To many in Connecticut, Fairfield County”™s sobriquet of the “Gold Coast” summons images of Greenwich estates hidden behind green hedges and gilded gates.
Now more than ever, the state”™s residents are counting on the Midas touch of the county”™s financiers.
As Lehman Brothers Holdings Inc. collapsed and Bank of America Corp. rode to Merrill Lynch & Co.”™s rescue, it was anyone”™s guess on how the crisis could trickle into the Fairfield County economy, whose money managers and supporting businesses have proven remarkably resilient to date during the collapse of the subprime mortgage market and wider contagion in the credit markets, which has tripped up a succession of financial giants.
Shares of Fairfield-based General Electric Co. fell below $24 in day trading last Tuesday, the issue”™s lowest level in five years. Over the course of two days, shares of UBS AG lost a quarter of their value, affecting the company”™s 4,000-plus employees in Stamford; while Royal Bank of Scotland plc also suffered a steep drop, as it prepares to open a regional headquarters next year across the street from UBS.
GE is the second largest employer in Fairfield County with more than 6,000 employees, half of them in its GE Capital division that is most exposed to the market turmoil. In a memo to investors posted last week, a spokesman said GE is not raising external capital and has no need to do so.
“We continue to have an unwavering commitment to maintaining our triple-A (credit rating),” stated Trevor Schauenberg, vice president of corporate investor relations at GE.
With the state government predicting a $145 million deficit for the current fiscal year, however, the state can ill afford to endure further declines in tax revenue as bonuses evaporate and consumers see the value of their stock holdings deteriorate.
Gov. M. Jodi Rell indicated last week that financial companies under state regulation remain on solid ground, and Connecticut”™s pension fund for state employees remains sound, according to the state”™s treasurer. Both Rell and Treasurer Denise Nappier urged regulators to again address transparency at companies with opaque operating structures.
“Some could reasonably argue that ”“ like Bear Stearns, Fannie Mae and Freddie Mac before them ”“ Merrill Lynch and Lehman Brothers are victims of their own inflated growth and the failure to effectively manage risk in favor of a ”˜deal with it later”™ mentality,” said Nappier, in a prepared statement.
Sen. Chris Dodd, who heads the U.S. Senate subcommittee on finance, promised to address the topic of financial regulation in his committee. That would likely not sit well with many of the hedge funds in Fairfield County that supported Dodd in his recent presidential campaign, companies that have been able to attract massive amounts of capital for investment in part due to their secretive portfolio structure and their freewheeling investment capabilities, mostly unfettered by regulator oversight.
With tinder from Wall Street”™s conflagration raining down on Main Street, however, the markets were bracing for continued fallout into the autumn and winter, as Lehman Brothers discloses the extent of its financial relationships, and as companies assess the impact on their investment portfolios from the successive shocks. Already, Waterbury-based Webster Financial Corp. last week disclosed it would write off $8 million to account for lost value it holds in shares of Fannie Mae and Freddie Mac.