The 10,000 Milestone
There's something mystical about Dow 10,000, especially as Wall Street climbs out of its recent abyss. And this week stocks continued their intrepid ascent, with the Dow closing at 10,015.86 on Oct. 14. Investors seemed excited by stellar earnings from Intel (INTC) and JPMorgan Chase (JPM). The chip giant's third-quarter numbers handily beat its own forecasts, and its stock advanced 1.7% that day. The bank's stock price climbed 3.3%, to 47.16—almost three times its March low of 15.9o—as it announced $3.6 billion in profits in the third quarter, up from $527 million in the same quarter last year. While most companies that reported by press time have surpassed expectations, Thomson Reuters (TRI) estimates that S&P 500 companies will collectively suffer a 25% year-over-year earnings decline, with much of the red ink in the materials and energy sectors. Meanwhile, the U.S. dollar continued its downward spiral, falling to a 14-month low vs. a basket of six major currencies.
Health Reform Advances
Congress took another step toward healing the health-care system on Oct. 13 when the all-important Senate Finance Committee voted 14-9 in favor of a reform bill that would cost $829 billion over 10 years. After intense, months-long negotiations, the bill was able to garner one Republican vote, from Senator Olympia Snowe of Maine. The insurance industry is lambasting the bill as worse than no reform at all because of a weak requirement that everyone buy insurance, while congressional liberals are angry that Finance jettisoned the creation of a government-funded insurer, or "public option." The bill must still be reconciled with a more liberal plan approved by the Senate Health Committee in July; the full Senate is expected to start debating the proposals the week of Oct. 26.
Skilling Wins One
Ex-Enron CEO Jeffrey Skilling has had a long run of ill fortune: A jury found him guilty of fraud in 2006, a judge handed him a 24-year sentence, and a federal appeals court upheld his conviction. But on Oct. 13 the U.S. Supreme Court agreed to take a look at his case. Skilling complains that it was unfair to try him in Enron's hometown, Houston, where so many victims of the collapsed energy giant live. And he says that one charge on which he was convicted, "honest services" fraud, is unconstitutionally vague. If he prevails on his first claim, he'll get a new trial; a win on the second may simply result in a reduced sentence, since he was convicted on other charges as well.
Lights Out for a Utility
As quickly as you can flip a switch, President Felipe Calderón on Oct. 11 shut down one of Mexico's worst-run state-owned companies—and with it a powerful and allegedly corrupt union. Riot police surrounded installations of Luz y Fuerza del Centro, which distributed electricity to one-fifth of all Mexicans, in Mexico City and surrounding states. The move took the Mexican Electrical Workers Union by surprise after a labor vote marred by alleged fraud. Calderón must lay out up to $1.5 billion in severance to the company's 40,000 unionized workers, but that pales in comparison with the $3 billion a year the government had been paying to subsidize the company, which the President said was plagued by "theft, technical failures, corruption, or inefficiency." Another state-owned outfit, the Federal Electricity Commission, will lend some 3,500 workers to keep the juice flowing. Polls show 70% of Mexicans applaud the shutdown.
See "Mexico's President Moves Against Monopolies"
Are companies granting lucrative stock options to executives while merger talks are in progress? And if so, is that a bad thing? The Wall Street Journal on Oct. 12 reported on an academic study describing a pattern of target companies awarding options to top brass before a deal is announced. The executives then cash in when the stock kicks up on the day of the announcement. The study claims that companies engaging in the practice won lower takeover premiums than those that didn't, thus enriching the lucky executives but short-changing shareholders. The story has spurred debate: For example, John Carney of the Business Insider blog observes that such options give CEOs an added incentive to do a deal, and that shareholders would receive no premium at all if no deal is consummated.
Vroom! Passenger-car sales in China, which overtook the U.S. as the world's biggest auto market earlier this year, climbed 84% year-on-year to reach more than 1 million in September, a record. Chinese drivers were especially eager for autos with teeny engines—sized 1.4 liters or less—because they qualify for state subsidies. Overall vehicle sales, including trucks and buses, jumped 78%, to 1.33 million. Meanwhile, just days after General Motors said on Oct. 9 that it's selling the Hummer brand to Chinese heavy construction maker Sichuan Tengzhong for $150 million, its Shanghai joint venture announced plans to roll out a Chinese Chevy, the New Sail, aimed at the fast-growing small car segment.
Bruce Wasserstein Dies
The legendary financier, who lucratively traversed decades of market change, died on Oct. 14, two days after being rushed to the hospital with an irregular heartbeat. He would have turned 62 on Dec. 25. Wasserstein for the past four years was chairman and CEO of Lazard (LAZ). From his beginnings as a whiz corporate attorney at Cravath, Swaine & Moore to leadership roles at First Boston, Wasserstein Perella Group, and Lazard, he was a central figure in some of the highest-profile deals in M&A history, including the frenzied bidding for RJR Nabisco in 1989, described in the bestseller Barbarians at the Gate . He had been advising food behemoth Kraft (KFT) in its pursuit of Cadbury (CBY), and his net worth was recently estimated at $2.3 billion.
Whew! We Sold Phibro
It just doesn't look good when an employee of a bank propped up by the taxpayers rakes in a $100 million bonus. So Citigroup (C) on Oct. 9 dodged a political firestorm and found an eager buyer for its Phibro energy trading business: Occidental Petroleum, which agreed to pay a modest $250 million for a unit that earned an average of $200 million a year since 1997. Oxy also agreed to cover the compensation of traders such as Phibro chief Andrew Hall, who was due the $100 million. His stratospheric pay was a dilemma for Citi, 34% owned by the feds and still afloat only because of $49 billion in bailout funds.
See "Pass the Buck: Citi Sells Phibro to Oxy"
Cisco Strikes Again
The networking giant is richer than Croesus—and unlike most tech behemoths, it seems hell-bent on remaining a company that delivers 13% to 17% growth year in and year out. That's why it has gobbled up two companies in the past month, with $3 billion the apparent sweet spot. On Oct. 1 it bought videoconferencing outfit Tandberg for that amount, and on Oct. 13 it paid $2.9 billion for Starent Networks, a maker of gear used by wireless carriers to deliver data services to cell phones. Maybe one day Cisco can bring relief to frustrated iPhone users, given carrier AT&T's difficulty keeping up with massive mobile Net traffic.