CEOs profit, investors lose
By By Joe Baker, Senior Editor
A survey by Financial Times of the top 25 largest corporate bankruptcies in the U.S. shows top management made nearly $3.3 billion in salary and share sales before the companies collapsed.
The publication said the executives and directors amassed that much money in just three years, wiping out hundreds of billions of dollars in shareholder value and nearly 100,000 jobs in the process.
Major winners included former executives of Enron, Global Crossing and WorldCom, the largest U.S. bankruptcy ever.
In the three years since 1999, Ken Lay of Enron grossed $247 million, while the top earner, Gary Winnick of Global Crossing, hauled in $512 million. Other beneficiaries include less famous figures, such as K.B. Chandrasekhar, who founded Exodus Communications. He sold more than $131 million worth of stock before the firm toppled.
The 25 companies covered in the survey crashed in the past 18 months. The survey shows salaries and proceeds from share sales between 1999 and 2001. Some 208 executives and directors were surveyed. The study found 52 individuals grossed more than $10 million; 31 got $25 million plus; 16 drew more than $50 million; and eight got more than $100 million. Among the ways they made their millions were severance and retention bonuses, dividends on shares held and forgiven loans.
Against this backdrop, investors continued to flee the stock market in July, with early estimates indicating $47 billion was pulled out of equity mutual funds, according to Financial Times.
The publication said it was the largest monthly outflow in history. These forecasts have boosted concerns that investors are losing faith in stocks and may further upset an already volatile market.
Investors pulled $18 billion from equity mutual funds in June, compared with a net inflow of $5 billion in May, according to the Investment Company Institute, a mutual funds trade group. The loss of gains in July was the fifth monthly outflow in 12 years.
It may well be that we are seeing a re-think on equities as an asset class. Capital gains in the past 12 years have been badly eroded, and we could see sustained net outflows continue, said David Bowers, chief investment strategist for Merill Lynch.
Trim Tabs, which tracks 15 percent of all funds on a daily basis, said equity fund outflows may be above $50 billion. Strategic Insight, a mutual fund research company based in New York City, believes July net equity fund outflows could exceed $30 billion.
Comstock Partners, a mutual fund management company, commented: The ISM index (which measures manufacturing activity) now suggests that the manufacturing industry is barely expanding. The production-related indices all declined in July, with the backlog of orders index falling back below the critical 50 percent level. If this report doesnt get the Feds attention, nothing will. The initial jobless claims rose by 20,000 to 387,000 during the week ended July 27th, which was 13,000 more than expected.
Construction spending also was sharply down in June, and commercial construction remains weak. Residential construction spending suffered further slippage, after dropping for three consecutive months.