IBM's fall has investors chucking shares in blocks

December 17, 1992|By New York Times News Service

NEW YORK -- Institutional investors, who at one time owned more of IBM than any other stock, continued their panicked flight yesterday, selling huge blocks of the shares and sending the price down $4.25, to $51.875.

Combined with a $6.75 drop Tuesday, IBM's investors have lost more than $6 billion, or 17.5 percent, in two days. The stock now lies at its lowest level since 1981.

On both days, Richard A. Grasso, the New York Stock Exchange president, led a group of officials who gathered at IBM's trading station on the exchange floor to assure an orderly opening despite onslaughts of sell orders.

"This was a very major event from a very major company," he said.

Before the market opened Tuesday, IBM announced drastic cutbacks, likely record losses and a probable dividend reduction. The news turned the stock's steady, five-year retreat into a rout.

Yesterday IBM was the most active New York Stock Exchange issue for a second straight day, with volume of about 13.4 million shares, surpassing Tuesday's 12 million, as well as the daily average of about 2 million over the past six months.

"It's like the hurricane that went through here last weekend," said Laszlo Birinyi, whose financial consulting firm bears his name. "Where do you start to assess the damage?"

Individual investors were heavy sellers, he said, but the price pattern showed that professional traders were at work. "The rapidity of the decline has been bang, bang, bang, bang," Mr. Birinyi said.

Traders said their institutional accounts had pressing reasons for making their sell orders urgent. Those whose gains in other stocks are taxable are running out of days this year to sell IBM and claim an offsetting tax loss. And no strategist wants to face client after client early next year demanding to know why he or she held onto IBM. Selling now means not having to list IBM in a year-end report.

"The bottom line is that they want it off their books," said one trader, who did not want his name attached to something none of his clients would openly say. "We're seeing major blocks for sale."

A trader at Salomon Brothers said pension fund managers were among the major sellers, explaining that some were under orders to unload any stock that falls by a certain percentage or risks a dividend cut.

The money managers most willing to discuss their strategies were, of course, those who say they cut back their IBM holdings a while ago.

Patricia Laupheimer, a senior research analyst at Stein Roe & Farnham, said she was not about to have the firm's mutual funds and individual accounts rush back in.

"There's more potential risk than potential reward in the stock," she said. "There are too many better stories to put your money to work in."

Some of the few analysts who still recommended the stock issued downbeat reports yesterday. With assurances from IBM that the dividend was safe and business prospects improving, Smith Barney had rated IBM a "speculative buy" -- still a tag seemingly more appropriate for some flash-in-the-petri-dish biotech stock.

Yesterday, Smith Barney chopped its rating to hold. "The point ++ here is that we certainly have not seen a positive trend," said Shao Wang, an analyst at Smith Barney. "Is that saying it too mildly?"

Mr. Grasso, the exchange president, reported heavy block volume in IBM Tuesday and yesterday, but cautioned against assessing the role of institutions until they filed quarterly reports. The Reuters news service said blocks of 10,000 or more shares accounted for 5.7 million of the 13.4 million shares traded yesterday.

IBM's opening was delayed for several minutes both days while exchange officials searched for a suitable price and then spread the news about the range where trading would begin.

"You want to reflect that there is a tremendous supply in relation to demand for the stock," Mr. Grasso said in a telephone interview. "You don't want to surprise anyone."

The stock opened Tuesday at $59.875, $3 below its Monday close. It closed Tuesday at $56.125, then plunged again, opening down $2.50 yesterday at $53.625.

Amid the carnage, a few quiet voices are beginning to ask whether, one of these days, IBM might become a bargain.

Mr. Birinyi, the financial consultant, notes that Compaq, Citicorp and the automakers are among the companies, once banished from many portfolios, that have been welcomed back, with strong price gains, this year.

Will IBM be next?

"Having tried to answer that question half a dozen times in 1992 and having been wrong the first five times, my answer may be totally worthless," he said.

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