Public Citizen Gives Thumbs-Down to Congressional Asbestos Deal

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Wed, 22 Jun 2005 13:10:03 -0400

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[CWATCHDOGCIVJUS] Public Citizen Gives Thumbs-Down to

Congressional Asbestos Deal

 

 

The following is Public Citizen's most current press statement on the

proposed multi-billion dollar asbestos fund, issued today, June 22.

 

 

As Retooled Asbestos Legislation Emerges, Wall Street's Thumbs-Up

Confirms the Deal is Good for Companies, Bad for Victims

 

Even With Ultimate Prospects of S. 852 Uncertain, the Legislation Has

Already Spurred $2.2 Billion in Stock Market Gains for Asbestos Firms

 

WASHINGTON, D.C. - When Congress took up a bill in April to create a

national trust fund for compensating hundreds of thousands of victims

of

asbestos exposure, Public Citizen and other groups warned the

legislation would be a boon for asbestos companies and other firms, at

the expense of victims.

 

Wall Street has now weighed in with its review of the deal, and the

stock market agrees: The companies win. As a group, major asbestos

firms

have already seen an average 22.8 percent gain in their stock prices as

the bill, S. 852, has been introduced and then passed out of the Senate

Judiciary Committee, an analysis by Public Citizen shows. The stock

price gains translate into a $2.2 billion increase in market value, or

market capitalization, for the firms.

 

To view the full press release, including graphs, visit:

http://www.citizen.org/pressroom/release.cfm?ID=1973.

 

The Judiciary Committee approved the bill, with amendments, on May 26.

The committee report on the bill is expected to be released in coming

days.

 

Wall Street likes the asbestos legislation because under terms of the

bill, asbestos companies and other firms would reap significant

windfalls. That is because their liability to victims under the

proposed

privately funded, publicly run national trust fund would be

substantially less than otherwise expected.

 

" With the stock prices of asbestos firms rising with each step in the

legislative process, investors are clearly signaling that the bill is a

big winner for the companies, " said Joan Claybrook, president of Public

Citizen. " But when the companies win, the victims lose, because victim

compensation depends directly on how much the companies contribute.

With

hundreds of thousands of people likely to die because the industry

covered up the dangers of asbestos exposure for so long, this

devastating human toll should be the priority of Congress. "

 

S. 852 proposes to create a $140 billion fund to compensate workers

exposed to asbestos, but there is concern the fund may go bust because

it will not collect enough to pay all benefits.

 

" What we need is a system that doesn't impose some artificial limit on

corporate liability but instead compensates all victims fairly,

according to the severity of their injuries, " said Frank Clemente,

director of Public Citizen's Congress Watch division. " S. 852 is all

about holding down corporate liability but not nearly enough about

helping people. "

 

The asbestos companies' run-up in stock prices began on April 12, when

Sen. Arlen Specter (R-Pa.), the bill's chief sponsor, appeared at a

news

conference in the Senate's radio and TV gallery to discuss the USA

PATRIOT Act. The questions, though, quickly turned to the asbestos

legislation he had been developing. " I think, " Specter said, " we are

very close to a deal. "

 

Within hours, stock prices of asbestos-related companies surged. The

bill was introduced April 19, and there were further increases around

the Judiciary Committee's May 26 approval.

 

An examination of stock price movements for eight leading

asbestos-related companies from April 11 (the day before Specter's

announcement) through June 17 shows:

 

Although firms have not benefited uniformly, as a group there have been

strong gains. (Figure 1). Higher stock prices often translate into

higher compensation for corporate executives, through stock options and

incentive pay.

 

The firms have collectively seen an average stock price increase of

22.8 percent.

 

One company, Owens Corning, saw its value grow by 65.6 percent. Other

companies experiencing significant gains: USG Corp. (33.7 percent),

W.R.

Grace & Co. (22.3 percent) and McDermott (18.7 percent). (Figure 2)

 

The $2.2 billion gain in market capitalization represents a 10.1

percent increase in an approximately two-month (67 day) period.

Expressed on an annual basis, the growth is 68.9 percent. By

comparison,

for 2005, the New York Stock Exchange composite index is up 0.89

percent.

 

If prospects for enactment of S. 852 brighten, further stock price

increases are likely. The asbestos firms benefit because their

contributions to the trust fund proposed to be established under S. 852

would be substantially less than payments they would otherwise be

expected to make to set up their own trust funds to compensate victims.

For example, seven asbestos firms will collectively realize an

estimated

73.6 percent reduction in their liabilities, from $18 billion to $4.7

billion (Figure 3). Some of the biggest winners include W.R. Grace &

Co., whose liability is estimated to fall 86.9 percent, from $3.2

billion to only $418 million, and USG Corp., whose liability is

estimated to fall 80.4 percent, from $4.1 billion to just $797 million.

 

 

Last month, Public Citizen released a report on the asbestos

legislation ( www.citizen.org/asbestos ), showing that under the guise

of providing aid to victims of asbestos-related illnesses, a small

group

of companies has spent tens of millions of dollars to successfully

lobby

for relief from asbestos liability worth tens of billions of dollars.

 

That success in protecting their corporate interests, however, will

sharply reduce the funds under the legislation that will be available

to

asbestos victims, the report found. An estimated 10,000 people died of

asbestos-related diseases in 2003 alone. Because decades can elapse

between exposure and manifestation of symptoms, experts predict the

peak

for asbestos-related diseases will not be reached until 2018. Disease

projections vary widely, ranging from 750,000 to 2.6 million future

claims of sickness and death.

 

The big winners under the legislation include a handful of Fortune 500

companies - Dow Chemical, Ford, General Electric, General Motors,

Honeywell, Pfizer and Viacom - and at least 10 asbestos makers that

have

filed for bankruptcy. Public Citizen's stock price analysis covers most

of those asbestos firms. (It omits the Fortune 500 companies because

their operations are more varied, and hence their stock prices are not

as directly influenced by the asbestos legislation.)

###

 

Public Citizen is a national, nonprofit consumer advocacy organization

with 150,000 members.

For more information, please visit www.citizen.org .

 

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For more information about this, and the other issues Public

Citizen works on, please visit our website at

http://www.citizen.org/