itsmeeeeeee

Bristol-Myers, Ciena Losses Show Subprime Infection

Bloomberg.com: Exclusive

By Crayton Harrison and Dina Bass


Feb. 1 (Bloomberg) -- Bristol-Myers Squibb Co.'s $275 million writedown on subprime investments shows the mortgage crisis is spreading from Wall Street to the drug, technology and mining industries, where companies are posting losses on assets once rated AAA.

The widening collapse threatens U.S. earnings and stock values. Computer-related companies led by Ciena Corp. already reported writedowns similar to those at New York-based Bristol- Myers. Smaller technology companies including Lawson Software Inc., a maker of human-resources software, may be at risk based on their investments, according to Merrill Lynch & Co.

Losses from investments in subprime mortgages, loans made to people with little or no credit histories, may total as much as $400 billion worldwide, Deutsche Bank AG said in November.

``Many of the securities that the corporate treasurers thought were perfectly safe in fact are not,'' said Anthony J. Carfang, a partner at Treasury Strategies, a Chicago-based financial consultant. ``No one knows where the bad paper is.''

The subprime collapse produced $120 billion in writedowns by banks, according to data compiled by Bloomberg. Medical and computer companies, whose profit growth may come more from yields on cash than selling products, also have reduced the values of investments.

In its fiscal first quarter, before it wrote down auction- rate securities, Lawson had interest income of $6.86 million, versus operating income of $5.4 million.

Corporate cash managers buy auction-rate notes, such as those written down by Bristol-Myers, as an alternative to money market mutual funds and Treasury bills. One-month taxable auction securities yielded an average 4.73 percent on Jan. 23, according to the Securities and Financial Market Association's index, compared with 1.61 percent for four-week Treasury bills.

`Addicted' to Returns

``They got addicted to these nice high returns,'' said Jeff Wallace, managing partner at Greenwich Treasury Advisors, a consultant in Boulder, Colorado.

Bristol-Myers and Ciena said they picked AAA-rated investments considered safe by rating companies Moody's Investors Service and Standard & Poor's. In its most recent quarterly regulatory filing on Oct. 25, Bristol-Myers said it had ``floating-rate instruments with an `AAA/aaa' credit rating'' that could ``be liquidated for cash at short notice.''

``They are rated Triple A today, in two months they could be Double A and in six months they could be Single A,'' said Michael Shinnick, who helps manage $3 billion at 1st Source Bank in South Bend, Indiana. He owns technology companies such as Microsoft Corp. in part because of their cash. ``The situation in some of these mortgage-backed securities is likely to deteriorate.''

Values Tumbling

Companies may not have to write down mortgage-backed or auction-rate securities whose values have tumbled, according to a Jan. 25 Merrill Lynch report. Some are reclassifying holdings to long-term from short-term and waiting to see if markets improve.

Bristol-Myers, maker of the anti-clotting pill Plavix, reported a fourth-quarter net loss yesterday after writing off $275 million in investments in auction-rate securities, some of which had subprime mortgages as collateral. The writedown may increase to $417 million, officials said.

The company's shares rose 94 cents to $23.96 at 4:02 p.m. in New York Stock Exchange composite trading.

Rates on auction securities, a $360 billion market, are reset at predetermined intervals. Holders typically have the right to sell them back to issuers if they aren't happy with the new rate.

Too many sellers result in a ``failed auction,'' and investors then may be forced to hold the securities ``possibly until maturity or perpetually,'' Raymond James & Associates Inc. said on its Web site.

`Nearly a Decade'

Bristol-Myers has invested in AAA/Aaa-rated auction-rate securities ``for nearly a decade'' and had $811 million worth at the end of 2007, Chief Financial Officer Andrew Bonfield said yesterday. Deteriorating credit markets left it unable to sell some of the investments, he said.

The drugmaker, which said in its earnings release that it had ``experienced multiple failed auctions'' for auction-rate securities, said it would now invest more in U.S. Treasury notes.

Assets in institutional money market funds increased by $500 billion between June and December, indicating corporations shifted their holdings to be conservative, Carfang said.

Ciena, a Linthicum, Maryland-based maker of networking equipment, had considered its investments ``conservative,'' said spokeswoman Nicole Anderson. Then, last quarter, it wrote down $13 million for commercial paper issued by two structured investment vehicles, SIV Portfolio Plc and Rhinebridge LLC, after they failed to make payments.

`SIV-Related'

After the Oct. 31 writedown, Ciena had $33.9 million in assets related to the securities, which are no longer being traded. That is probably all the company's ``SIV-related exposure,'' Anderson said.

Lawson, based in St. Paul, Minnesota, had $90.6 million of auction securities on Aug. 31. Auctions on $57.2 million failed, and the company took a charge of $4.2 million the following quarter. The software maker said the securities were rated AA or AAA. Spokesman Aaron Pearson declined to provide an executive to comment.

The company reclassified the auction-rate securities as long-term investments.

Microsoft had $3.19 billion, almost 10 percent of its investments, in mortgage-backed securities in its most recent fiscal year. Since then, Chief Financial Officer Chris Liddell said the Redmond, Washington-based company has lost ``virtually nothing'' because it avoided ``lower-quality securities.''

`Negligible' Loss

``The order of magnitude that we have lost would be in single millions of dollars, which, on a $30 billion portfolio, is negligible,'' Liddell said last week in an interview.

Madison, New Jersey-based drugmaker Wyeth has a ``relatively small part'' of its investments in mortgage-backed securities. CFO Greg Norden wouldn't elaborate on the holdings in an interview yesterday. The company hasn't had any ``material market deterioration'' from subprime mortgages in its investments, he said.

Not everyone is as fortunate. Apex Silver Mines Ltd., a silver producer in Bolivia, Peru and Mexico, said in November it recorded a $21.1 million charge against the value of $71.7 million of auction-rate securities. Potash Corp. of Saskatchewan Inc., the largest maker of crop nutrients, had a $26.5 million charge for auction-rate securities in the fourth quarter. Spokeswoman Rhonda Speiss declined to comment.

``There was just an incredible amount of Kool-Aid drinking going on here,'' said consultant Wallace. ``No company should have been investing in subprime mortgages.''

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donk_is_around

Not surprisingly - you missed the core reality of the "shit"-iation



Its not about caving in to dependency on the man... its about the man too busy making profits for cronies elsewhere and NOT paying attention to whose fucking his wife at home...

Spin it as you choose - that's the beauty of a Democracy... that's the carte blanc our kids are dying for...

Have you served your country for the freedoms you speak from?

jowey

That is what I said also, that it did not sound correct.....

My girlfriend may have misread the application which is why I gave in - she would have been perceived as guilty. If I had known that the limits were higher than my own I would have used them effectively but I thought it was her brother's way of giving her some spending money. Needless to say I was upset with her and this alleged brother.

Unfortunately/fortunatly one company did not attach, it has not shown up on my credit report but they have my phone number. I tell them it is not my debt, they say it is that payments were made, I did try to help my girlfriend out after the brother deserted and the card started on her. I asked them who made the payments they would not tell me. I asked them who was the card to they would not tell me so I hung up they could be fishing, I even responded in writing once....

This is why I am so upset with these damn attorneys. Trying to extract her from this mess is a bunch of crap, this whole industry is just one scam. Give desperate people money that they cant pay back, get them in debt and then feed them to the machine. Then go after them, if I were to make the loans to someone that cant pay it back I would be told it is my problem for being so stupid as to give them the money in the first place - to grow up and deal with it.

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Ptech

Yeah, life is kind of a series of scams.....

jowey

Life in a civilized society should not be a series of "scams" or "thefts".

If one chooses to provide a "service" or "product" that should be the focus of their "business". Words like "integrity" and "competence" come to mind - profits would come with diligent execution of a profession.

Theft is more profitable, why spend the time if one can get away with a little less diligence. Remove oversight or implementation of consequences and opportunity for fraud is made available to enterprising individuals. Telling everyone that this is acceptable enough times it then appears to be fact and a standard.

Everything in life is a set of balances to prevent one activity from overshadowing another - business needs vs. social needs.

If one applies business rules to social needs the system loses balance and we have modern America.

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donk_is_around

Ahh... and wearing magic underwear

I see know...

Ptech

I don't see much evidence that we have a civilized society. Yes, we would like to THINK we do, but what proof is there?

Invading countries around the world, exploding nuclear weapons, highest per capita rate of imprisonment in the world, health care denied for many people. What's so civilized about that?

And unfortunately, even in the most civilized of societies, scams are everywhere. In peaceful Switzerland today, some thieves stole artwork.

babylonDon

As the home-mortgage industry continued to reel in January from the Countrywide Financial Corp. debacle, a federal bankruptcy judge learned that the company, in at least one case (with others suspected), had not only backdated crucial documents but fabricated them altogether and then told the judge the company was merely trying to be "efficient." A court had approved the recasting of a client's debt to Countrywide in March 2007, closing the case, but the next month, Countrywide "discovered" a way to get extra money and thus created three letters supposedly sent to that client before March 2007. However, Countrywide later acknowledged that the letters were actually written after March 2007 but that making up documents was merely "an efficient way to convey" information. [New York Times, 1-8-08]

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“The irony of the Information Age is that it has given new respectability to uninformed opinion."-John Lawton