the audit

Opening Bell: Journal Editor Quits

Murdoch era now in full flower; is Newsday next?; BoA’s bad day; etc.
April 22, 2008

Rupert Murdoch was a busy man yesterday.

The top editor of The Wall Street Journal abruptly resigned just four months after Murdoch took over its parent Dow Jones & Company. And The Journal reports that his News Corporation is close to a deal to pay $580 million to buy Newsday from debt-addled Tribune Company.

Time broke the story on its Web site last night that Marcus Brauchli, the WSJ’s managing editor for less than a year, was stepping down.

The Journal fronts a poor and (thankfully for the author) unbylined story on its Marketplace section that doesn’t tell us anything about why Brauchli might have resigned—though it (and the Financial Times, for that matter) says the decision was “amicable”—and is careful not to offend Murdoch by raising the integrity questions that dogged him during the months-long takeover fight. But The New York Times on C1 quotes unnamed sources putting the lie to the “amicable” bit: “They differed as to whether he was being forced out as managing editor of the Journal, one of the most coveted posts in journalism, or leaving out of frustration.”

Since December, when Mr. Murdoch’s News Corporation bought Dow Jones & Company, publisher of The Journal, he has immersed himself in the newspaper’s daily operations and quickly made changes in its shape and style. Friends and colleagues say that Mr. Brauchli has been frustrated with some changes, and with the sense that he did not have the control over the newspaper that he was promised.

The Journal under Murdoch has turned into a more general-interest paper with fewer long-form, off-the-news front-page articles, and the NYT reports that Brauchli “questioned the shift.” He also fought a Murdoch plan to cull the editor-heavy paper’s ranks.

Sign up for CJR's daily email

The Politico:

“This is a clear sign that it’s over—the Dow Jones culture is dead,” said one Journal staffer.

The FT says “Brauchli argued in private conversations that News Corp’s deep pockets would help to ensure the paper’s future in a rapidly changing media industry, and allow it to pursue long-standing goals with greater vigour.”

Whose long-standing goals will be pursued has never really been in question. The Journal reports that Murdoch man Robert Thomson, already installed as publisher, “may” take over as the temporary editor of the paper.

The Bancroft family, which sold Dow Jones to Murdoch last year, insisted on a fig-leaf “editorial independence board,” but the NYT says “even the people within Dow Jones who supported that pact said that it would be all but impossible to keep the new owner from having his way.”

About the closest the WSJ story comes to raising questions about the resignation is a cryptic eleventh paragraph that says “the committee is empowered to look into concerns about the editorial integrity of the Journal, according to a person who has reviewed the agreement.”

Is Newsday next for Rupe?

If Murdoch completes the Newsday purchase, it would consolidate his grip on the New York newspaper market, where he already owns the WSJ and the New York Post.

The Journal scoops on B3 that Newsday would be part of a joint-venture that would include the Post and says that the consolidated operation would move the Post from $50 million in annual losses to $50 million in profits as part of the new group. The WSJ says the newspapers would remain “separate products, at least for the time being.”

Tribune is weighed down by the crippling debt load it took on when real-estate tycoon Sam Zell took it private last year. That’s made exponentially worse by the severe advertising declines the company has seen at its newspapers and is forcing Tribune to sell off assets.

BoA hits a bump

Bank of America reported sharply lower profits in the first quarter and said the rest of the year is looking bad as consumers get hit hard. It took a couple of billion dollars in write-downs and put another $6 billion or so in reserve for future credit losses.

The Journal buries an interesting bit of info in the seventeenth paragraph of its C5 story: nonperforming assets more than tripled from a year ago to 0.9 percent of all loans.

Bloomberg does its own burying, not revealing the tidbit that 44 percent of Bank of America’s home-equity loans are in California, Nevada, Arizona, and Florida until the twenty-second paragraph. Good luck collecting those. Yet the bank says just 2.5 percent of them may be “uncollectible” this year. And wait until it takes over Countrywide in the third quarter.

“The first quarter was much worse than our expectations three months ago,” (CEO Kenneth) Lewis said on a conference call. “It’s too early to strike up the band and say that happy days are here again.”

Reading the Nat City tea leaves

The WSJ on C1 says the $7 billion recapitalization of National City shows that some private-equity firms think banks are a buy, though the paper says it could take “several years for the banking industry to dig out of its current mess” and growth is likely to slow anyway because they’re reining in themselves.

This is no widows-and-orphans investment, of course. National City said yesterday that delinquencies and write-downs will only continue to rise.

As the Times notes:

Part of the problem within the banks is that the people who bought and sold mortgage and other bonds in recent years no longer know what they are worth. As banks prepare their quarterly earnings, each division tallies up its investments. They are supposed to mark them to a price based on what they could sell them for, but sales of many types of assets have ground to a standstill.

It mentions that all this fresh capital may help banks avoid write-downs by saying the plan to hold certain distressed assets instead of sell them—something the Journal pointed out yesterday.

Level with us

The Journal’s Dennis Berman in a C1 column looks at how all the cash sloshing around the globe so far has helped save the financial system from catastrophe. Check out these paragraphs on National City:

No one dared speak out over the past few weeks, for fear of stoking panic. But people involved in the auction described the situation as very, very serious.Another potential bidder was less diplomatic, saying that absent rescue capital, National City was “going doughnuts”—a term used when a stock drops to zero.

That raises a point we’ve been pondering. This information is new to us, at least in how it’s stated point-blank. You’ve had to read pretty deep between the lines to figure this out. So is the press complicit in trying to avert a panic, and if so is that appropriate? We’d like to know exactly what we’re facing.

Berman does this here by striking the right tone in warning of potentially dire consequences, but also spelling out how we can avoid them.

Bloomberg also notes the “abundance” of capital available to banks and says U.S. financial companies may need to raise $12.4 billion more, which seems awfully low to us. Was that supposed to be $124 billion?

Sympathy from Sir Fred

Bloomberg and the FT say that the Royal Bank of Scotland is raising a whopping $24 billion in new capital to offset credit losses and acquisitions. The bank’s shares have lost about half their value in a year, and the new capital will heavily dilute their holdings, but it’s nice to know its leader—whom the FT calls “Sir Fred”— has pity for his employers in our Pathetic CEO Quote of the Day:

“I’m 100 percent focused on the future and taking the business forward,” Goodwin said. “I can well understand this is not easy for shareholders. It is not easy for me.”

The Associated Press reports that RBS took $11.7 billion in losses.

Fuel-efficient cars…how novel

The federal government will today propose to increase car gas mileage by 4.6 percent a year by 2015, increasing average miles per gallon for cars and light trucks to 31.8 from 26.7 last year, says The Detroit News. The paper says that’s faster than Congress requested.

The NYT says on C2 that the move “would force auto companies to speed up their development of lighter, more fuel-efficient vehicles.” Clearly.

Let’s talk about farm subsidies

The NYT says on its front page that volatile food prices are worrying American farmers despite the big profits the mostly rising costs have brought so far.

The paper says the volatility, which farmers say is fed by speculator, is making it much harder for them to hedge their risk by trading derivatives “that in the past have cushioned the jolts of farming, turning already-busy farmers into reluctant day traders and part-time lobbyists.”

…crop insurance premiums rise with the volatility. So does the cost of trading in options, which is the financial tool he has used to hedge against falling prices. Some grain elevators are coping with the volatility and hedging problems by refusing to buy crops in advance, foreclosing the most common way farmers lock in prices.

It all adds up to higher food prices.

Up, up, and away

In other soaring commodities news, the FT says on page one that oil hit (another) record, this time landing at $117.60 a barrel on news of a Nigerian pipeline attack and delays by Saudi Arabia in expanding production.

OPEC says it’s producing enough oil and that there’s a surplus on world markets but that speculators are driving up prices.

Subhed, Subhed

The Times leads its front page with news that the Food and Drug Administration says tainted supplies of the blood-thinning drug heparin have been found in eleven countries and have killed eighty-one Americans. It and the WSJ’s A3 story report that China disputes that the contamination happened in its factories.

The papers say it’s a ratcheting up of the conflict between the U.S. and China over the the safety of the latter’s imports.

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 Follow him on Twitter at @ryanchittum.