S.’ largest brokerage were issuing recommendations on stocks they disparaged in private.
Pitt is facing investor and congressional pressure to crack down on analyst conflicts and deceptive accounting practices. But he said Friday that Spitzer’s plan may not be necessary.
Fewer Banks Tightening
Loan Standards
Significantly fewer U.S. banks tightened standards for commercial loans in the last three months as lenders expressed less concern about the economy, according to a Federal Reserve survey released Friday.
The Fed said 25% of banks charged higher premiums or demanded stricter covenants for commercial loans, down from 45% in the November-January period and 51% in the August-October period.
The survey of senior loan officers shows “some further tightening of lending standards,” the Fed said. “However, the number of domestic and foreign banking institutions that reported having tightened standards and terms on commercial and industrial loans over the past few months moved down considerably.”
The report comes amid continuing concern about deteriorating loan quality during the recession that began in March 2001. During the fourth quarter of last year, the 25 biggest U.S. banks took $2.7 billion in costs related to Enron Corp.’s bankruptcy and Argentina’s default, the Federal Deposit Insurance Corp. reported Friday.
Few of the survey’s respondents reported that a lack of terrorism insurance by borrowers affected their lending practices or demand since the Sept. 11 terrorist attacks.
The Fed’s survey comes two weeks after a survey released by the Bond Market Assn. reported lenders had delayed or canceled more than $7 billion worth of commercial mortgage loans in the first quarter because borrowers lacked terrorism insurance coverage.
Bloomberg News
