Here's a small bomb dropped on GE, parent co. of NBC, CNBC, and MSNBC. I haven't checked to see if they have reported it but this is a BIG BOND FUND, $250 billion.
GE bends the truth, trader says
March 22, 2002
By JONATHAN LANSNER
The Orange County Register
Bond traders habitually suffer in silence.
Unlike some of their stock-swapping brethren, bond people seldom publicly trash corporate managers.
That code of silence shattered this week.
Bill Gross, bond trader supreme from Newport Beach's Pimco, took on General Electric, considered one of the best-run
corporations.
Gross thinks GE duped investors by withholding critical information. This is the bond market's most influential trader saying
giant GE, with its pristine AAA credit rating, tricked the market. Uncommon banter for the sheltered world of bonds.
Gross says he singled out GE to add a high-profile "lightning rod" to his newsletter for Pimco investors. Few would notice if he
broadly railed on shoddy practices. But he didn't target GE just for sizzle.
Once-revered GE is criticized in this post-Enron age for its unusual structure and quirky accounting.
Gross quickly notes that GE won't go belly up. Still, it irks him that a corporate scion like GE is stretching the truth.
"The business of America is no longer business. The business of America is financial - creative finance," he says. "That's a sad
tale."
In the late 1990s Gross grew pessimistic about America's economy. He couldn't see why investors bet on companies whose
profits were illusive or accounting magic. "Anytime you get a long bull market, investors fall asleep."
As Gross now sees the economy temporarily recovering after a recession and numerous corporate debacles, he's unsure what
lessons were learned. "I really don't think investors are as mad as hell and aren't going to take it anymore."
He hears the hubbub after Enron and laughs. Most tough talk - from politicians calling for reform to companies firing
Enron-tainted Arthur Andersen as auditor - "is just PR," he says.
He backed up his tough talk for GE by Pimco unloading $1 billion of GE debt. Pimco also passed on $11 billion bonds sold by
GE last week that Gross thinks were misleadingly peddled.
By Gross' count, those new bonds already have lost 2 percent of their value. In the bond world, that's huge. Yes, some of that fall
is linked to Gross' public barbs. But credit agency Moody's also criticized GE this week.
"I'm not exactly Daniel Boone here. I'm not a point guy," Gross says. "I'm trying to push to effect change."
He undersells his clout. It was a clear "Don't Tread On Me" message to chief financial officers everywhere.
Yet Gross insists Pimco won't become a corporate activist. He won't regularly scold CEOs in public. Instead, Pimco will vote with
its huge $250 billion wallet.
When Pimco abhors what Corporate America is doing, they'll boycott corporate bonds just like they did a year-plus back. Selling
$75 billion in corporate bonds was not a PR ploy. It makes a mark. Corporations face increased borrowing costs after such a
sell-off.
"This isn't us becoming Martin Luther King," Gross says. "We'll make more passive statements."
Copyright 2002
The Orange County Register |
