'Enronitis' sweeps through Wall
Street
By Simon English in New York
(Filed: 05/02/2002)
WALL Street caught "Enronitis" yesterday, sending shares tumbling on fears that the profits claimed by some of corporate America's biggest players are based on little more than creative accounting.
The sell-off began after claims that Tyco International, the conglomerate that has announced plans to split into four, spent $8 billion in the last three years on acquisitions that were not fully disclosed. Tyco shares fell $4.51 to $32.35 after it admitted to buying more than 700 companies without issuing press releases.
The company said the deals were too small to be considered "material" for a company with revenue of $36 billion and said the concern from investors was little more than "a sign of the extraordinary times".
Tyco did not break any rules, it appears, but since Enron's demise any hint of hidden deals causes panic. The Dow Jones index of America's top 30 stocks fell 183 points in morning trading to 9724. Investor cynicism spread to the Nasdaq, down 46 at 1864.
The bug is spreading to some of America's most respected businesses. General Electric shares fell nearly 5pc, $1.67, to $35.18, on fears that its vast size and complexity make its exact financial position difficult to measure.
The accountancy scandal that is gripping American business shows no signs of easing. Global Crossing, the telecoms company once valued at $50 billion that filed for bankruptcy protection last week, is now facing an investigation by the Securities & Exchange Commission into its accounting practices.
It emerged last week that a former executive alleged in August that the company was inflating profits. Global Crossing, like Enron, was audited by Andersen. Kmart, the discount retailer that joined the growing list of American bankrupts last month, is also facing questions about the accuracy of its financial statements.
A week of congressional hearings kicked off yesterday as Congress attempts to discover how Enron collapsed. Former chairman Kenneth Lay is being subpoenaed after refusing to testify at the last minute because of the "prosecutorial" climate.
He may seek some kind of immunity before agreeing to give evidence, but is unlikely to get it. Politicians want to see Enron executives in jail and are pushing for criminal charges to be brought. They have dubbed Enron "a giant pyramid scheme" and are openly alleging fraud.
Jeffrey Skilling, the chief executive who suddenly quit last summer citing "personal reasons", still intends to give evidence to a house committee on Thursday, his spokesman said.
He will be joined by former chief financial officer Andrew Fastow and former chief accounting officer Richard Causey. Mr Fastow was strongly criticised in a 203-page report into the company's collapse. He will plead the Fifth Amendment, protecting him from having to answer any questions until there is a trial.
The report, written by Texas law professor William Powers at Enron's request, was attacked by Andersen's global managing partner C E Andrews as "self-serving", fitting "Enron's established pattern of attempting to shift blame to others".
American trade union the AFL-CIO asked the SEC to ban Enron directors from serving on other company boards, arguing that they are "substantially unfit" to do so.
Another Enron development saw some bad news for creditors of Enron's European arm. PricewaterhouseCoopers, the administrators, said Enron Europe has "billions of dollars" in liabilities but would not give an exact figure.
This revelation suggests that UK and European banks and energy traders may have a much greater exposure to America's biggest business failure than they have so far admitted.
THE END
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