In Business This Week
Edited by Monica Roman
HEADLINER
Glenn Hubbard: Another Economist Makes an Exit
Glenn Hubbard, the architect of President Bush's controversial dividend tax cut plan, is leaving the Administration to return to academia. Hubbard, who was chairman of Bush's Council of Economic Advisers, had hoped to jump to the now-vacant No. 2 slot at the Treasury Dept. He decided to leave after it became clear he wouldn't get the job, insiders say.
Hubbard first hatched the idea of ending the double taxation of dividends in 1992 when he was serving at Treasury under Bush's father. Officials say his departure does not mean that President Bush has lost enthusiasm for the proposal.
The White House nominated another well-respected conservative economist, Harvard University professor Gregory Mankiw, to replace Hubbard. But unlike Hubbard, who regularly derided Democrats for obsessing over the deficit, Mankiw seems to believe that deficits do matter. His highly regarded college textbook, Principles of Economics, says too much government red ink can drain resources that the private sector could use to boost productivity.
By Rich Miller
Taking a Bite Out of Corporate Crime?
Washington's drive to convert executive pinstripes into jail stripes is in high gear--at least for corporate underlings. On Feb. 26, a federal grand jury in Detroit indicted two former execs at bankrupt Kmart--Enio A. Montini Jr. and Joseph A. Hofmeister--for securities fraud. Montini and Hofmeister were both charged with illegally booking $42.3 million in revenue in the second quarter of 2001. And on Feb. 25, federal prosecutors in Denver charged four former Qwest Communications officials--Grant Graham, Thomas W. Hall, John M. Walker, and Bryan K. Treadway--with falsely booking $33.6 million in revenues during that same quarter. Lawyers for all the defendants denied the charges. Justice Dept. and Securities & Exchange Commission officials say they're working their way up to bigger fish from last year's corporate scandals.
You've Got Music--for a Price
On Feb. 26, America Online (AOL
) rolled out MusicNet, its online music subscription service, a year after pulling its first version. This time, AOL has added more bells and whistles, including 260,000 songs from all five major music labels and the ability to download songs and burn them onto CDs. Monthly fees range from $3.95 to $17.95 for a premium package that gives consumers unlimited downloads and the ability to burn 10 songs every month. But MusicNet is still a gamble because consumers haven't yet demonstrated a huge appetite for paying for music online.
More Heat on the Street
You can't tell the Wall Street probes without a scorecard. BusinessWeek has learned that Representative Richard Neal (D-Mass.) is asking the SEC to investigate Bankers Trust's asset sales for Enron. Congressional investigators found that BT, now a Deutsche Bank (DB
) unit, helped Enron artificially boost operating income by more than $200 million in 1997 and 1998. A Deutsche Bank spokesman says the deals were "appropriate" and that the firm will cooperate with any probe. Meanwhile, the SEC has told Morgan Stanley (MWD
) that it may face civil securities fraud charges for its initial-public-offering allocation practices. The firm allegedly tied grants of IPO shares to investors' promises to buy more shares after the IPO, a practice known as "laddering." Morgan Stanley denies any wrongdoing.
GE Puts Another Unit on the Block
In a further bid to kick out nonperformers, General Electric (GE
) is shopping around Financial Guaranty Insurance, sources say. The $2.2 billion guarantor mainly backs municipal bonds. It's part of the GE Insurance unit, which also contains troubled Employers Reinsurance and lost $509 million last year. While GE does not comment about prospective deals, Chief Executive Jeffrey Immelt has previously said that he wants to sell off slow-growth businesses. Analysts say GE's motor-manufacturing, appliance, and lighting units are also likely to go.
Schering-Plough's Big Legal Load
Schering-Plough's (SGP
) legal troubles are growing. On Feb. 25, the drugmaker announced it was hiking its reserves against investigations into the company's marketing and clinical trial practices by the U.S. Attorney's offices in Massachusetts and the Eastern District of Pennsylvania. As a result of the $150 million reserve, Schering's already reported 2002 earnings will be clipped by 6%, to just under $2 billion. And with Schering noting that the reserves simply reflect a minimum liability from the investigations, analysts say it is impossible to determine what the final tab may be.
Et Cetera...
-- Hewlett-Packard's (HPQ
) first quarter sales of $17.9 billion missed analysts' estimates.
-- Some 140 nations are exploring how to liberalize services as part of WTO talks.
-- Wholesaler Fleming (FLM
) plans to fire 1,800 employees, or 15% of its workforce.
CLOSING BELL
Flying on Fumes
Shares of American Airlines parent AMR (AMR
) sank 9%, to $2.58, on Feb. 26 after its pilots union warned that the carrier could run out of cash and be forced into bankruptcy by May. AMR shares, at their lowest close in more than a decade, are now down 92% in the past year.
CLOSING BELL
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Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.
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