Publish date:

TheStreet.com's DAILY BULLETIN

November 11, 1999


Market Data as of Close, 11/10/99:

o Dow Jones Industrial Average: 10,597.74 down 19.58, -0.18%

o Nasdaq Composite Index: 3,155.96 up 30.92, 0.99%

o S&P 500: 1,373.46 up 8.18, 0.60%

o TSC Internet: 834.60 down 4.41, -0.53%

o Russell 2000: 448.72 up 2.44, 0.55%

o 30-Year Treasury: 100 15/32 down 7/32, yield 6.090%

Companies in Today's Bulletin:

Bank One (ONE:NYSE)

Wit Capital (WITC:Nasdaq)

Microsoft (MSFT:Nasdaq)

In Today's Bulletin:

o Banking: Credit Cards Causing More Woes at Bank One
o Brokerages/Wall Street: At Wit Capital, Taking the Road Less Traveled
o Evening Update: Bank One Warns of 2000 Shortfall; Newbridge Sets Buy of Stanford Telecom
o Bond Focus: Treasuries Pare PPI-Inflicted Losses as Bidders Flock to Auction

"TheStreet.com" on Fox News Channel

Robert Friedman from the Mutual Series joins us again for "Stock Drill." Find out how his original stock picks did and which stocks he has his eye on now.

We'll get the "Word on TheStreet" on taking profits in this bull market and having a little cash on the sidelines. Gary and Adam tackle Microsoft after the big ruling last week and consider which company they think could gain the most if Mister Softee is severely penalized. And don't miss predictions -- especially with next week's Fed meeting on interest rates looming.

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Also on TheStreet.com:

Silicon Babylon: AEA Conference: Nokia, Neon, Visual and Other Sexy Stuff

Tech investors wonder if sex really sells.


Software: Microsoft Meeting Gathers Faithful -- and a Few Gates-Crashers

While most shareholders remain unflaggingly loyal, some at Microsoft's annual get-together took the opportunity to vent.


Market Features: Closet Indexers Missing Out on Recovery Below S&P's Top Tier

Fund managers have long quietly tried to match their top holdings to the S&P 500's biggest 50 names, but the lower 450 may be coming on strong.


Wing Tips: Onex-AMR Bid for Canadian Air, Air Canada Is Better off Dead

A Canadian judge gave the deal the boot -- and not a moment too soon.


Banking: Credit Cards Causing More Woes at Bank One


Peter Eavis

Senior Writer

11/10/99 9:05 PM ET


Bank One

(ONE) - Get Report

Wednesday sprang its second earnings warning in three months, investors are wondering how bad the bank's problems are and whether Bank One will sell its troubled credit-card business -- or even itself.

The Chicago-based banking company Wednesday evening cut its outlook for 1999 operating earnings, which exclude merger-related and special charges, to a range of $3.45 to $3.55 per share. That's down from $3.60 to $3.65, where Bank One left expectations in August after blaming difficulties in its

First USA

credit-card division. Before the August announcement, the bank expected to earn between $3.89 and $3.94 per share in 1999.

Again, the bank says the culprit is First USA, which has $70 billion in credit-card assets. The decision to announce a second cut in the earnings outlook came after a strategic review of First USA by its new head, Bill Boardman, appointed on Oct. 19 after a management reshuffle at Bank One.

The bank also canceled a much-anticipated analysts' meeting in New York, scheduled for Nov. 15, at which it was going to guide attendees toward earnings estimates for 2000. Rumors that the meeting was canceled caused Bank One's stock to plunge 4 3/8, or 11%, to 34 5/8 at the close Wednesday on twice its normal volume.

That meeting will now take place in early January, the bank said.

Wall of Worry

Until then, investors will remain nervous about the outlook for the nation's sixth-largest bank. "By delaying the meeting, they're just perpetuating the uncertainty about how they're combating their difficult operating environment," says Mike Mayo, banks analyst at

Credit Suisse First Boston

, which has done no investment banking work for Bank One and rates the stock a sell.

The wording of the press release has also led some to speculate the bank's execs are weighing whether to sell First USA. One sentence in the release reads: "The company has said that as part of the review, a number of alternatives for aligning long-term business strategies with earnings-growth opportunities are under consideration."

"This could mean the sale of the credit-card operation," says Joe Duwan, analyst at

Keefe Bruyette & Woods

, which has done no recent underwriting for Bank One and rates the bank hold. First USA is the nation's second-largest provider of credit cards.

Recent speculation that


(C) - Get Report

may be interested in buying Bank One looks more plausible after Wednesday's announcement, says Eric Jacobs, manager for the

Acadia Fund

, a hedge fund that holds Bank One shares. "Bank One has a good franchise and it kind of fits with Citi," says Jacobs, who didn't specify whether his fund held Citigroup shares. A Citi spokesman declined to comment on the possibility of a Bank One acquisition.

A Bank One spokesman said he couldn't comment on speculation that the bank or First USA might be on the block.

The Dark Side

Charles Peabody, analyst with New York-based

Mitchell Securities

, says the bank appears to have little idea of First USA's true health. He points out that during a conference call on Oct. 19, the bank said it would make 92 cents in the year's fourth quarter. With Wednesday's revision, less than a month later, the bank has effectively reduced that fourth-quarter estimate by between 4 and 14 cents, to 78 cents to 88 cents a share.

"They clearly don't have their arms around the problem," says Peabody, who's advising clients to sell Bank One shares. (Mitchell hasn't done recent investment banking work for Bank One.)

Pointing to the across-the-board deterioration in credit-quality indicators at First USA in third-quarter results, Peabody wonders whether the lower profit outlook is attributable to Bank One upping its loan-loss assumptions for its credit-card portfolio.

Bank One declined to comment when asked whether higher loan-loss rates were behind the reduction in the earnings projection.

Brokerages/Wall Street: At Wit Capital, Taking the Road Less Traveled


Gregg Wirth

Staff Reporter

11/10/99 8:00 PM ET


Wit Capital


should change the green-tinted highlights on its revamped

Web site to yellow.

Instead of continuing its transformation into a traditional Wall Street firm, the New York-based online investment bank has decided not to pursue lead-managed mandates for IPOs or other deals, in an effort to avoid conflict with the Wall Street firms it depends on for co-management consideration, says Ron Readmond, Wit's president and co-chief executive.

Instead, Wit will focus on becoming the "must-have second guy" among Wall Street co-managers. If the decision marks a lasting change of attitude at Wit, it would represent a clear departure from the approach many Wall Street firms have used in the past -- and, some think, a miscalculation.

Where the Money Is

"Absolutely, lead-managed slots are where the money is," says Sandy Robertson, co-founder of

Robertson Stephens

and a significant shareholder of


. If a bank chooses not to pursue those jobs, it has made a longer-term decision relegating it to lower-rung status in a game that disproportionately rewards the top finishers, he explains.

The shift in approach may surprise investors who have followed Wit since its beer hall days and believed that, eventually, Wit would start getting lead-managed recognition from issuers and start generating more robust fees. A lead assignment can potentially generate about half of the total fees on a deal, leaving the remains to any number of co-managers and syndicate players.

Wit's progress has been even more pronounced in recent weeks after it paid $320 million in stock for tech investment banking boutique

Soundview Technologies

, an acquisition that doubles Wit's investment banking ranks to 100 professionals and quadruples to 200 the number of companies it provides research on. Combining Soundview's banking and research strengths and reputation with Wit's distribution capacity, it seemed natural that lead-managed mandates would follow.

That's not the way Readmond sees it. "If you lead manage, you don't get the secondary roles," he says, adding that Wit will be able to increase its total investment banking revenue by continuing to increase the number of deals it co-manages.

It's a strategy not without precedent.

Smith Barney

, before it attached


to the front of its name and hitched onto


(C) - Get Report

, was known as Wall Street's co-manager of choice because of its vast retail branch system. Chasing second-fiddle volume, however, meant the firm usually didn't generate as much in banking fees as its rivals.

Comfort Level

Of course, the occasional lead underwriting fee Wit could win may be eclipsed by a steady stream of co-management roles, especially considering the size or quality of lead-managed work that Wit -- which doesn't have a large institutional client base -- could secure.

And Wit's move could show that it's feeling vulnerable to a Wall Street establishment that's developing its own electronic conduits to individual investors, as both

Merrill Lynch



Morgan Stanley Dean Witter


move headlong into the online trading arena.

"This is obviously a decision management understood and was comfortable in making," says David Readerman, analyst for

Thomas Weisel Partners

. "I don't think this is anything radical." And, he adds, if Wit concentrates on some high-profile deals, the change could prove to be a wise move. "I'm sure they'll pick their spots," he says. Weisel Partners has a buy rating on Wit and was one of the co-managers on Wit's IPO in June.

Wit's overall prospects seem to be improving. The firm took in about $28 million in revenue through the first nine months of this year and posted a net loss of about half that amount. The firm has enjoyed

more prominence, and thus higher fees, in the investment banking deals it has participated in, especially those brought by 20% owner

Goldman Sachs

(GS) - Get Report


Wit also has shown it can cut its losses, which have been narrowed by 85% between January and June, while increasing its revenue, which has increased sixfold during the same time. In addition, Wit's stock is up by one-third since dwindling to the 15 range in mid-October. The stock closed Wednesday down 3/4 at 21 3/16.

As for the future, Readmond says Wit already has plans to get into the mergers-and-acquisitions advisory game. The firm may be looking at some M&A boutiques, Readmond says, but adds it's possible that Wit may just seek top M&A bankers to ramp up internally. "M&A is something you can more easily build than acquire," he says.

Evening Update: Bank One Warns of 2000 Shortfall; Newbridge Sets Buy of Stanford Telecom


Tara Murphy

Staff Reporter

11/10/99 8:16 PM ET

Bank One

(ONE) - Get Report

said it is slicing its fiscal 1999 earnings outlook to $3.45 to $3.55 a share from $3.60 to $3.65 as a result of slowness at its

First USA

credit card division. The company also announced the postponement of its Nov. 15 analyst meeting.


joint newsroom covered the Bank One news in a

story this evening. Also, see the Tuesday's Company Report section of today's

Market Roundup for a report on the late-day stock and option action in Bank One, which was beset by rumors of its postclose news throughout the late afternoon.

Newbridge Networks


announced its plans to buy

Stanford Telecommunications


, in a cash transaction valued at $240 million. According to the deal's terms, Newbridge will pay $34.22 in cash for each common share of Stanford. The deal, which was originally struck in June, had to be re-examined after the initial all-stock terms were affected when Newbridge shares dropped below an average of $24 a share, which led to the current cash transaction. After Newbridge sells off several of Stanford's business divisions including its defense communications, manufacturing and semiconductor units, the deal would have a net cost to Newbridge of $240 million, down from the prior estimate of $280 million.

After-Hours Trading



led all night long on Island ECN. Trading on the exchange was light and most of the issues in the top 10 stayed pretty static. It was a lot like a stick-up. Nobody made any funny moves.


sang the same song.



led trading for most of the night as volume was pretty low.

Island ECN, owned by Datek Online, offers trading, mainly in Nasdaq-listed stocks, from 8 a.m. to 8 p.m. EST.


MarketXT, formerly Eclipse Trading, offers after-hours trading to retail clients of Morgan Stanley Dean Witter's (MWD) Morgan Stanley Dean Witter Online and Mellon Bank's (MEL) 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. EST Monday through Thursday.



explains how the rules change when the sun goes down in Investing Basics: Night Owl, a section devoted to after-hours trading.


Eric Gillin

In other postclose news (earnings estimates from

First Call/Thomson Financial

; earnings reported on a diluted basis unless otherwise specified):

Earnings/revenue reports and previews



reported third-quarter earnings of 50 cents a share, in line with the single-analyst estimate and up from the year-ago 40 cents a share.



posted a fourth-quarter pro forma loss of 20 cents a share, wider than both the three-analyst estimate of an 18-cent loss and the year-ago 14-cent loss.

Mid Atlantic Medical


posted third-quarter earnings of 17 cents a share, beating the 10-analyst estimate of 15 cents and the year-ago 9 cents.

Pegasus Communications


reported a third-quarter loss of $2.86 a share, wider than both the five-analyst estimate of a $2.51 loss and the year-ago 68-cent loss, which included a gain on a sale.

Salem Communications

(SALM) - Get Report

posted a third-quarter loss of 16 cents a share, which included extraordinary items. The results were wider than the single-analyst estimate of a 14-cent loss and down from the year-ago 1-cent profit.

Trans World Entertainment

(TWMC) - Get Report

posted third-quarter earnings of 15 cents a share, in line with the five-analyst estimate and up from the year-ago 7 cents.


(VSAT) - Get Report

posted second-quarter earnings of 22 cents a share, beating the four-analyst estimate by a penny and up from the year-ago 17 cents a share.

Offerings and stock actions

Online brand name promoter



set plans for a 5.9 million-share IPO, which is expected to price in the range of $10 to $12 a share.

Goldman Sachs


Salomon Smith Barney


Hambrecht & Quist

are serving as the deal's underwriters.

J.C. Penney

(JCP) - Get Report

said it has set plans to spin off 20% of its

Eckerd Drugstore

division as a tracking stock. The retailer said its expects to hold an IPO for Eckerd in the first half of 2000.


Johnson & Johnson

(JNJ) - Get Report



said it has been awarded

Food and Drug Administration

approval to sell its anti-inflammatory drug


, as a remedy for rheumatoid arthritis. Centocor said the FDA approved Remicade, along with


, to treat the condition when methotrexate alone is ineffective.

Hutchinson Technology


announced its plans to slice its workforce by 160, a reduction that would result in a $2 million restructuring charge. Hutchinson said the job cuts, which are due to softer demand for its TSA suspensions and higher production efficiency, are part of an effort to save the company roughly $10 million in fiscal 2000.

Transaction Systems Architects


said it has tapped COO and board member David Russell to assume the additional roles of president and CEO. Russell is replacing William Fisher, who will continue to serve as the company's chairman.

Bond Focus: Treasuries Pare PPI-Inflicted Losses as Bidders Flock to Auction


Elizabeth Roy

Senior Writer

11/10/99 4:58 PM ET

What reason didn't bond prices have to drop today?

Core producer prices rose more sharply than expected, oil and gold rallied sharply, and bond guru Bill Gross chimed in with the view that the


needs to hike rates next week in order to halt the expansion of the asset bubble known as the

Nasdaq Composite Index


Fortunately, the Fed did a coupon pass and demand was strong for the second and final leg of the quarterly refunding, and Treasuries closed well off session lows.

The benchmark 30-year bond, which traded down as much as 23/32 after the 8:30 a.m. EST release of the October

Producer Price Index

, finished down 7/32 at 100 16/32, lifting its yield 2 basis points to 6.09%.

The market: Join the discussion on


Message Boards.

The PPI dominated the session. Overall, wholesale finished goods prices fell 0.1% in October, pulling the year-on-year growth rate for the series down from 3.2% to 2.7%. Economists polled by


had forecast a 0.1% rise in the overall PPI.

But core producer prices, which excluded volatile food and energy prices, rose 0.3%, on top of a 0.8% gain in September. They had been expected to rise 0.1% as well. (A 1.0% drop in energy prices and a 0.7% drop in food prices dragged the overall PPI lower.)

David Orr, chief economist at

First Union

, in a research note described it as an "eye-of-the-beholder type" report. On the one hand, the big gain in the core PPI was attributable to large rises in the prices of a handful of items, rather than representing across-the-board increases.

Namely, prescription drugs and passenger cars and trucks powered the core PPI higher, rising 1.2%, 1.1% and 0.8%, respectively. The Bureau of Labor Statistics, which released the report, said that without the motor vehicle price increases, the core PPI would have risen just 0.1%, in line with expectations.

On the other hand, people buy cars, and even though the rise in prices coincides with the start of a new model year, the BLS' seasonal adjustment process accounted for that.

"The surge implied that manufacturers were attempting to introduce new models with higher-than-normal price increases,"

Daiwa Securities

chief economist Michael Moran said in a research note. (On a not-seasonally-adjusted basis, car prices rose 7.4% and light truck prices went up 6.8%.)

Also, on that same other hand, intermediate goods prices, which the PPI report measures in a separate set of indices and which Orr said has a "very good record of tracking periods of Fed tightening," experienced its eighth consecutive rise. The 0.4% October increase lifted the year-on-year rate to 1.1%, the highest since January 1996.

The hotter-than-expected inflation numbers not only forced Fed watchers to reprice the likelihood that the central bank will hike interest rates when it meets on Tuesday. It also cast doubt on the broader notion that victory over inflation has been declared. (At the

Chicago Board of Trade

, the November fed funds futures contract indicated a 60% chance of a hike in the fed funds rate from 5.25% to 5.5%, up from 47% yesterday and over 50% for the first time since last Tuesday.)

The latest rise in oil prices, which have been climbing over the last several sessions amid fresh news about shrinking inventories as a result of OPEC production cuts implemented in March, only made things worse. Crude oil for December delivery closed at a new high for the year on the

New York Mercantile Exchange

, up 1.54% at 24.40.

And Bill Gross, star bond fund manager for


, weighed in on


Web site with this view: "If the Fed were to leave rates unchanged next week many investors would have to question


vigilance in preventing the bubble from growing and causing the U.S. economy to overheat. A development that would force the Fed to tighten more aggressively, to the detriment of both the stock and bond market."

The asset bubble, in Gross' view, is evidenced primarily by the Nasdaq Comp's 40%-plus year-to-date gain.

But shortly after 10 a.m., the Fed did a coupon pass, buying Treasuries from dealers in order to supply enough liquidity to the banking system to keep the fed funds rate on target. In this case, the Fed bought $964 million of short-dated coupons.

The large purchase pushed prices higher as the 1 p.m. bidding deadline on the Treasury's 10-year note auction approached. But not too high. The fact that the 10-year note's yield hovered over the 6% line at bidding time boosted demand for the issue,

Donaldson Lufkin & Jenrette

Treasury market strategist David Ging said.

The bid-to-cover ratio for the auction, which compares the volume of securities bid for to the volume offered for sale ($10 billion in this case), was 2.48, by far the highest since the Treasury changed its method of auctioning the 10-year note in late 1998. The suggestion that demand for Treasuries is strong helped lift the market further off its lows.

The bond market is closed tomorrow in observance of Veterans Day. When traders return on Friday, they'll have October

retail sales

and the third-quarter

productivity and unit labor costs

report to contend with.

Did consumer spending slow? And if not, did productivity accelerate so much that it doesn't matter? There's a powerful sense,

Banc One Capital Markets

senior financial economist Anthony Karydakis said, that the outcome of Tuesday's Fed meeting hangs in the balance.



Street Sightings

Chat with Dave Gaffen on AOL's MarketTalk Thursday, Nov. 11 at 3 p.m. EST. MarketTalk is hosted by Sage Online. (Keyword:PF Live)

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