Marketplace: News Archives

Monday, October 16, 2000
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It's Monday, October 16, 2000. I'm David Brancaccio.

They used to call the big oil companies the "Seven Sisters," a metaphor that became increasingly awkward as many of those sisters got married to each other through mergers. The big one now is Chevron agreeing to buy Texaco for $35 billion in stock. Marketplace's Jessica Smith has our reports.

Smith: "If it passes regulators scrutiny, the combined company would be called ChevronTexaco. It would trail just behind Exxon Mobil, Royal Dutch Shell, and BP Amoco in the worldÆs oil fields. The only question many consumers have is what this means for gas prices. Ethan Manuel is with the U.S. Public Interest Research Group."

Mauel: "We don't know what's going to happen it depends how aggressive the government is in acting to protect consumers."

Smith: "The company, of course, offered the usual post-merger announcement shtick about cost savings and greater efficiency. Industry analyst Michael Lewis, with the Petroleum Finance Company, doesn't think prices will necessarily go up. But he, like many others, is curious about the timing of the deal. Plans for a Chevron Texaco merger fell apart in the past, so why announce a deal now, when oil prices are high and regulators and consumers are more likely to throw up hurdles. Lewis thinks Texaco, with its stock price floundering and major projects yet to pay off, needed the cash."

Lewis: "Texaco really needed a near to medium term infusion of capital so they could last until these major projects were brought on stream."

Smith: "Texaco's major projects in West Africa, the Caspian Sea, and the Gulf of Mexico, overlapped with Chevron's more successful projects in the came locations. Analyst say it more efficient to combine operations to compete with other global giants. Chevron Texaco also plans to cut 4000 jobs, or seven percent of the workforce. In NY, I'm Jessica Smith for Marketplace."

You and I need to have a quick conversation about plumbing. Like plumbing, most of the subsystems that make the financial markets work aren't pretty. But they are important, a point that was emphasized today by the powerful chairman of the Federal Reserve. Alan Greenspan said today something called the "clearance and settlements system" is in dire need of overhaul. The system is for stocks rather like escrow is for a new house, the clerical work of actually transferring ownership. Greenspan warned that these stock clearinghouses are running into bottlenecks as the number of trades soars. Stocks are supposed to take no more than three days to settle, but experts say one of the fears here is that investors might try to renege on purchases during this three day window during a market dive. Ken Kurson writes on investing for Esquire.

Kurson: "If person A doesn't pay person B then person B can't pay person C and so on - and that's what spooks markets. When it becomes a particular concern is when volume is growing. And right now we've got a situation where all of your listeners are going to remember when 500 million shares traded was a huge day. Now that would be a disastrous day; we're regularly in the billions. The more volume you have the more important it is to get these trades cleared no just quickly but professionally."

Big names in the settlements business are Bear Stearns and the Pershing division of Donaldson, Lufkin and Jenrette.

Kurson: "You start to multiple fractions of cents by millions and billions of shares over the course of a year and you're talking about some real money."

Kurson also edits GreenMagazine.com.

New York's tobacco-control law is under attack, even before it takes effect. Cigarette maker Brown and Williamson is challenging the constitutionality of a new state law that would ban sale of cigarettes by mail-order, telephone or the internet. From the Marketplace Health Desk, Helen Palmer has details.

Palmer: "Last March New York imposed the nation's highest cigarette tax - a whopping $1.11 per pack. Result? Tobacco retail sales plummeted over 20% in the next three months. Some of those smokers turned to the internet to get their fix - thereby avoiding the new taxes. Closing that loophole is one spur for the bill's provision banning sales by internet - the other - says the New York Attorney-General's spokesman Mark Violette - is to protect kids."

Violette: "A significant percentage of cigarettes sold either over the telephone or via the internet wind up in the hands of underage smokers."

Palmer: "No internet sales - fewer cigarettes in the hands of kids. But Brown and Williamson - third ranked of America's Big Tobacco companies - sees this as dangerous hence the court challenge to the New York law, which they brand 'unconstitutional'."

Smith: "What it does is call into question the whole future of e-commerce."

Palmer: "Brown and Williamson spokesman, Mark Smith. "

Smith: "will it be jeopardized if all 50 states can set their own rules for what can and cannot be sold over the internet?"

Palmer: "Smith claims they have a model program with strict age-verification for anyone who orders, and they make a point of collecting all the appropriate taxes. But New York State's attorney general's office is adamant - their law is constitutional, and they'll defend it vigorously in court. From the Health Desk at WGBH Boston, I'm Helen Palmer for Marketplace."

And that's the top of our news for Monday, October 16, 2000. Today the Dow Jones Industrial Average went up 46 points, that's 0.5 percent. The Nasdaq Composite fell 0.8 percent. Details when we do the numbers.