Transcripts

The Unseen Casualties of the Credit Crisis

PAUL KANGAS: Investors are well aware of the impact the credit crisis has on financial companies, but the banks are not the only ones being hurt by bad sub-prime bets. As Erika Miller reports, the damage has trickled over into some unexpected places.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Until recently, it seemed the damage from the credit crisis was largely confined to homebuilders and financial firms. Not anymore. Drug companies, airlines and manufacturers are also taking a hit. Money manager Joe McAlinden explains that many of these companies ran into trouble by trying to get higher returns on their cash reserves.

JOSEPH MCALINDEN, GLOBAL CHIEF INVESTMENT OFFICER, CATALPA CAPITAL: Some companies have reached a little bit to get slightly higher yields and have bought into some of these arcane financial instruments that, it turns out, had small pieces of sub-prime loans in them which became very hard to sell and had to be marked down.

MILLER: Among the growing list of victims are drug giant Bristol-Myers Squibb, U.S. Airways, 3M and network equipment maker Ciena. Even Potash Corporation, the world's largest fertilizer maker, took a write down on securities tied to sub-prime loans. Unfortunately for investors, it's almost impossible to find out if a company is putting its money in risky securities.

MACALINDEN: You just don't know where the financial assets are all invested. You could try reading the footnotes of the financial statements, but you really are not going to learn all that much.

MILLER: And just because a company has exposure to sub-prime debt does not necessarily mean it will lose money. Take Microsoft, which analysts estimate holds over $3 billion in mortgage-backed securities. That company maintains it has lost virtually nothing because it avoided lower quality investments. Still, NYU Professor Larry White believes the contagion is spreading.

LAWRENCE WHITE, FINANCE PROFESSOR, NYU STERN SCHOOL OF BUSINESS: We're going to be working through this for at least another six to nine months, maybe longer. And at least partly this is because at the base is a bunch of sub-prime mortgage loans, some of which have already gone south, some of which haven't yet, but we're not quite sure.

MILLER: Here's one reassuring sign for investors, corporations appear to be investing more conservatively. According to the Investment Company Institute, assets in institutional money market accounts have surged by about 20 percent since mid-September. Erika Miller, NIGHTLY BUSINESS REPORT, New York.