By Similarly, brokerage firms Goldman Sachs and Morgan Stanley yesterday also lowered their Duke stock ratings.
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After falling as much as 22 per cent during the day, the company's shares closed down $1.05 (U.S.), or 4.2 per cent, at $23.70. They fell 11 per cent Friday after Duke said a grand jury and regulators had subpoenaed its trading records.
The trading manager was placed on leave while the company collects information to comply with the subpoenas, spokesman Terry Francisco said. Authorities previously sought records from rival traders such as Dynegy Inc. and CMS Energy Corp. as part of widening probes of the industry since the collapse of Enron Corp.
"Utility stocks have gotten hammered in the last week," said Skip Aylesworth, who helps manage $160-million at FBR American Gas Index Fund Inc., including Duke shares. "This is murder for us. We're usually a safe haven for investors." The Standard & Poor's multi-utilities index, which includes Duke and five other companies, is down 59 per cent this year. Duke was the best-performing in the group, which includes Dynegy, AES Corp. and Williams Cos. The 24-stock electric utilities index is down 29 per cent.
A federal grand jury and the Commodity Futures Trading Commission subpoenaed trading records Friday in a probe of so-called round-trip trades. Such transactions usually involve two companies that buy and sell the same amount of electricity or natural gas at the same price on the same day.
Duke has admitted it included about $1.1-billion of round-trip trades in its financial statements over the years. Merrill Lynch & Co. analyst Steven Fleishman reported the Duke trader had been placed on temporary leave in a report to clients. Mr. Fleishman has a near-term neutral rating on Duke stock.
"We did ask one of our management employees from our trading operation in Houston to step aside," Mr. Francisco said, confirming the report. "This person is on administrative paid leave. We asked him to step aside so as not to impede our investigation."
Mr. Francisco declined to disclose details about the employee placed on leave, except to say that the manager was involved in trading of natural gas and electricity.
On Friday, natural gas and power giant El Paso Corp. said it received a similar subpoena that requests information on trading activities. The Houston firm has already told federal regulators it engaged in no such activities. El Paso's shares dropped 45 cents yesterday to $17.30 on the NYSE.
Energy companies have faced a growing number of probes since the December bankruptcy of Enron and subsequent reports of efforts to manipulate western electricity and gas markets.
Duke is "now being caught up in an environment where any whiff of anything happening at a company is enough to have it taken out and shot," said Anthony Maramarco, a portfolio manager at Jones and Babson Inc., which owns 450,000 shares of Duke.
Charlotte-based Duke's aggressive expansion into non-regulated energy trading "leaves them susceptible to Enronitis," Mr. Aylesworth said.
Duke has said that, at the request of a third party, it did three round-trip natural gas transactions out of more than 30,000 in the West, the company said as part of its response to a probe of 150 companies by the Federal Energy Regulatory Commission.
While many energy companies have had their credit ratings cut, Duke has a single-A-1 rating by Moody's Investors Service and single-A-plus by Standard & Poor's. Rivals such as Dynegy, CMS, Calpine Corp. and Mirant Corp. have been lowered to junk levels by one or more of the agencies.
Yesterday, Salomon Smith Barney analyst Ray Niles cited the subpoenas in a note that accompanied his 2002 and 2003 earnings estimates, which were lowered to $2.55 and $2.70, down from previous estimates of $2.60 and $2.85.