The Roanoke Times from Roanoke, Virginia • 81

I SUNDAY JULY 27 1986 BUSINESS Roanoke Times World News tT Debugging: Man's word not necessarily his bond in today's business By JAMES STERNGOLD The New York Times NEW YORK Executives atBear Stearns Co the Wall Street investment bank feared that the worst had been confirmed: An electronics expert doing a sweep Of Bear offices found what looked like an eavesdropping device in the corporate finance depart ment The turned out to be a small temperature sensor to Bear vast relief But the episode was symptomatic of the anxiety over security that has gripped Wall Street since the insider trading scandal broke in May Many leading firms say they are debugging their offices installing sophisticated locks relying on elec tronic rather than paper lists of confidential items and even requiring some job applicants to pass lie detector tests They are also shredding more documents and sternly reminding their staffs about the penalties for abusing or leaking inside information concerning corpo rate clients the moment what got is a high state of extreme sensitivity said Jules Kroll whose private investigation firm Kroll Associates is reviewing the security procedures at a number of major investment banks Thomas Norton president of idelifacts Metro politan New York which does background checks on the credit employment and criminal history of individuals for corporations said several Wall Street firms have recently inquired about his services The heightened sensitivity to security is more than a sign of the times Wall Street executives say it flies in the face of the traditional ethic that a word is his bond Departments that handle sensitive information such as mergers and acquisitions have for several years been taking security precautions but those precautions were based on the assumption that problems would come from outside not from inside the firms strength of this business has been the ability to do business on said Harold Tanner co head of corporate finance at Salomon Brothers Inc of dollars change hands just by word of Tougher security is nevertheless one obvious means of preventing leaks or breaches of confidentiality that could stain a name whole house is built on a system of said Michael Duval a managing director and member of the management committee at the irst Boston Corp people believe that our controls work the house Clearly that foundation of trust has been shaken by the guilty plea of Dennis Levine a senior investment banker He had been charged with illegally trading over a five year period in the securities of 54 companies prior to announcements mostly of takeover attempts that drove their prices higher Since then other investment bankers and traders have been charged with violations of insider trading laws in that and another case Some of the investment bankers implicated worked at Wall more prestigious houses: Goldman Sachs Co Lazard reres Co Drexel Burnham Lambert Inc Shearson Lehman Brothers Inc and Smith Barney Harris Upham Co had to face the reality that we have crooks inside our business the investment banking said Duval who articulated a feeling expressed by nu merous executives changes the way you think IfsT like a boxer who takes his first fall You can get up and fight again but been sobered You feel same This undercurrent of betrayal tinges the angry com ments of many investment bankers when they discuss the scandal often reluctantly They say the Levine episode has raised a troubling question: how strict can the securi ty at investment banks be before it destroys the open collegiality that most firms say they try to foster? or instance Bear Stearns and several other firms' make selective use of lie detector tests for job applicants They also sometimes use urine tests to try to detect drug users rederick Joseph chief executive of Drexel said that his firm will carry out background checks on re cruits more consistently than before But Eric Gleacher head of mergers and acquisitions at Morgan Stanley Co said he found such measures lie detector tests think too extreme people would resent Please see Debugging Page 6 Too big 3 to fail 1 We're here to stay' Ch 21 folks say Mid day ROBERT ad adf By JE DeBELL Staff writer By ROBERT RENO Newsday Anybody who has gone through the indignity of getting a home mort gage will naturally find it difficult to understand how in the world a bank can ever lose money irst of all the loan officer in variably acts like he is doing you a favor which is silly because all you are to do is rent some money for which you will pay a handsome sum considerably in ex cess of the prime rate paid by corpo rations on loans that aren't even col lateralized LYNCHBURG no sign on the door to identify the headquarters of Channel 21 WJPR TV newest television station in the Roanoke Lynchburg market but a nearby an tenna tower and two satellite receiving dishes give a clue as to inside the former Kroger store on Linkhorne Drive here: Offices studios a modern control room and plenty of space to grow here to said Tom Carney Jr the 32 year old spokesman for the partnership that owns the station positioned our selves for growth and going to The station is an independent which means it is not affiliated with one of the three commercial networks It is the only indepen dent broadcasting station in the market al though other independents such as WTTG are imported by cable Like most independents WJPR offers movies a variety of syndicated off network comedies and dramas such as and shows sports and a miscellany of other fare This summer it is showing selected Baltimore Orioles games and in the winter will offer several college bowl games has excellent product for starting up an said David McAtee gener al manager of WSET TV (Channel 13) Hie ABC affiliate in Lynchburg think done a good job of acquiring Programming is only part of the battle in commercial television What matters most is how many people are watching Advertisers who are an sole source of in come are interested in numbers WJPR has only been on the air since March and still on all cable systems in the market It had hoped to begin broadcasts by last Christmas but foul winter weather de layed construction of the transmission tower on Thaxton Mountain in Bedford County Mail and phone calls to the station show that WJPR is being watched but so far there are few numbers to prove it In the May ratings period the programs barely regis tered SCHE JPR TVm 'Then you wait while the bank makes up its mind which is also silly because if you are a deadbeat the bank forecloses on your house' and throws you out in the street recovering in the process the full amount of the money it has rent ed you is after all a fairly straightforward business And be cause it deals in a commodity like i 'i money printed for it by the govern boot ment which is neither perishable nor injeed jOf elaborate manufacturing qrf and processing it require a mmir genius to run your average bank You merely accept deposits pay as little for them as you can get away with and then prudently hire them out" at' higher price Simple enough except it remotely explain how an outfit like the Bank of America can lose $640 million in three months Can the average householder even conceive of how many bad judgments dead bgats and soft loans it takes to make million? If you were stuffing it down a rathole it would take longer than Channel advertising volume reflects the audience uncertainties Public service an nouncements and direct response commercials (for items such as records or kitchen imple ments) still outnumber more conventional commercials Carney said he expects it to take at least 18 months for WJPR to begin breaking ever operationally He put monthly operating costs at be tween $125000 and $150000 and he said start up costs for WJPR were about $3 million including the tower and equipment in the Lynchburg office studio complex Carney pretend to be thrilled by the slow start yet he and his associates say confident of eventual success added a third person to the Roanoke sales staff and they say planning to expand local programming Others in the market have mixed opinions Mavis Rudolph media specialist with the Ed monds Packett Group Inc a Roanoke adver tising agency said the station will have to but should do all right once it builds reasonable audience levels The manager of a network affiliated sta tion who asked not to be identified lest he appear inhospitable to the market newcomer is less sanguine He said the relative lack of vital access to cable viewers suggests a short age of business savvy It is his theory that the station is no more than an investment that will be sold off in a few years Not so says Tom Carney though there already has been at least one offer not interested in taking our money he said here to Carney a loridian even talks of settling' in Virginia The new station is owned by two Miami businessmen Dr Thomas Carney and Rinal do Page operating as Lynchburg Roanoke Television Partners Ltd son Tom is the spokesman and general counsel and his in all business enterprises (which include another television station in Pensacola la) It was the younger idea to get' into the Roanoke Lynchburg television mar Please see Channel 21 Page 7 Hard to explain aJjank's losses Despite slow start newest TV station in region optimistic about growth 19 Thutyw CatL sne Aa I 1 mOhO a I a 1 rW 1 1 i I i 3 wr i I ruSaJ V1 I I 5 i I I i iso" I I 1 i I jo? jc wfl I I I I 'v I Mrs 1 I I BB three months to get rid of that many Please see Bank Page 6 By MAG PO Business writer indaov htii nlannpd nn a rnmfnrtAhlp ta tirement in his hdtWe Southwest Virginia fi U90 'Dbl 'He suggested using the $35000 in cash to pay off the was going to make $46000 to $47000 a year doing Lindsey ruefully told Bruce Stockburger an estate and tax attorney with Gentry Locke Rakes Moore The way things turned out however he will be lucky 60 percent of that income As the bulwark of his financial security Lindsey invested $100000 in bonds of the Washington Public Power Supply System 1 He alone Other investors were lured by their Triple A safety rating and high return But $225 billion in bond payments were defaulted in 1983 when two proposed nuclear power plants were ahonrinnod Tindspv is listed as a nlaintiff in a class ac tion suit grinding slowly through the courts The WPPSS bonds often referred to as wnoops ounus lepirann the largest default in municipal bond history Now only speculators buy those bonds for pennies Trand Stockburger estimated loss at $80000 to $90000 or another retirement cushion Lindsey took a $50000 second mortgage on the sale of his former home in another state It promised him a steady return of 12 Iercent Now the new owner is refinancing his mortgages at lower interest When the $50000 is repaid Lindsey expects to earn a much lower rate of return on the money Another projected income source was to be $350 a month fmm the nerson who boueht his shop This also was repaid early and the Lindseys invested the afiv money in a name ceruncaie Lindsey's retirement is financed now by a pension of i Man will be lucky to have 60 of expected income $15000 a year $13000 at last rates from the mutual fund and whatever can be earned on the cash XThe unfavorable spread between interest rates on Lindsey debts and assets means ne is paying tor tne privilege of having cash in the Stockburger said mortgage and an outstanding secured loan At the very least Stockburger said Lindsey should refinance his home mortgage at a lower rate Stockburger emphasized this recommendation was based on knowledge that Lindsey very soon would re ceive $50000 from repayment of the investment mort gage Lindsey would have more cash available for other living' expenses if he no longer faced monthly mortgage payments Stockburger confirmed with Carl Sherertz of Merrill Lynch another member of the financial planning panel that government securities mutual fund is highly rated Still he said Lindsey should invest the expected $50000 in a different fund of equal quality Another alternative is to spread the total available among three different funds The experience with the Washington state bonds shows the need to diversify a portfolio Stockburger said Stockburger said Lindsey could salvage some advan tage by selling some or all of the Washington state bonds at a loss The loss could be used to offset the part of the investment mortgage that represents a capital gain on the sale of the house Lindsey could sell enough this year to offset the amount of the gain Or if he sells all the bonds the loss could be carried forward to offset future capital gains and up to $3000 of ordinary income InilcAn krtail 4 xKioin enmo AQch fmm i XU auuiviuu X41UUOCY rnivuiu vuvaui ovinv vumw tne nonas ior extra inveswneni incuiiie Lindsey asked about the feasibility of buying tax INANCIAL PLANNER ASSETS Government securities mutual fund $105000 Bank certificate 35000 Early return of investment mortgage 50000 Individual Retirement Account 6000 Home 1 10000 Personal property 40000 WPPSS bonds 1 00000 Defaulted TOTAL ASSETS $346000 LIABILITIES Home mortgage at 135 20400 Car loan at 12 6000 Loan (secured by CD) at 105 15000 TOTAL LIABILITIES $41400 NET WORTH $304600 RECOMMENDATIONS 1 Use proceeds from the bank certificate earning 75 percent to pay off the 135 percent home mortgage and 105 percent loan 2 Diversify by putting money due from a second mortgage investment into a different high quality mutual fund Wait until a new feder al income tax law is enacted before deciding on investment in tax free bonds 3 Liquidate enough of the defaulted bonds to offset the capital gain on the second mort gage 4 In the alternative liquidate all of the defaulted bonds and carry the loss forward to offset future capital gains and ordinary income 5 Execute new wills and powers of attor ney This is another in a monthly series about how individuals can plan for their financial goals ictitious names are used to protect the identity of the subjects but their situations are real Twelve experienced financial consultants chosen by the newspaper will take turns counseling readers who volunteer to participate There is no charge for the service and the story will protect the identity of the subjects If you would like to participate briefly outline your financial situation and goals and write to: inancial Planner Roanoke Times World News PO Box 2491 Roanoke Va 24010 free bonds but Stockburger suggested delaying a deci sion until Congress adopts a new income tax law Stockburger noted that most sponsors offer a variety of funds including some that are tax free Investors can switch among them without penalty Lindsey also had considered borrowing money against the equity in his new home to raise money for other investments Stockburger said he would have to find an investment sure paying a very high return He advised Lindsey and his wife to write new wills executed in the Virginia format since they intend to live here permanently He said they should consider recipro cal powers of attorney in case of disability After their discussions Lindsey said Stockburger some good He is reluctant to lose the income tax deduction fdr interest on his home mortgage but he will probably pay it off when he receives the $50000 due from the invest ment mortgage 1.