Hartford Courant from Hartford, Connecticut • Page 51

't Jkrtforb ifourant SECTION FRIDAY JANUARY 13. 1995 Orange County sues Merrill Lynch for $2 billion in damages motive for supplying the county with investments that it knew were unsuitable for tax dollars. Orange County sought bankruptcy protection last month, the biggest municipal bankruptcy in history, because of disastrous investments that soured when interest rates began rising last year. The county's travails have focused national attention on how local governments raise money in the financial markets, whether they put taxpayer money at risk, and whether Wall Street brokers bear responsibility for leading municipal treasury managers into investments they don't kerages and reinvesting the money in medi-um-term securities, including many interest-rate-sensitive derivative securities. In effect, it was a huge bet on stable or lower interest rates.

And as the Federal Reserve increased short-term rates six times last year to head off inflation, it proved disastrous. In another case involving derivatives and borrowing, the West Virginia State Investment Pool has won more than $85 million in settlements and judgments from brokers. The pool had lost about $160 million, according to Michael Mayer, a financial con-Please see Orange, Page F2 Earlier this week, Merrill Lynch released documents showing that it warned former county Treasurer Robert L. Citron several times of the high risks of his bets that interest rates would stay stable or fall. It said it decided not to sever a 20-year relationship with a "sophisticated institutional investor" when he refused.

At the time of the county's bankruptcy filing, Citron's fund managed about $7.4 billion for Orange County and 186 school districts, cities and local government agencies. Losses so far total about $2.02 billion a 27 percent decline. The losses resulted from Citron's strategy of obtaining short-term loans from bro By SCOTT RECKARD Associated Press SANTA ANA, Calif. The supervisors of bankruptcy-stricken Orange County sued Merrill Lynch Co. on Thursday for more than $2 billion in damages, contending that the brokerage sold the county unsuitable investments.

Merrill "abused the trust and confidence of the people by permitting and encouraging" investments by the county fund that were "neither authorized by law or suitable for taxpayers," Board of Supervisors Chairman Gaddi H. Vasquez said. Merrill Lynch spokesman Timothy Gilles repeated the firm's contention that it acted properly. "We were a broker-dealer for Orange County, not their financial adviser," he said. The lawsuit filed in federal bankruptcy court is the latest of more than a dozen already filed against Merrill Lynch, the county's lead broker and underwriter of municipal bonds.

Michael Stamenson, a wealthy San Francisco-based Merrill Lynch broker who was the county's chief contact, also has been named a defendant. Some of the litigation says Merrill Lynch earned more than $100 million doing business with Orange County, providing it a 'U I MIC I 1 Si Shawmut post goes to head of its state bank "TV: 9 I states to develop a customer base and establish relationships with local communities. It will not change her position as president of Shawmut's Connecticut operations, Kraus said. It is also an opportunity to expand beyond retail banking and get more involved with commercial lending and other parts of Shawmut's businesses, Kraus said. Gerard S.

Cassidy, an analyst at Hancock Institutional Equity Services Inc. in Portland, Maine, said Kraus has been a team player who has worked well with senior management. "Given their aggressive acquisition strategy, the position is an important one," Cassidy said. "If they had given her only Rhode Island, that would have been a demotion." If the Northeast Savings deal goes through, Kraus would be expected to work with the transition team that would integrate the New York branches of Northeast Savings into Shawmut. However, the future of the acquisition of Northeast Federal Corp.

is still uncertain. "Shawmut is between a rock and a hard place," said John D. Rooney an analyst at Legg Mason Wood Walker Inc. in New Haven. "They want to merge.

But if it goes beyond Please see Key, Page F6 By KENNETH R. GOSSELIN Courant Staff Writer As its plan to expand into New York state by buying Northeast Savings runs into a roadblock, Shawmut National Corp. has named the head of its Connecticut bank to oversee growth outside the company's core market. Eileen S. Kraus will remain a vice president of the corporation, and president of Shawmut Bank Connecticut.

But Kraus will now lead the development of markets in New Hampshire, Rhode Island, Florida and New York where the bank has expanded, or hopes to. Kraus, who has been in the state's banking industry for 15 years, has been responsible for consumer banking, one of Shawmut's strongest businesses. Shawmut wants to establish a beachhead in and around Albany by buying Northeast Savings' Hartford-based parent. Northeast Federal Corp. But Shawmut's falling stock price has cast doubt on the deal.

One of Shawmut's key strategies during the past few years has been to grow through acquisitions. "My new responsibilities are to build and strengthen the new franchises," Kraus said Thursday. Her new role will include working with senior managers in those Associated Prm veiled at th Komakl, Japan, plant of Mitsubishi Havy Industries Ltd. U.S. and Japans companies Jointly developed th plan.

The first prototype of the FSX fighter it merge from its hangar Thursday as th next-generation Japan support fighter is un Japan rolls out prototype of next fighter jet Bayer to spend billions on research, expansion About 350 government, military and industry officials watched Mitsubishi Heavy Industries Ltd. roll out the non-flying prototype at a factory near Nagoya, 170 miles west of Tokyo. A first flight is set for next summer. Both nations sounded a positive tone. But at least one analyst says Japanese military officers still bristle at Washington's strong-arm tactics to bolster U.S.

jet sales. In the joint development, Mitsubishi Heavy Industries and Lockheed Corp. shared technology. The Japanese learned the basics of the F-16. and the Americans learned advanced materials and radar technology.

The Japanese modifications make the new fighter harder for enemy radar to track, and improve its ability to hit targets. It can be expanded without adding a proportional amount in weight, and can land on short run ways. U.S. officials seemed pleased with the deal, under which Japanese engineers have turned over a reported 20,000 pages of scientific information. "There were some fears about would the Japanese actually give us this stuff," U.S.

Embassy spokesman William Morgan said. But "since the program has actually started, cooperation has been very smooth." Japanese defense ministry spokesman Ta-kahiro Goto also praised the cooperation. Mitsubishi Heavy designed a fighter well before the FSX deal was signed in November 1 988, but Washington wanted Tokyo to buy its fighters straight from U.S. military contractors. Please see Japan, Page F6 By DORIAN BENKOIL Assixiulid Press TOKYO Japan unveiled the first prototype of its next-generation fighter jet Thursday after a two-year delay punctuated by tense negotiations with Washington about the jointly developed plane.

Japan initially planned to develop a fighter independently. But, pressured by the United States, it agreed in the late 1980s to develop the FSX plane jointly and base it on the American-made F-16. The lightweight, needle-nosed craft is designed for use against invaders at sea and on land. The Japanese air force wants the new fighter, powered by a General Electric engine, ready for full use by the end of the decade to replace its aging fleet of F-Is and F-4s. Weill predicts consolidation among insurers until last year.

Eastman Kodak's Sterling Winthrop unit held the rights to the name and trademark. In addition to Bayer aspirin, Sterling Winthrop has brands such as Phillips' Milk of Magnesia and Mi-dol for menstrual cramps. Miles' brands include Alka-Selizer antacid, One-A-Day and Flintstones vitamins, and Mycelex-7 treatment for yeast infections. Also stemming from the company's acquisition of the Sterling Winthrop business, Bayer has set a goal of increasing its health care product sales to 30 percent of worldwide sales by 2000, from the current 26 percent. "Our greatest opportunities are in the health care sector," Schneider said.

Bayer's health care business includes prescription and over-the-counter drugs, and diagnostic equipment. "Our pipeline is well stocked. Products to be launched by the year 2000 have the potential to add $2 billion to $3 billion to our sales," he said. Please see Bayer, Page F6 Bloomberg Business News NEW YORK Bayer AG. the German chemical and pharmaceutical giant, said it will spend $13 billion on research and capital investment in the next three years, and plans to increase the percentage of sales coming from its health care business.

The company also will rename its Miles Inc. subsidiary in the United States as Bayer now that it has regained the U.S. trademark on the Bayer name, said Manfred Schneider, chief executive of the parent. Miles operates a large research facility in West Haven, Conn. "It gives me great pleasure to stand before you today, not as head of Miles' German parent company, but in my true identity as CEO of Bayer," said Schneider, who was in New York to announce Bayer's plans.

The name change is effective Apnl I. Bayer, one of the three largest chemical companies in the world, wasnt allowed to use the Bayer name in the U.S. market because. By DIANE LEVICK Courant Staff Writer The insurance industry faces major consolidation, and financial services companies such as Travelers can expect good business opportunities abroad. Travelers Chairman Sanford I.

Weill told a Hartford audience Thursday night. Like the banking industry, the property-casualty insurance industry will see consolidation of companies. Weill told the 31st annual executive forum of the World Affairs Council. The council, a non-profit forum for discussion and promotion of international trade and global educa ney subsidiary. In the international arena.

The Travelers Inc. is looking at business opportunities in the People's Republic of China, Vietnam and India. Weill reported. The prospects are good for well-run American financial services companies to do business in more countries but "they've got to be very, very careful," Weill said. "I think you've got to walk slow." He predicted a good market in emerging countries for American investment banking.

Financial services companies, Weill explained, are interested in countries where there is an emerging middle class. not a good way to create a bottom line," Weill said. Weill cited a recently announced deal for Continental a New York-based property-casualty insurer, to be acquired by CNA Corp. Weill expressed enthusiasm for Travelers' property-casualty operations that serve national accounts Fortune 500-type companies. He said Travelers is intending to expand the services and expertise of its national accounts business to serve more middle-market companies.

Weill also said he's enthusiastic about sales of Travelers annuities through the company's Smith Bar tion, hosted Weill's talk in the Travelers Group Education Center. Weill, who is chairman and chief executive officer of The Travelers Inc. in New York, said insurance industry consolidation is inevitable because companies' products show little differentiation. Only those that produce them at low cost will successfully compete, he said. Weill's emphasis since taking over the Travelers Insurance Cos.

at the end of 1993 has been to cut costs. It doesn't make sense. Weill said, for a property-casualty insurer to keep writing business and praying that financial returns will improve. "I believe in prayer, but prayer is Host of talk show to buy Middletown radio station Today's data DOW JONES AVER AGE Discover Re to be sold to Baltimore-based firm Basic money supply (Tnirsaay i ctose) 30 Industrials 3.SS9.00 Down 3.03 1 10 sorvy 142 txiP' met led Jttn 2 tom a tensed 11.147 tuontt ptvwut BILLS (as 01 09 95) 12 -month 7 .24 (average) nteotn .42 5.87 MORTGAGES (A.erape basd ot local sivey) Adjustable. 1 yr.

9.04 ru4, 30 yr. 9.46 11D onrpPnnnn 1 Mir Hit i 1 1 Inside By COUN POtTRAS iwranl Sta1 Writer MIDDLETOWN Nationally known financial guru and radio talk show host Sonny Bloch of Honda, whose listeners have filed two class-action lawsuits against him, is about to grab a foothold in the New I r.p!and radio market Bloch is poised to purchase WCNX-AM radio in Middletown. a station he has leased since November Thousands of listeners nationwide tune in to Bkxh's syndicated call in shows to get his spin on the Ki'est mvcVmer.t tips is fating two class action Mfs ffum listeners who say p-tt tcamrnt-tl by investment he runped up en the airwaves 1 hase t'Ts tve sl r.i! s- in Newsweek magazine, a piece in Barron's and. most recently, a segment on "Inside Edition" Thursday night. Reached at his home studio in Tampa earlier this week.

Bloch dismissed his legal problems and called the lawsuits "made for the tabloids." Bloch. 58, said both lawsuits deal with paid advertisements that he read on the air and shouldn't be held responsible for Bloch radio programs are earned on 173 stations across the country "All I do is read the commercials," Bloch said "Th business of doing financial broadcasting is I ke walkirg thrcmph a minefield. The only thing that really it is that I've t- this for 15 years Please set Talk, Pare 6 mainly venture capitalists and institutional investors They include Cullmane and Donnelly in New Haven, Conning 4 Co in Hartford, and Executive Risk in Simsbury Discov er Re provides commercial auto, general liability, and workers' compensation coverage to businesses and institutions that self insure much of their risk About 35 percent of the company's business is with municipalities, and customers include the Connecticut state auto feel, Dar bury. West Harford. Stamford.

M.lford and Greenwich Typically a customer assumes the nsk of more prt-didaMe. frequent claims and peM coverage through Discover Re for less predictable an larger risks The deal car fleas see I page FS By DIANE LFATCK Ctmranl SUtf Writer A well-known Baltimore insurance company plans to buy Discover Re Managers a small but growing insurer in Farmington. in a $78 5 million deal. L'SFAG Corp. announced Thursday it has a definitive agreement to acquire Discover Re for about $TS 5 million in L'SFAG common v- and options Discover Re will remain in Farm ingon with its 45 employees.

arvJ no layoffs are planned George Ls-tes. chairman and chief executive officer, and Scott Doyle, president and chief operating officer. will remain with Uncover Re under five-year employment agreement Discover Re. unded in I is prsva'e'y ty 1 5 i I Minimum-wag adjustment? Th pri i I ftr stjtV'g to V-xrvtrA fi wAt-j r-ia'v; 'f ya? Pag T2. Stamford firm being seid r' 'v PagtFS.

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