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American Morning
WorldCom Makes Startling Revelation
Aired June 26, 2002 - 07:43 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.
BILL HEMMER, CNN ANCHOR: One of our top stories throughout the morning has been this revelation after the close yesterday about WorldCom and the fact that $3.8 billion somewhere was hidden or not accounted for. Andy Serwer accounts for that once again with us here this morning.
ANDY SERWER, "FORTUNE" MAGAZINE: Yes, Bill, some really grim news, isn't it? It's just what we need, of course, with the stock markets sliding day after day. Now, we have these revelations about WorldCom.
Let's bring in Christine Romans at the New York Stock Exchange. Christine, what is the prognosis for WorldCom in the overall market right now?
CHRISTINE ROMANS, CNN FINANCIAL NEWS: Oh, it's really bad. I mean, when you look at futures, and we look at the indicators we watch here in the morning, we are looking for a Dow maybe down 285 points.
And WorldCom right now trading at 18 cents in after-hours trading; it closed yesterday at 83 cents. So this is a stock not even worth a $1. And the ramifications of this restatement of earnings is being felt around the world. We are expecting a huge sell-off, and it's not just on Wall Street that you are going to feel the ramifications of this potentially. I mean, 22 million consumers use MCI, which is owned by WorldCom. You've got 17,000 jobs that are going to be cut, so the company can try not to file for bankruptcy.
And it's this whole idea of corporate credibility. This is just another example of how investor confidence is shattered, and you are going to see that here on Wall Street today; $3.8 billion of misstated expenses.
SERWER: Right.
ROMANS: That is phenomenal. Some folks already this morning are saying, Enron was Enron. WorldCom is the new big name...
SERWER: Right.
ROMANS: ... that they are talking about when they are talking about corporate credibility.
SERWER: WorldCon (ph), some people are saying. Of course, they have already come up with a new buzz phrase. I think you are absolutely right, Chris, to touch on all of those different parts of the economy, consumers, investors.
ROMANS: Absolutely.
SERWER: This company was worth $115 billion a couple of years ago. It's now worth less than a billion and slipping. What's important here is this is all about greed, of course, Christine. The reason they are inflating these numbers is to make the stock go up. These executives are typically paid based on stock compensation, stock options, on the stock doing well. So it's all about making the stock go up...
ROMANS: Right.
SERWER: ... juicing it, so they get paid more. And the question in my mind is, when is someone going to go to jail in one of these cases?
ROMANS: Well, and how...
SERWER: And the regulators have to think about that.
ROMANS: And how widespread is it? I mean, what happens here is, is even companies that may be perfectly clean in their books are going to be punished, because Wall Street investors are very curious about what happened in the late 1990s to fuel those growth rates, and everyone is painted with the same brush.
SERWER: That's right. And the fear factor is priced into the market. Christine, we'll be checking back with you later.
ROMANS: Sure.
SERWER: Bill, over to you.
HEMMER: Andy and Daryn, I'll bring you in this too. If we can put that chart back up on the screen, that three-year chart for WorldCom. In June of 1999, this stock was trading at 63 bucks, a bit more than that. Twenty cents in after-hours' trading yesterday?
SERWER: Twenty cents. And of course, if it goes bankrupt, Bill, it will go to zero. I mean, there is no question that this company is at the brink right now.
HEMMER: Look at that! You know, Daryn and I were talking about this earlier today. How do you restore faith? How do you get investors to say, you know what, I can trust the markets, I can trust the numbers once again?
SERWER: It's going to take time. I mean, and regulators need to step up, and I think people need to be fined and punished. It's as simple as that. But it will take a lot of time.
DARYN KAGAN, CNN ANCHOR: I think it also will be interesting to see the psychological effect of now a company that people can relate to.
SERWER: Yes.
KAGAN: I mean, Enron was a thing (ph), you know...
(CROSSTALK)
SERWER: Right. This is MCI.
KAGAN: This is your telephone that you pick up.
HEMMER: That's right.
SERWER: Right. The second biggest telephone company in the United States.
KAGAN: And when they are not telling you the truth, well, then really who really is?
SERWER: Yes.
KAGAN: It will be interesting what it does in the markets.
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