The rumor is Bank of America has a high exposure to California utility debt. Some of the loans may have been syndicated exposing other banks.

"Speculation that banks would be exposed to the California utility situation in terms of defaults and that the Bank of America was having trouble (which the bank has denied) added to the downside pressure..."

http://quote.yahoo.com/

-- Cave Man (caves@are.us), January 05, 2001

Answers

Decision outside of Fed meeting unusual

January 4, 2001

BY TAMMY WILLIAMSON BUSINESS REPORTER

Federal Reserve Chairman Alan Greenspan came to the economy's rescue Wednesday, and it's not the first time.

The nation's most powerful banker, Greenspan made a rare, though not unprecedented, move to cut the federal funds rate one-half of 1 percentage point, the first rate cut in more than two years, on signs that the pace of business activity was slowing too quickly.

The move was unusual because it was done outside of the regularly scheduled meetings of the Federal Open Market Committee, the first time that's happened in more than two years. And the size of the reduction was the biggest in eight years. It was also announced while the stock and bond markets were still open, sending stocks soaring.

"It's only been done a handful of times," said Carl Tannenbaum, chief U.S. economist for ABN Amro North America Inc. and LaSalle Bank. "It was important they get started so this will take effect in time to keep the economy from moving into negative territory."

The Fed committee, composed of Greenspan, the presidents of the 12 Federal Reserve banks, including Federal Reserve Bank of Chicago President Michael Moskow, and Federal Reserve governors, typically meets every six weeks and is scheduled to next meet Jan. 30-31. Many economy-watchers had expected the Fed to cut rates then.

As chairman, Greenspan has the power to change rates between meetings, but he does so with his colleagues' consent via a telephone conference call with Fed governors and the presidents of the 12 Federal Reserve Banks.

The Fed on Dec. 19 left rates unchanged, though it formally acknowledged its bias toward assuring continued economic growth. For several months before that, the Fed's official bias was toward restraining inflation.

http://www.suntimes.com/output/business/econ04a.html

-- Cave Man (caves@are.us), January 05, 2001.

Friday January 5, 11:25 am Eastern Time

Bank of America: No Big Trading Losses

NEW YORK (Reuters) - Bank of America Corp. (NYSE:BAC - news) said on Friday it had not seen any significant losses in derivatives or other trading and it remained comfortable with its 2001 credit quality outlook, amid rumors that troubled California utilities had drawn down a line of credit.

Speculation swirled on Friday that one of the largest California utilities had drawn down a line of credit at Bank of America, the parent of the country's largest bank, and that the bank had large losses in derivatives trading.

A Bank of America spokesman said it was against the bank's policy to comment on customer relationships.

``We know of no basis to support speculative rumors about our operations,'' the Charlotte, N.C.-based bank said in a statement. ``We are conducting business as usual.''

Its stock dropped $3-3/4 to $47-3/4 on Friday morning on the New York Stock Exchange, after being halted for news.

``There were a bunch of rumors,'' Lawrence Cohn, an analyst at Ryan, Beck & Co., said. ``One was that the bank had a lot of exposure, unspecified, to the California utility industry. The other one had to do with some kind of exposure to credits in Europe on the derivative side. As soon as I heard it, I thought it sounded like someone who was short and needed to cover and didn't want to get hurt. It was so weird and vague.''

Wall Street is jittery about U.S. banks' exposure to two California utilities -- Pacific Gas and Electric, a unit of PG&E Corp (NYSE:PCG - news), and Southern California Edison, part of Edison International (NYSE:EIX - news) -- which are in financial crisis because they may not have enough cash to continue operations.

Under 1996's power deregulation rules, retail prices are frozen and the state's two largest utilities have incurred huge losses to pay for soaring wholesale prices.

California, which was once considered a pioneer in deregulating electricity markets, has been faced with warnings of widespread blackouts since the summer through to early winter amid short supplies, boosting electricity prices to record highs.

The California Public Utilities Commission approved a 10 percent electricity rate increase but the utilities said it is not enough to ensure they can avoid bankruptcy.

Rating agencies Moody's, Standard & Poor's and Fitch downgraded both utilities' debt, making it more difficult for them to raise the capital they need to remain solvent.

http://biz.yahoo.com/rb/010105/bq.html

-- Cave Man (caves@are.us), January 05, 2001.