Market flat as stocks slip; earnings, bank evacuations, GE woes weigh

By Ronda Fears

Nashville, Tenn., April 15 - Worry over corporate earnings weighed on the market, traders said, along with heightened concern over General Electric Co. While there were lots of sharp markdowns, dealers said trading was thin and the market was described as flat. The bank evacuations in Washington also were a damper.

"The GE effect is manifold. Everyone is on pins and needles wondering if they are going to topple, go into a freefall," said the head convertible trader at one of the major investment banks.

"So, our market was deadly quiet today. That was probably a bad choice of words, given that the bomb scare at the banks put a lot of people on edge, too."

A bomb threat caused the evacuation of several banks in Washington, D.C. and later federal officials said the call was made by a 13-year-old Dutch boy as a prank.

Beyond that event, investors have been worried that the economic rebound will be slower than they would like to see, and perhaps corporate earnings power would not return to levels seen before.

Earnings, seen as a harbinger of coming economic activity or the lack thereof, have been disappointing, traders said. When earnings appear to be good or better-than-expected even, traders said investors are not reacting as quickly as perhaps they would have six months ago, due to so many blowups in the wake of Enron Corp.'s collapse.

GE announced the layoff of 7,000 workers on Monday after stunning Wall Street with an earnings disappointment last week.

"As this earnings season has progressed, we've seen the attitude about economic recovery wear down from slight optimism to moderate skepticism. It's not just the earnings, either. It's accounting problems, credit problems, a gamut of things that has people pretty shaky," said another dealer.

"There's nothing else going on in our market to spur trading activity."

No new issues surfaced during the session, and there wasn't even much talk outside of hopes of a new deal being circulated.

Without much flow, traders said the convertible market tracked stocks. Markdowns were prevalent, but there some issue heading north and those surprisingly were due to earnings.

Shaw Group's 0% convertible due 2021 was quoted up 1.125 points to 56 bid, 56.25 offered with the stock up $2.51 to $29.11 after the company posted a huge gain in earnings.

For fiscal second quarter ending Feb. 28, Shaw reported an 81% gain in net income to $21.3 million, or 51c per diluted share, from $11.6 million, or 28c per diluted share, in fiscal second quarter 2001. Revenues rose 66% to $566.2 million from $340.3 million. The industrial construction company said it has a backlog of $4.5 billion in business, up 42% from a year ago.

Novellus Systems Inc. gained although the company posted poor results, traders said, because investors are betting on a turnaround in the semiconductor business and want to buy into the name early. The convertible were participating only marginally, however, traders said.

The Novellus 0% convertibles due 2031 added 0.5 point to 101.875 bid, 102.875 offered as the stock rose $1.69 to $50.40.

Novellus reported first quarter net income of $3.8 million, or 3c per diluted share, compared with profits of $82.1 million, or 55c per diluted share, a year before. Revenues dropped 63% to $169.7 million from a year earlier. But, the company said cash and short-term investment rose 4.3% to $1.96 billion from yearend 2001.

Travelers Property & Casualty slipped on the freshly public insurance company's earnings, however. The company was spun off by Citigroup just last month and an $850 million convertible offering accompanied the IPO.

The Travelers 4.5% convertible junior subordinated notes due 2032, which sold at par of 25, lost 0.375 point on Monday to 26.75 as the common shares dipped 41c to $20.43.

Travelers posted net income of $102.1 million, or 10c per share, versus $478.6 million, or 50c per share, a year ago while under the Citigroup umbrella. Operating income declined to $326.6 million from $348.8 million a year earlier, while revenues grew to $3.2 billion from $2.87 billion.

Elsewhere, accounting questions, mergers and divestitures steered price changes.

Cendant's converts were bouncing back slightly from negative reaction late last week to a Forbes article that renewed accounting questions at the hotel operator and car rental company.

But as the GE situation weighed on the market and the mood became increasingly negative during the session, traders said Computer Associatates saw selling activity in a backlash reaction to last week's to Wall Street Journal report that said federal authroties are investigating if the company boosted results to help boost stock awards for executives in addition to accounting questions.

The Computer Associates 5% convertible notes due 2007 was quoted down 5.125 points to 109.875 bid, 110.125 offered as the underlying stock lost $1.59 to $19.59.

Ford's new convertible lost ground after the company announced it would look at selling the Hertz equipment rental business. The 6.5% convertible trust preferred due 2032, which sold at par of 50, was down 0.875 to 53.25 bid, 53.5 offered as the stock lost 28c to $15.06.

Northrop Grumman was hit hard after upping its bid for TRW Inc. to $53 per share from $47.

The Northrop Grumman 7.25% mandatory convertible due 2004, which sold at par of 100, dropped 2.65 points to 124.5 as the common stock fell $3.42 to $114.89.

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