The Economy

The Week That Was — Sort Of

No room at the inn for accountants, while KPMG came out smelling like a rose. Plus other choice picks.
John GoffMay 31, 2002

Editor’s Note: This is the first installment of a new weekly column from It’s called “Good Week/Bad Week,” and it’s a real simple concept. Each and every Friday, we’ll present our picks of the winners and losers in finance during the previous five days. Who had a good week, and who had a bad week.

Since there’s no empirical way to make such picks, we’re sure we’ll get some disagreements with our choices. Let us know what you think, but please, no stalking.

It was a GOOD WEEK for:

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Not only did the Big Five firm pick up several more Andersen clients this week (along with partners in AA’s New York and Philadelphia offices), but the accountancy also managed to come out looking good in the gathering Adelphia storm.

How can anyone come out smelling sweet where Adelphia is concerned, you ask? Simple: KPMG has not yet signed off on the cable-company’s 2001 books. Not having signed off on an large client’s books — particularly one that appears to have plenty of explaining to do — practically qualifies as a profile in courage in the auditing business.

2. Lawrence Zimmerman
On Monday, this former IBM executive was hired by Xerox as its new CFO. While Zimmerman inherits a tough gig at Xerox, it appears the worst may be behind the document people.

If that’s the case, and Xerox starts reporting better — or at least more accurate — numbers, Zimmerman could come out looking golden. And the new Xerox chief finance officer has plenty of experience with turnarounds. Zimmerman worked at Big Blue when it was Totally Blue. Indeed, he played a big role in restructuring IBM in the mid-1990s. “The media never gave Larry much credit for his role in IBM restructuring,” IBM CFO Jerome York told the New York Times “But in fact he was one of the key people who fixed up IBM.”

3. Investment Bankers

Following weeks of accusations that research conducted by Wall Street houses is mostly done to drum up investment banking business, the white-shoe set finally had something to cheer about this week.

According to a new study conducted by Accenture, nearly 30 percent of 150 Fortune 1000 executives said they expect to pursue more mergers in the next six months. Only 18 percent said their urge to merge is declining.

Welcome news for investment bankers. Currently, M&A activity is at a seven-year low. A pick-up in corporate acquisitions could mean new hiring by banks, many of which have laid off hundreds of staffers in recent months.

It was a BAD WEEK for:

1. Accountants
It’s bad enough that much of the viewing public already rates accountants right up there with dog-beaters and Lord Haw Haw. Now, it looks like green-eye shade types are going to have an even tougher job finding a job.

According to Robert Half’s most recent quarterly poll of CFO hiring plans (“Robert Half’s Most Recent Quarterly Poll of CFO Hiring Plans”), few finance chiefs are planning on adding additional staff members in the third quarter of the year. Said Max Messmer, CEO of Robert Half International: “While continued economic recovery is widely expected, many executives are waiting for evidence of further business growth before making substantial increases in hiring.”

What next? “New Research Reveals Accounting Gaffe Triggered Ice Age.”

(To see the full story on CFO hiring plans, click here.)

2. Round-trip Trades
It’s been a rough patch in the oil patch.

First, Enron goes down. Then, several companies say they may have to restate revenues. Then, this week, management teams at two energy sector companies, Reliant Resources and Dynegy, reported that they’d been slapped with subpoenas from the U.S. attorney’s office.

The reason for all the slapping: lawyers for the government want to know more about the two companies’ use of round-trip trades. Management at CMS, a counterparty to both Reliant and Dynegy, has reportedly acknowledged that the company conducted more than $4 billion in round-trip trades in an 18-month period.

In case you don’t know, round-trip trades are power trading transactions involving simultaneous purchases and sales with the same counterparty at the same price. In other sectors, they’re known variously as zero-balance trades, phantom-transaction trades, or trades-we-just-made up trades.

3. AT&T
Seems like only yesterday that Ma Bell was the Bedrock of American business. Now, Bedrock is more like [your Hannah-Barbera reference here].

On Wednesday, Moody’s Investors Service downgraded the ratings on long-term securities of AT&T Corp. to the second lowest investment grade.

The rating agency cut the senior unsecured debt two notches to Baa2 from A3. Moreover, Moody’s added the rating outlook for AT&T is negative.

Moody’s said the negative outlook reflects the continuing price pressures for long distance voice and data carriers, as prices are expected to remain under pressure and volume will be subject to cyclical variability.

4. Management at CargoLifter
Not only did the German dirigible maker run out of steam, it ran out of money as well. On Wednesday, management at CargoLifter, whose project to build giant cargo-moving dirigibles never really took flight, said it can longer pay its bills. The company will have to declare bankruptcy unless it secures new investment.

CargoLifter’s management had sought to market modern versions of the zeppelin airship to transport oversized objects — things like turbines and oil rigs. But the company ran into two problems. First, it cost a lot more to build the giant airships than the company had first projected. Second, dirigibles are real slow.