Banking & Capital Markets

Ford’s Latest Utility Vehicle

Automaker sells $3 billion in loans to investment bank. Plus: Wall Street's latest gadget? The Pitt vacuum. Also: Seagate IPO ready, and the folks ...
Lori Calabro and Joseph McCaffertyDecember 9, 2002

Ford Motor, one of the largest borrowers which has also been heavily affected by the recent capital crunch, has found a new way to raise money.

The auto maker has sold $3 billion of auto loans to Bear Stearns & Co. Inc.

This is unusual, since auto companies don’t generally sell finance receivables to investment banks. Rather, they generally package loans into bonds and offer them to investors, usually via their captive finance units.

Bear Stearns on Wednesday reportedly sold about $2.9 billion of bonds secured in part by the Ford loans.

Tale of the Tape: Seagate IPO Set to Go

Seagate Technology Holdings, the largest U.S. maker of disk drives, hopes to raise $1 billion on Tuesday. If so, the Seagate IPO will be the biggest initial public offering by a technology company since July 2001.

Will the Seagate offering jumpstart the dead IPO market? Not necessarily, say market watchers, who point out that the Seagate IPO may due well because of the sheer size of the offering — and because Seagate is a marquee company. Smaller initial public offerings from less-known businesses might not fare as well, they point out.

In other financing news: Investors funneled a net $600.8 million to U.S. junk bond funds in the week ended on Wednesday, according to AMG Data Services.

This is the eighth straight week of inflows into high-yield funds. No surprise there, since the junk bond market has staged a strong rally over the past two months.

Pitt Vacuum

Harvey Pitt may be gone, but what he left undone can’t be forgotten

The perpetually embattled chairman of the Securities and Exchange Commission resigned on Election Night after 15 tumultuous months in office. Criticized for being too close to his former Wall Street clients, unable to build consensus, and arrogant to boot, he finally succumbed to criticism over his selection of William Webster to head the Public Company Accounting Oversight Board.

The leadership vacuum he leaves behind, however, especially coupled with the subsequent resignation of chief accountant Robert Herdman, could have a major impact on how regulatory reform is carried out. The SEC is charged with devising 24 sets of rules, completing six major studies, hiring 200 new employees, and reviewing one out of three filings by next year. By law, these duties must be fulfilled, says Greg Bruch, a partner at law firm Foley & Lardner, but the lack of a chairman could mean they are done in “a compromised way” that could lead to “more legal challenges and less public acceptance.”

Georgetown law professor Donald C. Langevoort agrees that without a permanent chairman, “there will be little effort to be aggressive” on the rule-making side. And with the White House warning that finding a replacement could take months, don’t be surprised, says Bruch, if other forces step in. “For corporations, not having an SEC chairman could mean more actions from the states,” he says, citing as an example the campaign of New York State Attorney General Eliot Spitzer.

Retired judge Stanley Sporkin, who’s been mentioned as a possible successor, speculates that the next chair might have it easier. Where Pitt was consumed by the accounting scandals and political upheaval, he says, his successor “will have time to study what went wrong and be proactive rather than reactive.”

Not that he or she won’t be busy. “There is so much the SEC has to do in regards to the Sarbanes-Oxley Act of 2002,,” says Dennis Beresford, professor of accounting at the University of Georgia, “that there will hardly be time to do anything else.”

Is This The End?

When is a recession over? When these folks say it is, apparently.

while many economists agree that the recession that began in March 2001 actually ended earlier this year, the official arbiter — the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) — has yet to call it over.

Part of the problem is that economists disagree over the indicators of a recession. “If you ask three economists, you’ll get four answers,” jokes Ken Goldstein, an economist at The Conference Board. The common notion that a recession is defined by two or more consecutive quarters of decline in gross domestic product (GDP) is just “a rule of thumb,” explains Goldstein.

The NBER doesn’t even use GDP in its analysis. Instead, it focuses on such monthly indicators as unemployment, personal income, and industrial production.

The committee may be delaying its call to see if the economy worsens again. Then it will have to decide if the recession ended and began again–the dreaded double dip–or if it was one protracted decline. According to Goldstein, another downturn “is just not going to happen.” Ask another economist, though, and you’ll get a different answer.