January 27, 2004
U.S. Stocks Inch Higher As Fed Meeting Looms
U.S. stocks edged higher Monday after Alan Greenspan shared some
reassuring words about the employment situation, the Wall Street
Journal reported. Federal Reserve Chairman Greenspan said on Monday
that a flexible U.S. economy will be able to replace jobs lost in the
last recession, but laid-off employees in job-losing industries may need
to be retrained to qualify for new work.
In a speech prepared for an economic conference in London, Greenspan
sought to address fears that many of the 2.8 million manufacturing jobs
lost could be gone forever to lower-wage countries, saying the United
States has historically created new jobs in cutting-edge industries to
make up lost jobs. Despite the reassurance, stocks made only measured
progress. Trading is expected to continue to be muted leading up to this
week's meeting of the Federal Reserve's Open Market Committee. The Fed's
policy-setting body will release its latest statement on interest rates
on Wednesday afternoon, reported the online newspaper.
Existing Home Sales Surge in December
Sales of existing U.S. homes rose by a much stronger than expected 6.9
percent in December, the National Association of Realtors (NAR) said on
Monday, taking the full year to a new record rate, Reuters reported.
Sales of previously owned homes rose to a seasonally adjusted annual
rate of 6.47 million units from a revised 6.05 million in November. Wall
Street economists surveyed by Reuters had forecast December existing
home sales at a 6.10 million unit rate. 'Housing continues to boom
because interest rates are still at historic lows,' said David Lereah,
chief economist at NAR. NAR said there had been 6.1 million homes sold
in existing homes in 2003, shattering the old record of 5.56 million in
2002. NAR also said prices rose 7.5 percent last year versus 2002, the
highest rise since 1980 when prices rose 11.7 percent.
Pension Reform Expected To Pass Senate
The Senate will hold stacked votes today on pension reform legislation,
CongressDaily reported. The legislation, which will change the
formula companies use to calculate contributions to their pension plans,
is expected to pass without major opposition. Despite Senate Majority
Leader Bill Frist's (R-Tenn.) original intention to bring class action
reform to the floor immediately following action on pension legislation,
it is now postponed until after the legislation to reauthorize federal
surface transportation programs.
U.S. Supreme Court Rules On Attorney Fees In Chapter 7
Liquidations
The U.S. Supreme Court on Monday ruled federal bankruptcy law doesn't
allow the awarding of fees to a debtor's attorney after a bankruptcy
estate is converted to chapter 7 liquidation, the Wall Street
Journal reported. The question arose from the bankruptcy of
Equipment Services Inc., a southwestern Virginia mine-services company.
The company hired attorney John Lamie of Abingdon, Va., to handle the
chapter 11 proceedings.
The U.S. Trustee eventually filed to convert the bankruptcy to a chapter
7 liquidation and the court appointed a trustee to take over the case.
Lamie continued to do some work for Equipment Services and filed to
collect fees from the estate. Lower courts ruled, however, that the 1994
bankruptcy law changes didn't allow Lamie to collect fees once the
business was being liquidated. The issue has confounded federal
bankruptcy courts since the mid-1990s.
In the Supreme Court decision, Justice Anthony Kennedy said the justices
relied on the legislative history in reaching its decision, but added
that it wasn't entirely clear whether Congress meant to bar such
attorneys' payments. 'If Congress enacted into law something different
from what it intended, then it should amend the statute to conform to
its intent,' Kennedy wrote, reported the online newspaper. The case is
href='http://supct.law.cornell.edu/supct/html/02-693.ZS.html'>Lamie v.
U.S. Trustee.
MCI
MCI Can Sue Ex-CEO, Citigroup, Others
A court-appointed examiner investigating MCI said on Monday that the
bankrupt telephone company can sue former CEO Bernie Ebbers and other
top executives should it seek reparations for their roles in its $11
billion accounting scandal, Reuters reported. MCI also could pursue
legal claims against its former investment banker, Citigroup and its
former accountant, Arthur Andersen, according to the report.
MCI Examiner Criticizes KPMG on Tax Strategy
WorldCom avoided hundreds of millions of dollars in tax payment due to
aggressive tax shelters designed by KPMG, according to a report by
bankruptcy court examiner Dick Thornburgh, the Wall Street
Journal reported. WorldCom avoided paying hundreds of millions of
dollars in state taxes from 1998 to 2001 based upon the accrual of over
$20 billion in what the report calls questionable royalty charges. The
report says that the heart of the KPMG Peat Marwick LLP-designed method
was that 'foresight of top management' was classified as an intangible
asset, which WorldCom could license to the subsidiaries in exchange for
huge royalty charges. The report says that 'management foresight' is not
an intangible asset and could thus not support royalty charges, adding
that there are other flaws in the WorldCom tax minimization program as
well. The report says that WorldCom's accrued royalties and the state
tax savings created by the royalties may be subject to scrutiny from
state taxing authorities, reported the online newspaper.
Separately, Reuters reported that KPMG stated that its 'corporate tax
work for WorldCom was performed appropriately, in accordance with
professional standards and all rules and regulations,' KPMG said in a
statement e-mailed to the newswire.
Judge Delays Trial of Former WorldCom CFO
A federal judge has ordered a two-month delay in the trial of Scott
Sullivan, the former WorldCom Inc. executive at the center of an $11
billion accounting scandal that sent the telecommunications company into
bankruptcy, Reuters reported. Under a recent order by U.S. District
Judge Barbara Jones, the trial is due to begin April 7 rather than Feb.
4 as previously scheduled, a court official said on Monday.
Northwest Air Investments Yield Profit
Northwest Airlines Corp. on Friday posted a fourth-quarter profit on a
gain from its regional carrier's initial public offering, but it swung
back to an operating loss without that benefit under the weight of hefty
labor costs, Reuters reported. The airline said that massive operating
losses are not sustainable and that it still needs to cut labor costs to
remain competitive. 'The airline business has fundamentally changed and
we must bring our costs in line with our revenue expectations,' CEO
Richard Anderson said, reported the newswire. 'Relying on the
possibility of a cyclical recovery is futile. Relying on the sale of
assets and other one-time transactions is also not the answer. The
airline must produce profits from operations to succeed over the long
term.'
FAO Schwarz Assets Sold for $41 Million
Bankrupt retailer FAO Inc. said on Monday that a judge approved the sale
of certain FAO Schwarz assets to investment and technology development
group D.E. Shaw for about $41 million, Reuters reported. The assets
include FAO Schwarz's flagship store on Fifth Avenue in Manhattan, a
second store in Las Vegas, and its catalog and Internet businesses. The
purchase price is more than double D.E. Shaw's initial 'stalking horse'
bid of $20 million. The New York and Las Vegas stores are expected to
reopen in about four to six months after renovations. FAO Schwarz's
parent company, FAO Inc., filed for bankruptcy twice in 2003, both times
citing weak sales and cutthroat competition. The Schwarz family
foundation, which owns the 'FAO Schwarz' brand name, has agreed to
license it to D.E. Shaw, reported the newswire.
Mirant Aims to Fend Off Worker Suits Over 401(k)s
Bankrupt Mirant Corp.'s employee retirement plans weren't intended to
maximize returns on employee investments. Rather, they 'were
specifically designed' to bolster Mirant's stock sales, according to
court papers filed this month by the energy marketer, the Fulton
County Daily Report reported.
The 401(k) plans were crafted to interest employees in becoming
shareholders and to give them an easy way to buy stock, court documents
say. According to Mirant's attorneys at Alston & Bird, H. Douglas
Hinson and Michael G. Monnolly, the federal Employee Retirement Income
Securities Act sanctions this function. The attorneys also argue that
federal regulations governing retirement and pension funds exempt fund
managers 'from any responsibility to diversify company assets that are
invested in company stock.' Read
href='http://www.law.com/jsp/article.jsp?id=1074819341914'>the full
article.
Laidlaw Applies to List on NYSE
Laidlaw International Inc. said Tuesday it applied to list its common
shares on the New York Stock Exchange, Reuters reported. The Naperville,
Ill.-based company expects trading on the NYSE will begin on Tuesday,
Feb. 10, under the trading symbol LI. Laidlaw also operates school
buses, and emerged from bankruptcy protection last summer as a
reorganized company.
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