WEEK IN REVIEW:

DO YOU THINK IT’S TIME TO JUNK JUNK?

Corporate bond defaults soared last year, from 26 to 64, and Moody’s Investors Service blames Asia. “Default totals will continue to rise throughout 1998,” a spokesman said.

Junk bond issuance was up 30% over 1996, hitting an all-time high of $88 billion, while investment-grade debt was up only 12%, to $145 billion, the spokesman said.

Much of the junk was real junk, too, rated below B1 – what the New York Fed calls “high risk.”

Two-thirds of 1997’s $8.56 billion in defaults happened in the last half of the year, thanks to the Asian implosion. That alone is more than the $5 billion creditors were left holding the bag for in all of 1996. Asian defaults from the end of World War II through 1996 totalled one; last year there were 22.

On hot seat

Wall Street underwriters and municipalities are under fire from the Securities and Exchange Commission and the Internal Revenue Service for yield-burning, or hitting muni refundings with excessive markups. The markups burn down yields, and thus drive up prices. Investors and the bond issuers are afraid the IRS will declare the yield on burned bonds taxable, ruining everybody’s day.

A settlement about to be proposed by the two agencies would shift liability to the underwriters and let them off the hook in return for a lump sum payment, reports have it, but nothing is settled yet. Stay tuned.

Talk is cheaper

Fidelity Investments is introducing a speech recognition system that allows customers to trade fund shares and get info by speaking into the phone, just as if they were talking to a real, live person. The company believes that the system is able to recognize all U.S. regional and most foreign accents, presumably including Boston’s. If all else fails, you can ask the machine, if you speak slowly and enunciate very clearly, to transfer you to a human assistance unit.

DLJ boss quits

John S. Chalsty, 64, is quitting today as CEO of Donaldson Lufkin & Jenrette Securities Inc. He’ll stay o
n as chairman while president Joe L. Robey, 58, tacks on the chief’s responsibilities.

Help in bonding

What do you want to know about bond mutual funds? Well, the Investment Company Institute is willing to tell you and your clients a whole lot in both English and Spanish in its new publication, “A Guide to Bond Mutual Funds.” It’s available free from the mutual fund industry trade group at P.O. Box 27850, Washington, D.C. 20038, or via the Internet at www.ici.org.

GE goes east

The invasion of Japan continues (InvestmentNews, Feb. 16). GE Financial Assurance, a General Electric Co. subsidiary, is setting up (it’ll own 90% of the stock) a joint venture with Japan’s badly battered Toho Mutual Life Insurance Co. All 7,000 Toho sales reps come with the deal. “This is going to be one of our biggest markets over the next few years,” says Michael Frazier, president of the unit. GE is kicking in $633 million to help pay down Toho’s bad debts. Earlier this month, Merrill Lynch & Co. announced that it is hiring 2,000 people, most of them employees of the failed Yamaichi Securities Co., to staff its new 30-branch operation in the land of the falling yen.

Fees ‘unreasonable’

The U.S. Labor Department has noticed that some 401(k) fees are “unreasonable,” says Sherwin Kaplan, a deputy solicitor. He expects the department, after investigation, to offer some general guidelines about gouging.

Connection?

A seat on the New York Stock Exchange sold for a record $1.8 million on Wednesday, up $50,000 from one sold the preceding week. The Dow Jones industrial average fell the following day, after setting six straight records.

Schwab savings

After earning a record $207.3 million last year, Charles Schwab Corp. is bracing for lean times. The San Francisco-based discount brokerage king is cutting travel and freezing hiring for six months.

Closing Quote

“We Americans are throwing stones at other people’s glass houses while building moats around our own.”

– Columbia Uni
versity Professor Jagdish Bhagwati Page 9

Bloomberg News

contributed to this report