By Pam Martens: November 16, 2012
The New York Stock Exchange (NYSE) wants to teach the public financial literacy. It says “Our Financial Literacy Center serves as a credible resource for basic financial education to help people better understand and manage their personal finances.” Is the NYSE a credible source?
Right off the bat, I’m not feeling confident when I read: “Only the highest quality companies can choose to list their securities on our exchanges. And once they do, NYSE Euronext plays a unique role in providing deep and liquid markets for the trading of those securities, benefiting all investors, large and small.”
Throughout the years, the NYSE has had to delist numerous companies that have turned out to be frauds or grossly mismanaged. They were not “the highest quality” companies by a long shot. Millions of Americans have lost their life savings believing that if a company trades on the NYSE, it was a safe bet.
In January 2002, the NYSE suspended trading in Enron with the announcement that “The exchange has determined that the company securities are no longer suitable for trading on the NYSE.” On the same day, accounting firm Arthur Andersen said it had fired the lead auditor who worked for Enron and placed three other partners on leave, based on a preliminary investigation into the destruction of documents related to the energy giant’s collapse.
On September 8, 2008, the NYSE announced a temporary trading halt in the trading of the common and preferred stock of Fannie Mae (former ticker symbol FNM) and Freddie Mac (former ticket symbol FRE) so that investors could digest the news that the companies had been placed in conservatorship by the U.S. government. The companies had a total of 24 separate preferred securities or bonds trading on the NYSE. On June 16, 2010, with their shares trading for less than a dollar, the stocks were delisted from the NYSE.
On September 17, 2008, the NYSE announced that the common stock of Lehman Brothers Holdings, Inc. (former ticker symbol LEH) along with its 13 preferred securities that also traded on the NYSE would be suspended for trading, based on the company’s announced bankruptcy filing on September 15. The NYSE said the company was no longer suitable for listing.
Citigroup, which has one of those rare and highly prized one-letter ticker symbols (C) on the NYSE, was insolvent in 2008 and required multiple government bailouts. Rather than delist the politically connected firm, the NYSE allowed Citigroup to continue trading on the exchange and last year do a 1 for 10 reverse stock split, a maneuver that misleads new investors from seeing the true condition of a company. Citigroup’s stock closed yesterday on the NYSE at $35.21. Without that reverse split dodge, the shares would more accurately reflect its troubled past, trading at $3.52.
The above are just a tiny sampling of the ignoble history of companies that have been allowed to list on the NYSE. The exchange regularly delists companies that didn’t pan out, file for bankruptcy, or when the shares fall below $1.
As part of its financial literacy program, the NYSE is also featuring a “financial term of the week.” This week that term is “market capitalization.” Here’s how the NYSE defines the phrase: “Market value of a company at a given point in time. Market capitalization is calculated by multiplying the number of shares by the share price.”
The operative phrase in that definition are the words “at a given point in time.” Let’s take the case of the Wall Street investment bank Bear Stearns, which also traded on the NYSE. At the close of trading on March 14, 2008, the NYSE’s marketplace had put a $30 a share price on the common stock of Bear Stearns. After JPMorgan examined its books over the weekend, it decided the shares were worth $2 and offered that amount to buy the whole company. The offer was eventually raised to $10, one-third of the value the so-called fair and efficient market had placed on the stock.
Since the Enron debacle, the SEC has continually issued new rules calling for the NYSE to enforce more stringent corporate governance on the companies it lists for trading. The rules cover things like independent directors, executive compensation, audit committees and the like. But the most stringent of those rules were in place prior to the 2008 collapse of numerous NYSE listed companies.
Until the NYSE can get its own house in order, it should leave financial literacy to those with a more impartial view.