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  • Author:
  • Publish date:'s DAILY BULLETIN

December 7, 1999

Market Data as of Close, 12/6/99:

o Dow Jones Industrial Average: 11,225.01 down 61.17, -0.54%

o Nasdaq Composite Index: 3,546.01 up 25.38, 0.72%

o S&P 500: 1,423.34 down 9.96, -0.69%

o TSC Internet: 1,044.64 up 16.10, 1.57%

o Russell 2000: 465.75 up 1.17, 0.25%

o 30-Year Treasury: 98 14/32 up 10/32, yield 6.245%

Companies in Today's Bulletin:

U.S. Bancorp (USB:NYSE)


MindSpring Enterprises(MSPG:Nasdaq)

RealNetworks (RNWK:Nasdaq)

In Today's Bulletin:

Scroll to Continue

TheStreet Recommends

o Banking: Banks Slide as U.S. Bancorp Blowup Sends Loan-Ratio Distress Signal
o Wrong! Dispatches from the Front: The Case for Anonymity
o Evening Update: FCC Head Praises AT&T Internet Plan
o Bond Focus: Bonds Can't Hold Early Gains, Drift Lower

Also on

Brokerages/Wall Street: Weisel Selling 10% Stake in Tech Investment Bank

One of Silicon Valley's old hands is selling a stake in his new investment bank, Thomas Weisel Partners.

Internet: RealNetworks Looking More and More Like a Media Distributor

The firm's streaming technology could help it move into content distribution over the Net, now the territory of its customers.

Tech Savvy: We May Be in Store for More Linux Mania This Week

Yes, Linux is a good to excellent operating system for servers, but remember:

It's just an operating system


Editor's Letter: A Whirlwind Tour of the Site's Newest Features

has tallied up its readers' favorite stocks and created message boards for them. Also, playing the volatility of tech stocks.

Banking: Banks Slide as U.S. Bancorp Blowup Sends Loan-Ratio Distress Signal


Peter Eavis

Senior Writer

12/6/99 7:30 PM ETThe Bad Apple theory of bank investing looks decidedly shaky after

U.S. Bancorp



slashed its earnings outlook for the fourth quarter and 2000.

The Bad Apple theorists argue that banks warning about weakening business are, for the most part, exceptions. In other words, their problems should have little bearing on the majority of banks. This was their line after

First Union



Bank One






National City


all surprised investors with negative news.

But U.S. Bancorp, the nation's 12th-largest bank with $77 billion in assets, Monday laid a large part of the blame for its reduced forecasts on a factor that analysts expect to hurt other institutions: higher borrowing costs.

More expensive borrowing "is going to affect the entire industry," says a bank-stock hedge fund manager who requested anonymity. "It's inconceivable that other banks won't be hit."

The market is saying something similar. Large banks' stocks were down 4.3% Monday, according to the

KBW Bank Index

. U.S. Bancorp plunged 9 3/4, or 28%, to close at 25 5/8, a new 52-week low.

Lending an Ear

Banks get hold of money for lending from two main sources: from deposits or from borrowing in the market.

U.S. Bancorp's deposits have actually fallen slightly over the past year or so, forcing it to borrow more in the market to fund its loan growth. But as the


has hiked rates three times this year, the bank's borrowed funds have become pricier, pressuring the margin it makes on its lending business.

At the end of the third quarter, U.S. Bancorp had a loan-deposit ratio of 125% -- i.e., 25% more loans than deposits. That's well above the large bank average ratio of 105%, according to

SNL Securities

. (

explored the loan-deposit ratio in a recent


"Higher funding costs are a systematic risk," says Tony Plath, associate professor in finance at the

University of North Carolina

, Charlotte. "If interest rates stay the same or go higher, then they will stay a problem and other banks will miss their earnings."

The hedge fund manager says the following institutions are vulnerable because of their reliance on borrowed funds:



, First Union,




Fleet Boston


. (He's short Fleet Boston and First Union, and has no position in Comerica or Wachovia.)

According to the table below, all these banks have loan-deposit ratios above 100%. Anything above 80% is too high, in the opinion of Mark Davis, head of research for the


Banc Stock Group fund. His fund doesn't own U.S. Bancorp.

Wachovia's finance chief, Bob McCoy, responds: "We had been anticipating three interest-rate hikes this year and have prepared ourselves for these increases." Fleet Boston, Comerica and First Union didn't return calls seeking comment. Shares in Fleet Boston and Comerica were especially hard hit Monday, falling 7.4% and 6.7%, respectively.

Banks can make up for lower returns on lending by focusing more on fee businesses. As a result, banks with high levels of fee income are likely to fare better as interest rates rise, according to many observers. Therefore, those institutions where fees make up a relatively low share of revenue could be exposed, says Andrew Collins, banks analyst at

ING Barings Furman Selz

. Because its fees are "a low percentage of revenue,"

Bank of America


is vulnerable, adds Collins, who rates the bank a hold. (His firm has done no recent underwriting with the bank.)

A Bank of America spokesman says this isn't the case, adding that "fees make up 43% of revenue and that share has been climbing." According to

Keefe Bruyette & Woods

, fees make up an average of 45% of revenue at the nation's 24 largest banks.

People Power

U.S. Bancorp also announced that its lending profits have suffered due to lower consumer lending and because in 2000 it's going to spend an extra $50 million "in people, technology and processes to improve customer satisfaction."

But these moves suggest customer service problems that may appear at other institutions, says Charles Peabody, analyst at

Mitchell Securities

. Peabody doesn't rate U.S. Bancorp, and his firm has done no investment banking work for it.

The bank's management, under chief executive and chairman John Grundhofer, appears to have sacrificed customer relations for cost-cutting after the merger of U.S. Bancorp and

First Bank System

in 1997, says Peabody.

"They seem to have recognized that cost-cutting is not the sole route to profitability," says Peabody. U.S. Bancorp's chief operating officer, Philip Heasley, denied that in a conference call Monday: "I wouldn't say that we have underinvested systematically" in the combined firm's branch network.

Banc Stock Group's Davis doubts this: "If you cut corners when cutting costs, it can come back to bite you, and, boy, has it bitten U.S. Bancorp."

He adds: "Banking is still a personal business. When you're talking about money, the only thing more important to people is sex."

Wrong! Dispatches from the Front: The Case for Anonymity


James J. Cramer

12/6/99 7:08 PM ET

What would be better for a community of smart stock people to talk about than the very stocks that interest them the most? That's why I am thrilled that

has just added ticker symbol boards for the stocks that get hit up the most.

Join the discussion on

Cramer's Latest

And what a bizarre list it is! The first most-requested symbol is none other than


Nicholas-Applegate Global Technology fund, showing me that our crowd still loves a good mutual fund.

But after that, it is business-to-business writ large, as we all scramble to learn about the



and the



and the



, which round out the top-five "look ups" along with




Lately I have been getting a lot of email from people saying they can't enter our boards and tell what is going on in their industry for fear that they will get in trouble. They can't tell the truth without anonymity.

Here's the rub. How can we trust people to tell the truth if they don't have to give their names? It's a tough issue, one of the many tough issues when it comes to the boards. I have to confess that I didn't like the cloak of anonymity on the boards. Now I'm not so certain.

Some people insist they can't go into the boards without the protection of anonymity. Of course, that may just be the clarion call of the touters, seeking to loosen the restrictions on the boards. I'm not sure myself. If you've got a view on that, or anything else related to the boards, post your thoughts on the

Cramer's Latest board.

Be sure to check out the latest standings in Cramer's business-to-business rotisserie contest against his colleague Matt Jacobs.


James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Ariba and VerticalNet. 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: FCC Head Praises AT&T Internet Plan


Tara Murphy

Staff Reporter

12/6/99 8:29 PM ET

Federal Communications Commission

Chairman William Kennard said



deal to share its cable Internet lines was "a good first step" that should be followed by more talks.

Kennard requested that AT&T outline a set of rules allowing shared use of its Internet lines in combination with Internet service provider

MindSpring Enterprises


. According to the agreement, other ISPs must set different terms to reach customers through AT&T's Internet service. However, AT&T said it would provide customers some options and would charge similar ISP's "reasonably comparable" prices to use its Internet lines.


U.S. Department of Justice

gave its stamp of approval to

Infinity Broadcasting's


$8.3 billion acquisition of

Outdoor Systems


. In order to meet requirements, the Justice Department said the companies will divest outdoor displays in New York City, Infinity's New Orleans's bus advertising unit and other businesses in Phoenix. Justice Department officials were concerned that competition would be hurt in the three cities because Infinity had owned a large advertising business prior to its purchase of Outdoor Systems.

The Justice Department and 19 states claimed in papers filed with the judge presiding over



trial that the software giant infringed upon the U.S. antitrust law in four separate ways. The government cited Judge Thomas Penfield Jackson's finding of fact to contend that Microsoft illegally hindered competitors, coupled buying its monopoly computer operating system to acceptance of its other software, made exclusionary deals and fought to keep competing Web browser,


from consumers. Netscape was later acquired by

America Online



After-Hours Trading



jumped out to a big lead early in after-hours trading on

Island ECN

and kept it all night long. It passed seven-digit activity without breaking a sweat and completely dominated all other issues. Impressive, considering heavyweights








have all made the top ten at some point this evening.

Tonight's run is even more impressive when you consider the numbers of shares traded in other issues on the list. Voxware's seven-digit figure is more than the next nine stocks combined. In fact, it's more than 440,000 shares better. On a night with relatively mild trading, Voxware is like an 8-year-old with a six-pack of Mountain Dew -- hyperactive.

In other post-close news (earnings estimates from

First Call/Thomson Financial

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

Mergers, acquisitions and joint ventures

Boise Cascade


said that

Boise Cascade Office Products


would not urge its shareholders to accept Boise Cascade's acquisition offer of $13.25 a share. Boise Cascade already holds a 81.2% stake in Boise Cascade Office Products, now trading above the Dec 1. premium offer to 14 13/16.




Coca-Cola Bottling Consolidated


said that it postponed buying Coca-Cola's 50% stake in their joint venture. Coca-Cola Bottling Consolidated was in talks with Coca-Cola to purchase Coke's remaining stake in

Piedmont Coca-Cola Bottling Partnership

. Coca-Cola Bottling Consolidated said it plans to resume negotiations in the future.

Four Media


said it has agreed to sell all of its shares to

AT&T 's


cable TV programming division

Liberty Media Corp.


, in a cash and stock transaction valued at $264 million.

Research Frontiers


, an R&D company that has developed a light-control technology -- called suspended particle device (SPD) -- which can be used in automatically dimming rear-view mirrors and "smart" window, announced that it has granted a license to Global Mirror, allowing this company to use SPD technology in its rear-view mirrors. Research Frontiers stock was up 1 1/4, or 12.6%, to 11 1/2.

Earnings/revenue reports and previews

Anchor Financial


said it expects to post third-quarter earnings between 35 cents a share to 38 cents a share, missing the three-analyst estimate of 48 cents. The company blamed loan losses and interest margin pressures for the disappointing estimate revision.



said it expects to report fiscal 1999 earnings between $1.81 to $1.85 a share, beating the five-analyst estimate of $1.79 a share.



posted a third-quarter loss of 4 cents a share, missing the four-analyst estimate of a 1-cent profit and down from the year-ago 2-cent profit.

Tractor Supply


said it expects to report fourth-quarter earnings between 48 cents a share to 53 cents, missing the four-analyst estimate of 70 cents. Tractor Supply blamed the lower estimates on unseasonably dry weather.

Vicorp Restaurants


posted fourth-quarter earnings of 38 cents a share, beating the single-analyst estimate of 34 cents and up from the year-ago 23 cents.

Offerings and stock actions

Kaiser Aluminum


said it has filed to raise its number of common shares to 125 million from 100 million


announced its plans for a cash tender offer for all shares of

Kinnard Investments


for $7.50 a share on Wednesday. said that the offer was a considerable premium to Kinnard's trading range for the last several years. Unless it is extended, the offer will expire Jan 6.


AK Steel


said it would shut down a Dover, Ohio plant, which would cut its workforce by 120. As a result, the company said it would take a fourth-quarter restructuring charge of $35 million. The company said it sees the closing to cost between $150 million to $175 million of one time charges that it said it might assume due to its merger with



General Motors


said it would spend over $700 million to build midsize trucks in its Shreveport, LA, production plant. The funds would be used to construct new body shop and assembly areas and improve its paint operation. The company said the project is set to begin in the first half of 2000. Due to competition, GM did not say what products would be built at the facility, however one analyst told


that the new program was called GMT355, which would replace both the





Isuzu Hombre


Bond Focus: Bonds Can't Hold Early Gains, Drift Lower


David A. Gaffen

Staff Reporter

12/6/99 4:34 PM ET

Treasuries were essentially unchanged today, as the market gave back most of this morning's early gains in what strategists described as a quiet session.

The early strength was a continuation of the market's rally Friday off the in-line

employment report

, but a sagging dollar, stronger oil prices and general malaise put the market back where it started.

Without a major economic release until Friday's

Producer Price Index

, traders said they expect more days like this during this week. Tracker

Gov PX

reported volume down 11% when compared to the average Monday this past month, but traders even described it as less active than that.

"Europe and Asia are already starting to close up for the year," said Vincent Verterano, head government trader at

Nomura Securities

. "Our customers look like they're ready to shut down."

Lately, the 30-year Treasury bond was up 7/32 to 98 11/32. The yield fell to 6.25%, down 1 basis point. The 10-year note gained 6/32, dropping the yield 2 basis points to 6.15%.

The 30-year bond was up as much as 10/32 in the morning, a continuation of Friday's relief rally after hearing that labor markets did not tighten in November. The

unemployment rate

remained steady at 4.1% and

average hourly earnings

increased just 0.1%, which means wage inflation is still under control.

The market closed up nearly a full point Friday, but one investor said bond participants were alleviating an oversold market, not starting a trend.

"I don't believe employment data was all that positive for the market," said Richard Schwartz, senior vice president at

New York Life Asset Management

. "Largely, what was happening was the market had gotten a bit oversold, and subsequently in the face of decent data, rebounded from the oversold condition to trade better."

Treasuries pared back their gains, because the unemployment data doesn't show a loosening in labor conditions in the slightest. It also can't provide the market with any evidence that the housing market or consumer demand is slowing. Fed officials still believe that wage pressures will arise if the labor markets remain in its current tight state. To the market, that's a message that the Fed might have more interest rate hikes in its pocket.

The market was also affected by the rally in crude oil. The January crude oil contract traded on the

New York Mercantile Exchange

rose 79 cents to $26.60 today after declining last week. But John Blough, chief investment strategist at


, found it encouraging that bonds didn't decline significantly against this rise in oil.

He believes crude oil prices have peaked, and as those prices decline, the bond market will receive some mild support. "I don't think the market is married to crude oil, but if it shows weakness

bonds will benefit from it," Blough said.

Street Sightings

Chat with James J. Cramer on AOL at 5 p.m. EST, Tuesday, Dec. 7. (Keyword:LIVE)

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