Greenspan’s Boarding Call for Capital Spending

Fed chief laments that ''businesses remain in the waiting area.'' Also: Sarbox anniversary no cause for celebration; NYSE seeks settlement with floor-trading firms; ''high risk'' at the PBGC; and more.

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Alan Greenspan’s recent monetary update was greeted with the usual rapt attention, in Congress and in the press. But the real message, reports Business Week, was directed at the corporate executives who haven’t joined the recovery: “Everyone else is on board — but businesses remain in the waiting area.”

Despite “the more accommodative financial environment,” as Greenspan calls it — including good performance by the consumer and housing sectors and the recent tax cut — “there is little evidence [of material improvement in] the willingness of top executives to increase capital investment.”

In February, the Fed forecast growth this year in the range of 3.25 percent to 3.5 percent. The Fed has now sharply cut those figures — to a range of 2.5 percent to 2.75 percent — probably as a result of corporations’ reluctance to spend, says the article.

Progress in capital spending, according to the article, seems to be the Fed’s number-one benchmark measuring the economy’s growth. The article adds, however, that executives may very well hesitate to embark on new investment projects, when they consider “still ample capacity, lingering doubts about future demand, and the intense focus by the public and regulators on corporate behavior.”

Greenspan added that executives and boards members seem “unclear, in the wake of recent intense focus on corporate behavior, about how an increase in risk-taking on their part would be viewed by shareholders and regulators.”

So instead of undertaking new capital projects, suggests the article, businesses have focused on strengthening their balance sheets.

Sorry, We Spent All Our Cake Money on Compliance

The Sarbanes-Oxley Act of 2002 was enacted into law on July 30 of last year. But its imminent anniversary is no cause for celebration with many executives, according to the latest PricewaterhouseCoopers “Management Barometer” survey.

The survey found that the percentage of executives with a favorable opinion of Sarbanes-Oxley dropped to 30 percent in June 2003, down from 42 percent when the same group was interviewed last October. Nearly half (49 percent) of respondents described Sarbanes-Oxley as “a well-meaning attempt” at reform, but said that the law will impose “unnecessary costs on companies” to comply.

“Sarbanes-Oxley has proven to be far more complex and has required companies to make many more changes in control and compliance than executives originally thought,” said Ellen Masterson, global leader of audit methodology for PricewaterhouseCoopers, in a statement. Indeed, fully 60 percent now say that they’ve found it costly to bring their entire company into compliance, compared with 32 percent in October; 85 percent are now concerned about the long-term cost of control and compliance, up from 71 percent.

The study also found that 91 percent of executives say their company has made changes in control and compliance practices as a result of the law, up from 85 percent — yet the percentage of respondents who feel confident that their entire company is in compliance with Sarbox has actually fallen, from 82 percent to 68 percent.

PwC’s research includes interviews of 136 CFOs and managing directors of U.S.-based multinational companies.

More comforting to CFOs may be the findings of a survey by NERA, an international economic consulting firm. Earlier this month it revealed that, contrary to some expectations, securities class-action filings did not increase dramatically after Sarbanes-Oxley.

From the bill’s passage in July 2002 until late June 2003, securities class action suits were filed at an annualized rate of 214, only slightly higher than the average annual rate of 208 filings between 1996 and 2001. NERA notes, however, that the filings tallied for 2001 and 2002 exclude so-called laddering cases (which allege unfair IPO allocation practices) and analyst conflict-of-interest cases; both “may represent one-time phenomena.”

NYSE Seeks Settlement with Floor-Trading Firms

Regulators at the New York Stock Exchange want to settle an inquiry into the practices of some of its floor-trading firms, which still use human traders as go-betweens even as the Nasdaq has gone wholly electronic. The firms, however, seem to have other ideas.

David Doherty, head of the exchange’s enforcement division, has met with representatives of a number of firms over the past several weeks, reports The Wall Street Journal. His goal: hammer out an agreement with the specialists — which are in charge of trading specific stocks — and put an end to the inquiry.

Five firms are known to be involved: LaBranche & Co.; Goldman Sachs Group’s Spear, Leeds & Kellogg specialist unit; Bear Wagner Specialists LLC, which is minority-owned by Bear Stearns Cos.; FleetBoston Financial Corp.’s Fleet Specialist unit; and Van Der Moolen Holdings NV’s Van Der Moolen Specialists unit. According to people familiar with the matter, at least two of the five are dismissing the idea of a settlement.

Some specialists are even referring jokingly to the NYSE’s overtures as the “global settlement” offer, reports the Journal — a reference to the landmark settlement between Wall Street brokerage firms with regulators over investment banking and research conflicts of interest earlier this year.

Officials at LaBranche, Goldman Sachs, Bear Stearns, and FleetBoston had no comment on the talks, says the Journal; officials at Van Der Moolen couldn’t be reached. An NYSE spokesman also declined to comment, as did a spokesman for the Securities and Exchange Commission, which has been monitoring the inquiry.

Short Takes

  • The U.S. General Accounting Office (GAO) has designated the Pension Benefit Guaranty Corp.’s (PBGC) single-employer pension insurance program as “high risk,” adding it to its “list of major federal programs that need urgent attention and transformation to ensure that our national government functions in the most economical, efficient, and effective manner possible.”

    “The PBGC single insurance program has a significant accumulated deficit and faces additional potential losses due to a variety of factors, including certain weaknesses in the current minimum funding rules and insurance provisions,” said David M. Walker, comptroller general of the GAO, in a statement.

  • Lucent Technologies and Sprint PCS have signed a next-generation wireless network infrastructure deal valued at $1 billion. Lucent agreed to supply new equipment and services to Sprint, including base stations and switching equipment.

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