Businesses Paralyzed Amid Crisis
2008年11月25日
The financial crisis that has roiled Wall Street is reaching deep into the mainstream economy, throwing a pall over the ability of companies, pension funds and philanthropies to expand and invest.
Despite Friday's 494.13-point rebound in the Dow Jones Industrial Average, the Dow remains down 43% from last year's record close, deep in a bear market. Many companies are finding it impossible to issue bonds or stock and executives are refusing to take the normal risks needed to drive the economy.
Ketchup company H.J. Heinz has announced plans to conserve cash. Boeing is cutting costs and laying off employees, and reduced Boeing Capital's portfolio so it can better finance deliveries of jets to customers with banking troubles. Even technology giant Cisco Systems, with $28 billion in the bank, is reducing spending on travel, equipment and marketing to conserve cash.
'People are paralyzed in fear. They are conserving resources, afraid to make investments or take risks,' said Jeffrey Sonnenfeld, senior associate dean at the Yale School of Management. 'It is unparalleled.'
Before Friday's rally, the Dow was off 11% for the week alone. Even after Friday's 6.5% gain to 8046.42, the Dow was down 5.3% for the week, and down in 18 of the past 23 weeks.
The rally followed news that Federal Reserve Bank of New York President Timothy Geithner is to be named Treasury secretary. Investors welcomed the news, because it resolves a major uncertainty. Mr. Geithner is well-liked on Wall Street and viewed as more of an activist than Secretary Henry Paulson in his approach to resolving the financial troubles.
Those problems have weighed heavily on the American economy.
'The [bond] market is clearly closed,' said Tim O'Hara, who heads credit underwriting at Credit Suisse Group.
Of dozens of new investment-grade and junk-bond issues that had been scheduled for the weeks after Labor Day, most have been sidetracked. Just one junk-bond issue has made it out since September, a $750 million issue for MGM Mirage. The company paid 15%, twice what it paid for an issue of the same size one year ago. The average yield on a junk bond is more than 20% now, according to Merrill Lynch.
Pepsi Bottling Group in October paid considerably more than it has in the past for a $3.3 billion bond offering. The company has announced plans to cut nearly 1,000 jobs.
If the market remains frozen, the $178 billion of debt coming due next year for weaker-rated companies will be difficult to refinance, said Diane Vazza, chief credit analyst at Standard & Poor's.
Entergy last month announced plans to delay a proposed spinoff of its five nuclear-power plants into the nation's first stand-alone nuclear-generating company, saying 'unprecedented turmoil in financial markets' has clouded prospects for completion of the largely debt-financed transaction.
Casino companies have halted billions of dollars in development projects from Las Vegas to Macau, China's gambling enclave. They are scrambling for cash to avoid defaulting on bank loans.
In recent weeks, Chief Executive Sheldon Adelson of Las Vegas Sands, owner of the Venetian casino resorts in Las Vegas and Macau, pumped in nearly half a billion dollars of his own cash to keep the company from breaking a loan covenant. He contributed another half-billion to a stock purchase as part of an effort to raise $2 billion to keep from breaking another covenant and help fund casino operations.
The financial crisis has created debt problems for media titan Sumner Redstone, who controls CBS and Viacom. The decline in value of the two stocks violated terms of bank loans held by Mr. Redstone's family holding company, forcing him to renegotiate $1.6 billion in bank debt. The holding company sold $233 million in CBS and Viacom stock in October, about 10% of Mr. Redstone's holding, but the sale wasn't enough to resolve the problem and the renegotiation continues.
Earlier this month, one of the largest commodity-related transactions of the year -- Bunge's purchase of Corn Products International -- collapsed after the value of the all-stock deal fell to $1.72 billion from $4.2 billion.
Worst-hit is the banking and finance business.
Almost as damaged is the housing sector, where housing starts fell to lows in October. Most of nation's large publicly traded home builders are expected to survive, but analysts expect as many as half of the nation's privately held home builders, 70% of the market, to go bust or close down.
The California Public Employees' Retirement System, the nation's largest public retirement fund by assets, has lost 26% since the start of its fiscal year in July. It recently told schools and state and local governments to expect increases in contributions, starting in 2010 and 2011.
E.S. BROWNING
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