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daily11-01-99's DAILY BULLETIN

November 2, 1999

Market Data as of Close, 11/1/99:

o Dow Jones Industrial Average: 10,648.51 down 81.35, -0.76%

o Nasdaq Composite Index: 2,967.65 up 1.22, 0.04%

o S&P 500: 1,354.12 down 8.81, -0.65%

o TSC Internet: 761.85 up 11.06, 1.47%

o Russell 2000: 431.82 up 3.18, 0.74%

o 30-Year Treasury: 99 07/32 down 8/32, yield 6.182%

Companies in Today's Bulletin:

Chase (CMB:NYSE)


Tenneco (TEN:NYSE)

Cigna (CI:NYSE)

In Today's Bulletin:

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TheStreet Recommends

o Banking: Misstated Revenue Could Damage Chase's Reputation for Tight Risk Controls
o Wrong! Rear Echelon Revelations: A Worst-Case Bottom for Tyco
o Evening Update: Tenneco Packaging to Replace Tenneco in S&P 500
o Bond Focus: Three-Day Bond Rally Ends, Thanks to NAPM

Also on *Extra* Some Insiders Free to Sell -- Others Can Short or Duck

Plus, here's a chart that can help prepare you for when companies' shares are unlocked after the normal six-month post-IPO wait.

Europe: The Anglo File: Food Fight With French Spoils U.K. Appetite for Deeper European Union

The battle with the French over beef imports has brought up larger issues within the U.K. about its participation in the European Union.

Mutual Funds: Easy Come, Easy Go: Neuberger Berman OKs Repurchase of Recent IPO Shares

The asset manager went public barely more than two weeks ago.

Brokerages/Wall Street: Long-Term Hopes Run High for After-Hours Trading at Chicago Stock Exchange

A less-than-stellar start doesn't seem to bother anyone too much, since a slow first day was expected.

Banking: Misstated Revenue Could Damage Chase's Reputation for Tight Risk Controls


Peter Eavis

Senior Writer

11/1/99 8:29 PM ET

The $60 million of phantom revenue allegedly booked by a rogue trader at



may not make much of a dent in the bottom line of the nation's third-largest bank.

But the misstated revenue, disclosed Monday, could deliver a deeper blow to the bank's reputation as one of Wall Street's tightest managers of trading risk.

Four observers say the incident indicates that the bank's risk controls may be lax, and they claim it shows that Chase is overly dependent on market-sensitive operations, which accounted for nearly a third of the bank's third-quarter revenue.

Chase says that the $60 million adjustment is barely material to the bank's overall business and was disclosed partly to dispel rumors of even larger losses. And it denies that its exposure to market-senstive businesses like trading is too high. (

(TSCM:Nasdaq), publisher of this Web site, has received financial backing from Chase unit

Chase Capital Partners


And plenty of investors are betting this will blow over. Frank Barkocy, an analyst at

Keefe Managers

, a bank-stock hedge fund, says he's still comfortable with the bank's controls. "I'm willing to give them the benefit of the doubt," says Barkocy, whose fund holds Chase shares.

Chase says that the $60 million will be subtracted from fourth-quarter revenue, which is expected to total around $5.2 billion, according to

ING Barings

. This will reduce the quarter's net earnings by $40 million, which analysts said is equivalent to around 5 cents a share. As a result, the bank is now likely to earn around $1.26 per share in the fourth quarter instead of the $1.31 forecast by

First Call/Thomson Financial

before this announcement.

Chase's shares

traded down 3 11/16, or 4.2%, to close at 83 9/16 Monday.

The bank says it dismissed the New York-based employee, who traded derivatives for Chase's own book and had worked for the bank for more than five years. The trader's identity wasn't available.

According to a senior Chase executive familiar with the matter, the trader was let go after the bank found what it believes is evidence that he had been valuing foreign-exchange forwards for just over a year in a manner that broke the bank's internal rules. The executive says the trader was probably not trying to cover up large losses, since his book was found to be in the black over the last year or so.

The trader is suspected of creating the alleged illusory profits by exploiting differences between two separate valuation systems used to value the forwards, which are agreements to buy or sell a currency on a future date at its current price.

"It's known that you're not supposed to do this," says the executive. The bank says the trader's alleged wrongdoing was uncovered during a routine review.

But some Chase watchers wonder how the trader was able to get away with the purported transgressions.

"Basically, a trader should never keep the books on what he's booking," says Lanny Thorndike, a manager at


Century Shares Trust, a financial-services mutual fund that doesn't own Chase.

"The implication here is that this trader is pricing his own positions," says Charles Peabody, banks analyst at

Mitchell Securities

. "And if this is the case, it really calls into question risk management at Chase." (Mitchell has no investment banking relationship with Chase and is advising clients to sell shares in the bank.)

The Chase executive says: "It's not a question of

whether he got to book" his own trades, adding that the trader's actions weren't detected immediately because his alleged falsification of profits was carried out in small increments that were hard to notice individually.

The incident also raises questions about the central part that trading plays in Chase's business strategy, says Jonathan Iseson, manager of the

Bluewater Partners

hedge fund, which is long Chase puts, a position that would allow the fund to profit from a decline in the bank's shares. "When trading becomes such a large contributor to revenues, a bank has to trade at a big discount to the market," says Iseson. "This event underscores this."

With Monday's decline, Chase trades at 15.2 times forecast 1999 earnings, a slight discount to the 16.4 times for the

KBW Banks Index

, which tracks 24 large and midsize banks.

Looking at today's price, Carl Dorf, manager of the


Pilgrim Bank & Thrift Fund, says: "Why should I buy all this increased risk when I am not getting it at a bargain?" Dorf's fund doesn't hold Chase.

"Market-sensitive revenues are, by definition, market-sensitive," the Chase executive responds. "But they are not as unstable as some other firms'."

Chase has the nation's largest derivatives book, valued at $10.7 trillion at the end of June, according to the

Office of the Comptroller of the Currency


Century Trust's Thorndike warns that a bank's derivatives and trading operation is very hard to value from the outside. "The average investor knows very little about what's driving profits in the trading business," and a trading position's value can change very quickly, he says.

The suddenness of market movements have hurt the bank in two areas this year, says Mitchell's Peabody. While the bank has posted a healthy $2.2 billion of trading revenue in the year's first nine months, interest-rate movements have hit Chase. Peabody points to the $11 million loss in the bank's interest-rate-management activities in the second quarter, compared with a $261 million profit in the previous three months. And, second, the so-called available-for-sale securities portfolio, which contains mainly bonds primarily held to hedge interest-rate risk, showed a deficit of $1.06 billion in the third quarter, a deeper loss than the negative $739 million in the previous quarter.

The Chase executive replies that the available-for-sale losses are substantially made up for by an increase in the value of the bank's liabilities.

Wrong! Rear Echelon Revelations: A Worst-Case Bottom for Tyco


James J. Cramer

11/1/99 6:50 PM ET

So where does



stop? You have to do the kind of horrible analysis everybody is unwilling to speak about to figure it out. I was just grilling my younger associate, Jacobs

, about where he thought it should sell. He started off the way so many unbloodied souls start:

"Well, its growth rate is much faster than the


, so it should sell at a premium..."

"Arrggh," I said, which is really the sound of the buzzer cutting you off when you guess the wrong question on


, "obviously the market says that the growth rates are false, that they aren't going to have that kind of growth."

"So what do you do then?" he asked. "Flip a coin?"

If only it were that easy. Here's what you do: You try to get in the heads of the sellers. Sellers are saying the growth rate is much slower. They are saying the businesses Tyco bought are just cyclical businesses in drag. They are saying the earnings won't be there.

Matt then asked me if I believed that. I answered that question the way I was taught to answer it from years of hedge-fund experience: "Who cares what I believe? I am irrelevant!"

I said what you have to do is come up with a worst-case acquirer and a solid acquirer in slower industries to figure out where Tyco stops. For best case, we have to use



because it, too, is involved in a multitude of acquisitions all of the time and is known as a shrewd cyclical buyer. Allied could earn $3.16 next year, so it sells at roughly an 18 multiple on next year's earnings.

Now the worst case --

Cooper Industries


. At one time, Cooper was just like Tyco. It bought companies in unfashionable industries and "Cooperized" them. But the growth slowed, the management went awry and the conglomerate ceased to capture any manager's attention. Cooper could earn $3.80 next year. It sells at about 11 times earnings. Cooper is a Tyco stockholder's worst premonition.

Now Tyco is supposed to earn $2.11 next year. Let's give that a haircut, as the market seems to be saying we should. Let's say it will earn $2. Now let's average the multiples of Cooper and Allied and round down: 14. Now, 14 times 2 is 28.

That, to me, would be the worst-case bottom for Tyco.

That's what the sellers must be thinking. You can remain optimistic, of course, and say that Tyco stops right here because it has the same multiple now as Allied. That's why I bought some Tyco today. But I am keeping some powder dry for the worst case, just in case.

Nothing would shock me with this stock at this point, but it would be pretty amazing for it to trade through to Cooper's multiple, given how bad Cooper is. Which is why I think 28 might be the ultimate target. Now you can stop emailing me about where I think it could -- not will, but could -- go.

Ugly, but not impossible.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Tyco. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

Evening Update: Tenneco Packaging to Replace Tenneco in S&P 500


Eileen Kinsella

Staff Reporter

11/1/99 8:45 PM ET

Standard & Poor's


Tenneco Packaging

will replace


(TEN) - Get Tenneco Inc. Class A Report

in the

S&P 500

after the market close on Thursday. S&P said the change is a result of Tenneco splitting into two separate businesses -- Tenneco Packaging and

Tenneco Automotive


After-Hours Trading

Island ECN, owned by Datek Online Holdings, offers trading, mainly in Nasdaq-listed stocks, from 8 a.m. to 8 p.m. EDT. Prior to Sept. 15 Island offered trading from 8 a.m. to 5:15 p.m. EDT.

MarketXT, formerly Eclipse Trading, offers after-hours trading to retail clients of

Morgan Stanley Dean Witter's


Morgan Stanley Dean Witter Online


Mellon Bank's


Dreyfus Brokerage Services

. Clients can trade 200 of the most actively traded New York Stock Exchange and Nasdaq Stock Market issues, 4:30 p.m. to 8 p.m. EDT Monday through Thursday. Prior to Oct. 11, MarketXT traded issues from 6 to 8 p.m.


Patrick M. Fitzgibbons

In other post-close news (earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified):

Earnings/revenue reports and previews

AGL Resources


reported fourth-quarter earnings of 9 cents a share, beating the 11-analyst estimate of five cents, but down from the year-ago 19 cents.


(CI) - Get Cigna Corporation Report

posted third-quarter earnings of $1.47 a share, beating the 15-analyst estimate of $1.30 and up from the year-ago $1.12.

joint newsroom wrote about Cigna's latest

earnings in a separate story.

CSS Industries

(CSS) - Get CSS Industries, Inc. Report

reported third-quarter earnings of 70 cents, well below the single-analyst estimate of $1.10 a share, and the year-ago $1.90 a share, before charges.

General Growth Properties


reported third-quarter funds from operations of 97 cents a share, a penny better than the 10-analyst estimate and up from a year-ago 82 cents a share.


(KIM) - Get Kimco Realty Corporation Report

reported third-quarter funds from operations of 92 cents a share, in line with the 13-analyst estimate and up from the year-ago 77 cents.


posted a third-quarter loss of 18 cents a share, smaller than the three-analyst estimate of a loss of 32 cents a share, and the year-ago pro forma loss of 24 cents.

Guitar Center


posted third-quarter pro forma earnings of 11 cents a share, in line with the nine-analyst estimate and up from the year-ago 6 cents a share.



said it is forecasting high revenue growth in the year 2000 for four lines of its business. The company said it expects its revenue from its e-commerce outsourcing line to grow 79%, to $17 million from an estimated $9.5 million in 1999.



reported a third-quarter loss of $2.97, slightly narrower than the 13-analyst expected loss of $3.00 but wider than a year-ago loss of $2.44.

Jenny Craig


posted a first-quarter loss of 18 cents a share, including charges. The lone-analyst estimate was for a loss of 6 cents, while the year-ago earnings were 12 cents. Jenny Craig announced it would close 86 company-owned centers in the U.S. and cut its headquarter staff by about 15%.

MEMC Electronic Materials


reported a third-quarter loss of 48 cents a share, a penny narrower than the two-analyst estimate, and down from a year-ago loss of $1.60 a share.


(MMI) - Get Marcus & Millichap, Inc. Report

said it would take a $105 million charge in the third quarter mostly related to increases in reserve premiums. The company said it expected its third-quarter operating loss to range from $3.55 to $3.65 a share.



reported third-quarter earnings of 31 cents a share, a penny better than the single-analyst estimate and up from a year-ago 20 cents a share.

Panamerican Beverages

(PB) - Get Prosperity Bancshares, Inc.(R) Report

reported a third-quarter loss of 8 cents a share, a penny narrower than the seven-analyst estimate, but down from year-ago earnings of 13 cents a share.

Polo Ralph Lauren

(RL) - Get Ralph Lauren Corporation Class A Report

said it sees second-quarter earnings of 56 cents a share, in line with the 13-analyst estimate.

Post Properties


said third-quarter funds from operations were 94 cents a share, a penny better than the 15-analyst estimate and above the year-ago 85 cents a share.

PP&L Resources

(PPL) - Get PPL Corporation Report

said it sees fourth-quarter per share gain of 27 cents from the sale of its unit's coal-fired Sunbury plan and assets of a related coal processing plant.


(RNR) - Get RenaissanceRe Holdings Ltd. Report

reported third-quarter earnings of $1.46 a share, beating the five-analyst estimate of $1.33, and the year-ago $1.17.



reported fourth-quarter earnings of 28 cents a share including charges. The three-analyst estimate called for earnings of 26 cents a share, while year-ago earnings were 28 cents a share.

Spieker Properties


reported third-quarter funds from operations of 87 cents a share, beating the 11-analyst estimate of 85 cents and the year-ago 75 cents.


(UNM) - Get Unum Group Report

posted third-quarter earnings of 70 cents a share, missing the 12-analyst estimate by a penny and down from the year-ago 72 cents a share. The company also said it appointed J. Harold Chandler as chairman, president and CEO effective immediately. Chandler replaces James F. Orr III, who retired.

U.S. Liquids

(USL) - Get United States 12 Month Oil Fund LP Report

posted a third-quarter loss of 28 cents a share including $10.3 million in charges. The two-analyst estimate had been for a loss of 4 cents a share, while the year-ago earnings were 26 cents a share.

Mergers, acquisitions and joint ventures

Alaska Governor Tony Knowles urged the

Federal Trade Commission

to block

BP Amoco's


proposed $26.8 billion takeover of

Atlantic Richfield

(ARC) - Get ARC Document Solutions, Inc. Report

and said he suspended Alaska's talks over the deal with BP Amoco.

Offerings and stock actions

Financial Security Assurance


said it would sell up to $140 million of stock.



(CHIR) - Get Global X MSCI China Real Estate ETF Report

said it settled litigation regarding alleged infringement of its Japanese patent related to the hepatitis-C virus.

The U.S.

Food and Drug Administration


Gilead Sciences'

(GILD) - Get Gilead Sciences, Inc. Report

AIDS drug Adefovir. The agency's panel of outside experts said there wasn't enough data to prove that the drug safely and effectively fought the virus. The agency expressed concern that higher doses of the drug seemed to be associated with kidney damage.


(IBM) - Get International Business Machines Corporation Report

CFO Douglas Maine, has stepped aside to head a newly created unit designed to move more of the company's business to the Internet. The unit, called TeleWeb, will have several thousand employees and is intended to combine the company's traditional telephone sales operations with its Web-based sales operation.

Bond Focus: Three-Day Bond Rally Ends, Thanks to NAPM


David A. Gaffen

Staff Reporter

11/1/99 4:47 PM ET

The Treasury market hung tough today, shaking off the inflationary

National Association of Purchasing Management

index and worried-sounding comments from a Fed official. Bond prices did end lower, but traders were anticipating that after last week's surprisingly strong three-day rally.

After a sharp selloff due to the increase in the NAPM's prices-paid component and a subsequent recovery, Treasuries settled into a tight range about a quarter-point below sea level. This week's ups and downs may be limited, as the market prepares for Friday's release of the October

employment report


The 30-year Treasury bond was lately down 8/32 to 99 7/32. The yield moved up 2 basis points to 6.18%.

"It was virtually written that we were going to get a pullback," said Mike McGlone, vice president in trading at

Aubrey G. Lanston

. "I don't expect appreciation or depreciation until the payroll figures are out."

The October NAPM -- a nationwide survey of manufacturing sentiment -- actually fell, to 56.6 from 57.8 in September. A figure above 50 indicates growth in the manufacturing sector, while below 50 indicates contraction.

However, the prices-paid component, the report's gauge of what direction prices for materials are moving, rose to 69.4 from 67.6, its highest level since May 1995.

The fear among bond market denizens is that higher prices for producers will eventually be passed on to the consumer, causing inflation. The news knocked the 30-year bond down as much as 17/32.

But the newly resilient market recovered, in part due to comments from Norbert Ore, director of corporate purchasing at



and a NAPM official. He said in a conference call that price gains were isolated among raw materials, and were probably at short-term highs.

"It's a strong report, any way you cut it," scoffed Ken Logan, managing analyst at

Thomson Global Markets

. "It shows continued strength in the economy. But the price pressures weren't great enough to reverse what we did see as a sentiment shift in the market."

Indeed, the bond market performed exceedingly well from last Wednesday through Friday, motivated by technical buying and Thursday's favorable

Employment Cost Index

report. Joel Naroff, president of

Naroff Economic Advisors

, said the bond market's recent strength shouldn't be interpreted as the market ignoring the potential risk of higher inflation.

"We're just not seeing

inflation in the

Consumer Price Index

, the


deflator," he said. "Even if they start showing up, is inflation going to go above 3%? The Fed is heading to 6% faster than anybody can say '

Alan Greenspan


Naroff is referring to the chances that the Fed will again raise the fed funds target to 5.5% from 5.25% on Nov. 16, the date of the Fed's next meeting.

Chicago Fed President

Michael Moskow

spoke cautiously in a speech today. "Future inflation news might not be as good unless we can achieve better balance between the demand and supply factors in our economy," he said.

The fed funds futures contract listed on the

Chicago Board of Trade

was lately pricing in a 64.3% probability of a


rate hike, from 5.25% to 5.5%, at its next meeting on Nov 16. Friday, the November fed funds contract was pricing in a 60% chance of a rate hike.

"The logic is they're to do at least one more snugging," said Naroff.


Copyright 1999,