Tuesday’s Markets Series: BUSINESS DIGEST

CAUTION FOLLOWS RALLY. Stock prices rose modestly Tuesday as Wall Street – its eyes trained on the Middle East and the oil markets – decided to play it safe following a 78.71-point rally Monday. Analysts said traders were unwilling to make large commitments, so prices fluctuated in a narrow range. The Dow Jones average of 30 industrial stocks edged up 3.22 points to 2,614.85. Jack Barbanel, an analyst with First Global Management Inc., said Tuesday’s trading made him “very suspect” about Monday’s rally. CONTINENTAL PICKS HOUSTON. Continental Airlines on Tuesday announced it will build its $190-million aircraft maintenance center as part of a world headquarters complex at Houston Intercontinental Airport. Several airports, including Tampa International, had competed for the repair facility, which will employ 4,000 people and have maintenance bays for 12 airliners. Tampa officials withdrew from the competition in July. The headquarters building will consolidate Continental’s offices and 4,000 employees from Houston, where it is based. UAW CHOOSES GM. The United Auto Workers union will focus national contract bargaining on General Motors Corp., the world’s largest and most profitable automaker, union officials said Tuesday. Contracts between the union and the Big Three automakers expire Sept. 14. Under pattern bargaining, the union will negotiate with GM until it reaches an agreement, and then use that as a model in negotiating with Ford Motor Co. and Chrysler Corp. GM’s new chairman, Robert Stempel, is seen as likely to try to avoid a strike during his first months in office. UNITED LOSES RULING. United Airlines promised Tuesday to comply with a federal judge’s order to make changes in schedules at Chicago’s O’Hare International Airport. American Airlines went to court Monday to press for the changes, contending United’s proposed schedule was misleading. U.S. District Judge John McBride ordered the change the same day. American said United schedules starting Oct. 1 reflect not-yet-approved deviations from federal guidelines on takeoffs and landings at O’Hare.
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Anonymous

Full text: [St. Petersburg Times] Aug 29, 1990

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Stiff sentences imposed in Guinness fraud

Another defendant collapsed in court as the judge, Sir Denis Henry, was about to pronounce his sentence in the scandal, which stemmed from Guinness’ multibillion-dollar takeover of a Scottish distiller four years ago. Henry particularly criticized Saunders, 54, for what he called the former executive’s dishonesty in allowing the payment of illegal multimillion-dollar fees to prop up Guinness’ stock price. Henry said he ordered the stiff punishment for the lead defendant, Ernest Saunders, former Guinness chairman and chief executive officer, because of what the judge called his “dishonesty on a massive scale.”
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Full text: [Star Tribune] Aug 29, 1990

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More weakness showing in economy

The index of leading economic indicators, the government’s main barometer of future trends, was unchanged in July from June, the Commerce Department said today in a report that showed broad weakness in several key measures of economic activity. The department said seven of 11 indicators that make up the index fell in July, led by longer delivery times for vendors, a lower money supply, fewer unfilled orders, a shorter workweek, fewer building permits, more unemployment insurance claims and lower stock prices. Sales also fell in the West, down 4.9 percent to 135,000 units while they were unchanged at 237,000 units in the South.
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Full text: [San Diego Tribune] Aug 29, 1990

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Ex-Guinness chief is sentenced

The SEC reportedly got the information from [Ivan F. Boesky]. The Wall Street arbitrageur, who was cooperating with US authorities in the hope of obtaining an easier sentence, was allegedly involved in the Guinness scheme, and a British newspaper Tuesday published what it said were details of Boesky’s involvement in the case. The Guinness scheme involved an effort to support Guinness’ stock price by buying shares to give Guinness’ stock-and-cash offer for Distillers a better chance of bettering a rival offer from Argyll Group plc. The British newspaper The Independent says Guinness offered to pay off Boesky for his help by giving him a California vineyard or selling him property. But Boesky instead “insisted that the company invest $100 million in one of his investment funds.”
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Steven Prokesch:The New York Times

Full text: [Orange County Register] Aug 29, 1990

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Former Head of Guinness Is Given 5-Year Jail Term

The scheme involved an effort to support Guinness’s stock price by buying shares to give Guinness’s stock-and-cash offer for Distillers a better chance of bettering a rival offer from the Argyll Group P.L.C., In sentencing Mr. [Ernest W. Saunders] today, the judge told him he had been guilty of ”dishonesty on a massive scale” in authorizing illegal payments to those who had participated in the scheme. ”I am quite satisfied, as the jury by their verdicts have shown, that you were at the center of the dishonest conduct that occurred,” Justice Denis Henry said. From April 9, Mr. [Ivan F. Boesky] ”systematically put this strategy into reverse” by liquidating his short positions and by buying Guinness shares, the paper said. By April 19, the day after Guinness won control of Distillers, Mr. Boesky ”had built up a holding of 14 million Guinness shares at a cost of some 41 million pounds, had gone short of the rival bidder Argyll in a big way and had bought substantial quantities of Distillers shares at above the value Guinness was bidding,” the paper said. ”Guinness later offered to pay off the debt by giving him a California vineyard or selling him property” below its value, the paper said. But Mr. Boesky instead ”insisted that the company invest $100 million in one of his investment funds.”
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STEVEN PROKESCH, Special to The New York Times

Full text: [New York Times] Aug 29, 1990

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Ferranti Case Charges Filed

States District Court in Philadelphia, prosecutors charged that Parent was tied to a scheme to inflate the stock price of the International Signal and Control Corporation, a Defense Department contractor in Lancaster, Pa., before its acquisition by Ferranti for $670 million in 1987. At a court hearing in May, Federal officials charged that Mr.
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Reuters

Full text: [New York Times] Aug 29, 1990

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Dow Edges Up 3.22 Points on Slow Volume

The mood of the market is ”wait and see,” said Ronald J. Hill, investment strategist for Brown Brothers Harriman. ”We’re still at risk in the Middle East,” he said, ”and potential developments could still send oil prices higher again. So long as that possibility remains, you have a ceiling on how high stock prices will go.”
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COLE, ROBERT J.

Full text: [New York Times] Aug 29, 1990

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COMPANY NEWS; Oracle Stock Drops After Profits Restated

David Bayer of Montgomery Securities was among the analysts who lowered their estimates. ”We had some reservations about the first quarter already,” he said. ”We were looking for flat results. As of today, we’re looking for a down year-to-year comparison. One should not rule out the possibility of a loss.” ”It sounds like an overly aggressive sales force was out there booking orders as sales,” said Charles Phillips, an analyst with the Soundview Financial Group. ”There was a lot of pressure put on these guys” after the shortfall in the third quarter, he said.
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LAWRENCE M. FISHER, Special to The New York Times

Full text: [New York Times] Aug 29, 1990

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It May Be Time for a New Industrial Stock Revolution

Of course, there’s a reason for the seemingly cheap stock prices in such economically cyclic industries as paper, steel, aluminum, railroads and industrial parts: Wall Street is fearful that a recession will cause demand for their goods to dry up, slashing sales and earnings. But some industrial-stock fans say Wall Street has been worried about recession for so long that the actual event will be anti-climactic. “The cyclicals started under-performing the market two years ago. They’ve been anticipating a recession for a long, long time,” says Ron Clark, who runs the Putnam Energy-Resources Trust stock mutual fund in Boston. In fact, the best thing for the industrial stocks might be an overwhelming view on Wall Street that the U.S. economy has finally been tipped into recession by the Mideast oil-price shock, some analysts say. Once recession is accepted as fact, [John Neff] says, the nature of Wall Street is that “it won’t be too long before investors begin to anticipate coming out of recession” and start hunting for stocks to play in the recovery. * Aluminum giant Alcoa is trading for $62.125, down from $77.25 earlier this year. The current price is eight times the $7.43 a share Wall Street expects the Pittsburgh firm to earn this year. Last year, it earned $10.67 a share. But Neff notes that more investors have begun looking at Alcoa and other aluminum stocks lately because aluminum pricing has improved. “Inventories are only about half what they’ve been in the past,” Neff says, so any increase in demand could lead to much tighter supplies in a hurry.
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TOM PETRUNO

Full text: [Los Angeles Times (pre-1997 Fulltext)] Aug 29, 1990

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Buyback should boost stock price

Former Guinness PLC Chairman Ernest Saunders was sentenced Tuesday to a stiff five years in prison in a stock-price manipulation scheme that shook Britain’s financial community and echoed Ivan Boesky’s downfall on Wall Street.
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WILLIAM DOYLE

Full text: [Houston Chronicle (pre-1997 Fulltext)] Aug 29, 1990

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Guinness exec gets 5 years in fraud case

Former Guinness PLC Chairman Ernest Saunders was sentenced Tuesday to a stiff five years in prison in a stock-price manipulation scheme that shook Britain’s financial community and echoed Ivan Boesky’s downfall on Wall Street.
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Reuters

Full text: [Chicago Tribune (pre-1997 Fulltext)] Aug 29, 1990

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Leading indicators stall; home sales dip

“Essentially, it’s another indication of a slumping economy,” said David Jones, an economist with Aubrey G. Lanston & Co., a New York securities company. “In all likelihood, it’ll be down sharply next month,” reflecting the oil price shock and uncertainty caused by the Aug. 2 Iraqi invasion of Kuwait. “Initial reports . . . indicate that the consumer’s first reaction to the Iraqi invasion was near panic,” said economist Mark M. Zandi of Regional Financial Associates in West Chester, Pa. Daryl Delano of Cahners Economics in Newton, Mass., said stock prices had continued to decline since the Iraqi invasion and, noting lackluster home sales, said building permits would remain a negative in the August report.
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John D. McClain

Full text: [Chicago Sun - Times] Aug 29, 1990

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Northeast Bancorp Adopts Shareholder Protection Rights Plan

The board of directors of Northeast Bancorp Inc., Wednesday adopted a shareholder protection rights plan and declared a dividend of one right on each outstanding share of its common stock and non-voting convertible common stock. The dividend will be paid on Sept. 11, 1990 to stockholders of record on Sept. 10, 1990. The rights plan was not adopted in response to any specific effort to acquire control of Northeast Bancorp. Rather, it was adopted to deter abusive takeover tatics that can be used to deprive stockholders of the full value of their investment. (excerpt)
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Kline, John C.

Full text: [Business Wire] Aug 29, 1990

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Former Guiness Chief Gets 5 Years

Former Guiness Plc chairman Ernest Saunders was sentenced to five years in prison in a stock-price manipulation scheme that shook Britain’s financial community and echoed Ivan Boesky’s downfall on Wall Street.
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Full text: [Boston Globe] Aug 29, 1990

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Northern Trust Weak Despite Its Performance

Shares of Chicago’s Northern Trust Corp have been hit hard in the most recent period of weakness in bank stock prices despite its steady fee revenues and low level of nonperforming assets.
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Matthews, Gordon

Full text: [American Banker] Aug 29, 1990

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Deals Collapse as Buyers Rethink Risk

Reid Nagle comments on how falling stock prices and recessionary fears have resulted in a rash of deal cancellations as wary buyers re-evaluate transactions negotiated in headier times. In just eight weeks since the start of the second quarter, seven bank and thrift mergers and acquistions have been terminated.
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Nagle, Reid

Full text: [American Banker] Aug 29, 1990

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CAPITAL: Is Wall Street Overaggressive In Bond Pricing? Series: 1

“You’ve got a negative market on the one hand, anxious banks on another, and investment banks who are anxious for business,” said a treasury official at one regional bank. “There’s a certain amount of pain that’s going to be shared by everybody.” If banks “have a lot of paper to do, they can’t push the market too hard,” said Matthew J. Grayson, a vice president at Salomon Brothers Inc. “But some people let the investment banks bid themselves down to loss levels.” “There is an industry factor that goes into spreads,” he said, noting that the spread relative to Treasuries on his own bank’s bond issue has widened about 30 basis points. “The various concerns that may be out there for industry credit quality is affecting spreads as well as stock prices.”
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KELLEY HOLLAND

Full text: [American Banker (pre-1997 Fulltext)] Aug 29, 1990

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Leading Index Was Unchanged During July — Data Confirm the Economy Was Weak Even Before The Persian Gulf Crisis

The government’s principal economic forecasting index was flat in July, another sign that the economy was precarious even before turmoil in the Middle East jarred American consumers and businesses. The flat reading of the index of leading indicators, a collection of 11 sets of economic statistics that are supposed to foreshadow economic activity six to nine months in advance, followed a 0.1% rise in June and a 0.6% increase in May. Those figures marked slight revisions from last month when, based on preliminary data, the department calculated that the index was unchanged in June and rose 0.7% in May. Only three of the 11 indicators made positive contributions to the index last month: orders for new plant and equipment, raw materials prices and an index of consumer confidence all rose. The other eight — including stock prices, unemployment claims, factory orders and building permits — held the index down.
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By Hilary Stout

Full text: [Wall Street Journal] Aug 30, 1990

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Industrials Gain 17.58 on Decline in Oil, Prospect of Mideast Solution

Another sharp drop in oil prices and heightened optimism about the prospects for a peaceful resolution of the Persian Gulf crisis pushed stock prices up Aug 29, 1990. The Dow Jones Industrial Index closed 17.58 points higher at 2632.43.
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Wilson, David

Full text: [Wall Street Journal] Aug 30, 1990

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Industrials Gain 17.58 on Decline In Oil, Prospect of Mideast Solution

Another steep decline in crude-oil prices and heightened optimism about the prospects for a peaceful resolution of the Mideast conflict sent stock prices higher, but trading remained light. The Dow Jones Industrial Average climbed 17.58 to 2632.43 amid reports pointing toward a more conciliatory position by Iraq and news that most members of the Organization of Petroleum Exporting Countries had agreed to permit increased oil production. Advancing issues outnumbered decliners by 972 to 508 on the New York exchange. Among broader market indexes, Standard & Poor’s 500-Stock Index gained 2.85 to 324.19, the New York Stock Exchange Composite Index rose 1.52 to 177.78 and the Dow Jones Equity Market Index added 2.46 to 300.13.
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By David Wilson

Full text: [Wall Street Journal] Aug 30, 1990

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