3 Banks Had Early Concern on WorldCom

[BeyondGeography]

 
By GRETCHEN MORGENSON
NEW YORK TIMES

Published: March 17, 2004

Three big banks expressed misgivings internally about WorldCom's financial soundness in early 2001 just months before they helped the company sell $12 billion in debt, according to documents filed in federal court in Manhattan on Monday. But their doubts — and the basis for them — were not disclosed to investors who bought the debt 14 months before WorldCom filed for bankruptcy.

The role that banks may have played in papering over WorldCom's financial problems, which led to billions in investor losses, has not been determined. But the new documents indicate that institutions close to WorldCom knew more than they let on to investors and that they acted to protect themselves from the company's shaky finances even as they sold its securities to the investing public.
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Whether signs of the company's deteriorating financial condition should have been disclosed to investors will be up to a court to decide.

The documents were filed in connection with a class-action lawsuit brought two years ago on behalf of the New York State Common Retirement Fund and other investors who bought WorldCom securities from 1999 to 2002. Defendants in the case include Bernard J. Ebbers, WorldCom's former chief executive, who was indicted on fraud charges two weeks ago; the company's directors; and the banks and brokerage firms that sold WorldCom securities.

According to the documents, credit analysts on the lending side of three banks — J. P. Morgan, Deutsche Bank and Bank of America — saw increased risks at WorldCom and privately downgraded the company. In one case, an analyst recommended that the bank cap its loan exposure to the company and not lend it more.

http://www.nytimes.com/2004/03/17/business/17PHON.html?hp

[Yo_Mama_Been_Loggin]

1. Why didn't they have them earlier than that?

I have 25 years in the telephoney business. I'm currently employed by Verizon and worked for GTE before that. When Worldcom was installing equipment in our central offices as part of so called deregulation I asked who are these guys?

When they outbid GTE for MCI I had a gut feeling Worldcom was nothing but a house of cards. This was in the late 90's. Turns out I was right.