Worldcom had lent $430 million to Bernard Ebbers, its CEO - apparently to meet margin calls on its stock.

May 3, 2002 12:51 PM

Worldcom had lent $430 million to Bernard Ebbers, its CEO - apparently to meet margin calls on its stock. (The amount was $366 million as per BusinessWeek). Bernie Ebbers resigned on April 30th. "About the best that can be said of the arrangement is that it keeps a big block of WorldCom stock out of the market, leaving it safely parked in the CEO's portfolio. Price to WorldCom: almost 20 percent of its balance sheet cash as of year-end 2001." I wonder, what could the board have been thinking?!
posted by justlooking (2 comments total)

NPR covered this by pointing out that Worldcom was a "growth" company that grew by acquiring other companies (at the time they won the MCI acquisition over BT, Ebbers quipped that perhaps BT was next) -- until the Sprint deal was nixed, and there were no others to acquire, whereupon its investment value evaporated.
posted by dhartung at 3:08 PM on May 3, 2002

I agree. But I am not shocked that "the entire growth of the business was being financed by stock sales and loans" , but that the board came forward to save the CEO speculating in shares by making him a personal loan of unheard of amounts. That tied up 20% of Worldcom's cash.

Also, "the loans--at annual interest rates of about 2.15 percent--are well below prevailing consumer lending rates and even below the prime bank lending rate, which currently sits at 4.75 percent. They're effectively allowing Mr. Ebbers to benefit from WorldCom's BBB credit rating, an investment-grade designation he could never have obtained as an individual." This is a little crazy. I was telling my boss this story over phone today ...he didnt believe me at first!
posted by justlooking at 4:19 PM on May 3, 2002