Japan enlists Europe and US to stabilise currency markets after WorldCom
Charlotte Denny and Oliver Burkeman in New York Saturday June 29, 2002 The Guardian
The dollar was rescued from plunging through parity against the euro yesterday after the Bank of Japan enlisted the help of the European Central Bank and the US Federal Reserve in a multibillion-dollar strike on the foreign exchange market to cap the yen.
During a day in which regulatory authorities around the world sought to soothe market nerves shattered by the WorldCom debacle and revelations of false accounting at Xerox, the BoJ took action to prevent the dollar's plunge against world currencies from undermining the Japanese economy.
Japan has intervened repeatedly on its own during recent weeks to prevent the yen from rising sharply in value, but the coordinated attack yesterday marks a more serious attempt to halt the dollar slide.
It is the first time the Japanese authorities have asked other central banks for help since the dollar plunged last September after the terrorist attacks in the US.
"What we've seen today is an exercise in stabilisation," said David Brown, chief UK economist at Bear Stearns. "All they are doing is sending a shot across the market's bow." The dollar, which earlier in the day had been within a whisker of the psychologically critical one-to-one level with the euro, initially bounced back against the euro and yen. But it was under pressure again in late trading, and analysts said that it was likely to fall further unless the central banks repeated yesterday's intervention.
"The parity barrier could be breached next week. We were only marginally away from there today," said Hans Redeker, the chief foreign exchange strategist at BNP Paribas.
"The euro has gained more than 12 big figures against the dollar since March without any major correction yet."
In the US, regulatory authorities are taking action to prevent WorldCom engaging in an Enron-style mass document shredding operation, the Wall Street Journal reported.
WorldCom is in talks with the Securities and Exchange Commission to appoint a corporate monitor to ensure the firm does not destroy documents or seek to silence executives with severance payoffs or bonuses during the inquiry.
The newspaper also reported new charges against the company in an employee lawsuit accusing WorldCom and its present and former executives of encouraging workers to buy its stock for their retirement plans, even though it knew the share price would be likely to plummet.
Judy Wilson Rambo, a participant in WorldCom's 401(k) retirement plan, filed the suit in Jackson, Mississippi, where the company was founded, alleging breach of fiduciary duty.
WorldCom bosses urged employees to buy stock "despite their knowledge that [it] was not a prudent investment option," according to the suit, which is being filed by one of the firms leading class action claims against Enron in connection with its retirement plans. Ms Rambo's suit seeks class action status too, the paper reported.
According to the most recent public filings, 55% of WorldCom's $514m retirement funds were invested in its own stock - a proportion totalling $281m. Those shares were worth just $4.4m when trading in WorldCom shares was halted this week.
Officials from WorldCom were not available to comment on the negotiations with the SEC or the lawsuit.