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JULY 9, 2007
Edited by Harry Maurer Black Day At Bear Stearns The near implosion of two big hedge funds took a new twist on June 25 with word that regulators are looking into how the funds suffered such severe losses on subprime mortgage market bets. As first reported by Businessweek.com, the SEC especially wants to know why one of the funds first posted a 6% decline for April then quickly revised that to a thumping 19% loss. The inquiry is the latest headache for Bear Stearns (BSC ), which committed $1.6 billion in financing to prop up the less damaged fund but has no plans to sink new money into the one that lost 19% in April. For the past two weeks the fates of the funds, which borrowed money to buy billions of dollars in sophisticated bonds backed by subprime loans, have cranked up anxiety about other Wall Street banks and funds sitting on similar securities that could be ready to blow up. See "Bear's Big Loss Arouses SEC Interest" Housing: Ouch! The housing market can't find a bottom. On June 26 homebuilder Lennar (LEN ) announced a surprising loss of $244 million in its fiscal second quarter. CEO Stuart Miller said: "We continue to see weak, and perhaps deteriorating, market conditions." That wet blanket landed the same day the Commerce Dept. said new-home sales fell 1.6% from April to May. Adding to the gloom, the Standard & Poor's/Case-Shiller 10-city composite home-price index sank 2.7% in the year through April, the biggest drop since 1991. See "The Housing Mirage"   Murdoch Closes In With the June 26 news that Rupert Murdoch and the board of Dow Jones had achieved a deal safeguarding editorial independence, the stars seemed to be aligning for the press magnate, as so often happens, to get what he wants. Tire Troubles First, poison in Chinese-made pet food, then lead paint in toys, and now this. Foreign Tire Sales, a New Jersey importer, says 450,000 truck tires made by Hangzhou Zhongce Rubber of Hangzhou, China, are unsafe. In a letter to the National Highway Traffic & Safety Administration, Foreign Tire Sales said it received a complaint alleging that the tires failed, resulting in two deaths. The feds have demanded a recall, but Foreign Tire says it doesn't have the money. On June 26 the Chinese company said it hadn't found any problems with the tires. The Business Court? Capping its 2006-07 calendar, the U.S. Supreme Court handed business more important wins, including one limiting securities fraud cases, and another that trimmed the reach of the Endangered Species Act, thus chopping down a regulatory hurdle for developers. Too Much Leverage? They're hitting the brakes on buyouts. Private equity firms on June 26 backed away from selling $3.5 billion in junk debt to pay for U.S. Foodservice (AHO ). Investors had balked at the leverage and easy terms. Instead, the buyers will use backup financing pledged by investment banks. The change indicates LBO shops won't be able to borrow, and pay, as much for companies. One early casualty of the slowdown: shares of Blackstone Group (BX ). They closed below their IPO price on their third day of trading. At Last, A Delphi Deal General Motors (GM ) is finding that it can get its union workers to accept real change by cutting checks. After more than 18 months of wrangling, the United Auto Workers, GM, and its former parts supplier—bankrupt Delphi—shook hands. GM will buy out or grant early retirement deals to many of Delphi's 17,000 workers. Those remaining take a pay cut from $27 an hour to $18.50 but will get an extra $35,000 a year for three years. In exchange, GM avoids a strike at its biggest supplier and can bid more parts jobs on the open market. Paulson's Project Worried that the U.S. is losing its global edge as a financial markets leader, Treasury Secretary Henry Paulson unveiled plans on June 27 for a top-to-bottom review of federal regulations. The notion is to come up with a blueprint early next year to consolidate oversight and simplify rules. Open for discussion, for instance, is whether the country needs four separate federal bank regulators. Executive Shuffle The Yahoo! (YHOO ) exodus isn't over yet. Following the June 18 resignation of CEO Terry Semel, replaced by co-founder Jerry Yang, Chief Sales Officer Wenda Harris Millard took a powder on June 24 to become president of media at Martha Stewart Living Omnimedia (MSO ). Millard was the Internet portal's key liaison to Mad Ave, but the company says it needs someone to run both display and search ad sales. That unit will be led by Yahoo vet David Karnstedt. Meanwhile, on June 26, Wells Fargo (WFC ) named heir apparent John Stumpf its new CEO, replacing Richard Kovacevich. See "Another Yahoo Executive Shoe Drops" Zoellick Gets The Nod Former U.S. Trade Representative and Goldman Sachs Vice-Chairman Robert Zoellick was unanimously elected president of the World Bank on June 25. His strong diplomatic skills will be much in demand to heal the rifts at the bank in the wake of the Paul Wolfowitz imbroglio. In Memoriam Fashion doyenne Liz Claiborne died on June 26 at 78. "Thanks But No Thanks" Of The Week Two oil behemoths have bid adiós to Venezuelan President Hugo Chávez: ExxonMobil (XOM ) and ConocoPhillips (COP ), which had been operating three heavy-oil ventures in the Orinoco Belt region, objected to handing over majority stakes demanded by state-run PDVSA. Four others—Chevron (VX ), BP (BP ), France's Total (TOT ), and Norway's Statoil (STO )—decided to stick it out in spite of Chávez' squeeze on Big Oil. The fiery nationalist could be shooting himself in the foot: Oil output, which has slid 25% since he took office in 1999, could falter from the loss of foreign expertise and investment capital. That might cramp his spending on social programs aimed at implementing Cuban-style socialism. Over in Russia, BP, under heavy pressure, reached a deal to sell its stake in rich Siberian gas fields to Gazprom. The price was abysmal, but ties to Gazprom may fortify BP's position in the country. See "Two Oil Giants Exit Venezuela" and "BP's Russian Deal Oils the Wheels"
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