- The Washington Times - Wednesday, January 30, 2002

Fears that some companies might be burying Enronlike problems in their financial statements spooked the stock market yesterday, sending the Dow Jones Industrial Average down 248 points.
Investors dumped the shares of big-name corporations, including Tyco International and Williams Co., and looked askance at such blue chip stocks as General Electric and IBM.
"Investors are clearly worried about more skeletons in the closet," said Stephen Carl, a principal at Williams Capital Group. "We're seeing a lot of negative sentiment today, even though we got strong economic news."
The market's slide was barely slowed by upbeat economic reports showing that consumer confidence and big-ticket factory orders were on the rise.
Williams, a big energy-trading company, delayed its earnings report and said it might have to pay more than $2 billion of debts related to the spinoff of a telecommunications venture, weeks after the disclosure of large hidden debts led to Enron's downfall.
Meanwhile, Tyco, a sprawling conglomerate like Enron whose accounting for acquisitions had drawn criticism in recent years, disclosed that it paid one of its directors $20 million to help arrange an acquisition, raising conflict-of-interest concerns like those that surfaced in the Enron case, though Tyco defended the fee as "appropriate."
The stocks of both companies dropped by more than 20 percent, helping to push down the Dow by 2.5 percent to 9,618. The Dow also was lowered by reaction to a change of management at IBM, whose opaque accounting practices were dragged into the spotlight by the Enron debacle.
Energy stocks fell across the board, and banking stocks were hit by fears of mounting losses from the bankruptcy of Enron and other major businesses. The Nasdaq Composite Index declined 2.6 percent to 1,893, while the blue chip Standard & Poor's 500 Index tumbled 2.9 percent.
"There are companies out there using aggressive accounting tactics" like Enron, which hid its mounting debts by creating more than 100 off-balance-sheet partnerships while inflating its profits in reports to investors, said Richard Babson of Babson United Funds in Boston.
"That's coming home to roost" for corporations such as Tyco and Cendant Corp., he said. Cendant is another conglomerate whose stock was hit yesterday because of the way it accounted for its Days Inn franchises, Coldwell Banker real estate brokerages and Avis rental car business using off-balance-sheet transactions.
Worries about Cendant were touched off by rumors, denied by the company, that the Wall Street Journal might publish a story concerning accounting irregularities. Tyco was hit by the Journal's revelation of the director's fee yesterday. The company had attempted to deflect criticism of its accounting practices earlier by announcing a four-way breakup of its sprawling businesses.
Concerns about the reliability of corporate disclosures have haunted the market from time to time, particularly in the aftermath of the demise of many dot-com companies, Mr. Babson said, but they are roaring to the forefront in the wake of the Enron debacle. Polls show that Americans are worried that corporations widely engage in Enronlike deceptions.
"It's sort of like opening a pinata. It had been coming out in dribs and drabs, but finally the pinata breaks open and everything's laying out there," Mr. Babson said, predicting that many more damaging disclosures will be made by corporations and their accountants as the Enron fallout continues in coming weeks.
Investment managers were focusing particularly on companies whose earnings growth had been driven by merger activity or profits from trading in financial derivatives, like those that propelled Enron's stock higher.
But even a company with a sterling reputation such as GE is drawing scrutiny because, like Enron, it is a large and complex conglomerate whose complicated balance sheets can be a challenge even for financial analysts to decipher, Mr. Babson said.
"I'm concerned, but I'm not paranoid. I don't think there are a lot of companies out there cooking the books," Mr. Babson said. After careful study, Babson confirmed its belief that GE, for example, with a wide range of businesses from manufacturing aircraft engines to consumer lending, remains one of the best managed American companies.
Adding to yesterday's downdraft was PNC Financial Services Group, which said it was under pressure from federal regulators to change its accounting for bad loans sold last year and reduce its income by $155 million.
"Institutional investors are questioning whether they should be long-term holders of any company that has accounting questions," said Diane Garnick, an investment strategist at State Street Global Advisors. Investors lost billions of dollars when Enron's stock plummeted to mere pennies from as high as $90 when it restated its earnings last fall.
Thomas McIntyre, a portfolio manager with Dessauer & McIntyre Asset Management, said some companies such as Cendant may be getting tarred unfairly by the Enron scandal.
"This is typical of the times," he said. "Investors are shooting first and asking questions later."

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