enron mentions - 11 / 17 / 01 - 11 / 18 / 01 they left behind big piles of money
houston chronicle , 11 / 18 / 01
economic news helps stocks , not bonds
the new york times , 11 / 18 / 01
bullish , and patient , on energy stocks
the new york times , 11 / 18 / 01
aquila energy makes provision for dynegy withdrawal , ft says
bloomberg , 11 / 18 / 01
a tale of greed and hubris
sarasota herald - tribune , 11 / 18 / 01
counting blessings along with the losses
los angeles times , 11 / 18 / 01
don ' t be a pudd ' n ' head , diversify
the washington post , 11 / 18 / 01
wessex water ` to be sold '
the independent - london , 11 / 18 / 01
uk press : westlb makes grab for gbplb wessex water
dow jones international news , 11 / 18 / 01
quanta steels itself against takeover bid
houston chronicle , 11 / 17 / 01
business briefs / houston & texas
houston chronicle , 11 / 17 / 01
at enron , the big dogs ate first
portland oregonian , 11 / 17 / 01
finance week - from dealing to reeling .
financial times , 11 / 17 / 01
world stock markets - bears take upper hand on wall st .
financial times , 11 / 17 / 01
in brief / energy pension funds consider action against enron
los angeles times , 11 / 17 / 01
enron investors hope filing will shed more light on finances
bloomberg , 11 / 17 / 01
uk : trade , bank buyers circle enron ' s wessex water - reports .
reuters english news service , 11 / 17 / 01
a user ' s guide to living in calgary : people moving from houston find the cities much alike
national post , 11 / 17 / 01
westlb offers to buy enron ' s u . k . water unit , newspaper says
bloomberg , 11 / 17 / 01
enron closes on $ 550 million loan from j . p . morgan , salomon
bloomberg , 11 / 16 / 01
business
jim barlow
they left behind big piles of money
jim barlow
staff
11 / 18 / 2001
houston chronicle
2 star
1
( copyright 2001 )
will wonders never cease ? last week a couple of heavy hitters left money on the table .
mark mcgwire , the home - run - hitting baseball player for st . louis , retired . and he let it be known that he never signed a two - year , $ 30 million contract his agent negotiated last spring . why ? because he wanted to find out if his injured right knee would allow him to play as well as he had before . it didn ' t , and he decided he wasn ' t worth that kind of money .
then ken lay , chairman of enron corp . , said he won ' t take the $ 60 . 6 million he had coming to him in a severance agreement that comes into play when enron is sold to dynegy corp .
of course , neither mcgwire nor lay will ever have to consider my fallback retirement plan - sacking groceries at the supermarket , carrying them to the car and hoping for a big tip . still , it was a class act on both their parts . mcgwire only hit . 187 last season , well below his lifetime average . and lay ? well , let ' s say that rarely in the history of american capitalism has a company sunk as fast as enron .
remember that earlier this year its stock hit a top of $ 82 a share . now it ' s hovering in the single - digit level , and enron is being forced to sell itself to a smaller rival .
the stock price incentive
how did enron get into this position ? put the blame on the company ' s relentless drive to push up its stock price . and a big reason for that push comes from the way american companies compensate top executives .
in the last couple of decades , executive compensation has soared . the average chief executive officer today makes 531 times as much in salary , bonuses and stock options as the average factory worker .
apologists for executive pay say these kinds of figures really aren ' t relevant . most of the money top executives receive doesn ' t come from base pay or bonuses but from stock options .
such options usually work this way . executives are given hundreds or thousands of shares of stock that they can only buy from the company at a future date . the sales price can be anything from 10 cents to the price of the stock on the date the options were granted . if the stock increases past the exercise price in the option , the executive can buy the stock and then sell it , making big bucks . it the stock has dropped below the option price - it ' s underwater , in the jargon - then those options are worthless .
granting options aligns the interests of the top executives with the shareholders , those who favor this sort of incentive say . and that ' s true , if you talking about in - and - out traders . but it ' s not true if we ' re looking out for the interests of the majority who hold stocks for the long term .
keeping the debt hidden
keeping its stock price soaring was what brought down enron .
to hype the stock , enron ' s execs were hiding the debt it took on to fuel its amazing growth and some of its dicier investments , in partnerships . enron was supposedly only a minority partner in these deals . that way it could move a large portion of its debt off its books in that partnership . that , in turn , made the company ' s earnings look better .
when enron ' s executives finally fessed up , they had to write down their profits over the past few years by 20 percent . but the real irony here is that 80 percent is still a heck of a lot of money . but by that time , the majority of shareholders simply had no faith in enron ' s bookkeeping .
now look at lay ' s compensation . in 1999 he exercised stock options and made $ 44 million on them . in 2000 , sales of options brought him $ 123 million , and this year about $ 26 million , according to a study published by bloomberg news .
was lay deliberating deceiving investors to keep his stock options profitable ? i don ' t think so . he was simply following the latest fad in corporate governance . he was aligning himself with the interests of the shareholders .
the shareholders were happy with that high stock price . nobody - besides some stock analysts - complained about enron ' s often - impenetrable bookkeeping until that stock price started to fall .
would enron ' s bookkeeping have been different if top executives received fewer stock options ? maybe .
fewer stock options would mean lower pay for the top guys . and no one would want that job if he were only going to make $ 10 million a year instead of $ 100 million .
just kidding .
copyright ? 2000 dow jones section 3
databank
economic news helps stocks , not bonds
by jonathan fuerbringer
11 / 18 / 2001
the new york times
page 17 , column 3
c . 2001 new york times company
stocks rallied and bonds plunged last week as investors digested some positive reports about the economy . inflation at the consumer level declined last month , retail sales surged after falling in september , and weekly initial unemployment claims slowed .
all this news led some investors to conclude that the economy might not be as troubled as it appeared to be in the aftermath of the terrorist attacks . that was good for the stock market , but very bad for the many bond investors who had been assuming the worst .
for the week , the nasdaq composite index rose 70 . 10 points , or 3 . 8 percent , to 1 , 898 . 58 , while the dow jones industrial average climbed 258 . 99 points , or 2 . 7 percent , to 9 , 866 . 99 . the standard & poor ' s 500 - stock index gained 18 . 33 points , or 1 . 6 percent , to 1 , 138 . 65 .
but bond prices tumbled while yields , which move in the opposite direction , soared . the yield on the treasury ' s 10 - year note rose to 4 . 85 percent , from 4 . 31 percent a week ago , the biggest weekly move in percentage terms since the note was first regularly issued 25 years ago . the jump in rates also showed that many investors no longer expect federal reserve policy makers to cut short - term interest rates when they meet next month . jonathan fuerbringer
chart : ' ' stocks in the news ' ' amr nyse : amr the stock of the parent company of american airlines , along with other airline companies , rebounded on factors including lower oil prices and passage of the aviation security bill . friday ' s close : $ 20 . 06 week ' s change : + 10 . 65 % est . ' 01 p / e : - - dynegy nyse : dyn as part of its planned $ 9 billion acquisition of enron , dynegy will receive the right to acquire northern natural gas , a potentially lucrative pipeline system , even if the larger deal is not completed . friday ' s close : $ 42 . 47 week ' s change : + 9 . 57 % est . ' 01 p / e : 20 . 29 home depot nyse : hd the nation ' s largest home - improvement chain said its third - quarter profit rose 20 percent over the year - earlier period . friday ' s close : $ 45 . 80 week ' s change : + 8 . 76 % est . ' 01 p / e : 36 . 03 dell computer nnm : dell rebounding from a loss in the second quarter , dell reported a third - quarter profit of $ 429 mil lion . the company also predict d that pc sales would increase later this year . friday ' s close : $ 26 . 60 week ' s change : + 3 . 30 % est . ' 01 p / e : 41 . 05 sungard data systems nyse : sds an appeals court rejected the government ' s effort to stop sungard from buying a unit of comdisco , which filed for bankruptcy protection in july , while an antitrust investigation proceeds . friday ' s close : $ 28 . 64 week ' s change : + 9 . 56 % est . ' 01 p / e : 32 . 11 yahoo nnm : yhoo wall street analysts expressed confidence in the turnaround prospects of the company after it outlined plans to increase fee - based revenue and to reduce its work force . friday ' s close : $ 15 . 47 week ' s change : + 12 . 76 % est . ' 01 p / e : 309 . 40 philip morris nyse : mo philip morris says it plans to change its name to the altria group , pending approval by shareholders . friday ' s close : $ 48 . 13 week ' s change : + 2 . 78 % est . ' 01 p / e : 11 . 90 cv therapeutics nnm : cvtx the biotechnology company said clinical trials of ranolazine showed that the drug , which it developed , was effective in treating the chest pain of angina . friday ' s close : $ 51 . 67 week ' s change : + 48 . 97 % est . ' 01 p / e : - - ( source : bloomberg financial markets )
copyright ? 2000 dow jones section 3
investing
bullish , and patient , on energy stocks
by jan m . rosen
11 / 18 / 2001
the new york times
page 8 , column 2
c . 2001 new york times company
despite last week ' s plunge in the price of crude oil and in shares of big oil companies , some wall street analysts remain upbeat about the long - term prospects for energy stocks .
' ' these very dramatic downturns are great buying opportunities , ' ' said tina vital , an oil and gas analyst at standard & poor ' s , who recommends a broad group of integrated oil companies , including exxon mobil , chevrontexaco , royal dutch / shell , bp and totalfinaelf . ' ' they have excellent management , a top dividend yield and are a safe haven for investors , ' ' she said , provided that investors are patient and can bear short - term swings .
last week ' s price declines were set off by russian oil companies ' refusal to accept demands by the organization of the petroleum exporting countries for big production cuts . they were a reminder that the sector is extremely volatile . ' ' oil could go to $ 10 a barrel short term , ' ' she said , but there is no certainty of that . the oil producers could reach an agreement by january , sending prices upward . over the long term , she expects to see production cuts .
demand for energy has grown only 0 . 5 percent this year , and prices have been declining for some time for both crude oil and gasoline - - as drivers have seen at the gas pump . west texas intermediate crude closed friday at $ 18 . 03 on the new york mercantile exchange , up 58 cents from its thursday close , the lowest since june 1999 . but an economic recovery , expected by late 2002 , could cause demand to pick up , analysts say .
as oil prices have dropped , so have the prices of most oil stocks , but not as much as the overall market since the beginning of 2000 . over that period , the s . & p . energy index has lost 8 percent , while the s . & p . 500 - stock index is down 23 percent .
a report issued last week by the energy department said that while the sept . 11 terrorist attacks had intensified the country ' s economic slowdown , ' ' they are not expected to result in any long - term volatility in energy markets . ' ' the report estimated that commercial energy demand would rise 1 . 7 percent a year through 2020 , instead of the 1 . 2 percent predicted only a year ago . its predictions assume increased use of computers and office equipment , and slower increases in fuel efficiency for cars and trucks .
while they warn of the possibility of wild price shifts in the months ahead , other analysts are similarly bullish for the long term . l . bruce lanni , senior oil analyst at a . g . edwards his 12 - month target is $ 34 . ' ' we remain confident , ' ' he said , ' ' that the company ' s annual oil and gas production should grow by about 4 percent , on average , over the next several years . ' '
conoco ' s debt , at 55 percent of capital , is relatively high , but he expects the company ' s strong cash flow - - it equaled $ 5 . 33 a share last year - - to reduce the debt level to 46 percent next year and to 38 percent in 2003 . the company ' s after - tax interest cost is only 3 . 5 percent , he said .
mr . lanni also favors kerr - mcgee , a natural gas exploration and production company , and bp , calling both undervalued . he regards exxon mobil , royal dutch / shell and chevrontexaco as fully priced , so he is not recommending buying them now . ' ' if you own them , hold them , ' ' he said .
william featherston , executive director and an oil and gas exploration analyst at ubs warburg , said he felt ' ' near - term caution but medium - term optimism for sustainably higher ' ' natural gas prices . he said he would encourage investors to consider buying shares of exploration and production companies over the next two months . his top picks are apache , kerr - mcgee and eog resources .
such stocks are highly volatile , he said . they are ' ' trading - oriented vehicles , and short - term volatility in commodity prices generally provides the most attractive entry and exit points , ' ' he said . ' ' while natural gas prices declined throughout most of this year , prices rose at a startling pace , from $ 1 . 75 per million cubic feet at the end of september to over $ 3 per million cubic feet within weeks . ' '
he cited three reasons for the price rally : a decline in gas surpluses , predictions of a colder - than - normal winter and what he has called ' ' pathetic third - quarter natural gas production , ' ' despite record drilling activity .
the tangled finances of the enron corporation were also a factor in the recent price increase for natural gas futures , he said . enron , which marketed 25 billion cubic feet a day of natural gas , or more than 40 percent of the nation ' s demand , is under investigation by the securities and exchange commission and announced a $ 1 . 2 billion reduction in shareholder equity from deals with partnerships involving its former chief financial officer . it also reported a third - quarter loss and restated earlier earnings . enron has agreed to be taken over by dynegy , a smaller rival , for about $ 9 billion in stock . dynegy is also assuming about $ 13 billion in debt .
anxiety over whether the enron investigation would disrupt deliveries or have other market repercussions led to an increase in prices . while it is ' ' difficult to quantify the enron factor , ' ' mr . featherston said , the short - term effects on natural gas prices seem to be over .
other factors , of course , could also mean a bumpy ride for energy investors over the next several months . the status of the war against terrorism , president bush ' s decision to fill the strategic petroleum reserve , thus helping opec in reducing excess global capacity , and a united nations review of the food - for - oil deal with iraq expected in december could each have a significant impact on battered oil prices .
nevertheless , ms . vital said , for the long term , energy will probably be in short supply , and new sources must be developed . so she also likes the prospects of two drilling companies , noble drilling and nabors industries . both took a beating last week , along with the oil companies , so again she sees buying opportunities .
bern fleming , portfolio manager of the axp utilities income fund in minneapolis , who has stakes in dynegy , duke energy and dominion resources , said all three had good prospects for growth , thanks to a mix of assets , ' ' management i respect and solid business plans . ' '
photo : workers at an oil well near lafayette , la . although oil prices have plunged , analysts say there is still good long - term potential for the stocks of energy companies . ( marty katz for the new york times ) chart : ' ' power play ' ' energy stocks have generally outperformed the overall market since the beginning of 2000 . graph shows conoco shares , s . & p . energy composite , and the s . & p . 500 index since january 2000 . ( source : bloomberg financial markets )
copyright ? 2000 dow jones & company , inc . all rights reserved .
aquila energy makes provision for dynegy withdrawal , ft says
2001 - 11 - 18 19 : 52 ( new york )
houston , nov . 19 ( bloomberg ) - - aquila energy corp . is one of
several energy traders limiting its trading with enron corp . in
case dynegy inc . pulls out of its bid for the company , the
financial times said , citing aquila .
aquila said it began making contingency plans in case dynegy
withdrew from its $ 24 billion takeover of enron , the paper
reported .
enron , the largest energy trader , decided to sell after its
shares plunged this year and a federal investigation of accounting
irregularities limited its ability to finance operations . enron ' s
collapse would have caused upheaval in energy markets , where the
company does one - quarter of all gas and power trades .
dynegy ' s agreement to buy enron allows it to withdraw from
the transaction under certain circumstances , the ft said .
perspectives
a tale of greed and hubris
waldo proffitt
11 / 18 / 2001
sarasota herald - tribune
all
f 2
( copyright 2001 )
for anyone not already disenchanted with the idea of total deregulation of public utilities , the most recent installment of the miserable enron story as it unfolded last week should serve as a convincing example of the folly of relying on unregulated profit - driven enterprises to supply our energy .
a year ago enron was the darling of wall street , the poster boy for the utility industry , its stock selling for about $ 85 a share . last week its stock was worth about 10 percent of that and the company had agreed to be bought by a competitor . there was fear the company ' s bond rating might fall to the " junk " level .
what happened ? it will take months , if not years , to untangle the details , but it is clear that the main culprit was greed , closely followed by hubris .
not too many years ago enron was a small , struggling , gas pipeline company in houston . as deregulation spread to more and more states , enron began acquiring pipelines , gas producers and utilities .
it also acquired friends in high places , especially the bush family and their key political advisers . and , it discovered it could make money faster by selling and trading energy than by producing it . enron sold many of its generating plants and became the biggest " power broker " in the nation .
though it was by no means the largest winner in the con game that bilked california consumers of tens of billions of dollars , enron was one of the first power barons to take advantage of california ' s flawed deregulation law - - virtually written by in - state and out - of - state utility companies .
the california fiasco soured ( probably ) most americans on utility deregulation , but enron was not singled out for calumny , and management saw no reason to examine its business ethics .
contrarywise . management had visions of even greater profits , which it felt no obligation to share with ordinary stockholders . the chief financial officer and other high - ranking executives set up affiliated or subsidiary partnerships which made deals with enron . i do not understand the details of these arrangements , but neither do independent accountants , the securities and exchange commission or congressional investigators . it does seem clear that the enron insiders made millions for themselves .
enron acknowledges , without explaining , that stockholder equity dropped $ 1 . 2 billion in the last quarter and that it had for the last five years overstated profits by some $ 600 million . whether this was by design or by mistake is in dispute , but it is the sort of thing which tends to undermine the confidence of investors .
so much for greed . back to hubris . it seems not unlikely that enron ' s leaders felt they might not be punished for a modest amount of corner - cutting because they had friends in high places .
the chief executive , kenneth l . lay , was and is a personal friend of george w . bush and has easy access to the white house . for many months after the new administration took office , karl rove , bush ' s top political strategist , owned enron stock valued at $ 100 , 000 to $ 250 , 000 , and sold it only after he had been able to secure a ruling that he did not have to pay capital gains tax immediately because he sold to avoid a conflict of interest . lawrence lindsey , the president ' s chief economic coordinator , and i . lewis libby , vice president cheney ' s chief of staff , owned stock in enron , and lindsey was paid $ 50 , 000 last year as a consultant for enron .
enron and its employees gave more than anyone else to bush ' s four political campaigns - - one ( unsuccessful ) for congress , two for governor and one for president . in 2000 , enron and its employees gave $ 113 , 000 to bush ' s campaign , $ 250 , 000 to the republican national committee , and $ 300 , 000 to the presidential inauguration committee .
cabinet appointments affecting energy policy , key sub - cabinet appointments , administration action or inaction in the california energy mess , and the overall energy policy of the administration could hardly have been more favorable to the interests of enron .
and now a couple of questions : is it possible the unusual financial maneuvers by enron went unnoticed or even unsuspected by all the savvy texas oilmen in the bush administration ? were those of them with heavy investments in enron unconcerned about the conduct of the company ? was enron right in thinking its friends in government would not be in a hurry to investigate or to reprimand ?
or , in light of our preoccupation with terrorism , will the enron case get much attention from the federal government ? or from voters ?
waldo proffitt is the former editor of the herald - tribune .
copyright ? 2000 dow jones financial desk
market beat
counting blessings along with the losses
tom petruno
times staff writer
11 / 18 / 2001
los angeles times
home edition
c - 1
copyright 2001 / the times mirror company
try finishing this sentence : " the best thing about my experience as an investor in 2001 was . . . "
many americans , contemplating the losses they ' ve suffered this year in the stock market , might say there was nothing " best " about what happened to them - - in fact , nothing good at all , perhaps other than that it might have been worse .
with share prices on the rise again , the damage to portfolios has been lessened . even so , stocks will have to post strong gains in the next six weeks to keep this from being the market ' s worst calendar year since 1977 .
the blue - chip standard & poor ' s 500 index rose 1 . 6 % last week , but it ' s still down 13 . 8 % year to date .
yet those losses , while certainly not trivial ( especially when they ' re yours ) , can obscure what arguably are some very positive aspects of this year ' s experiences .
with investing , adversity can be a more important teacher than success . if you ' re having trouble this thanksgiving week finding reasons to be thankful about anything investment - related , try these on for size :
* " asset allocation " is no longer just a quaint theory . the paramount investing rule has always been to spread your money around to reduce risk . but it took the worst stock bear market in 25 years to bring this lesson home for many people who thought equities only rose in value .
now , millions of investors have a far better appreciation for just how much they can lose in stocks - - and how bonds and short - term cash savings can offset market losses and preserve capital .
it has been a hard lesson , to be sure . but investors who take asset allocation to heart will be laying a much more solid foundation for their money in the long run . and don ' t underestimate what that can mean for your peace of mind long term .
* the wisdom of saving money on a regular basis has been relearned . in the late 1990 s , many economists lamented how the u . s . savings rate continued to shrink . some people felt there was little need to put significant new sums into savings when the stocks or stock mutual funds they owned seemed to be rising nonstop .
in other words , many americans were letting the stock market do their saving for them when share prices were rising 20 % or more each year .
now , with shares down and with the likelihood of much more moderate returns on stocks in this decade , it ' s clear that many people will have to find a way to save regularly if they ' re going to meet their long - term financial goals , especially retirement .
this may not be a pleasant reality , but it ' s better for most people to have faced this fact sooner rather than later , while there may be time to make up lost ground .
* a healthy skepticism has replaced mindless euphoria about stocks and those who tout them . the market ' s slide has discredited a legion of wall street analysts , money managers and others whose knowledge , understanding and judgment were clearly lacking , in retrospect .
investors have come to see that having blind faith in those who present themselves as " experts " is a highly dangerous strategy , if it can be called a strategy at all .
sure , it may have been more fun when technology stocks were shooting the moon and nobody had much use for reviewing a company ' s fundamentals . but that wasn ' t investing - - it was speculating , and on a massive , and ultimately ruinous , scale .
people have learned to be less trusting about what others say about the market , and that is more likely to be beneficial than detrimental to their portfolios in the long run .
just ask anyone who shifted their entire 401 ( k ) retirement savings sum into aggressive - growth mutual funds in the first quarter of 2000 - - right before the market peaked - - because of the bullish comments of some 25 - year - old tech stock analyst . those investors aren ' t likely to make a move like that again .
* free - market forces are weeding out the weak players and the phonies . capitalism may be harsh , but it ' s efficient when the good times end and it ' s time to find out which companies truly have talent and staying power - - and deserve more capital .
hundreds of dot - coms have failed , but who really misses them ? is it any harder to find what you want on the internet ? it probably would have been much worse for all concerned if those companies had sucked up investors ' funds for another year instead of failing when they did .
but the market isn ' t just eliminating small companies that never had much of a future . the financial near - collapse of energy giant enron corp . exposed a business that twisted accounting rules to its own benefit - - to the point that the company now concedes that financial statements all the way back to 1997 " should not be relied upon . "
also to be weeded out , though over a longer time period , will be mutual fund managers whose performance running other peoples ' money has been a nightmare for those investors - - meaning , the returns produced have been far worse than what the investors would have achieved in the average fund in that particular sector .
these managers know who they are - - and , hopefully , their shareholders know by now as well , and will vote with their feet .
the free market also is reminding cartels just how tough it is to control prices .
once again , the organization of petroleum exporting countries has lost its ability to prop up crude oil prices , which have sunk to two - year lows amid the weak global economy . that ' s lousy for opec , but it ' s great for every energy consumer .
* the market ' s woes have altered many investors ' priorities for the better . the wild bull market of the late 1990 s demanded peoples ' attention , and got it .
for some , stocks became an obsession . their portfolios dominated their lives , especially if they were actively trading shares . they believed they were going to be rich , or richer , and that it was all because of how smart they were .
now , most people have been humbled by the market . in the process , some have realized that they don ' t want their mood determined by their portfolio ' s day - to - date price changes .
the sept . 11 terrorist attacks , of course , also changed many peoples ' view of what truly matters to them .
money is important , but you aren ' t your stocks , and they aren ' t you . life is more than a daily stock quote .
*
tom petruno can be reached at tom . petruno @ latimes . com . for recent columns on the web , go to www . latimes . com / petruno .
copyright ? 2000 dow jones & company , inc . all rights reserved .
financial
investing james k . glassman
don ' t be a pudd ' n ' head , diversify
james k . glassman
11 / 18 / 2001
the washington post
final
hol
copyright 2001 , the washington post co . all rights reserved
warren buffett , who was probably the greatest investor of the 20 th century , is fond of quoting the salacious actress mae west as saying , " too much of a good thing can be wonderful . " in the market , such a motto would lead you to avoid diversification and instead concentrate your portfolio in stocks you really , really like .
peter lynch , who was probably the best mutual fund manager of the 20 th century , calls spreading yourself too thin " diworseification . "
smart , witty and brilliant at picking stocks , buffett and lynch may not need diversification , but the rest of us do . when you own one stock , you ' re out on a limb . for example , very few analysts - - with or without a conflict of interest - - predicted that shares of enron , the energy and trading company , would tumble by 90 percent in a year . put all your eggs in a basket like that and you end up with a gooey mess . the more stocks you own - - as long as they are in different industries - - the more the overall riskiness of your portfolio is modulated .
the reason you don ' t want a super - risky portfolio is simple : while warren buffett may be calm and prescient enough to ride out severe dips in the value of his holdings , most investors are not . a portfolio that increases in price by 10 percent each and every year is worth exactly the same at the end of three years as a portfolio that falls by half the first year , rises by three - quarters the second and rises by 52 percent the third . but reasonable investors prefer the consistent ride . it prevents them from doing something stupid , such as selling all their stocks after losing half their money during that first disastrous year .
consider the sad case of james d . mccall , who earlier this month resigned as manager of the merrill lynch focus twenty mutual fund . two years ago , merrill wanted mccall ' s services so desperately that the firm went to court to pry mccall away from his previous employer , pilgrim baxter , where he rang up impressive gains in the late 1990 s . ( his big success was called pbhg large cap 20 . ) and when they got mccall , merrill ' s brokers raised more than $ 1 . 5 billion from their clients for him to invest . while the average growth - stock mutual fund owns about 100 stocks , with the top 10 holdings representing about one - fourth of the portfolio ' s total value , mccall specialized in what are called " concentrated portfolios . " in the case of merrill lynch focus twenty , he owned , as the name implies , just 20 stocks . at last report , his top 10 holdings accounted for a whopping two - thirds of the fund ' s assets .
if mccall had spread his 20 stocks among , say , a dozen different industries , he might have smoothed his ride . instead , 69 percent of his assets went to technology firms . the focus fund and a smaller one that mccall ran called premier growth were launched in march 2000 . within just 17 months , all but $ 650 million of the clients ' original $ 1 . 5 billion had vanished .
it is hard to imagine losing as much as focus twenty did even if you tried . as of nov . 9 , the week mccall resigned , the fund was down 72 percent for the year , compared with a loss of 14 percent for the standard & poor ' s 500 - stock index , the benchmark for fund managers . according to the latest report from morningstar mutual funds , 19 of mccall ' s 20 stocks had declined during 2001 , the only exception being harley - davidson . more amazing , 16 of the 19 losers had fallen by at least half . ( by the way , enron was mccall ' s seventh - largest holding . )
" this fund has had a wretched existence , " wrote morningstar analyst kunal kapoor , who did admit a grudging admiration for mccall ' s perseverance . mccall ' s " faith may turn out to be well placed over time , " kapoor said . unfortunately , time ran out .
my point here is not to pick on mccall but to reveal the perils of concentration . buying focus twenty as a technology fund , and consigning it to no more than one - fifth of your holdings ( with the rest of your assets in diversified , conventional stocks or funds ) might have made sense , but focus twenty was touted as a " long - term capital appreciation " fund , not a sector fund . here , it failed , but maybe it didn ' t have to .
the manager who made the concentrated fund popular , tom marsico , who ran janus twenty , took care to spread his holdings around . his successor , scott schoelzel , has suffered losses lately ( he is down 28 percent year - to - date , but that ' s after a total gain of 546 percent in the preceding five years ) , but they have not been nearly so catastrophic - - and for good reason . schoelzel ' s last report lists among his top 10 holdings three tech stocks , two financials , one drug company , one energy firm ( whoops , enron again ) , one industrial , one consumer - durables company and one services firm .
for investors in individual stocks , the important question is this : how much diversification is enough ? some risk is inherent in even the broadest portfolio . this is called market , or " systematic , " risk . over the past 75 years , market risk , as measured in standard deviation , has been about 20 percent . in other words , in two - thirds of the years the annual return of the s that is , between a loss of 9 percent and a gain of 31 percent . that ' s still volatile , but if you invest in stocks you have to live with it .
what you don ' t have to live with is anything more volatile . so your objective in building a portfolio is to try to approximate systematic risk and avoid what is called " idiosyncratic , " or extra , risk . a portfolio with just a few stocks , or one like mccall ' s , that is overloaded in a single sector , has lots of idiosyncratic risk . in 1977 , an influential study found that investors could nearly eliminate that extra risk by owning just 20 stocks in a wide variety of sectors ; in fact , owning eight or 10 stocks depressed risk sharply .
recently , however , the market has appeared to be far more volatile , and a new study by a group of economists headed by john campbell of harvard found that many more stocks were needed - - around 50 - - to bring a portfolio down to the same level of riskiness as the broad market . what campbell ' s group found was that neither the market itself nor individual sectors had become more volatile in the 1990 s , but that stocks within those sectors had , so you need to own more of them .
but owning 50 stocks is a pain in the neck - - and it brings up the buffett - lynch admonitions about too much diversification . it is hard just to take the time to make the selections , but even buy - and - hold investors need to keep track of the companies they own to spot adverse changes in management , product failures or new competition ( not to mention enron - style accounting shenanigans ) - - signs that it ' s time to sell .
one good answer is to achieve balance by owning a combination of mutual funds and stocks . for example , you might want to put 50 percent of the money you have allotted for stocks into a fund that mimics the s & p itself , like vanguard index 500 , which charges rock - bottom expenses and guarantees that risk won ' t exceed systematic levels . you could also consider a broad fund that ' s managed by human beings , such as meridian value or baron growth , which are recommended by sheldon jacobs , editor of the no - load fund investor newsletter . then another 25 percent of your holdings can go into a few sector funds that specialize in technology , real estate , energy and small - caps , and the final 25 percent into a portfolio of 10 to 20 individual stocks . ( i own 16 , at last count . )
there are many valid variations . just don ' t emulate mark twain .
in a letter to clients recently , anthony m . maramarco of david l . babson & co . , the cambridge , mass . , investment firm , recalled the aphorism of twain ' s pudd ' n ' head wilson : " put all your eggs in the one basket - - and watch that basket ! " unfortunately , such a philosophy emphatically does not work in stock investing - - as twain himself learned when he sank nearly all his fortune into the paige linotype , a machine that flopped .
we all make mistakes . ( it was twain , after all , who pointed out that " human beings are the only animals that blush - - or need to . " ) but smart diversification helps investors avoid some of the worst of them .
james k . glassman invites comments at jglassman @ aei . org , but he cannot answer all queries .
http : / / www . washingtonpost . com
copyright ? 2000 dow jones & company , inc . all rights reserved .
business
wessex water ` to be sold '
heather tomlinson
11 / 18 / 2001
the independent - london
foreign
1
( copyright 2001 independent newspapers ( uk ) limited )
wessex water , the water and sewage company , is understood to be up for sale following an offer to take over its owner , enron , by dynegy , the us energy group .
three years ago , enron spent pounds 1 . 4 bn on wessex water . but dynegy is understood to want to concentrate on us and european energy assets and is not interested in non - core assets .
any hope to regain the same amount of money could be derailed as the industry is put off by regulatory problems , and the company ' s results have worsened due to imposed price cuts over the past year .
" it is not that there is going to be a fire sale but most of [ the international assets ] are not core to the businesses we will continue to pursue , " said an enron spokesperson . " at the right price we will sell . "
scottish & southern energy and united utilities have been touted as potential buyers , yet industry insiders believe that the uk regulator , ofwat , will take a dim view of bids by uk water companies , as they are too large to buy it .
copyright ? 2000 dow jones & company , inc . all rights reserved .
uk press : westlb makes grab for gbplb wessex water
11 / 18 / 2001
dow jones international news
( copyright ( c ) 2001 , dow jones 44 - 207 - 842 - 9289
copyright ? 2000 dow jones & company , inc . all rights reserved .
business
quanta steels itself against takeover bid
nelson antosh
staff
11 / 17 / 2001
houston chronicle
3 star
1
( copyright 2001 )
quanta services , which builds and maintains power and communications lines , said friday it is fighting a " creeping takeover " by utilicorp united , one of the nation ' s largest utility holding companies .
on thursday quanta board members changed the houston company ' s shareholder rights agreement - called a " poison pill " defense against takeovers - to deter utilicorp from acquiring a controlling stake .
the action was taken after negotiations with utilicorp fell apart and the kansas city , mo . - based company announced its intention to resume purchases of quanta stock .
a spokesman told bloomberg news on oct . 4 that utilicorp wanted to increase its stake to the mid - 40 s percentage range , which would give it effective control , with a vote on management .
utilicorp invested $ 320 million in quanta from september of 1999 through february of 2000 , said utilicorp spokesman ethan hirsh , bringing its ownership up to 28 percent , and has been adding stock since then . it owned about 38 percent when a standstill agreement stopped further purchases in early october .
part of the shareholder rights amendment limits further purchases by quanta by reducing the trigger point for the poison pill to 39 percent of quanta ' s outstanding shares , instead of the 49 . 9 percent that has been in effect just for utilicorp .
in addition to saying that utilicorp is no longer " an exempt " person under the 39 percent trigger , the amendments changed the kind of securities to be issued in the event the pill is triggered and how they could be exercised .
utilicorp had a higher trigger point that other potential acquirers because it already was a significant shareholder when the plan was initially drafted .
hirsch didn ' t think the amendments would prevent his company from buying more .
utilicorp ' s interest in houston acquisitions is not limited to quanta . its also said this week it would like to buy enron ' s share of a united kingdom power station that provides electricity sufficient to light 1 . 88 million homes .
it will soon get a 27 percent share in the station near london , known as the teeside power station , through the purchase of a utility there . it would like the 42 . 5 percent that enron owns , utilicorp president robert green said in a conference call .
green said he understood that stake was on enron ' s for - sale list .
utilicorp revealed in a securities and exchange commission filing that it bought 1 . 538 million shares of quanta ' s common stock on the open market , at a cost of more than $ 24 million , between sept . 28 and oct . 3 .
quanta ' s stock declined 27 cents to close friday at $ 15 . 69 , while utilicorp rose 10 cents to close at $ 27 . 50 . quanta ' s stock is down 51 percent for the year to date , and hit a 52 - week low of $ 9 . 94 on sept . 21 .
" after many weeks of negotiations with utilicorp , we could not reach agreement upon a strategy that would allow utilicorp to consolidate our financial results for accounting purposes on terms acceptable to quanta , " john colson , quanta ' s chief executive officer , said in a written statement .
" in the face of utilicorp ' s communications last evening breaking off negotiations and stating its intent to resume open market purchases of quanta stock , the board acted to protect the best interests of all quanta stockholders against a change of control transaction which did not provide an appropriate benefit to all shareholders , " he said .
quanta has a mutually beneficial relationship with utilicorp and hopes negotiations can resume , colson said .
copyright ? 2000 dow jones & company , inc . all rights reserved .
business
business briefs
business briefs / houston & texas
staff , bloomberg news , reuters , associated press
11 / 17 / 2001
houston chronicle
3 star
2
( copyright 2001 )
offer still on table for canadian hunter
burlington resources on friday extended a $ 1 . 96 billion offer for canadian hunter exploration ltd . until dec . 3 while canadian regulators study the bid .
the cash offer was to expire tuesday . investment canada , which oversees foreign ownership of canadian companies , won ' t complete its review by then , burlington said .
houston - based burlington agreed to buy calgary - based canadian hunter on oct . 9 .
azurix settles suit over dynegy buyback
azurix corp . , a wastewater - services management company , won a judge ' s approval friday in wilmington , del . , to settle shareholders ' lawsuits over parent enron corp . ' s $ 329 million stock buyback in march .
houston - based enron , soon to be bought by dynegy , said in october 2000 it would pay $ 7 for each of azurix ' s outstanding shares , or $ 275 million , to take the company private . seven azurix stock owners sued in delaware chancery court seeking more money .
enron eventually agreed to pay $ 8 . 375 per share , adding about $ 54 million to the offer , and stockholders agreed to settle the lawsuit , lawyers said .
sbc adds 2 states to long - distance rolls
san antonio - based sbc communications received permission friday from the federal communications commission to begin offering long - distance service to customers in missouri and arkansas .
the decision allows sbc to offer the service in the five states served by its sbc southwestern bell subsidiary . sbc has already received permission to compete in the long - distance market in texas , kansas and oklahoma .
while the fcc ' s decision was unanimous , there was discussion on whether sbc has made its dsl high - speed internet access service available for resale and if the federal law requires such resale . the commission will address the issue in another proceeding .
airline canceling 200 layoffs of pilots
fort worth - american airlines friday canceled the planned dec . 2 layoffs of 200 pilots because military duty was extended for pilots called up on reserve and other employees took leaves .
american laid off 386 american pilots sept . 28 and 200 more nov . 1 , as well as 120 at twa airlines . those were among 20 , 000 jobs amr eliminated as passenger demand fell . the company said it will bring employees back as demand improves .
southwest drops suit against orbitz site
dallas - southwest airlines co . has agreed to drop a lawsuit that claimed orbitz , an internet travel site owned by five rival airlines , displayed incorrect information about southwest ' s flights and fares .
" it gives southwest airlines the right to restart the litigation at its current point if southwest fares are ever displayed on orbitz again , " said linda rutherford , a spokeswoman for the dallas - based airline .
copyright ? 2000 dow jones & company , inc . all rights reserved .
editorial
at enron , the big dogs ate first
11 / 17 / 2001
portland oregonian
sunrise
do 6
( copyright ( c ) the oregonian 2001 )
summary : workers ' ire over 401 ( k ) plans is understandable
watching enron ' s bigwigs lose their jobs after inflating profits may offer some satisfaction to retirees and employees at the troubled energy marketer . but don ' t bank on it .
when corporate insiders can sell the company and stroll away with millions while workers and other stockholders are left with peanuts , it would be hard not to be bitter .
as oregonian business writer jeff manning reported friday , local employees of portland general electric , an enron subsidiary , watched their retirement savings sink after enron announced on oct . 16 that it would lose $ 618 million in the fourth quarter . this came after enron officers made more than $ 136 million selling stocks earlier in the year .
then on nov . 8 , enron dropped the other shoe : it admitted it had overstated earnings for four years by $ 586 million , or 20 percent . over those few weeks , enron shares plunged from $ 33 . 84 to its $ 9 close on friday .
the four - year overstatement developed through some novel accounting methods . enron and its auditor , arthur anderson , insist that its financial reports were all within proper standards , but the mechanics in this case included obscuring debt by placing it on the ledgers of other entities so that the parent company ' s profit picture appeared rosier than it actually was .
the weeks from mid - october to early november were wrenching for employees . because the company was changing its fund manager , they were powerless to make any changes in their 401 ( k ) plans . pge chief executive peggy fowler points out that the change in 401 ( k ) plan managers was announced last summer . and although employees could have gotten out of enron stocks over the history of the plan , enron seemed to be an attractive investment .
company executives , though , were selling . jeffrey skilling , who was promoted to enron chief executive early in the year but resigned in august , sold more than $ 5 million in company shares according to transaction records covering the first half of the year .
former chief financial officer , andrew fastow , who was fired last month in an action related to the financial mess , made $ 14 million in stock sales betweeen march and november of last year . kenneth lay , enron ' s chief executive , who returned after his protege skilling left , made at least $ 20 million in stock sales from late last year . he has announced that he would decline his severance package .
dynegy , another texas energy marketing company , has made a bid to buy enron . that probably means the best enron and pge employees can hope for now is that dynegy will be a better corporate owner , or they can try their luck with one of the many shareholder lawsuits being filed .
the securities and exchange commission is investigating enron ' s activities . if its behavior was illegal , there will be consequences for company officers .
that ' s still not much to offer to workers who have seen their retirement savings dissolve . but for now it ' s all there is .
copyright ? 2000 dow jones over many years they have pointed out that all the benefits of deals , and often more than all , accrue to the shareholders of the companies taken over , while investors in the bidding companies suffer dilution . investors know this , and in normal market conditions news of a takeover will depress the bidder ' s share price . but in a bubble market these prudent attitudes can be overwhelmed by euphoria , as well as technical factors relating to demand by fund managers so that they can maintain their weightings when a bidder is spraying around large quantities of new equity .
also , it is irrational that many more deals are done when the stock market is high than when it is low . two years ago , companies such as marconi were engaged in buying sprees at daft prices . now , when prices are much lower , hardly any acquisitions are being made ( and investment banks are dismissing thousands of employees ) . an exception to the deal famine is gold mining , which just happens to have been one of the stock market ' s strongest sectors this year .
another important source of irrationality has been the domination of stock market analysis by the stockbroking offshoots of the investment banks . over recent years their earnings - per - share forecasts for the next calendar year have been on average 8 per cent too high . this has not just been a mistake ; they have been paid to be over - optimistic . admittedly , attempts are being made to restructure the incentives here , as the embarrassed investment banks come under pressure from the regulators and the courts for their errors of judgment during the bull market , but it remains to be seen whether much will really change .
the mystery is why anybody would take notice of these forecasts , and indeed many professional investors do not . that merrill survey , incidentally , shows that fund managers on average expect no more than 4 per cent earnings per share growth over the next year , while the stockbrokers ' analysts are still clinging to the hope that it will be 15 per cent .
a final source of distortion is the tendency of companies to offer their executives the wrong sort of incentives . the ruin of marconi may appear irrational , when multi - billion - pound acquisitions are being declared worthless after only two years . but executives with lucrative stock option plans , which pay off if their gambles go right , combined with golden goodbye and pension packages that are triggered if things go wrong , may well consider it perfectly rational , from their viewpoint , to take much bigger risks than other shareholders , or employees , would consider acceptable .
moreover , sir christopher gent , shareholders of vodafone will remember , received a controversial # 10 m personal bonus last year for clinching the mannesmann takeover , a deal that requires # 10 bn of write - offs .
in normal market conditions the valuation of equities may be tolerably rational , but in a bubble market the rules are thrown out of the window . many investors certainly like the idea of getting rich quickly . that is why many people subscribe so keenly to national lotteries in which the chance of winning is so small as to be not worth rational consideration .
barry . riley @ ft . com .
( c ) copyright financial times ltd . all rights reserved .
http : / / www . ft . com .
copyright ? 2000 dow jones & company , inc . all rights reserved .
world stock markets - bears take upper hand on wall st .
by mary chung .
11 / 17 / 2001
financial times
( c ) 2001 financial times limited . all rights reserved
after an early game of tug - of - war , the bears took the upper hand as the dow jones industrial average closed 5 . 40 lower at 9 , 866 . 99 . the s & p 500 index gave up 3 . 59 at 1 , 138 . 65 and the nasdaq composite slipped 1 . 98 at 1 , 898 . 59 . volume was fairly heavy with 1 . 34 bn trades in the nyse .
the indices were earlier bolstered by news that some of the leaders of the taliban and the al - qaeda terrorist network had been killed in bombing raids on kabul and kandahar this week .
however , the momentum faded as investors found little reason to keep sending stocks higher following a sharp decline in the us consumer price index . the index saw its steepest monthly drop since april 1986 . separately , the federal reserve reported another drop in industrial output last month .
investors appeared more hesitant to step into the market and buy stocks after several weeks of sharp gains . however , the corporate picture looked to be improving for some companies such as dell . the computer maker reported third - quarter results that beat analysts ' estimates by a penny and predicted a small rise in sales for the current quarter . shares , however , fell 4 per cent at $ 26 . 60 .
rivals hewlett - packard shed 2 . 7 per cent at $ 21 . 50 and compaq gave up 3 . 7 per cent at $ 10 . 30 . yahoo ! , the world ' s largest internet portal , jumped 4 . 3 per cent at $ 15 . 47 after it announced a restructuring and job cuts , but reaffirmed its guidance for the fourth quarter .
shares in starbucks fell 9 per cent at $ 17 . 50 in spite of the coffee company reporting a 22 per cent rise in earnings for the fourth quarter .
energy prices rose in spite of the continuing dispute over oil production between opec and russia . amerada hess put on 2 . 5 per cent at $ 54 . 59 and exxon mobil added 1 per cent at $ 37 . 54 . enron , the embattled energy trading company , however , slid 5 per cent at $ 9 . most dow components were lower as alcoa slipped 1 per cent at $ 37 . 12 , american express shed 3 . 7 per cent to $ 33 . 13 and wal - mart fell 1 . 6 per cent at $ 55 . 10 .
toronto was little changed in morning trade in spite of a rally in technology and cyclical shares , the first sectors expected to respond to an improving economy .
however , at the close the s & p tse - 300 composite index was up 0 . 72 per cent at 7 , 315 . 30 as tech issues continued to strengthen .
overall , 11 of the market ' s 14 sub - indexes were higher but safe - haven gold stocks suffered as hopes grew for a swift conclusion to the war in afghanistan . the tech - heavy industrials sector enjoyed a 1 . 61 per cent gain . electronics manufacturer celestica charged ahead , rising 3 . 3 per cent to c $ 64 . 80 .
telecoms equipment heavyweight nortel networks jumped to c $ 12 . 69 as several investment firms raised targets .
( c ) copyright financial times ltd . all rights reserved .
http : / / www . ft . com .
copyright ? 2000 dow jones financial desk
in brief / energy pension funds consider action against enron
reuters
11 / 17 / 2001
los angeles times
home edition
c - 2
copyright 2001 / the times mirror company
some big pension funds that invested in enron corp . said they are considering legal options in the wake of the energy giant ' s stock collapse and a regulatory probe of its dealings .
spokesmen for the new york state and city comptrollers and an official from amalgamated bank , a trustee of workers ' retirement funds , said they were looking into lawsuits stemming from enron ' s murky financial dealings and stock plunge .
pension funds and mutual funds have been big holders of enron , once a wall street darling whose stock has plunged 89 % this year .
five new york city pension funds hold about 2 . 9 million enron shares , said david neustadt , a spokesman for the new york city comptroller ' s office . the funds serve teachers , police and other city workers .
enron shares fell 48 cents to $ 9 on the new york stock exchange .
copyright ? 2000 dow jones & company , inc . all rights reserved .
enron investors hope filing will shed more light on finances
2001 - 11 - 17 11 : 06 ( new york )
enron investors hope filing will shed more light on finances
houston , nov . 17 ( bloomberg ) - - enron corp . investors hope
the energy trader ' s third - quarter report to the u . s . securities
and exchange commission will answer some of the questions that
sent its shares tumbling and led to a proposed sale to rival
dynegy inc .
enron , which has been criticized for failing to clearly
explain how it makes money , may disclose in monday ' s filing more
on how much is owed by the company and affiliated partnerships , as
well as any planned job cuts and other cost - saving moves related
to dynegy ' s $ 24 billion buyout .
` ` investors will be looking for anything that affects the
likelihood of the ( dynegy ) deal going through and the timing of
such a deal , ' ' said edward paik , who helps manage the liberty
utilities fund , which owns 1 . 6 million in enron shares .
enron agreed to sell after its stock plunged 67 percent in
three weeks amid an sec investigation into partnerships run by
enron executives . investors worry that new disclosures , such as
previously unreported debt , might threaten enron ' s credit rating
and scuttle the merger , possibly pushing enron into bankruptcy .
` ` there ' s been so much skepticism about what enron ' s
liabilities are with these partnerships , i ' m looking to quantify
this , ' ' said glen hilton , a fund manager at montgomery asset
management lp , which holds dynegy shares .
enron chairman kenneth lay admitted last week that failed
investments and a loss of investor confidence forced the sale to
dynegy , and he and other executives pledged to be more open with
investors . lay , 59 , said last week he won ' t accept a severance
package of more than $ 60 million that he could have collected
following the takeover .
enron shares fell 48 cents yesterday to $ 9 . dynegy fell
$ 1 . 53 , or 3 . 5 percent , to $ 42 . 47 .
balance sheet
enron ' s third - quarter report , which had been expected last
week , was delayed by the dynegy talks and a restatement of
earnings , chief financial officer jeffrey mcmahon said . enron
reduced net income for four years by a combined $ 586 million to
include losses from affiliated partnerships .
monday ' s filing , called a 10 - q , will include a balance sheet
summarizing assets and debts . enron for years has omitted balance
sheets , which the sec requires as part of the 10 - q , from its press
releases announcing earnings .
investors renewed their criticisms of the practice after lay
mentioned during a conference call last month that dealings with
two partnerships had reduced enron ' s shareholder equity , or its
assets minus liabilities , by $ 1 . 2 billion . the disclosure led to
the ouster of chief financial officer andrew fastow .
` ` everyone is trying to make their own assessment of what
( enron ' s ) ultimate liability will need to be , ' ' said commerzbank
securities analyst andre meade , who rates the shares ` ` hold ' ' and
doesn ' t own them .
monday ' s report probably won ' t give a complete answer , said
louis gagliardi , an analyst at john s . herold inc . while the
balance sheet will list liabilities for the partnerships , which
were set up to buy enron assets and get debt off the company ' s
books , it won ' t spell out enron ' s share , he said .
` ` what is the net liability off the balance sheet ? ' '
gagliardi said . ` ` we really don ' t know what that number is . ' '
credit rating
dynegy has said it can back out of the acquisition if enron ' s
legal liabilities exceed $ 3 . 5 billion . the balance sheet ` ` will
help us see how good a deal this is for dynegy , ' ' said kathleen
vuchetich , co - manager of the $ 1 . 4 billion strong american
utilities fund , which owns 284 , 000 dynegy shares .
both companies are based in houston .
the filing also might offer details on the sec probe . ` ` it
may say what the sec is looking for , and what the rating agencies
have told them , ' ' said christopher ellinghaus , an analyst at
williams capital group . he added , though , ` ` i don ' t expect much . ' '
enron ' s stock drop led moody ' s investors service to cut the
company ' s debt rating to the lowest investment grade . dynegy held
off on a purchase agreement out of concern that the rating would
be cut to junk , jeopardizing enron ' s ability to raise cash needed
to settle its daily power and natural - gas trades .
enron may reveal where it expects to cut jobs and how much it
will pay to departing employees , paik said . chief operating
officer greg whalley said last week that fourth - quarter profit
will be hurt by severance payments and reorganization costs . he
didn ' t give details .
jobs likely will be eliminated in businesses the company
plans to sell , including its money - losing telecommunications unit
and operations in europe , analysts said .
enron has about 21 , 000 employees , two - thirds in the u . s . and
about a fifth in the u . k . its 600 traders are divided between
london and houston , where enron employs about 7 , 500 .
many enron workers are already preparing for layoffs , said
lyndon taylor , a houston - based recruiter for heidrick & struggles
international inc . , an executive placement firm .
` ` i got 56 resumes last week from enron , ' ' taylor said .
` ` that ' s equal to the number i got in the past year . ' '
- - margot habiby in dallas and jim polson in princeton
uk : trade , bank buyers circle enron ' s wessex water - reports .
11 / 17 / 2001
reuters english news service
( c ) reuters limited 2001 .
london , nov 17 ( reuters ) - both financial and trade buyers are considering bids for wessex water , the uk utility owned by crisis - hit u . s . energy group enron , weekend press reports said .
according to the uk trade magazine utility week , enron ' s rescue buyer dynegy wants to offload wessex as soon as possible , and focus on integrating enron ' s core energy businesses .
a report in the sunday telegraph newspaper named german bank westlb as a possible buyer at a price of 1 billion pounds ( $ 1 . 4 billion ) . westlb is the financial backer of the management buyout team that owns another southern england regional utility , mid kent water .
utility week raised the possibility that uk power utility scottish & southern might be interested .
copyright ? 2000 dow jones & company , inc . all rights reserved .
financial post : canada
a user ' s guide to living in calgary : people moving from houston find the cities much alike
claudia cattaneo
financial post
11 / 17 / 2001
national post
national
fp 7
( c ) national post 2001 . all rights reserved .
u . s . oil companies are setting up shop all over downtown , usually picking high - quality office space with lots of open space . anadarko petroleum corp . is located at fifth avenue place , burlington resources inc . is in bow valley square and devon energy corp . is in canterra tower . some end up in the offices of the companies they acquire . conoco inc . has moved into gulf canada square .
the big takeover wave has led to a reshuffling of downtown space . today , there is a shortage of large spaces and an increase in small ones available for sublease .
some would like to get the towers they occupy named after them but landlords resist this because naming a building after one tenant can be a disincentive for others .
oilmen ' s favourite hangout is the calgary petroleum club , founded by u . s . and canadian oilmen in 1948 in the palliser hotel . members have reciprocal membership at the petroleum club of houston . but calgary ' s pete club is a bargain compared to its texas counterpart . the initiation fee in calgary is $ 2 , 000 , monthly dues are $ 65 and the minimum amount members must spend in a year is $ 600 . the initiation fee for full membership at the petroleum club of houston is us $ 3 , 500 , monthly dues are us $ 110 and the minimum house account is us $ 75 per quarter .
u . s . executives running canadian oil and gas operations earn substantially more than their canadian counterparts because their compensation is competitive with the u . s . market .
when u . s . oil companies purchase canadian operations , they like to keep as much of the canadian staff as possible , since they are even more aware than their canadian rivals of the " war for talent . "
when recruiting locally , u . s . firms pay competitively but of course will pay what they must to get the best candidate . they also offer competitive benefits and stock - option plans . u . s . employers gulp at the generous holidays enjoyed by canadian oilpatch employees .
there ' s no american neighbourhood in calgary , although many recent arrivals are buying homes close to the city ' s core , particularly in such high - end neighbourhoods as mount royal , elbow park and britannia , where homes sell for $ 500 , 000 to $ 2 - million .
some u . s . companies purchase condominiums in such areas as eau claire on the bow river to house u . s . executives in transit .
ted zaharko , a broker - owner with royal lepage , says americans are driven by lifestyle choices and the fact that they can afford to buy expensive homes . living near other americans isn ' t important .
the cost of living is lower in calgary than in many comparable u . s . cities . however , u . s . cities become more competitive for high - income earners because personal income taxes in canada are higher than in the u . s . at the higher income levels . offsetting factors include access to health care , clean air , a short commute to work and the nearby mountain playground , which tend to be important to affluent people .
u . s . oil types may have strange accents - - many come from the southern states - - but oilpatch jargon is pretty much the same . calgarians and americans understand one another when they talk of dry holes ( no discovery ) , wildcat wells ( exploration wells ) or roughnecks ( rig workers ) . the language of money is also the same : barrels and u . s . dollars .
oilpatch humour is also borderless . one of the latest jokes circulating by e - mail , courtesy of oilpatch investment dealer peters & co . , is called " understanding enron . " the u . s . energy giant is in trouble over its use of off - balance - sheet transactions to keep debt off its books :
feudalism you have two cows . your lord takes some of the milk .
fascism you have two cows . the government takes both , hires you to take care of them and sells you the milk .
pure communism you have two cows . your neighbours help take care of them and you all share the milk .
applied communism you have two cows . you must take care of them , but the government takes all the milk .
totalitarianism you have two cows . the government takes them both and denies they ever existed . milk is banned .
mexican democracy you have two cows . the government takes both and drafts you into the army .
european democracy you have two cows . the eu commission decides which regulations for feeding and milking apply . if there aren ' t any , they invent some . they pay you not to milk the cows . they take both cows , shoot one , milk the other and pour the milk down the drain . they then require you to fill out forms accounting for the missing cows .
american democracy the government promises to give you two cows if you vote for it . after the election , the president is impeached for speculating in cow futures . the press dubs the affair " cowgate , " but supports the president . the cows sue you for breach of contract . your legal bills exceed your annual income . you settle out of court and declare bankruptcy .
capitalism you have two cows . you sell one and buy a bull . your herd multiplies and the economy grows . you sell them and retire on the income .
enron venture capitalism you have two cows . you sell three of them to your publicly listed company , using letters of credit opened by your brother - in - law at the bank , then execute a debt / equity swap with an associated general offer so you get all four cows back , with a tax exemption for five cows . the milk rights of the six cows are transferred via an intermediary to a cayman island company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company . the annual report says the company owns eight cows , with an option on one more .
copyright ? 2000 dow jones any bid for a water company in the
u . k . worth at least 30 million pounds must be referred to the
competition commission , the newspaper said .
enron bought wessex for 1 . 4 billion pounds in 1998 . rwe ag of
germany , europe ' s fourth - biggest power company , is also interested
in wessex , but enron thinks u . k . regulators won ' t approve an rwe
bid because the company already owns thames water , a large u . k .
water company .
westlb has also been reported to be preparing a buyout for
railtrack group plc , the insolvent owner of the u . k . ' s train
tracks and stations , the paper said .
enron closes on $ 550 million loan from j . p . morgan , salomon
2001 - 11 - 16 17 : 36 ( new york )
enron closes on $ 550 million loan from j . p . morgan , salomon
houston , nov . 16 ( bloomberg ) - - enron corp . closed wednesday
on a $ 550 million loan from j . p . morgan chase & co . and salomon
smith barney inc . that was secured with assets of its transwestern
pipeline co . , spokesman vance meyer said .
enron , the largest energy trader , said nov . 1 that it had
received a commitment for $ 1 billion in loans from the investment
banks that would be used for debt payments and to supplement cash
reserves .
enron secured the loans with the assets of transwestern and
the northern natural gas co . the two pipeline systems combined are
about 19 , 000 miles long and can deliver as much as 6 billion cubic
feet of gas a day . the remaining $ 450 million loan , secured with
the northern natural gas assets , is in the documentation stage and
is expected to close next week , meyer said .
enron agreed a week ago to be acquired by dynegy inc . in a
transaction now valued at $ 24 . 7 billion in stock and assumed debt .
the move followed a loss in investor confidence - - the company ' s
shares had fallen 90 percent this year - - and amid a federal
investigation of accounting irregularities that limited its
ability to finance operations .
chevrontexaco corp . , the second - biggest u . s . oil company and
dynegy ' s largest shareholder with 26 percent , provided enron ,
through dynegy , with a $ 1 . 5 billion cash infusion on tuesday as
part of the buyout agreement .
in return , dynegy acquired preferred stock and other rights
in the enron unit that owns northern natural gas . if the merger
isn ' t completed , dynegy will have the right to acquire northern
natural gas , enron said in regulatory filing wednesday .
chevrontexaco will provide dynegy with another $ 1 billion after
the merger closes to maintain its equity stake .
the shares of enron fell 48 cents to $ 9 , while shares of
dynegy fell $ 1 . 53 to $ 42 . 47 . both companies are based in houston .
shares of san francisco - based chevrontexaco fell 35 cents to
$ 83 . 45 .
- - margot habiby in the dallas newsroom ( 214 ) 954 - 9452
enron mentions - 11 / 17 / 01 - 11 / 18 / 01
they left behind big piles of money
houston chronicle , 11 / 18 / 01
economic news helps stocks , not bonds
the new york times , 11 / 18 / 01
bullish , and patient , on energy stocks
the new york times , 11 / 18 / 01
aquila energy makes provision for dynegy withdrawal , ft says
bloomberg , 11 / 18 / 01
a tale of greed and hubris
sarasota herald - tribune , 11 / 18 / 01
counting blessings along with the losses
los angeles times , 11 / 18 / 01
don ' t be a pudd ' n ' head , diversify
the washington post , 11 / 18 / 01
wessex water ` to be sold '
the independent - london , 11 / 18 / 01
uk press : westlb makes grab for gbplb wessex water
dow jones international news , 11 / 18 / 01
quanta steels itself against takeover bid
houston chronicle , 11 / 17 / 01
business briefs / houston & texas
houston chronicle , 11 / 17 / 01
at enron , the big dogs ate first
portland oregonian , 11 / 17 / 01
finance week - from dealing to reeling .
financial times , 11 / 17 / 01
world stock markets - bears take upper hand on wall st .
financial times , 11 / 17 / 01
in brief / energy pension funds consider action against enron
los angeles times , 11 / 17 / 01
enron investors hope filing will shed more light on finances
bloomberg , 11 / 17 / 01
uk : trade , bank buyers circle enron ' s wessex water - reports .
reuters english news service , 11 / 17 / 01
a user ' s guide to living in calgary : people moving from houston find the cities much alike
national post , 11 / 17 / 01
westlb offers to buy enron ' s u . k . water unit , newspaper says
bloomberg , 11 / 17 / 01
enron closes on $ 550 million loan from j . p . morgan , salomon
bloomberg , 11 / 16 / 01
business
jim barlow
they left behind big piles of money
jim barlow
staff
11 / 18 / 2001
houston chronicle
2 star
1
( copyright 2001 )
will wonders never cease ? last week a couple of heavy hitters left money on the table .
mark mcgwire , the home - run - hitting baseball player for st . louis , retired . and he let it be known that he never signed a two - year , $ 30 million contract his agent negotiated last spring . why ? because he wanted to find out if his injured right knee would allow him to play as well as he had before . it didn ' t , and he decided he wasn ' t worth that kind of money .
then ken lay , chairman of enron corp . , said he won ' t take the $ 60 . 6 million he had coming to him in a severance agreement that comes into play when enron is sold to dynegy corp .
of course , neither mcgwire nor lay will ever have to consider my fallback retirement plan - sacking groceries at the supermarket , carrying them to the car and hoping for a big tip . still , it was a class act on both their parts . mcgwire only hit . 187 last season , well below his lifetime average . and lay ? well , let ' s say that rarely in the history of american capitalism has a company sunk as fast as enron .
remember that earlier this year its stock hit a top of $ 82 a share . now it ' s hovering in the single - digit level , and enron is being forced to sell itself to a smaller rival .
the stock price incentive
how did enron get into this position ? put the blame on the company ' s relentless drive to push up its stock price . and a big reason for that push comes from the way american companies compensate top executives .
in the last couple of decades , executive compensation has soared . the average chief executive officer today makes 531 times as much in salary , bonuses and stock options as the average factory worker .
apologists for executive pay say these kinds of figures really aren ' t relevant . most of the money top executives receive doesn ' t come from base pay or bonuses but from stock options .
such options usually work this way . executives are given hundreds or thousands of shares of stock that they can only buy from the company at a future date . the sales price can be anything from 10 cents to the price of the stock on the date the options were granted . if the stock increases past the exercise price in the option , the executive can buy the stock and then sell it , making big bucks . it the stock has dropped below the option price - it ' s underwater , in the jargon - then those options are worthless .
granting options aligns the interests of the top executives with the shareholders , those who favor this sort of incentive say . and that ' s true , if you talking about in - and - out traders . but it ' s not true if we ' re looking out for the interests of the majority who hold stocks for the long term .
keeping the debt hidden
keeping its stock price soaring was what brought down enron .
to hype the stock , enron ' s execs were hiding the debt it took on to fuel its amazing growth and some of its dicier investments , in partnerships . enron was supposedly only a minority partner in these deals . that way it could move a large portion of its debt off its books in that partnership . that , in turn , made the company ' s earnings look better .
when enron ' s executives finally fessed up , they had to write down their profits over the past few years by 20 percent . but the real irony here is that 80 percent is still a heck of a lot of money . but by that time , the majority of shareholders simply had no faith in enron ' s bookkeeping .
now look at lay ' s compensation . in 1999 he exercised stock options and made $ 44 million on them . in 2000 , sales of options brought him $ 123 million , and this year about $ 26 million , according to a study published by bloomberg news .
was lay deliberating deceiving investors to keep his stock options profitable ? i don ' t think so . he was simply following the latest fad in corporate governance . he was aligning himself with the interests of the shareholders .
the shareholders were happy with that high stock price . nobody - besides some stock analysts - complained about enron ' s often - impenetrable bookkeeping until that stock price started to fall .
would enron ' s bookkeeping have been different if top executives received fewer stock options ? maybe .
fewer stock options would mean lower pay for the top guys . and no one would want that job if he were only going to make $ 10 million a year instead of $ 100 million .
just kidding .
copyright ? 2000 dow jones section 3
databank
economic news helps stocks , not bonds
by jonathan fuerbringer
11 / 18 / 2001
the new york times
page 17 , column 3
c . 2001 new york times company
stocks rallied and bonds plunged last week as investors digested some positive reports about the economy . inflation at the consumer level declined last month , retail sales surged after falling in september , and weekly initial unemployment claims slowed .
all this news led some investors to conclude that the economy might not be as troubled as it appeared to be in the aftermath of the terrorist attacks . that was good for the stock market , but very bad for the many bond investors who had been assuming the worst .
for the week , the nasdaq composite index rose 70 . 10 points , or 3 . 8 percent , to 1 , 898 . 58 , while the dow jones industrial average climbed 258 . 99 points , or 2 . 7 percent , to 9 , 866 . 99 . the standard & poor ' s 500 - stock index gained 18 . 33 points , or 1 . 6 percent , to 1 , 138 . 65 .
but bond prices tumbled while yields , which move in the opposite direction , soared . the yield on the treasury ' s 10 - year note rose to 4 . 85 percent , from 4 . 31 percent a week ago , the biggest weekly move in percentage terms since the note was first regularly issued 25 years ago . the jump in rates also showed that many investors no longer expect federal reserve policy makers to cut short - term interest rates when they meet next month . jonathan fuerbringer
chart : ' ' stocks in the news ' ' amr nyse : amr the stock of the parent company of american airlines , along with other airline companies , rebounded on factors including lower oil prices and passage of the aviation security bill . friday ' s close : $ 20 . 06 week ' s change : + 10 . 65 % est . ' 01 p / e : - - dynegy nyse : dyn as part of its planned $ 9 billion acquisition of enron , dynegy will receive the right to acquire northern natural gas , a potentially lucrative pipeline system , even if the larger deal is not completed . friday ' s close : $ 42 . 47 week ' s change : + 9 . 57 % est . ' 01 p / e : 20 . 29 home depot nyse : hd the nation ' s largest home - improvement chain said its third - quarter profit rose 20 percent over the year - earlier period . friday ' s close : $ 45 . 80 week ' s change : + 8 . 76 % est . ' 01 p / e : 36 . 03 dell computer nnm : dell rebounding from a loss in the second quarter , dell reported a third - quarter profit of $ 429 mil lion . the company also predict d that pc sales would increase later this year . friday ' s close : $ 26 . 60 week ' s change : + 3 . 30 % est . ' 01 p / e : 41 . 05 sungard data systems nyse : sds an appeals court rejected the government ' s effort to stop sungard from buying a unit of comdisco , which filed for bankruptcy protection in july , while an antitrust investigation proceeds . friday ' s close : $ 28 . 64 week ' s change : + 9 . 56 % est . ' 01 p / e : 32 . 11 yahoo nnm : yhoo wall street analysts expressed confidence in the turnaround prospects of the company after it outlined plans to increase fee - based revenue and to reduce its work force . friday ' s close : $ 15 . 47 week ' s change : + 12 . 76 % est . ' 01 p / e : 309 . 40 philip morris nyse : mo philip morris says it plans to change its name to the altria group , pending approval by shareholders . friday ' s close : $ 48 . 13 week ' s change : + 2 . 78 % est . ' 01 p / e : 11 . 90 cv therapeutics nnm : cvtx the biotechnology company said clinical trials of ranolazine showed that the drug , which it developed , was effective in treating the chest pain of angina . friday ' s close : $ 51 . 67 week ' s change : + 48 . 97 % est . ' 01 p / e : - - ( source : bloomberg financial markets )
copyright ? 2000 dow jones section 3
investing
bullish , and patient , on energy stocks
by jan m . rosen
11 / 18 / 2001
the new york times
page 8 , column 2
c . 2001 new york times company
despite last week ' s plunge in the price of crude oil and in shares of big oil companies , some wall street analysts remain upbeat about the long - term prospects for energy stocks .
' ' these very dramatic downturns are great buying opportunities , ' ' said tina vital , an oil and gas analyst at standard & poor ' s , who recommends a broad group of integrated oil companies , including exxon mobil , chevrontexaco , royal dutch / shell , bp and totalfinaelf . ' ' they have excellent management , a top dividend yield and are a safe haven for investors , ' ' she said , provided that investors are patient and can bear short - term swings .
last week ' s price declines were set off by russian oil companies ' refusal to accept demands by the organization of the petroleum exporting countries for big production cuts . they were a reminder that the sector is extremely volatile . ' ' oil could go to $ 10 a barrel short term , ' ' she said , but there is no certainty of that . the oil producers could reach an agreement by january , sending prices upward . over the long term , she expects to see production cuts .
demand for energy has grown only 0 . 5 percent this year , and prices have been declining for some time for both crude oil and gasoline - - as drivers have seen at the gas pump . west texas intermediate crude closed friday at $ 18 . 03 on the new york mercantile exchange , up 58 cents from its thursday close , the lowest since june 1999 . but an economic recovery , expected by late 2002 , could cause demand to pick up , analysts say .
as oil prices have dropped , so have the prices of most oil stocks , but not as much as the overall market since the beginning of 2000 . over that period , the s . & p . energy index has lost 8 percent , while the s . & p . 500 - stock index is down 23 percent .
a report issued last week by the energy department said that while the sept . 11 terrorist attacks had intensified the country ' s economic slowdown , ' ' they are not expected to result in any long - term volatility in energy markets . ' ' the report estimated that commercial energy demand would rise 1 . 7 percent a year through 2020 , instead of the 1 . 2 percent predicted only a year ago . its predictions assume increased use of computers and office equipment , and slower increases in fuel efficiency for cars and trucks .
while they warn of the possibility of wild price shifts in the months ahead , other analysts are similarly bullish for the long term . l . bruce lanni , senior oil analyst at a . g . edwards his 12 - month target is $ 34 . ' ' we remain confident , ' ' he said , ' ' that the company ' s annual oil and gas production should grow by about 4 percent , on average , over the next several years . ' '
conoco ' s debt , at 55 percent of capital , is relatively high , but he expects the company ' s strong cash flow - - it equaled $ 5 . 33 a share last year - - to reduce the debt level to 46 percent next year and to 38 percent in 2003 . the company ' s after - tax interest cost is only 3 . 5 percent , he said .
mr . lanni also favors kerr - mcgee , a natural gas exploration and production company , and bp , calling both undervalued . he regards exxon mobil , royal dutch / shell and chevrontexaco as fully priced , so he is not recommending buying them now . ' ' if you own them , hold them , ' ' he said .
william featherston , executive director and an oil and gas exploration analyst at ubs warburg , said he felt ' ' near - term caution but medium - term optimism for sustainably higher ' ' natural gas prices . he said he would encourage investors to consider buying shares of exploration and production companies over the next two months . his top picks are apache , kerr - mcgee and eog resources .
such stocks are highly volatile , he said . they are ' ' trading - oriented vehicles , and short - term volatility in commodity prices generally provides the most attractive entry and exit points , ' ' he said . ' ' while natural gas prices declined throughout most of this year , prices rose at a startling pace , from $ 1 . 75 per million cubic feet at the end of september to over $ 3 per million cubic feet within weeks . ' '
he cited three reasons for the price rally : a decline in gas surpluses , predictions of a colder - than - normal winter and what he has called ' ' pathetic third - quarter natural gas production , ' ' despite record drilling activity .
the tangled finances of the enron corporation were also a factor in the recent price increase for natural gas futures , he said . enron , which marketed 25 billion cubic feet a day of natural gas , or more than 40 percent of the nation ' s demand , is under investigation by the securities and exchange commission and announced a $ 1 . 2 billion reduction in shareholder equity from deals with partnerships involving its former chief financial officer . it also reported a third - quarter loss and restated earlier earnings . enron has agreed to be taken over by dynegy , a smaller rival , for about $ 9 billion in stock . dynegy is also assuming about $ 13 billion in debt .
anxiety over whether the enron investigation would disrupt deliveries or have other market repercussions led to an increase in prices . while it is ' ' difficult to quantify the enron factor , ' ' mr . featherston said , the short - term effects on natural gas prices seem to be over .
other factors , of course , could also mean a bumpy ride for energy investors over the next several months . the status of the war against terrorism , president bush ' s decision to fill the strategic petroleum reserve , thus helping opec in reducing excess global capacity , and a united nations review of the food - for - oil deal with iraq expected in december could each have a significant impact on battered oil prices .
nevertheless , ms . vital said , for the long term , energy will probably be in short supply , and new sources must be developed . so she also likes the prospects of two drilling companies , noble drilling and nabors industries . both took a beating last week , along with the oil companies , so again she sees buying opportunities .
bern fleming , portfolio manager of the axp utilities income fund in minneapolis , who has stakes in dynegy , duke energy and dominion resources , said all three had good prospects for growth , thanks to a mix of assets , ' ' management i respect and solid business plans . ' '
photo : workers at an oil well near lafayette , la . although oil prices have plunged , analysts say there is still good long - term potential for the stocks of energy companies . ( marty katz for the new york times ) chart : ' ' power play ' ' energy stocks have generally outperformed the overall market since the beginning of 2000 . graph shows conoco shares , s . & p . energy composite , and the s . & p . 500 index since january 2000 . ( source : bloomberg financial markets )
copyright ? 2000 dow jones & company , inc . all rights reserved .
aquila energy makes provision for dynegy withdrawal , ft says
2001 - 11 - 18 19 : 52 ( new york )
houston , nov . 19 ( bloomberg ) - - aquila energy corp . is one of
several energy traders limiting its trading with enron corp . in
case dynegy inc . pulls out of its bid for the company , the
financial times said , citing aquila .
aquila said it began making contingency plans in case dynegy
withdrew from its $ 24 billion takeover of enron , the paper
reported .
enron , the largest energy trader , decided to sell after its
shares plunged this year and a federal investigation of accounting
irregularities limited its ability to finance operations . enron ' s
collapse would have caused upheaval in energy markets , where the
company does one - quarter of all gas and power trades .
dynegy ' s agreement to buy enron allows it to withdraw from
the transaction under certain circumstances , the ft said .
perspectives
a tale of greed and hubris
waldo proffitt
11 / 18 / 2001
sarasota herald - tribune
all
f 2
( copyright 2001 )
for anyone not already disenchanted with the idea of total deregulation of public utilities , the most recent installment of the miserable enron story as it unfolded last week should serve as a convincing example of the folly of relying on unregulated profit - driven enterprises to supply our energy .
a year ago enron was the darling of wall street , the poster boy for the utility industry , its stock selling for about $ 85 a share . last week its stock was worth about 10 percent of that and the company had agreed to be bought by a competitor . there was fear the company ' s bond rating might fall to the " junk " level .
what happened ? it will take months , if not years , to untangle the details , but it is clear that the main culprit was greed , closely followed by hubris .
not too many years ago enron was a small , struggling , gas pipeline company in houston . as deregulation spread to more and more states , enron began acquiring pipelines , gas producers and utilities .
it also acquired friends in high places , especially the bush family and their key political advisers . and , it discovered it could make money faster by selling and trading energy than by producing it . enron sold many of its generating plants and became the biggest " power broker " in the nation .
though it was by no means the largest winner in the con game that bilked california consumers of tens of billions of dollars , enron was one of the first power barons to take advantage of california ' s flawed deregulation law - - virtually written by in - state and out - of - state utility companies .
the california fiasco soured ( probably ) most americans on utility deregulation , but enron was not singled out for calumny , and management saw no reason to examine its business ethics .
contrarywise . management had visions of even greater profits , which it felt no obligation to share with ordinary stockholders . the chief financial officer and other high - ranking executives set up affiliated or subsidiary partnerships which made deals with enron . i do not understand the details of these arrangements , but neither do independent accountants , the securities and exchange commission or congressional investigators . it does seem clear that the enron insiders made millions for themselves .
enron acknowledges , without explaining , that stockholder equity dropped $ 1 . 2 billion in the last quarter and that it had for the last five years overstated profits by some $ 600 million . whether this was by design or by mistake is in dispute , but it is the sort of thing which tends to undermine the confidence of investors .
so much for greed . back to hubris . it seems not unlikely that enron ' s leaders felt they might not be punished for a modest amount of corner - cutting because they had friends in high places .
the chief executive , kenneth l . lay , was and is a personal friend of george w . bush and has easy access to the white house . for many months after the new administration took office , karl rove , bush ' s top political strategist , owned enron stock valued at $ 100 , 000 to $ 250 , 000 , and sold it only after he had been able to secure a ruling that he did not have to pay capital gains tax immediately because he sold to avoid a conflict of interest . lawrence lindsey , the president ' s chief economic coordinator , and i . lewis libby , vice president cheney ' s chief of staff , owned stock in enron , and lindsey was paid $ 50 , 000 last year as a consultant for enron .
enron and its employees gave more than anyone else to bush ' s four political campaigns - - one ( unsuccessful ) for congress , two for governor and one for president . in 2000 , enron and its employees gave $ 113 , 000 to bush ' s campaign , $ 250 , 000 to the republican national committee , and $ 300 , 000 to the presidential inauguration committee .
cabinet appointments affecting energy policy , key sub - cabinet appointments , administration action or inaction in the california energy mess , and the overall energy policy of the administration could hardly have been more favorable to the interests of enron .
and now a couple of questions : is it possible the unusual financial maneuvers by enron went unnoticed or even unsuspected by all the savvy texas oilmen in the bush administration ? were those of them with heavy investments in enron unconcerned about the conduct of the company ? was enron right in thinking its friends in government would not be in a hurry to investigate or to reprimand ?
or , in light of our preoccupation with terrorism , will the enron case get much attention from the federal government ? or from voters ?
waldo proffitt is the former editor of the herald - tribune .
copyright ? 2000 dow jones financial desk
market beat
counting blessings along with the losses
tom petruno
times staff writer
11 / 18 / 2001
los angeles times
home edition
c - 1
copyright 2001 / the times mirror company
try finishing this sentence : " the best thing about my experience as an investor in 2001 was . . . "
many americans , contemplating the losses they ' ve suffered this year in the stock market , might say there was nothing " best " about what happened to them - - in fact , nothing good at all , perhaps other than that it might have been worse .
with share prices on the rise again , the damage to portfolios has been lessened . even so , stocks will have to post strong gains in the next six weeks to keep this from being the market ' s worst calendar year since 1977 .
the blue - chip standard & poor ' s 500 index rose 1 . 6 % last week , but it ' s still down 13 . 8 % year to date .
yet those losses , while certainly not trivial ( especially when they ' re yours ) , can obscure what arguably are some very positive aspects of this year ' s experiences .
with investing , adversity can be a more important teacher than success . if you ' re having trouble this thanksgiving week finding reasons to be thankful about anything investment - related , try these on for size :
* " asset allocation " is no longer just a quaint theory . the paramount investing rule has always been to spread your money around to reduce risk . but it took the worst stock bear market in 25 years to bring this lesson home for many people who thought equities only rose in value .
now , millions of investors have a far better appreciation for just how much they can lose in stocks - - and how bonds and short - term cash savings can offset market losses and preserve capital .
it has been a hard lesson , to be sure . but investors who take asset allocation to heart will be laying a much more solid foundation for their money in the long run . and don ' t underestimate what that can mean for your peace of mind long term .
* the wisdom of saving money on a regular basis has been relearned . in the late 1990 s , many economists lamented how the u . s . savings rate continued to shrink . some people felt there was little need to put significant new sums into savings when the stocks or stock mutual funds they owned seemed to be rising nonstop .
in other words , many americans were letting the stock market do their saving for them when share prices were rising 20 % or more each year .
now , with shares down and with the likelihood of much more moderate returns on stocks in this decade , it ' s clear that many people will have to find a way to save regularly if they ' re going to meet their long - term financial goals , especially retirement .
this may not be a pleasant reality , but it ' s better for most people to have faced this fact sooner rather than later , while there may be time to make up lost ground .
* a healthy skepticism has replaced mindless euphoria about stocks and those who tout them . the market ' s slide has discredited a legion of wall street analysts , money managers and others whose knowledge , understanding and judgment were clearly lacking , in retrospect .
investors have come to see that having blind faith in those who present themselves as " experts " is a highly dangerous strategy , if it can be called a strategy at all .
sure , it may have been more fun when technology stocks were shooting the moon and nobody had much use for reviewing a company ' s fundamentals . but that wasn ' t investing - - it was speculating , and on a massive , and ultimately ruinous , scale .
people have learned to be less trusting about what others say about the market , and that is more likely to be beneficial than detrimental to their portfolios in the long run .
just ask anyone who shifted their entire 401 ( k ) retirement savings sum into aggressive - growth mutual funds in the first quarter of 2000 - - right before the market peaked - - because of the bullish comments of some 25 - year - old tech stock analyst . those investors aren ' t likely to make a move like that again .
* free - market forces are weeding out the weak players and the phonies . capitalism may be harsh , but it ' s efficient when the good times end and it ' s time to find out which companies truly have talent and staying power - - and deserve more capital .
hundreds of dot - coms have failed , but who really misses them ? is it any harder to find what you want on the internet ? it probably would have been much worse for all concerned if those companies had sucked up investors ' funds for another year instead of failing when they did .
but the market isn ' t just eliminating small companies that never had much of a future . the financial near - collapse of energy giant enron corp . exposed a business that twisted accounting rules to its own benefit - - to the point that the company now concedes that financial statements all the way back to 1997 " should not be relied upon . "
also to be weeded out , though over a longer time period , will be mutual fund managers whose performance running other peoples ' money has been a nightmare for those investors - - meaning , the returns produced have been far worse than what the investors would have achieved in the average fund in that particular sector .
these managers know who they are - - and , hopefully , their shareholders know by now as well , and will vote with their feet .
the free market also is reminding cartels just how tough it is to control prices .
once again , the organization of petroleum exporting countries has lost its ability to prop up crude oil prices , which have sunk to two - year lows amid the weak global economy . that ' s lousy for opec , but it ' s great for every energy consumer .
* the market ' s woes have altered many investors ' priorities for the better . the wild bull market of the late 1990 s demanded peoples ' attention , and got it .
for some , stocks became an obsession . their portfolios dominated their lives , especially if they were actively trading shares . they believed they were going to be rich , or richer , and that it was all because of how smart they were .
now , most people have been humbled by the market . in the process , some have realized that they don ' t want their mood determined by their portfolio ' s day - to - date price changes .
the sept . 11 terrorist attacks , of course , also changed many peoples ' view of what truly matters to them .
money is important , but you aren ' t your stocks , and they aren ' t you . life is more than a daily stock quote .
*
tom petruno can be reached at tom . petruno @ latimes . com . for recent columns on the web , go to www . latimes . com / petruno .
copyright ? 2000 dow jones & company , inc . all rights reserved .
financial
investing james k . glassman
don ' t be a pudd ' n ' head , diversify
james k . glassman
11 / 18 / 2001
the washington post
final
hol
copyright 2001 , the washington post co . all rights reserved
warren buffett , who was probably the greatest investor of the 20 th century , is fond of quoting the salacious actress mae west as saying , " too much of a good thing can be wonderful . " in the market , such a motto would lead you to avoid diversification and instead concentrate your portfolio in stocks you really , really like .
peter lynch , who was probably the best mutual fund manager of the 20 th century , calls spreading yourself too thin " diworseification . "
smart , witty and brilliant at picking stocks , buffett and lynch may not need diversification , but the rest of us do . when you own one stock , you ' re out on a limb . for example , very few analysts - - with or without a conflict of interest - - predicted that shares of enron , the energy and trading company , would tumble by 90 percent in a year . put all your eggs in a basket like that and you end up with a gooey mess . the more stocks you own - - as long as they are in different industries - - the more the overall riskiness of your portfolio is modulated .
the reason you don ' t want a super - risky portfolio is simple : while warren buffett may be calm and prescient enough to ride out severe dips in the value of his holdings , most investors are not . a portfolio that increases in price by 10 percent each and every year is worth exactly the same at the end of three years as a portfolio that falls by half the first year , rises by three - quarters the second and rises by 52 percent the third . but reasonable investors prefer the consistent ride . it prevents them from doing something stupid , such as selling all their stocks after losing half their money during that first disastrous year .
consider the sad case of james d . mccall , who earlier this month resigned as manager of the merrill lynch focus twenty mutual fund . two years ago , merrill wanted mccall ' s services so desperately that the firm went to court to pry mccall away from his previous employer , pilgrim baxter , where he rang up impressive gains in the late 1990 s . ( his big success was called pbhg large cap 20 . ) and when they got mccall , merrill ' s brokers raised more than $ 1 . 5 billion from their clients for him to invest . while the average growth - stock mutual fund owns about 100 stocks , with the top 10 holdings representing about one - fourth of the portfolio ' s total value , mccall specialized in what are called " concentrated portfolios . " in the case of merrill lynch focus twenty , he owned , as the name implies , just 20 stocks . at last report , his top 10 holdings accounted for a whopping two - thirds of the fund ' s assets .
if mccall had spread his 20 stocks among , say , a dozen different industries , he might have smoothed his ride . instead , 69 percent of his assets went to technology firms . the focus fund and a smaller one that mccall ran called premier growth were launched in march 2000 . within just 17 months , all but $ 650 million of the clients ' original $ 1 . 5 billion had vanished .
it is hard to imagine losing as much as focus twenty did even if you tried . as of nov . 9 , the week mccall resigned , the fund was down 72 percent for the year , compared with a loss of 14 percent for the standard & poor ' s 500 - stock index , the benchmark for fund managers . according to the latest report from morningstar mutual funds , 19 of mccall ' s 20 stocks had declined during 2001 , the only exception being harley - davidson . more amazing , 16 of the 19 losers had fallen by at least half . ( by the way , enron was mccall ' s seventh - largest holding . )
" this fund has had a wretched existence , " wrote morningstar analyst kunal kapoor , who did admit a grudging admiration for mccall ' s perseverance . mccall ' s " faith may turn out to be well placed over time , " kapoor said . unfortunately , time ran out .
my point here is not to pick on mccall but to reveal the perils of concentration . buying focus twenty as a technology fund , and consigning it to no more than one - fifth of your holdings ( with the rest of your assets in diversified , conventional stocks or funds ) might have made sense , but focus twenty was touted as a " long - term capital appreciation " fund , not a sector fund . here , it failed , but maybe it didn ' t have to .
the manager who made the concentrated fund popular , tom marsico , who ran janus twenty , took care to spread his holdings around . his successor , scott schoelzel , has suffered losses lately ( he is down 28 percent year - to - date , but that ' s after a total gain of 546 percent in the preceding five years ) , but they have not been nearly so catastrophic - - and for good reason . schoelzel ' s last report lists among his top 10 holdings three tech stocks , two financials , one drug company , one energy firm ( whoops , enron again ) , one industrial , one consumer - durables company and one services firm .
for investors in individual stocks , the important question is this : how much diversification is enough ? some risk is inherent in even the broadest portfolio . this is called market , or " systematic , " risk . over the past 75 years , market risk , as measured in standard deviation , has been about 20 percent . in other words , in two - thirds of the years the annual return of the s that is , between a loss of 9 percent and a gain of 31 percent . that ' s still volatile , but if you invest in stocks you have to live with it .
what you don ' t have to live with is anything more volatile . so your objective in building a portfolio is to try to approximate systematic risk and avoid what is called " idiosyncratic , " or extra , risk . a portfolio with just a few stocks , or one like mccall ' s , that is overloaded in a single sector , has lots of idiosyncratic risk . in 1977 , an influential study found that investors could nearly eliminate that extra risk by owning just 20 stocks in a wide variety of sectors ; in fact , owning eight or 10 stocks depressed risk sharply .
recently , however , the market has appeared to be far more volatile , and a new study by a group of economists headed by john campbell of harvard found that many more stocks were needed - - around 50 - - to bring a portfolio down to the same level of riskiness as the broad market . what campbell ' s group found was that neither the market itself nor individual sectors had become more volatile in the 1990 s , but that stocks within those sectors had , so you need to own more of them .
but owning 50 stocks is a pain in the neck - - and it brings up the buffett - lynch admonitions about too much diversification . it is hard just to take the time to make the selections , but even buy - and - hold investors need to keep track of the companies they own to spot adverse changes in management , product failures or new competition ( not to mention enron - style accounting shenanigans ) - - signs that it ' s time to sell .
one good answer is to achieve balance by owning a combination of mutual funds and stocks . for example , you might want to put 50 percent of the money you have allotted for stocks into a fund that mimics the s & p itself , like vanguard index 500 , which charges rock - bottom expenses and guarantees that risk won ' t exceed systematic levels . you could also consider a broad fund that ' s managed by human beings , such as meridian value or baron growth , which are recommended by sheldon jacobs , editor of the no - load fund investor newsletter . then another 25 percent of your holdings can go into a few sector funds that specialize in technology , real estate , energy and small - caps , and the final 25 percent into a portfolio of 10 to 20 individual stocks . ( i own 16 , at last count . )
there are many valid variations . just don ' t emulate mark twain .
in a letter to clients recently , anthony m . maramarco of david l . babson & co . , the cambridge , mass . , investment firm , recalled the aphorism of twain ' s pudd ' n ' head wilson : " put all your eggs in the one basket - - and watch that basket ! " unfortunately , such a philosophy emphatically does not work in stock investing - - as twain himself learned when he sank nearly all his fortune into the paige linotype , a machine that flopped .
we all make mistakes . ( it was twain , after all , who pointed out that " human beings are the only animals that blush - - or need to . " ) but smart diversification helps investors avoid some of the worst of them .
james k . glassman invites comments at jglassman @ aei . org , but he cannot answer all queries .
http : / / www . washingtonpost . com
copyright ? 2000 dow jones & company , inc . all rights reserved .
business
wessex water ` to be sold '
heather tomlinson
11 / 18 / 2001
the independent - london
foreign
1
( copyright 2001 independent newspapers ( uk ) limited )
wessex water , the water and sewage company , is understood to be up for sale following an offer to take over its owner , enron , by dynegy , the us energy group .
three years ago , enron spent pounds 1 . 4 bn on wessex water . but dynegy is understood to want to concentrate on us and european energy assets and is not interested in non - core assets .
any hope to regain the same amount of money could be derailed as the industry is put off by regulatory problems , and the company ' s results have worsened due to imposed price cuts over the past year .
" it is not that there is going to be a fire sale but most of [ the international assets ] are not core to the businesses we will continue to pursue , " said an enron spokesperson . " at the right price we will sell . "
scottish & southern energy and united utilities have been touted as potential buyers , yet industry insiders believe that the uk regulator , ofwat , will take a dim view of bids by uk water companies , as they are too large to buy it .
copyright ? 2000 dow jones & company , inc . all rights reserved .
uk press : westlb makes grab for gbplb wessex water
11 / 18 / 2001
dow jones international news
( copyright ( c ) 2001 , dow jones 44 - 207 - 842 - 9289
copyright ? 2000 dow jones & company , inc . all rights reserved .
business
quanta steels itself against takeover bid
nelson antosh
staff
11 / 17 / 2001
houston chronicle
3 star
1
( copyright 2001 )
quanta services , which builds and maintains power and communications lines , said friday it is fighting a " creeping takeover " by utilicorp united , one of the nation ' s largest utility holding companies .
on thursday quanta board members changed the houston company ' s shareholder rights agreement - called a " poison pill " defense against takeovers - to deter utilicorp from acquiring a controlling stake .
the action was taken after negotiations with utilicorp fell apart and the kansas city , mo . - based company announced its intention to resume purchases of quanta stock .
a spokesman told bloomberg news on oct . 4 that utilicorp wanted to increase its stake to the mid - 40 s percentage range , which would give it effective control , with a vote on management .
utilicorp invested $ 320 million in quanta from september of 1999 through february of 2000 , said utilicorp spokesman ethan hirsh , bringing its ownership up to 28 percent , and has been adding stock since then . it owned about 38 percent when a standstill agreement stopped further purchases in early october .
part of the shareholder rights amendment limits further purchases by quanta by reducing the trigger point for the poison pill to 39 percent of quanta ' s outstanding shares , instead of the 49 . 9 percent that has been in effect just for utilicorp .
in addition to saying that utilicorp is no longer " an exempt " person under the 39 percent trigger , the amendments changed the kind of securities to be issued in the event the pill is triggered and how they could be exercised .
utilicorp had a higher trigger point that other potential acquirers because it already was a significant shareholder when the plan was initially drafted .
hirsch didn ' t think the amendments would prevent his company from buying more .
utilicorp ' s interest in houston acquisitions is not limited to quanta . its also said this week it would like to buy enron ' s share of a united kingdom power station that provides electricity sufficient to light 1 . 88 million homes .
it will soon get a 27 percent share in the station near london , known as the teeside power station , through the purchase of a utility there . it would like the 42 . 5 percent that enron owns , utilicorp president robert green said in a conference call .
green said he understood that stake was on enron ' s for - sale list .
utilicorp revealed in a securities and exchange commission filing that it bought 1 . 538 million shares of quanta ' s common stock on the open market , at a cost of more than $ 24 million , between sept . 28 and oct . 3 .
quanta ' s stock declined 27 cents to close friday at $ 15 . 69 , while utilicorp rose 10 cents to close at $ 27 . 50 . quanta ' s stock is down 51 percent for the year to date , and hit a 52 - week low of $ 9 . 94 on sept . 21 .
" after many weeks of negotiations with utilicorp , we could not reach agreement upon a strategy that would allow utilicorp to consolidate our financial results for accounting purposes on terms acceptable to quanta , " john colson , quanta ' s chief executive officer , said in a written statement .
" in the face of utilicorp ' s communications last evening breaking off negotiations and stating its intent to resume open market purchases of quanta stock , the board acted to protect the best interests of all quanta stockholders against a change of control transaction which did not provide an appropriate benefit to all shareholders , " he said .
quanta has a mutually beneficial relationship with utilicorp and hopes negotiations can resume , colson said .
copyright ? 2000 dow jones & company , inc . all rights reserved .
business
business briefs
business briefs / houston & texas
staff , bloomberg news , reuters , associated press
11 / 17 / 2001
houston chronicle
3 star
2
( copyright 2001 )
offer still on table for canadian hunter
burlington resources on friday extended a $ 1 . 96 billion offer for canadian hunter exploration ltd . until dec . 3 while canadian regulators study the bid .
the cash offer was to expire tuesday . investment canada , which oversees foreign ownership of canadian companies , won ' t complete its review by then , burlington said .
houston - based burlington agreed to buy calgary - based canadian hunter on oct . 9 .
azurix settles suit over dynegy buyback
azurix corp . , a wastewater - services management company , won a judge ' s approval friday in wilmington , del . , to settle shareholders ' lawsuits over parent enron corp . ' s $ 329 million stock buyback in march .
houston - based enron , soon to be bought by dynegy , said in october 2000 it would pay $ 7 for each of azurix ' s outstanding shares , or $ 275 million , to take the company private . seven azurix stock owners sued in delaware chancery court seeking more money .
enron eventually agreed to pay $ 8 . 375 per share , adding about $ 54 million to the offer , and stockholders agreed to settle the lawsuit , lawyers said .
sbc adds 2 states to long - distance rolls
san antonio - based sbc communications received permission friday from the federal communications commission to begin offering long - distance service to customers in missouri and arkansas .
the decision allows sbc to offer the service in the five states served by its sbc southwestern bell subsidiary . sbc has already received permission to compete in the long - distance market in texas , kansas and oklahoma .
while the fcc ' s decision was unanimous , there was discussion on whether sbc has made its dsl high - speed internet access service available for resale and if the federal law requires such resale . the commission will address the issue in another proceeding .
airline canceling 200 layoffs of pilots
fort worth - american airlines friday canceled the planned dec . 2 layoffs of 200 pilots because military duty was extended for pilots called up on reserve and other employees took leaves .
american laid off 386 american pilots sept . 28 and 200 more nov . 1 , as well as 120 at twa airlines . those were among 20 , 000 jobs amr eliminated as passenger demand fell . the company said it will bring employees back as demand improves .
southwest drops suit against orbitz site
dallas - southwest airlines co . has agreed to drop a lawsuit that claimed orbitz , an internet travel site owned by five rival airlines , displayed incorrect information about southwest ' s flights and fares .
" it gives southwest airlines the right to restart the litigation at its current point if southwest fares are ever displayed on orbitz again , " said linda rutherford , a spokeswoman for the dallas - based airline .
copyright ? 2000 dow jones & company , inc . all rights reserved .
editorial
at enron , the big dogs ate first
11 / 17 / 2001
portland oregonian
sunrise
do 6
( copyright ( c ) the oregonian 2001 )
summary : workers ' ire over 401 ( k ) plans is understandable
watching enron ' s bigwigs lose their jobs after inflating profits may offer some satisfaction to retirees and employees at the troubled energy marketer . but don ' t bank on it .
when corporate insiders can sell the company and stroll away with millions while workers and other stockholders are left with peanuts , it would be hard not to be bitter .
as oregonian business writer jeff manning reported friday , local employees of portland general electric , an enron subsidiary , watched their retirement savings sink after enron announced on oct . 16 that it would lose $ 618 million in the fourth quarter . this came after enron officers made more than $ 136 million selling stocks earlier in the year .
then on nov . 8 , enron dropped the other shoe : it admitted it had overstated earnings for four years by $ 586 million , or 20 percent . over those few weeks , enron shares plunged from $ 33 . 84 to its $ 9 close on friday .
the four - year overstatement developed through some novel accounting methods . enron and its auditor , arthur anderson , insist that its financial reports were all within proper standards , but the mechanics in this case included obscuring debt by placing it on the ledgers of other entities so that the parent company ' s profit picture appeared rosier than it actually was .
the weeks from mid - october to early november were wrenching for employees . because the company was changing its fund manager , they were powerless to make any changes in their 401 ( k ) plans . pge chief executive peggy fowler points out that the change in 401 ( k ) plan managers was announced last summer . and although employees could have gotten out of enron stocks over the history of the plan , enron seemed to be an attractive investment .
company executives , though , were selling . jeffrey skilling , who was promoted to enron chief executive early in the year but resigned in august , sold more than $ 5 million in company shares according to transaction records covering the first half of the year .
former chief financial officer , andrew fastow , who was fired last month in an action related to the financial mess , made $ 14 million in stock sales betweeen march and november of last year . kenneth lay , enron ' s chief executive , who returned after his protege skilling left , made at least $ 20 million in stock sales from late last year . he has announced that he would decline his severance package .
dynegy , another texas energy marketing company , has made a bid to buy enron . that probably means the best enron and pge employees can hope for now is that dynegy will be a better corporate owner , or they can try their luck with one of the many shareholder lawsuits being filed .
the securities and exchange commission is investigating enron ' s activities . if its behavior was illegal , there will be consequences for company officers .
that ' s still not much to offer to workers who have seen their retirement savings dissolve . but for now it ' s all there is .
copyright ? 2000 dow jones over many years they have pointed out that all the benefits of deals , and often more than all , accrue to the shareholders of the companies taken over , while investors in the bidding companies suffer dilution . investors know this , and in normal market conditions news of a takeover will depress the bidder ' s share price . but in a bubble market these prudent attitudes can be overwhelmed by euphoria , as well as technical factors relating to demand by fund managers so that they can maintain their weightings when a bidder is spraying around large quantities of new equity .
also , it is irrational that many more deals are done when the stock market is high than when it is low . two years ago , companies such as marconi were engaged in buying sprees at daft prices . now , when prices are much lower , hardly any acquisitions are being made ( and investment banks are dismissing thousands of employees ) . an exception to the deal famine is gold mining , which just happens to have been one of the stock market ' s strongest sectors this year .
another important source of irrationality has been the domination of stock market analysis by the stockbroking offshoots of the investment banks . over recent years their earnings - per - share forecasts for the next calendar year have been on average 8 per cent too high . this has not just been a mistake ; they have been paid to be over - optimistic . admittedly , attempts are being made to restructure the incentives here , as the embarrassed investment banks come under pressure from the regulators and the courts for their errors of judgment during the bull market , but it remains to be seen whether much will really change .
the mystery is why anybody would take notice of these forecasts , and indeed many professional investors do not . that merrill survey , incidentally , shows that fund managers on average expect no more than 4 per cent earnings per share growth over the next year , while the stockbrokers ' analysts are still clinging to the hope that it will be 15 per cent .
a final source of distortion is the tendency of companies to offer their executives the wrong sort of incentives . the ruin of marconi may appear irrational , when multi - billion - pound acquisitions are being declared worthless after only two years . but executives with lucrative stock option plans , which pay off if their gambles go right , combined with golden goodbye and pension packages that are triggered if things go wrong , may well consider it perfectly rational , from their viewpoint , to take much bigger risks than other shareholders , or employees , would consider acceptable .
moreover , sir christopher gent , shareholders of vodafone will remember , received a controversial # 10 m personal bonus last year for clinching the mannesmann takeover , a deal that requires # 10 bn of write - offs .
in normal market conditions the valuation of equities may be tolerably rational , but in a bubble market the rules are thrown out of the window . many investors certainly like the idea of getting rich quickly . that is why many people subscribe so keenly to national lotteries in which the chance of winning is so small as to be not worth rational consideration .
barry . riley @ ft . com .
( c ) copyright financial times ltd . all rights reserved .
http : / / www . ft . com .
copyright ? 2000 dow jones & company , inc . all rights reserved .
world stock markets - bears take upper hand on wall st .
by mary chung .
11 / 17 / 2001
financial times
( c ) 2001 financial times limited . all rights reserved
after an early game of tug - of - war , the bears took the upper hand as the dow jones industrial average closed 5 . 40 lower at 9 , 866 . 99 . the s & p 500 index gave up 3 . 59 at 1 , 138 . 65 and the nasdaq composite slipped 1 . 98 at 1 , 898 . 59 . volume was fairly heavy with 1 . 34 bn trades in the nyse .
the indices were earlier bolstered by news that some of the leaders of the taliban and the al - qaeda terrorist network had been killed in bombing raids on kabul and kandahar this week .
however , the momentum faded as investors found little reason to keep sending stocks higher following a sharp decline in the us consumer price index . the index saw its steepest monthly drop since april 1986 . separately , the federal reserve reported another drop in industrial output last month .
investors appeared more hesitant to step into the market and buy stocks after several weeks of sharp gains . however , the corporate picture looked to be improving for some companies such as dell . the computer maker reported third - quarter results that beat analysts ' estimates by a penny and predicted a small rise in sales for the current quarter . shares , however , fell 4 per cent at $ 26 . 60 .
rivals hewlett - packard shed 2 . 7 per cent at $ 21 . 50 and compaq gave up 3 . 7 per cent at $ 10 . 30 . yahoo ! , the world ' s largest internet portal , jumped 4 . 3 per cent at $ 15 . 47 after it announced a restructuring and job cuts , but reaffirmed its guidance for the fourth quarter .
shares in starbucks fell 9 per cent at $ 17 . 50 in spite of the coffee company reporting a 22 per cent rise in earnings for the fourth quarter .
energy prices rose in spite of the continuing dispute over oil production between opec and russia . amerada hess put on 2 . 5 per cent at $ 54 . 59 and exxon mobil added 1 per cent at $ 37 . 54 . enron , the embattled energy trading company , however , slid 5 per cent at $ 9 . most dow components were lower as alcoa slipped 1 per cent at $ 37 . 12 , american express shed 3 . 7 per cent to $ 33 . 13 and wal - mart fell 1 . 6 per cent at $ 55 . 10 .
toronto was little changed in morning trade in spite of a rally in technology and cyclical shares , the first sectors expected to respond to an improving economy .
however , at the close the s & p tse - 300 composite index was up 0 . 72 per cent at 7 , 315 . 30 as tech issues continued to strengthen .
overall , 11 of the market ' s 14 sub - indexes were higher but safe - haven gold stocks suffered as hopes grew for a swift conclusion to the war in afghanistan . the tech - heavy industrials sector enjoyed a 1 . 61 per cent gain . electronics manufacturer celestica charged ahead , rising 3 . 3 per cent to c $ 64 . 80 .
telecoms equipment heavyweight nortel networks jumped to c $ 12 . 69 as several investment firms raised targets .
( c ) copyright financial times ltd . all rights reserved .
http : / / www . ft . com .
copyright ? 2000 dow jones financial desk
in brief / energy pension funds consider action against enron
reuters
11 / 17 / 2001
los angeles times
home edition
c - 2
copyright 2001 / the times mirror company
some big pension funds that invested in enron corp . said they are considering legal options in the wake of the energy giant ' s stock collapse and a regulatory probe of its dealings .
spokesmen for the new york state and city comptrollers and an official from amalgamated bank , a trustee of workers ' retirement funds , said they were looking into lawsuits stemming from enron ' s murky financial dealings and stock plunge .
pension funds and mutual funds have been big holders of enron , once a wall street darling whose stock has plunged 89 % this year .
five new york city pension funds hold about 2 . 9 million enron shares , said david neustadt , a spokesman for the new york city comptroller ' s office . the funds serve teachers , police and other city workers .
enron shares fell 48 cents to $ 9 on the new york stock exchange .
copyright ? 2000 dow jones & company , inc . all rights reserved .
enron investors hope filing will shed more light on finances
2001 - 11 - 17 11 : 06 ( new york )
enron investors hope filing will shed more light on finances
houston , nov . 17 ( bloomberg ) - - enron corp . investors hope
the energy trader ' s third - quarter report to the u . s . securities
and exchange commission will answer some of the questions that
sent its shares tumbling and led to a proposed sale to rival
dynegy inc .
enron , which has been criticized for failing to clearly
explain how it makes money , may disclose in monday ' s filing more
on how much is owed by the company and affiliated partnerships , as
well as any planned job cuts and other cost - saving moves related
to dynegy ' s $ 24 billion buyout .
` ` investors will be looking for anything that affects the
likelihood of the ( dynegy ) deal going through and the timing of
such a deal , ' ' said edward paik , who helps manage the liberty
utilities fund , which owns 1 . 6 million in enron shares .
enron agreed to sell after its stock plunged 67 percent in
three weeks amid an sec investigation into partnerships run by
enron executives . investors worry that new disclosures , such as
previously unreported debt , might threaten enron ' s credit rating
and scuttle the merger , possibly pushing enron into bankruptcy .
` ` there ' s been so much skepticism about what enron ' s
liabilities are with these partnerships , i ' m looking to quantify
this , ' ' said glen hilton , a fund manager at montgomery asset
management lp , which holds dynegy shares .
enron chairman kenneth lay admitted last week that failed
investments and a loss of investor confidence forced the sale to
dynegy , and he and other executives pledged to be more open with
investors . lay , 59 , said last week he won ' t accept a severance
package of more than $ 60 million that he could have collected
following the takeover .
enron shares fell 48 cents yesterday to $ 9 . dynegy fell
$ 1 . 53 , or 3 . 5 percent , to $ 42 . 47 .
balance sheet
enron ' s third - quarter report , which had been expected last
week , was delayed by the dynegy talks and a restatement of
earnings , chief financial officer jeffrey mcmahon said . enron
reduced net income for four years by a combined $ 586 million to
include losses from affiliated partnerships .
monday ' s filing , called a 10 - q , will include a balance sheet
summarizing assets and debts . enron for years has omitted balance
sheets , which the sec requires as part of the 10 - q , from its press
releases announcing earnings .
investors renewed their criticisms of the practice after lay
mentioned during a conference call last month that dealings with
two partnerships had reduced enron ' s shareholder equity , or its
assets minus liabilities , by $ 1 . 2 billion . the disclosure led to
the ouster of chief financial officer andrew fastow .
` ` everyone is trying to make their own assessment of what
( enron ' s ) ultimate liability will need to be , ' ' said commerzbank
securities analyst andre meade , who rates the shares ` ` hold ' ' and
doesn ' t own them .
monday ' s report probably won ' t give a complete answer , said
louis gagliardi , an analyst at john s . herold inc . while the
balance sheet will list liabilities for the partnerships , which
were set up to buy enron assets and get debt off the company ' s
books , it won ' t spell out enron ' s share , he said .
` ` what is the net liability off the balance sheet ? ' '
gagliardi said . ` ` we really don ' t know what that number is . ' '
credit rating
dynegy has said it can back out of the acquisition if enron ' s
legal liabilities exceed $ 3 . 5 billion . the balance sheet ` ` will
help us see how good a deal this is for dynegy , ' ' said kathleen
vuchetich , co - manager of the $ 1 . 4 billion strong american
utilities fund , which owns 284 , 000 dynegy shares .
both companies are based in houston .
the filing also might offer details on the sec probe . ` ` it
may say what the sec is looking for , and what the rating agencies
have told them , ' ' said christopher ellinghaus , an analyst at
williams capital group . he added , though , ` ` i don ' t expect much . ' '
enron ' s stock drop led moody ' s investors service to cut the
company ' s debt rating to the lowest investment grade . dynegy held
off on a purchase agreement out of concern that the rating would
be cut to junk , jeopardizing enron ' s ability to raise cash needed
to settle its daily power and natural - gas trades .
enron may reveal where it expects to cut jobs and how much it
will pay to departing employees , paik said . chief operating
officer greg whalley said last week that fourth - quarter profit
will be hurt by severance payments and reorganization costs . he
didn ' t give details .
jobs likely will be eliminated in businesses the company
plans to sell , including its money - losing telecommunications unit
and operations in europe , analysts said .
enron has about 21 , 000 employees , two - thirds in the u . s . and
about a fifth in the u . k . its 600 traders are divided between
london and houston , where enron employs about 7 , 500 .
many enron workers are already preparing for layoffs , said
lyndon taylor , a houston - based recruiter for heidrick & struggles
international inc . , an executive placement firm .
` ` i got 56 resumes last week from enron , ' ' taylor said .
` ` that ' s equal to the number i got in the past year . ' '
- - margot habiby in dallas and jim polson in princeton
uk : trade , bank buyers circle enron ' s wessex water - reports .
11 / 17 / 2001
reuters english news service
( c ) reuters limited 2001 .
london , nov 17 ( reuters ) - both financial and trade buyers are considering bids for wessex water , the uk utility owned by crisis - hit u . s . energy group enron , weekend press reports said .
according to the uk trade magazine utility week , enron ' s rescue buyer dynegy wants to offload wessex as soon as possible , and focus on integrating enron ' s core energy businesses .
a report in the sunday telegraph newspaper named german bank westlb as a possible buyer at a price of 1 billion pounds ( $ 1 . 4 billion ) . westlb is the financial backer of the management buyout team that owns another southern england regional utility , mid kent water .
utility week raised the possibility that uk power utility scottish & southern might be interested .
copyright ? 2000 dow jones & company , inc . all rights reserved .
financial post : canada
a user ' s guide to living in calgary : people moving from houston find the cities much alike
claudia cattaneo
financial post
11 / 17 / 2001
national post
national
fp 7
( c ) national post 2001 . all rights reserved .
u . s . oil companies are setting up shop all over downtown , usually picking high - quality office space with lots of open space . anadarko petroleum corp . is located at fifth avenue place , burlington resources inc . is in bow valley square and devon energy corp . is in canterra tower . some end up in the offices of the companies they acquire . conoco inc . has moved into gulf canada square .
the big takeover wave has led to a reshuffling of downtown space . today , there is a shortage of large spaces and an increase in small ones available for sublease .
some would like to get the towers they occupy named after them but landlords resist this because naming a building after one tenant can be a disincentive for others .
oilmen ' s favourite hangout is the calgary petroleum club , founded by u . s . and canadian oilmen in 1948 in the palliser hotel . members have reciprocal membership at the petroleum club of houston . but calgary ' s pete club is a bargain compared to its texas counterpart . the initiation fee in calgary is $ 2 , 000 , monthly dues are $ 65 and the minimum amount members must spend in a year is $ 600 . the initiation fee for full membership at the petroleum club of houston is us $ 3 , 500 , monthly dues are us $ 110 and the minimum house account is us $ 75 per quarter .
u . s . executives running canadian oil and gas operations earn substantially more than their canadian counterparts because their compensation is competitive with the u . s . market .
when u . s . oil companies purchase canadian operations , they like to keep as much of the canadian staff as possible , since they are even more aware than their canadian rivals of the " war for talent . "
when recruiting locally , u . s . firms pay competitively but of course will pay what they must to get the best candidate . they also offer competitive benefits and stock - option plans . u . s . employers gulp at the generous holidays enjoyed by canadian oilpatch employees .
there ' s no american neighbourhood in calgary , although many recent arrivals are buying homes close to the city ' s core , particularly in such high - end neighbourhoods as mount royal , elbow park and britannia , where homes sell for $ 500 , 000 to $ 2 - million .
some u . s . companies purchase condominiums in such areas as eau claire on the bow river to house u . s . executives in transit .
ted zaharko , a broker - owner with royal lepage , says americans are driven by lifestyle choices and the fact that they can afford to buy expensive homes . living near other americans isn ' t important .
the cost of living is lower in calgary than in many comparable u . s . cities . however , u . s . cities become more competitive for high - income earners because personal income taxes in canada are higher than in the u . s . at the higher income levels . offsetting factors include access to health care , clean air , a short commute to work and the nearby mountain playground , which tend to be important to affluent people .
u . s . oil types may have strange accents - - many come from the southern states - - but oilpatch jargon is pretty much the same . calgarians and americans understand one another when they talk of dry holes ( no discovery ) , wildcat wells ( exploration wells ) or roughnecks ( rig workers ) . the language of money is also the same : barrels and u . s . dollars .
oilpatch humour is also borderless . one of the latest jokes circulating by e - mail , courtesy of oilpatch investment dealer peters & co . , is called " understanding enron . " the u . s . energy giant is in trouble over its use of off - balance - sheet transactions to keep debt off its books :
feudalism you have two cows . your lord takes some of the milk .
fascism you have two cows . the government takes both , hires you to take care of them and sells you the milk .
pure communism you have two cows . your neighbours help take care of them and you all share the milk .
applied communism you have two cows . you must take care of them , but the government takes all the milk .
totalitarianism you have two cows . the government takes them both and denies they ever existed . milk is banned .
mexican democracy you have two cows . the government takes both and drafts you into the army .
european democracy you have two cows . the eu commission decides which regulations for feeding and milking apply . if there aren ' t any , they invent some . they pay you not to milk the cows . they take both cows , shoot one , milk the other and pour the milk down the drain . they then require you to fill out forms accounting for the missing cows .
american democracy the government promises to give you two cows if you vote for it . after the election , the president is impeached for speculating in cow futures . the press dubs the affair " cowgate , " but supports the president . the cows sue you for breach of contract . your legal bills exceed your annual income . you settle out of court and declare bankruptcy .
capitalism you have two cows . you sell one and buy a bull . your herd multiplies and the economy grows . you sell them and retire on the income .
enron venture capitalism you have two cows . you sell three of them to your publicly listed company , using letters of credit opened by your brother - in - law at the bank , then execute a debt / equity swap with an associated general offer so you get all four cows back , with a tax exemption for five cows . the milk rights of the six cows are transferred via an intermediary to a cayman island company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company . the annual report says the company owns eight cows , with an option on one more .
copyright ? 2000 dow jones any bid for a water company in the
u . k . worth at least 30 million pounds must be referred to the
competition commission , the newspaper said .
enron bought wessex for 1 . 4 billion pounds in 1998 . rwe ag of
germany , europe ' s fourth - biggest power company , is also interested
in wessex , but enron thinks u . k . regulators won ' t approve an rwe
bid because the company already owns thames water , a large u . k .
water company .
westlb has also been reported to be preparing a buyout for
railtrack group plc , the insolvent owner of the u . k . ' s train
tracks and stations , the paper said .
enron closes on $ 550 million loan from j . p . morgan , salomon
2001 - 11 - 16 17 : 36 ( new york )
enron closes on $ 550 million loan from j . p . morgan , salomon
houston , nov . 16 ( bloomberg ) - - enron corp . closed wednesday
on a $ 550 million loan from j . p . morgan chase & co . and salomon
smith barney inc . that was secured with assets of its transwestern
pipeline co . , spokesman vance meyer said .
enron , the largest energy trader , said nov . 1 that it had
received a commitment for $ 1 billion in loans from the investment
banks that would be used for debt payments and to supplement cash
reserves .
enron secured the loans with the assets of transwestern and
the northern natural gas co . the two pipeline systems combined are
about 19 , 000 miles long and can deliver as much as 6 billion cubic
feet of gas a day . the remaining $ 450 million loan , secured with
the northern natural gas assets , is in the documentation stage and
is expected to close next week , meyer said .
enron agreed a week ago to be acquired by dynegy inc . in a
transaction now valued at $ 24 . 7 billion in stock and assumed debt .
the move followed a loss in investor confidence - - the company ' s
shares had fallen 90 percent this year - - and amid a federal
investigation of accounting irregularities that limited its
ability to finance operations .
chevrontexaco corp . , the second - biggest u . s . oil company and
dynegy ' s largest shareholder with 26 percent , provided enron ,
through dynegy , with a $ 1 . 5 billion cash infusion on tuesday as
part of the buyout agreement .
in return , dynegy acquired preferred stock and other rights
in the enron unit that owns northern natural gas . if the merger
isn ' t completed , dynegy will have the right to acquire northern
natural gas , enron said in regulatory filing wednesday .
chevrontexaco will provide dynegy with another $ 1 billion after
the merger closes to maintain its equity stake .
the shares of enron fell 48 cents to $ 9 , while shares of
dynegy fell $ 1 . 53 to $ 42 . 47 . both companies are based in houston .
shares of san francisco - based chevrontexaco fell 35 cents to
$ 83 . 45 .
- - margot habiby in the dallas newsroom ( 214 ) 954 - 9452