Some companies that are rumored to file for Chapter 11 do not. That appears to be the case with Eastman Kodak (NYSE: EK) and AMR (NYSE: AMR), parent of American Airlines. But that did not stop the destruction of their shareholder values. Someone on Wall St. or in the media blundered or decided to profit from a sell-off, and investors paid the price. No one will be held accountable for the share collapses. There is nothing wrong with disseminating bad news, even if it has less than a sliver of truth and the government cannot prove outright manipulation. That is too bad.
First there was the rumor that Eastman Kodak was close to Chapter 11 when it hired law firm Jones Day, which has a reputation as a restructure specialist. Last Friday, Eastman Kodak’s stock dropped from $1.62 to just below $0.60 in a matter of minutes. Concerns about the company began when it took down $160 million from a credit line, which moved shares from $3.38 to $1.60. Kodak denied that it needed that money to remain financially viable. It then denied it planned a bankruptcy filing. Shares rebounded to $1.32 at Monday’s open. Credit experts said Kodak would not go under because its patent portfolio is worth $3 billion.
Yesterday, AMR’s stock dropped by over a third, from $2.76 to $1.83, which is a 26-year low. Pilots have left the airline in large numbers, perhaps to flee a ship that has started to sink. Investors also expected that a Chapter 11 filing could help the carrier cut costs. Bankruptcies are a regular part of airline industry practices when debt overwhelms a company’s ability to make payments. But credit experts opined by the end of the day that an AMR restructuring was unlikely.
Rumors have caused a near-collapse of Bank of America (NYSE: BAC) and Morgan Stanley (NYSE: MS) shares in recent weeks. Morgan Stanley’s largest shareholder, Mitsubishi UFJ Financial Group, said it had every confidence in the investment house, an effort to stop a sell-down. Warren Buffett showed his support of Bank of America by increasing his position in the bank.
It is sometimes impossible to know where rumors of bankruptcies begin. No matter what their sources, shareholders and companies can do very little to prevent the panic that drives their share prices down. Someone made a mistake, or decided to make money from a rumor, in the case of Kodak and AMR. And those persons probably never will have to make any restitution.
Douglas A. McIntyre