Posted 11:13 PM by Blah blah

IBM Discloses 15,000 Layoffs (NewsFactor). Disheartening.

After Criticism, a Top Analyst Quits Salomon (NY Times). Shocking and instructive:

"Mr. Grubman had extraordinarily close ties to the companies he followed. According to a document released by the House committee, he attended 10 board meetings at several companies in the late 1990's, including WorldCom, McLeodUSA and Broadwing. It is highly unusual for analysts to attend company board meetings.

For years Mr. Grubman's advocacy for the telecommunications industry helped win his firm the top rank among investment banking firms in the sector. Between 1997 and 2001, Salomon collected $809 million underwriting telecommunications stocks and bonds and $178 million providing merger advice, according to Thomson Financial. The total was 43 percent more than the fees made by Merrill Lynch, its closest rival in the sector.

Among the telecommunications companies Salomon brought public or underwrote securities for in the period were Global Crossing, Metromedia Fiber Networks, McLeodUSA, Winstar Communications, Qwest Communications, Flag Telecom Holdings, Rhythms Netconnections and XO Communications. All but one of these companies Qwest has filed for bankruptcy....

Even when he was a little-known analyst at PaineWebber, Mr. Grubman quickly saw the potential in Mr. Ebbers' acquisition plans, according to people who know him. The plans would mean considerable banking fees for the brokerage firm that won the assignment, and Mr. Grubman also liked the idea of a small upstart like Mr. Ebbers taking on the torpid and monopolistic Bell operating companies.

In 1996, the Telecommunications Act came about. Intended to increase competition in the telecommunications industry, the law unleashed a flock of entrepreneurs eager to build huge networks crisscrossing the globe to serve the big jumps in demand for data transmission that were being predicted.

No one was more certain than Mr. Grubman that this demand was going to be explosive and that the companies most likely to profit from it would be new entrants unencumbered by the bureaucratic mentality common among established companies. He proselytized this view with institutional investors across the country in speech after speech.

Naturally, Mr. Grubman attracted the attention of entrepreneurs who shared his beliefs and hoped that his firm, Salomon Smith Barney, would help them sell their securities to the public.

Not every telecommunications chief executive could persuade him to do so. Howard S. Jonas is chairman of the IDT Corporation, a telecommunications services provider that has survived the carnage in the industry and is profitable. He said of Salomon: 'I tried to go to Jack and say we're the best of our peers and we're solvent, but I couldn't get in his office. If you had big merger-and- acquisition opportunities, then you had a chance. Once you got inside then you were sort of protected. Mergers were arranged between you.'

But the demand for the vast telecommunications networks that Mr. Grubman and others predicted never materialized. One by one, the fledgling companies began failing, leaving investors with enormous losses.

'Jack Grubman ignored obvious signs of trouble at WorldCom, including repeated downgrades by credit- rating agencies,' said Martin Weiss, chairman at Weiss Ratings Inc., an independent research firm. 'He was clearly a leading proponent of WorldCom shares, almost to the bitter end, despite abundant signs of trouble.'

Citigroup also announced several management changes involving Salomon Smith Barney yesterday, intended to further separate the firm's investment banking and equity research businesses. Equity research will now report to Robert Druskin, a 33-year veteran of Citigroup, who was named president and chief operating officer of Salomon, a new position at the firm. The investment banking business will still report directly to Mr. Carpenter, the Salomon chairman."

More for my financial education:
With Dividends, High Payouts Can Mean High Risks (NY Times).

To learn more on these fascinating topics, check out this set of articles by this same writer, Gretchen Morgenson, who writes the NYT Market Watch column.