The Supreme Court handed a $2 billion victory to Exxon Mobil, saying the punitive-damages award for the Exxon Valdez disaster was too high.
The New York Times and Wall Street Journal both put the news on A1 and say it—finally—draws a close to a near twenty-year saga. The Journal notes that the drawn-out American-style justice means one out of five of the plaintiffs won’t even get the reduced award (now just $500 million, or 10 percent of the original $5 billion award before various courts began whittling it down) have already died. (See previous Audit coverage)
The Court said in a 5-3 ruling that punitive damages shouldn’t be more than actual damages, which totaled $507.5 million, a ruling the Journal says “may reach well beyond the icy shores of Prince William Sound”. That’s because the Supremes have “broad discretion” over maritime law and may apply the ruling’s principles to the states, too. Big Business lauded the news, The Washington Post says on A1.
The Times says the 1:1 ratio the Court came up with isn’t based on law, but on studies that determined the median punitive award is 65 percent of the actual-damage award. The Journal says David Souter, who wrote the majority opinion, said blockbuster awards were unjust because they caused “stark unpredictability.”
Bloomberg says that “Even an off year for business at the U.S. Supreme Court is still a good year,” noting that the Chamber of Commerce won eight of its fifteen cases (last year it was twelve of fourteen), including the three most important ones.
In the dissent, John Paul Stevens wrote:
“In light of Exxon’s decision to permit a lapsed alcoholic to command a supertanker carrying tens of millions of gallons of crude oil though the treacherous waters of Prince William Sound, thereby endangering all of the individuals who depended upon the sound for their livelihoods,” Justice Stevens wrote, “the jury could reasonably have given expression to its moral condemnation of Exxon’s conduct in the form of this award.”
Justice Samuel Alito sat this one out because he owns Exxon stock. Hey, Judge: Sell it, guy! It’s the biggest corporation in the country and you’re on the Supreme Court for crying out loud.
A 100-million-year-old energy plan
In a separate Exxon story on its Marketplace front, the Journal takes an interesting look at how the oil goliath is drilling for gas in a hard-to-crack field in Hungary—evidence, it says, of how energy firms are having to dig deeper (literally and metaphorically) for reserves.
The Times on C1 looks at the Democratic and Republican takes on offshore driling, finding they have different ones and that neither will help ease gas prices anytime soon.
The Republicans want to end a nearly three-decade-long ban on offshore drilling along the coast, but the Dems want to make companies drill in areas they already control first. This is interesting:
The biggest problem is that much of the coastal United States, subject to a drilling ban since the early 1980s, has not been thoroughly explored for oil. Neither the industry nor the government has any definitive idea how much could be recovered. In order to hazard a guess for some areas of the Eastern Seaboard, the government has had to inspect geological maps from Morocco, which was connected to North America more than 100 million years ago.
The paper says oil companies would have a hard time drilling anytime soon because they’re all tied up elsewhere.
The Federal Reserve, worried about inflation, left interest rates unchanged for the first time since August and said the next change is likely to be an increase rather than a cut.
The Journal and Financial Times front the news, while the NYT places it on C1. They report that the Fed said recessionary risks have moderated, while “inflation and inflation expectations” have not. That may be optimistic—or a fudge. The Times:
“There are too many risks to the economy for the Fed to raise rates now,” said Albert M. Wojnilower, an economic consultant to Craig Drill Capital. “What this statement does is get the policy makers to their next meeting—on Aug. 5—without committing themselves.”
The president of the European Central Bank signaled that it would likely raise its interest rates next week in a bid to keep inflation in check.
Housing: Look out below
In other economic news, new home sales dropped 40.3 percent in May from a year ago and 2.5 percent from April, the WSJ says on A2 and the NYT inside its Business Day section. Inventories increased to 10.9 months from 10.7 months, and median prices fell 5.7 percent to $231,000.
Manufacturing orders were flat in May. The Journal:
“A flat number after two consecutive monthly declines is hardly a sign of vibrant growth,” said Wachovia economist Tim Quinlan. “Businesses are scaling back.”
What it sowed, Countrywide reaps
Countrywide was sued not only by Illinois, as expected, but also by California and was hit by legal action from a Washington state agency, the Journal reports on A3.
The paper says the California suit is “particularly notable” because Countrywide does so much business there. Interestingly, that lawsuit found that option adjustable-rate mortgages, where borrowers just pay the interest on their notes, had profit margins of 4 percent, compared to the more-conservative Federal Housing Administration loans, which made the lender just 2 percent.
The Los Angeles Times says California Attorney General Jerry Brown says the company used marketing to trick borrowers into taking the loans, whose consequences—a sudden, sharp rise in monthly payments down the line that many couldn’t afford—they didn’t understand.
The Journal says it’s just going to get worse for the disgraced lender. Connecticut says it will probably file suit, something the paper says will be “part of a second wave of civil actions.”
All states are seeking restitution for borrowers. If the states can persuade the courts to grant restitution, it “could be a staggering blow against Countrywide,” said Kurt Eggert, a law professor at the School of Law at Chapman University, in Orange, Calif. “Countrywide could be required to give back its profit on all those loans and conceivably give back houses on which it has foreclosed.”
The Seattle Times says the Washington legal action says Countrywide discriminated against minorities by charging them more than whites of “similar circumstances” were charged. Some got higher rates even though they had better credit scores.
Meantime, Countrywide shareholders voted to approve the buyout offer from Bank of America. But, surely, after lying down with a dog, BoA can’t now complain about fleas.
More chickens return home to roost
The Journal says General Electric is having a hard time attracting bidders for its big credit-card unit that’s up for auction.
The paper says that’s because investors are worried about debt-laden consumers’ finances and whether they’ll be able to afford their credit-card payments in the downturn. JPMorgan Chase recently backed off a bid, and other big credit-card companies like Citigroup and Capital One are unlikely to bid because of problems in their own units.
Seems like if GE really thinks its $30 billion credit-card business is going to be ok, it would yank it off the market, which isn’t going to give much for it right now. But its bad-debt rates are high:
In May, GE charged off 8% of the loans in the portion of its securitized credit-card portfolio, up from 5.17% in May 2007, according to data compiled by Keefe, Bruyette & Woods, a boutique investment firm that specializes in the financial-services industry. The monthly data filed by card issuers don’t comprise the complete portfolio, but typically are regarded as a fair representation of its performance. Some 4.82% of the portfolio was more than 30 days’ delinquent, up from 4.05% in May 2007.
Zell if he knows
Real estate and now newspaper tycoon Sam Zell is unsurprisingly going to the well to help ease Tribune Company’s crushing debt burden.
Zell said he may sell the Tribune Tower in Chicago—one of the country’s great buildings— and unload the headquarters of the LAT.
The newspaper industry woes are hardly news any more. The Journal (and we understand we’re doing it too) buries news that Tribune said yesterday it will slash one quarter of the Hartford Courant’s newsroom jobs, along with 100 Baltimore Sun jobs. The Chicago Tribune does the same, while the LAT doesn’t even mention it.
The Trib quotes an unnamed “individual” saying the paper’s headquarters and parking lot could be worth $200 million. We assume this is either a real-estate broker or a Tribune official, but regardless the paper should give more information on its sourcing.
This Bud’s not for you
Anheuser-Busch will turn down InBev’s $46 billion merger offer, reports the Journal on B1, the Times on C1, and the FT on its Companies & Markets front. Anheuser says the bid is too low, even though it’s 30 percent higher than where the company’s shares traded before it was proffered.
The papers say it will start a “bitter” (yuk yuk) hostile takeover battle by the Belgian brewer of Stella Artois for the St. Louis maker of Bud. Anheuser will propose to sell noncore assets like its amusement parks to help its shares and keep the company under Busch family control.
Expect the company to pull out all the red, white, and blue stops to protect Americans’ God-given right to weak beer.
The FT fronts a story about Procter & Gamble’s CEO telling it in an interview that he hopes the presidential candidates don’t get too negative about the economy and send it into a “worse recession.” This is front-page news?Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at email@example.com. Follow him on Twitter at @ryanchittum.