Return to Transcripts main page
Lou Dobbs Moneyline
Dow Declines 247.51 to 9,618.24; Nasdaq Declines 50.92 to 1,892.99
Aired January 29, 2002 - 18:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANNOUNCER: Tonight on Lou Dobbs MONEYLINE, President Bush delivers his State of the Union Address, the economy one of his top priorities.
Stephen Cooper takes over as Enron's interim CEO and promises employees the company will survive bankruptcy.
Senator Jeff Bingaman joins us. His committee is looking into the effect Enron's collapse will have on consumers.
We'll also be joined by Daniel Scotto, the analyst who blew the whistle on Enron, only to be fired from his job.
The Enron effect hits Wall Street, but it's about much more than bad management and questionable accounting.
This is Lou Dobbs MONEYLINE for Tuesday, January 29th. Here now, Lou Dobbs.
LOU DOBBS, MONEYLINE ANCHOR: Good evening everyone, a crisis of investor confidence today on Wall Street, the latest casualty of Enron. The damaged psychology combining to send stock prices plunging, investors learning more about Enron, fearing there may be more than the simple one case of Enron.
It now appears that any accounting questions or any unusual numbers have investors heading for the exits. Kitty Pilgrim has the report.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN CORRESPONDENT (voice over): Market diagnosis, Enronitis, a disease of the nerves afflicting some investors with increasing frequency since the Enron scandal.
ARTHUR CASHIN, UBS PAINE WEBBER: Well, this is the real problem. I mean we've got an outburst of infectious Enronitis this morning, and we're hoping it's not a terminal disease.
MAUREEN ALLYN, ZURICH SCUDDER INVESTMENTS: Enron has scared the socks off investors. They didn't see it coming, and no one gave them any warning, and this just makes them understandably very nervous when anything that has an Enron echo shows up. PILGRIM: Tuesday, three separate cases of Enronitis. First shares of energy trading in pipeline company, Williams Company, sold off heavily when the company said it would delay its earnings report. That to take a closer look at financial obligations to its former telecommunications unit, Williams Communications. Williams said it would have some answers in the next few weeks, but some investors weren't waiting around.
Accounting issues triggered worries about PNC Financial. The Federal Reserve Board said the company had to reconfigure interest in three subsidiaries. That was in sharp contrast to what PNC's auditors said and could reduce already reported profits by $155 million.
And Tyco, in a proxy statement Monday, said it paid $20 million to an outside director, raising eyebrows and lowering the stock. Tyco continues to insist the sell off was unjustified.
BARRY HYMAN, EHRENKRANTZ KING MUSSERAUM: The Tyco story is a perfect example of that and it becomes problematic. Ever since they decided to split into four companies, the stock has done nothing but go down. Now we have this story today about a $20 million payment to a third party for investment banking purposes. I think Wall Street's starting to question more than just accounting. It's starting to question what is business as usual?
(END VIDEOTAPE)
PILGRIM (on camera): Now market watchers say to restore investor confidence requires a long period where results outstrip expectations. That's not likely anytime soon. In the meantime, any unusual number or unexplained departure of an executive is likely to cause more market worries. Lou.
DOBBS: And I think we should say appropriately so. Investors to this point have been burned, and it is time for a high level of skepticism.
PILGRIM: I think scrutiny is always welcome in the markets, and many companies can sustain scrutiny.
DOBBS: And at this point with the SEC the target of some of that concern, the ratings agency, the accounting industry, this is a crisis of confidence that simply is going to have to be dealt with. All right, Kitty, thank you very much.
Well those concerns about possible future Enrons, transferred to a brutal session on Wall Street today. The blue chips fell to a two and a half month low, $304 billion of market cap erased today, the Dow plunging 247 points, the Nasdaq falling 50 points, the S&P 500 dropping 32 points.
Following the sell off, Christine Romans at the New York Exchange, Greg Clarkin at the Nasdaq Market Site. Christine.
CHRISTINE ROMANS, CNN CORRESPONDENT: Lou, that Tyco post was a blizzard of selling all session. Any whiff of credibility concerns got hammered by investors today. Tyco shares down sharply, the most actively traded stock here on the Big Board.
Even if the company defended its payment to that outside director, you also had (inaudible) shares, a throng around there. The company forced to come out and address market rumors that there's a negative news article impending about it. They say they don't know of any article, but investors still really sold this stock.
General Electric down sharply with the regular market malaise. Williams Company down $5, very active trade there. Citigroup down $2.60, the financials hammered on concerns of everything from loaning money to companies like Enron to Argentina exposure, to general malaise about the upcoming Fed meeting.
Look at JP Morgan, another dog on the Dow. IBM, the biggest Dow loser here, down more than five points, even as analysts said the transition from Lou Gersner to a new CEO will likely be smooth, investors very nervous today.
Merck, a rare bright spot, it's going to spin off its Merck Medco prescription drug plan sometime this year. AOL Time Warner down sharply ahead of its earnings, and Coca Cola down $1.21 as it says its long-term target of five to six percent global unit volume growth might be the lower end of that for the year 2002.
The really bad news, Lou, for the bulls at least, the volume here was the best I've seen in months, more than 1.7, almost 1.8 billion shares and the down volume, Lou, was 1.2 billion. So most of this was down volume today, very troubling for the bulls.
DOBBS: You talked about the Tyco post, the (inaudible) post, the GE post, one of the premiere companies hammered in this. What is the talk on the floor there?
ROMANS: Well, a lot of traders over there were saying it was just swept up in the overall mood here on Wall Street. But remember, GE is also a pretty inquisitive company. Any kind of - they're just selling everything around here, really worried about what's going to be coming out in the woodwork, and what kind of corporate relationships different companies might have. The mantra here is sell first, ask questions later.
DOBBS: Christine, thank you very much. Turning to the Nasdaq which dropped two and a half percent, let's go to Greg Clarkin. Greg.
GREG CLARKIN, CNN CORRESPONDENT: And, Lou, you know Wall Street as we know is always rumor driven, but just incredible hypersensitivity to rumors today. That's what we saw harrowing some specific stocks, some specific sectors.
Take a look at the big name stocks. Now these companies really had no bad news associated with them today, but still when you see a broad market, a sell off, these guys got hammered. Cisco, Dell, Intel, Sun Microsystems all losing anywhere from two and a half to more than four percent in some cases.
One of the big name big losers on the day though, were shares of WorldCom. The stock was down at any given point today about 15 or 16 percent, a number of rumors around the company, a lot of them concerning Standard & Poors.
One rumor had S&P taking WorldCom out of the S&P 500. Another had Standard & Poors downgrading the company's debt to junk status, WorldCom denying all these rumors, the stock still though down more than 13 percent at the close, losing $1.60. Trading at five-year lows today. At one point that stock was trading below $10 a share.
Level 3 Communications, another company in the telecom business that's really just been hammered. Level 3 Fiber Optic Network Company saying they may not be able to meet terms of a debt agreement if sales, cancellations, and disconnection rates stay the same, that stock selling off on that news.
On the upside though, the online travel folks continue to do just a booming business. They're far exceeding Wall Street expectations. Expedia the latest case, take a look at the percentage jump on that stock, up more than $5. Travelocity, its competitor, moving right along with it.
So there were a few bright spots out there today, Lou, the online folks the most prominent among them, but overall just a real dismal session. Speaking with traders this afternoon, they do say that there was just an incredible sense of a breakdown of investor confidence at the moment, and they're really just selling at any kind of hint or rumor of bad news. Lou, back to you.
DOBBS: A day of extraordinary volatility, Greg. Thank you very much, Greg Clarkin. Enron today named a new interim CEO. Stephen Cooper, a turnaround specialist, replacing Ken Lay. Cooper promises employees that Enron will survive its bankruptcy. In addition, several current Enron executives have been promoted. Fred Katayama has the story from Houston, Enron headquarters with more. Fred.
FRED KATAYAMA, CNN CORRESPONDENT: Well, Lou, Stephen Cooper faces huge challenges, restructuring Enron and leading the company through the biggest bankruptcy case ever. His friends say that he's up to the task. He's a bankruptcy turnaround.
He's basically a corporate turnaround artist, and he's currently working to turn around Laidlaw Company, the Canadian transportation firm that runs Greyhound Lines, a firm that he currently serves and will continue to serve as Vice Chairman.
His track record includes turning around Federated Department Stores and Morrison Kanutzen, taking those companies out of bankruptcy. People who have worked with him say he's up to the task of leading Enron, especially given its secretive culture.
(BEGIN VIDEOTAPE)
RICHARD CIERI, BANKRUPTCY ATTORNEY, JONES DAY: He will be very open with the creditors and with the other stakeholders of Enron as to the problems facing Enron and his views as to how to solve those problems. You can expect that he will not hide the ball in any way in dealing with these various constituencies.
(END VIDEOTAPE)
KATAYAMA: He'll have to work fast because Enron faces an early April deadline of submitting its restructuring plan. He already began today by telling his employees that they face a tough road ahead. He said "I don't want to leave the impression that it will be easy."
Helping him lead the company, Jeff McMann. He was promoted from Chief Financial Officer to President and Chief Operating Officer. Taking his job, Ray Bowen. Both McMann and Bowen are so young, they weren't around when Elvis debuted.
McMann is only 41, Bowen 42, and the former Enron Vice Chairman who was found dead last week, Clifford Baxter, was only 43, a young company with young executives and a very aggressive culture that Cooper will have to deal with. Lou.
DOBBS: And, obviously one in need of adult supervision. All right, Fred, thank you very much. Fred Katayama from Houston.
Well talk about making a killing in the market, a leading Democratic fundraiser made a bundle on Global Crossing stock. That's the telecom company that went bankrupt yesterday. Jonathan Karl joins us now with the story from Washington. Jon.
JONATHAN KARL, CNN CORRESPONDENT: Well, Lou, I'm sure you remember when Hillary Clinton turned $1,000 into $100,000 trading commodity futures, cattle futures. There was a big uproar here in Washington. That was a few years ago.
Now the news is the Democratic Chairman of the DNC, this is Terry McAuliffe, turned $100,000 investment in Global Crossings in 1997. He was an initial investor before the initial public offering. He has $100,000 put into the company at that point, sold most of it two years later for a profit of about $18 million, that coming from a McAuliffe spokesperson at the DNC, saying that was the case.
Now this comes to light today, even though this profit happened a long time ago because, as you mentioned, Global Crossings did announce its bankruptcy yesterday, its once mighty stock now trading for just pennies on the stock market.
Fortunately for McAuliffe, he sold out before the company imploded, but Republicans are privately very ecstatic about this. They think that this whole issues makes it much harder for McAuliffe to beat up Republicans over the issue of Enron.
But the DNC is quick to point out that there is really in their view no similarity here. They say that Terry McAuliffe was simply a stockholder. He had not interest - he was not part of the company. He was not on the company's payroll. He simply bought and sold stock, and fortunately for Terry McAuliffe, he bought low and he sold high. And, as a matter of fact, the DNC also pointing out that there were many other prominent Republican stockholders, including the former President George Bush, who received stock in Global Crossings you may remember in exchange for a speech he gave, and it turned out to be quite a windfall for the former President, although we don't know whether or not the former President got out and made his profit before the company stock imploded.
So, that's the story up here. You know, Republicans are making an issue about this, Lou, I should say privately. You don't see a lot of Republicans coming out publicly attacking McAuliffe. They're hoping that this just kind of stirs the pot and it becomes a discussion on Talk Radio and the like.
DOBBS: Jonathan, I don't think that they have much to fear. This is just another example of a very broad problem that's going to have to be dealt with, and unfortunately for those who do not want to see a great deal of regulation, it looks like this all but assures it in the coming months and year.
KARL: Thanks, Lou.
DOBBS: Jonathan Karl, thank you. I appreciate it.
KARL: Thanks, Lou.
DOBBS: Well in less than three hours, President Bush will deliver his first State of the Union Address since he took office a year ago. A lot has changed. The budget surplus has vanished. The economy has slipped into recession, and terrorists, of course, launched the most deadly attack ever against the United States on American soil.
As a result, the President tonight is expected to ask for tax cuts to stimulate the economy for more money to defend the country and to pursue the War against Terrorism. Tim O'Brien reports from Washington.
(BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN CORRESPONDENT (voice over): The President's first State of the Union Address has already gone through two dozen revisions, but it is a script Mr. Bush and his advisors may have been writing ever since the fateful in September when the President's priorities and those of the nation were sealed.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: And the biggest chore I have, my biggest job is to make sure our homeland is secure.
O'BRIEN: To accomplish that chore, Mr. Bush will remind Americans of the need to root out terrorism, the sacrifices that may entail, and to underscore U.S. support for the new Afghanistan. He will introduce interim leader, Hamid Karzai, who will have a front-row seat in the visitor's gallery.
We're told the President will put three countries on notice, Iran, Iraq, and North Korea, warning them not to align themselves with terrorists. Seldom has the President gone before Congress with such extraordinary popular support and an 83 percent job approval rating, despite some misgivings about Mr. Bush's handling of the economy.
Only three in ten Americans believe the economy is healthy, and substantial majorities feel the administration is too close to business.
BUSH: My economic plan is based upon this word, "jobs." I want to ask that question all around the country, what do we do to create work? There's a lot of good people who want to work and we got to help them find work.
REPRESENTATIVE RICHARD GEBHARDT (D) MINORITY LEADER: Real security means keeping the economy going strong. It means creating good jobs. Real security means keeping Medicare and Social Security strong, and getting a Medicare prescription drug program.
O'BRIEN: Mr. Bush is expected to call for new prescription drug benefits for the elderly and greater reliance on private healthcare plans. Although the President may never use the word Enron, he is also expected to call on corporate America to be more accountable to shareholders, and he'll call on Congress to protect worker pensions and 401 (k) retirement savings plans.
(END VIDEOTAPE)
O'BRIEN (on camera): What the President will say tonight has been leaking out of the White House all day, and some of it is predictable. But there is also a sense here that Mr. Bush may have some important surprises in store too, perhaps an olive branch to Democrats on an economic stimulus package, possibly a proposal to advance human rights in the Arab world, particularly for women. Lou, we'll know in just a few hours.
DOBBS: Indeed we will. Thank you very much, Tim O'Brien from Washington. Still ahead here tonight, IBM names a new CEO. We'll hear from Lou Gersner and Sam Palisano on the changing of the guard at the top of Big Doe.
And a crisis of investor confidence on Wall Street today, stock prices plunge on concerns about financial reporting. And next, we'll hear from an analyst who warns investors that they should sell their shares of Enron well before the collapse, only to be fired by his company.
(COMMERCIAL BREAK)
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT (voice over): Chair, Arthur Levitt. The report was unfinished when Attorney Harvey Pitt became SEC Chair last August. Mr. Pitt, who has represented accounting firms was unaware of the report and it simply petered out, according to a spokesperson.
Accounting peer reviews have frustrated SEC officials for years. Former SEC Chief Accountant, Walter Shootz.
WALTER SHOOTZ, FORMER SEC CHIEF ACCOUNTANT: I think the peer reviewers have tended to put as good a gloss as they can on the shortcomings that they find.
CHERNOFF: The American Institute of Certified Public Accountants says peer reviews do work in helping improve performance. What's needed now, the group acknowledges, is a new accounting model.
BARRY MELANCON, PRESIDENT & CEO, AICPA: We have an accounting model that has grown up in an industrial age. But if I take a new line company, a technology company, let's say Microsoft, and I were to ask you before I handed you a balance sheet, what are the three biggest assets in Microsoft?
Some people would say, well Bill Gates and his intellect. Some people would say, the R & D function. Some people would say the millions of computers every morning that start up on Microsoft platforms, that provides this channel of distribution for their new products. And then, if I handed you the balance sheet of Microsoft, not one of those things would be on their balance sheet.
(END VIDEOTAPE)
CHERNOFF (on camera): The AICPA actually proposed changes to the accounting model in a 1994 report, then had detailed discussions with the SEC on the topic two years ago. Mr. Melancon says Harvey Pitt has indicated that he also would be in favor of such an overhaul. Lou.
DOBBS: A lot of overhaul on the way. It may look like a minor overhaul by the time we're through with this process. Allan, thank you very much. Allan Chernoff.
Well, the fall of Enron, of course, has devastated the reputation of accounting firm Andersen. Now Washington wants more information about some of its earlier clients, and Delta is considering dropping Andersen as its accounting firm. Peter Viles reports now on Andersen's struggles.
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice over): Embattled Andersen Chief Joe Berardino again tried to influence the news agenda in these full page ads, promising: "In the near future, Andersen will announce several significant changes in the way in which we do business."
That news, though, came as Delta Airlines confirmed it is reevaluating its 53-year relationship with Andersen. The auditing firm admitted on Monday, it is losing some business over this scandal.
With $9 billion in annual revenue, Andersen has already lost $47 million in annual fees from Enron. The loss of Delta's business, $5.9 million a year would be a symbolic blow, if not a huge economic one.
PROFESSOR RAY BALL, UNIVERSITY OF CHICAGO: An auditing firm really only offers two things, independence and expertise, and I think both of those are in play. And perceptions on this I'm sure are quite fragile and it's a very proud, very strong accounting firm, and the danger is that they won't be able to bring it back.
VILES: Congressman Billy Tauzin was turning up the heat Tuesday, firing off a letter, demanding to know whether it did any consulting work on roughly 40 Enron partnerships, an exotic list that includes the Condor, Rawhide, Osprey, Yosemite, and Big Doe families.
Tauzin is also digging into past Andersen accounting scandals at Sunbeam and Waste Management, demanding to know exactly when during those scandals, Andersen gave the written order to preserve all documents. And when Congress is done, the courts will follow. Lawyers are predicting, perhaps hopefully, huge payouts by the firm.
PAUL GELLER, CAULEY GELLER BOWMAN & COATES: I think for sure at the end of the day, when people talk about which accounting firm has paid the largest shareholder lawsuit, it's going to be Andersen, and it's going to be in the Enron situation.
(END VIDEOTAPE)
VILES (on camera): Andersen has been down this road before. It paid $110 million to settle shareholder lawsuits in that Sunbeam case. The record payout was $335 million in the Cendant (ph) fiasco. That was paid by Ernst & Young. The reason people are talking a record payout here, the losses on Enron on much larger than the losses by shareholders in Sunbean or Cendant. Lou.
DOBBS: Thanks. You know, as I think about those partnership names, Rawhide, Yosemite, one would think if you were looking at just the names of the partnerships, it might flag some idle curiosity.
VILES: Sure, and what Billy Tauzin wants to know is how involved was Andersen in the creation of these, maybe not auditing, but consulting on those deals.
DOBBS: Yes. As we examine and follow along all of the oversight that's taking place, just beginning really, to me it's really important to remember and keep in focus, this is first and foremost a failure of management and a failure of governance and the board of directors.
VILES: Sure, the board at Enron, certainly management at Enron, and perhaps management at Andersen as well.
DOBBS: Pete, thank you very much. Peter Viles. Well, analysts have been criticized for helping to inflate Enron's stock price over time, while failing to notice severe financial problems.
But bond analyst, Daniel Scotto, was skeptical of Enron months before its stock price plunged and the company went bankrupt. Scotto says he was forced out of his job at BNP Paribas for telling his clients that Enron stock should be sold back in August, and he joins us now. Dan, good to have you here.
DANIEL SCOTTO, FORMER SENIOR ANALYST, BNP PARIBAS: Good evening. DOBBS: First, the idea that Enron's stock price remained so high in the face of so many problems. Your recommendation followed not by very much the departure of CEO Jeff Skilling, correct?
SCOTTO: Yes. That certainly was one of the variables that I threw into the equation. It really culminated, when you looked at the failure of the sale of their Portland assets, what was happening in the wholesale markets, and his really untimely departure, and the resurfacing of Ken Lay.
DOBBS: You know, as one looks back on it, the departure of Skilling is enigmatic. He said, I believe, for family reasons was the reason.
SCOTTO: Yes.
DOBBS: But as you look at that stock price, that slide that began at the beginning of the year, just continued unabated.
SCOTTO: Yes.
DOBBS: What was your management's reaction when you said, basically you said, move it to a neutral from a buy, rather than saying sell it? But in Wall Street parlance, that's pretty clear.
SCOTTO: Yes. Certainly the neutral at that point, in August, it's very easy to look back now and say that it was a good recommendation. But in August, it was a very tough position to defend, because it was certainly a very big name and there wasn't much reaction, particularly in the bond market, which is actually what created the opportunity.
DOBBS: I would like to read, if I might, just a couple of the things that you had focused on at the conclusion of your report.
SCOTTO: OK.
DOBBS: Which I think is regulatory over time. You referred to Skilling's departure.
SCOTTO: Yes.
DOBBS: As the reason for the downgrade.
SCOTTO: Yes.
DOBBS: The collapse of the Portland general sale.
SCOTTO: Yes.
DOBBS: Enron lost $3 billion in cash. They didn't lose it. They just didn't get it.
SCOTTO: Didn't get it.
DOBBS: A balance sheet that was more leveraged than expected. In point of fact, significantly highly leveraged, 50 percent.
SCOTTO: Right.
DOBBS: Extraordinary by any terms, and weak period for broadband. I thought that was a wonderful way to say it. A disastrous period for broadband.
SCOTTO: But all public data.
DOBBS: Exactly.
SCOTTO: That's the interesting point.
DOBBS: That's what I'm pointing out here. All of this was known. You brought it together, and then you talked about the questions over the sustainability of price, volatility, and margins in the wholesale energy services business, which at the end of the day, after everything, all of the talk about broadband and the new economy, 97 percent of Enron's revenues.
SCOTTO: Yes.
DOBBS: Extraordinary.
SCOTTO: That's what did them in. This was as much a business failure as anything else.
DOBBS: Just as much as anything else? What else could it be?
SCOTTO: Well, everything that's been intimated, obviously.
DOBBS: Right.
SCOTTO: You know, clearly I think the economic failure has been largely overlooked, and many other businesses face similar circumstances.
DOBBS: But when one looks back at it, you as an analyst I'd be curious because Enron was confronted with the following developments: They lost the $3 billion that would have had a significant impact, at least in their liquidity.
SCOTTO: Right.
DOBBS: They were looking into a market that was turning against them in terms of energy prices and much to the surprise of many?
SCOTTO: Right.
DOBBS: Their broadband, which had been the Holy Grail for years, and every private venture capitalist in this country was swarming to broadband, so Enron wasn't necessarily venal or mendacious or even stupid to have done so.
SCOTTO: Right. DOBBS: I mean they could have asked to go counter to more external trends, if they had tried, it seems. Did you have a sense that in addition to that, that they had created these off balance, if you will, assets that were in point of fact disguising significant losses?
SCOTTO: Well, it's not uncommon to have off balance sheet liabilities. In fact, I think more people have been discussing it now than ever. You know, you want to do things.
DOBBS: We're just starting.
SCOTTO: But you know, I'm sort of shocked that everyone is shocked.
DOBBS: Right.
SCOTTO: Because I mean, you know, very often if you just use common sense and look at a 10 (k), somebody said they judge the risk in a company by the size of the 10 (k). And if there are more footnotes than there are description of the business or things like that, then they don't even want to read it, and there is some wisdom in that.
DOBBS: There is considerable wisdom because the essence of genius it's said is simplicity itself, and there is nothing simple about Enron. Did those partnerships and the suggestion of those partnerships and those assets and those problems in terms of the liabilities that were being massed, did the offshore tax haven subsidiaries, did those raise flags to you?
SCOTTO: Yes. I mean the whole matrix raised flags. Certainly when you looked at the profitability and where it was coming from and how the business was financed, you had to come to the conclusion that you weren't - looking back, even in the hay day of Enron, that you weren't achieving these rates of return without significant off balance sheet leverage.
DOBBS: And unsustainable leverage in your judgment?
SCOTTO: Unsustainable. Yes, unsustainable. You know, it's the question of how much is too much leverage. How much can you service.
DOBBS: And Paribas decided that per your good call and good judgment, effectively telling people to not buy and to sell, you were no longer needed?
SCOTTO: Well their characterization was that this fell into the category of not a good recommendation.
DOBBS: Not a good recommendation?
SCOTTO: Not a good one.
DOBBS: Well, neutral but others might say in retrospect, should have been a buy. You might say it was pretty good. SCOTTO: Not a buy. It wasn't a buy in August. It wasn't even a buy in July.
DOBBS: As a matter of fact, I want to share with our viewers something you did say, which I thought, it looked to me as if you were preparing a bit of a brief on your recommendation. As you said, move it from a buy to a neutral. "We chose neutral, in which case ENE might be - that is Enron might be a better source of funds at this time."
SCOTTO: That says it all.
DOBBS: That's as polite a way in Wall Streetese as you can sell, sell that sucker and get the cash.
SCOTTO: Yes. It was there. It was all there, and some of this is filed in the Federal documents. I mean those people don't look at (inaudible). I mean it is a regulated industry. So it's there.
DOBBS: It's just, a lot was there. The problem is not many of us could figure out what it was.
SCOTTO: Yes.
DOBBS: We compliment you on having done so.
SCOTTO: Thank you.
DOBBS: And we wish you all the best.
SCOTTO: Great, thank you.
DOBBS: Dan Scotto, thank you. Well late today, BNP Paribas told us that Dan Scotto's departure had nothing to do with the Enron case. The company says, and we quote: "We can state unequivocally that Dan Scotto's departure from BNP Paribas was completely unrelated to any research he wrote on any company including Enron. Dan's departure was related to issues regarding his role as a manager, not his role as our senior utilities analyst. Dan never mentioned concerns regarding the independence of his research products. BNP Paribas is committed to the integrity of our research product." End quote.
Before I turn, anything to say to that?
SCOTTO: Nonsense -- in a word.
DOBBS: I think I just said that genius is sometimes marked by simplicity. Direct and simple. Thank you, Dan Scotto.
SCOTTO: Thank you.
DOBBS: The Senate Energy and Natural Sources Committee held hearings today into the Enron scandal. The committee looking into the effect Enron's collapse will have on consumers and of course the energy markets themselves. Senator Jeff Bingaman chairs that committee and joins us now. Senator, good to have you with us.
SENATOR JEFF BINGAMAN (D-NM), ENERGY AND NAT. RESOURCES CMTE., CHAIR: Good to be with you.
DOBBS: It's your judgment that the collapse of Enron had no effect on the energy market per se?
BINGAMAN: Well, the witnesses we had today essentially said that they did not believe it significantly affected spot markets, but they did believe that Enron's involvement, so they're very heavy involvement in other longer term forward markets probably did impact what consumers were paying and what consumers got locked into in some of these long-term fixed contracts that were entered into particularly in California.
DOBBS: Particularly in California, Enron, a great contest there with that state's energy regulators as well as those providing power to consumers in California. Any suggestion in the part of any of the testimony today or any of the witnesses that Enron should be looked at in that regard apart from all the rest of it?
BINGAMAN: I think the suggestion or the question was raised by one or two of our witnesses as to whether or not there had been any possibility of manipulation of prices in forward markets, in forward contracts. I don't know that -- I don't think anybody was saying unequivocally that that had happened. But the question was raised. And I think the consensus was that we needed more openness, more visibility into all of these markets, more transparency, and that they would work better if we had that.
DOBBS: Senator, did either the head of the commodity futures trading commission or the federal -- FERC -- did either of them recommend there should be increased regulation in these markets as a result of the Enron debacle?
BINGAMAN: Well, I think both of them indicated that -- they had things they wanted to look into before they could come back to the committee with their recommendations. And I think both of them seemed to agree that increased openness, increased transparency in these markets made sense. And I'm not certain, quite frankly, whether they believe they had the ability to direct that that occur or that they need some additional legislative direction before they could do that.
DOBBS: Senator, unique in the Enron cases you mentioned the forward markets. Unique in Enron's case is the fact it was the creator and in many case the sole market for some of the forward contracts taking both sides of the deal and holding the margin between the buyer and the seller, that is, through a period of sometimes as long as 15 years. Does that trouble you? BINGAMAN: It troubles me particularly if that resulted in people entering into contracts, fixed contracts, long-term contracts for the actual delivery of a commodity, natural gas or electricity, if the contracts for example that the state of California entered into long- term were based on those forward contracts and Enron was the only the participant really in that market or the major participant -- that doesn't indicate necessarily that Enron was manipulating it in any particular way, but that more transparency into who they were dealing with and how many players there were in the market would have been very good.
DOBBS: Senator, is it your instinct, your predilection going into the hearings that there should be reregulation, if you will, of the energy markets?
BINGAMAN: It's certainly my inclination to believe that more should be done to insure the openness of these markets, to insure the transparency of these markets. I don't know if you want to call that additional regulation or not. But I think that kind of regulation helps the markets to function better. And in that sense, I think it serves everyone's best interest.
DOBBS: You know that various committees in Capitol Hill, including yours, by some critics at least, it has been suggested that part of the reason for such a number of hearings is that it is at least in part, to suggest initiative and independence after the level of contribution, political contributions, given by both Enron and Andersen. How do you respond to that?
BINGAMAN: Well, the reason I think we're holding -- that we had the hearing today is because we have a bill that's been put on the Senate calendar, an energy -- comprehensive energy bill and we have provisions in it directly related to this issue of openness of these markets. We wanted to see if these were the right provisions or if they could be strengthened.
Clearly there are many, many members of Congress, myself included, who received contributions from Enron in their political campaigns. But I don't think that takes away from the fact that there is -- there are policy issues that we need to address here. I think through the hearings we're hopefully better informed to address those.
DOBBS: Senator, based on what we have seen here, if you are in Washington and you've not received a contribution from either Andersen or Enron, you're in a very rare minority. We thank you very much, very much for being here, Senator Jeff Bingaman.
BINGAMAN: Nice to be with you.
DOBBS: Thank you.
Coming up next, in just over two hours, President Bush delivers his state of the union address. We'll have a preview for you from our own Washington insider, CNN political analyst Bill Schneider.
And we will hear from IBM chief executive officer Lou Gerstner who says March 1 is the day and the man is Sam Palmisano. That story is next. (COMMERCIAL BREAK)
DOBBS: Today IBM made it official. Sam Palmisano, the man to take the helm of IBM, succeeding, of course, the legendary Lou Gerstner. The succession takes effect March 1, but Gerstner will remain chairman through the end of the year. IBM lifer, Sam Palmisano has a very tough act to follow. Gerstner is credited with transforming IBM from a computer maker to a global enterprise, raising IBM's market value by $180 billion over his nine-year reign.
Earlier today our Steve Young sat down earlier with both executives and talked with them.
(BEGIN VIDEOTAPE)
LOUIS GERSTNER, CHAIRMAN & CEO, IBM: Sam and I have been working on this with the board now for almost two years. It's been a textbook case on how to go about, make a good transition of leadership in a large company, so I couldn't be more pleased.
STEVE YOUNG, CNN CORRESPONDENT: Sam, you lauded Lou today for leading IBM out of its darkest days. What do you see as your great challenge for IBM as you take over in March?
SAMUEL PALMISANO, CEO-DESIGNATE, IBM: I think the key that I was saying today, was that Lou took us when we were down and made us winners again. And he did that by really driving our strategic thinking around e-business, and so that strategy is serving us very, very well. Our business model has now become the envy of industry. Our teams are executing head to head. And so as we see ourselves going forward, it's just the state of the strategy, keep our heads down, stay focused on the customer and keep improving the execution.
YOUNG: You were a change agent. You came from the outside. Sam, you are virtually a lifer. You've worked in every part of the company. But most of your adult career has been here. What are you going to do differently, if anything?
PALMISANO: I think first of all, the fact that I have been with IBM my entire career has prepared me well. I worked in Asia, lived in Tokyo. I have been involved in just about every business in IBM. So clearly that has served me very well.
I think the things that we're going to continue to drive for, the principles that we've established, which is, be focused in the marketplace. That's one of the reasons why we lost our way year ago, and it is one of the reasons why we're back on track today. And I am going to continue to drive that legacy. Focus in the marketplace, customers first, work together as a team, and I think that will serve us very, very well in the future.
UNIDENTIFIED MALE: Let me tell you, Steve, this is a change agent right here. you don't have to be from outside to be a change agent. One of the reasons he's the CEO to-be of IBM is this man has had a drive change.
YOUNG: One of the really important things you did was build IBM as a service company with capital spending being held back and IT spending being held back. Are there challenges in that area for the company now? PALMISANO: I'll take that one, Steve. Fundamentally what happens in times like this, customers are looking for ways to save money. Portions of our services portfolio, demand is actually stronger than it's ever been. It happens to be in the infrastructure, server consolidation, we put lots of small servers together in one larger complex. It happens also to be in outsourcing. As you know we closed $15 billion worth of contracts in the fourth quarter of this year, and our pipeline, our demand for outsourcing services continues to be very strong because we can help customers actually apply technology and save money in a tough economic environment.
YOUNG: You will continue as chairman for the end of year, how will you two be working during that period.
GERSTNER: I work for Sam after March 1.
PALMISANO: It's very kind of him to say that.
GERSTNER: My job after March 1 is to complete the transition. We have become a real team here over the last couple of years, and my job for the last nine, 10 months is to help him in whatever way I can. But he runs the company. Everybody reports to him and I'm here to complete the transition. And make him as successful as he can possibly be and more successful than I ever was.
YOUNG: As you look forward to March, give me your top, say, three priorities?
PALMISANO: The priorities that we have today are the ones we had before this announcement was made, which was to keep focused on the strategy, like I said, we are helping customers become e-businesses. It's working. We're winning head to head versus the competition. We just want to keep that going. We don't see any need for any change in the short term. This industry does move pretty quickly. We're pretty adept at that now. We're much more customer focused. But in the short term, as we take over, we'll are just going to continue to run the play that we've been running successfully for the past couple of years.
YOUNG: The company used to have a mandatory retirement age, doesn't any longer. Why are you stepping back now?
GERSTNER: I think the time is right. I think 10 years running a complex world size company like this, where change is so dominant, so constant, I think you need a fresh pair of eyes, fresh head about every decade. I think the time was right. But there were more reasons. You also want to make these transitions when things are going well. And IBM has never been stronger.
(END VIDEOTAPE)
YOUNG: Analysts have been saying for quite a while that IBM wanted to get out of PC business, Palmisano said no way, that is part of the total solution, they just want to lose less money. And Lou Gerstner said that come the end of his time at IBM, he wants to focus a lot more on improving American education. DOBBS: Well, that bodes very well for American education, because if he can do as much for American education as he's done for IBM. As I heard you talking to the two gentlemen, both Sam, tremendously well regarded in the industry and obviously within the company, Gerstner was, you used the expression "change agent."
I can recall in 1993 when he came in, IBM, this pillar of American enterprise, and innovation and technology, on its back and he was asked what his vision was for the company. He refused to even answer the question for 18 months.
YOUNG: He said the last thing the company needs is a vision.
DOBBS: Exactly. And to see what he has accomplished, he now is change agent, but he became IBM and importantly IBM became Gerstner and now it is going to be fascinating. It is interesting to hear a CEO be absolutely honest. The transition is now because the company is strong, Sam is successful as he can possibly be and both auger well for IBM. Steve, great interview. Thank you very much.
Just ahead, even Walt Disney has some shredding problems, believe it or not. We will have that story for you and a whole lot more still ahead. Stay with us.
(COMMERCIAL BREAK)
DOBBS: Add the Walt Disney Company to the list of document shredders. The family that owns the rights to Winnie the Pooh has been suing Disney for 11 years over commercial rights. They claim they are owed hundreds of millions of dollars. Now they say Disney executives destroyed up to 500 boxes of documents related to the suit. Disney's lawyer admits some shredding did take place. He says the documents shredded however were not related to the suit. The plaintiffs call the admission a bombshell.
In other corporate news tonight, Chevron-Texaco lost $2.5 billion in the fourth quarter. That's a bit of a bombshell. It's the first results since the oil concern merged in October. The company was hurt by lower oil and gas prices. Also weighing on results, charges for some oil and mineral reserves and merger costs.
Honeywell's profits fell 54 percent because of a huge drop in commercial aviation sales. Honeywell also cut another 4,000 jobs today, part of 19,000 layoffs announced last year.
One bright spot on Wall Street, Texas Instruments. Texas Instruments reporting a smaller than expected loss, and said it might in fact break even this quarter. Checking those stocks, Chevron- Texaco and Honeywell lower on the day as you would guess. Texas Instruments adding more than a dollar and a half a share.
Still ahead, a preview of the president's State of the Union Address. We'll take a look at what is expected to be at the top of the president's agenda, and as airport security tightens, a company famous for its pocket knives is forced to be unusually innovative.
(COMMERCIAL BREAK)
DOBBS: CNN's senior political analyst, Bill Schneider joins us now. Bill, first, let me ask you, do you think the economy will dominate the president's state of the union today?
BILL SCHNEIDER, CNN SR. POLITICAL ANALYST: No. I think the war will dominate the State of the Union speech tonight, but I think the president's going to try to package the economy as a war issue. He's going to say that the war, the attacks of September 11, deepened and prolonged the recession. He wants Americans and Congress to believe it's all one package. Democrats are the ones who are saying, we support the president on the war, we oppose his economic program.
The president is trying to say, you can't do that, it's all one package. And if we can restore the nation's confidence about its physical security from terrorist attack, then people will start travelling and spending money, and they'll be optimistic and the economy will revive.
DOBBS: It seems, Bill, at least to me, that the president has a great deal of weight on his side of the argument. And that the September 11th attacks were on the World Trade Center, the heart of the American financial district. The world's financial capital, and in point of fact, the economy, tourism and travel, impacted terribly by it, and then in the midst of recession. What's your judgment?
SCHNEIDER: My judgment is that politically that is exactly the way people feel. They agree, the attacks prolonged and deepened the recession, which economists now say started last spring. Democrats are trying to argue that what got the nation in trouble were the tax cuts, they didn't work, that they created the deficit. But most Americans believe that the deficit really was caused by military spending, the need for all this of this emergency spending, that's what created the crisis in the country. So if the president can package them together, I think he's on the high ground.
DOBBS: And one of the things I love about those most recent polls that we've done, is the fact that the American public says that they believe it's because of a business cycle. That they understand the relationship between cycles and growth. Far more sophisticated than a lot of the political spinmiesters on either of the aisle would have us believe?
That's exactly right, and I think the most surprising finding we have is that when we asked people do you want Congress to pass an economic stimulus package? They say, well they're not so sure. It's about 50/50. Well, you think there would be a clamor for Congress and the president to sign something to help the economy. Most Americans are very optimistic, I call it defiant optimism. They don't want the terrorists to win, and they say we think the economy is on the road to recovery. And they have a lot of buoyant optimism.
DOBBS: And, Bill, look at those numbers, those approval numbers for the president. You...
SCHNEIDER: Unbelievable. (CROSSTALK)
DOBBS: ... got to be staggered.
SCHNEIDER: Unbelievable. And he sustained them now for almost five months, and it means he has an enormous amount of political capital. And Democrats are scrambling to try and get some footing here. The question of course is can the president translate his own political standing into support for his party? He's not on the ballot in November, his party is. And there's about a 40 point difference between the 84 percent who say they support the president, and the 44 percent who say they'll vote Republican for Congress. He has got to make those two numbers come closer together.
DOBBS: The budget not the only important deficit. Bill Schneider, we look forward to your analysis of the president's remarks. Thanks for being with us from Washington.
Also, from Washington, a man we always appreciate and look forward to seeing and listening to, Wolf Blitzer -- Wolf.
WOLF BLITZER, CNN HOST: Thank you very much, Lou. The feeling is mutual. We're standing by, of course, for the president's State of the Union address, that's coming up in two hours. We'll get a sneak preview from our White House correspondent John King, he has excerpts and I'll also ask our congressional correspondent Jonathan Karl what kind of reception the president will receive.
All that, plus the chairman and ranking member of Senate and Armed Services, Karl Levin and John Warner. That's right at the top of the hour -- Lou.
DOBBS: A big night. Wolf, thank you very much. Looking forward to it. Coming up here next, we'll take a look at quarterly reports that will be coming out tomorrow. And we'll tell you about a Swiss Army knife that has a few innovations in store for it. Stay with us.
(COMMERCIAL BREAK)
DOBBS: Tomorrow we'll have quarterly earnings reports from Dow components AT&T as well as Philip Morris. And AOL/Time Warner, the parent of this network will report. The first look at fourth quarter Gross Domestic Product will be out tomorrow. Economists saying that the economy contracted at a rate of 1.5 percent in the fourth quarter, We'll see.
And President Bush embarks on a two-day trip. He will speak on homeland security on that swing across the country.
One unlikely company to suffer from the fallout of September 11, is Victorinox, the maker of the famous Swiss Army knives. The attacks triggered bans on pocket knife sales at airports. Swiss army knives are now one of many items banned on commercial flights. The company's pocket knife sales are down sharply, down by a third in the fourth quarter. And now, to get creative, the company is trying to come out with new pocket tools for its pocket knives without blades. That's MONEYLINE for this Tuesday evening. Thanks for being with us. Good night from New York City.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
