What's a drugmaker doing, investing in securities at least partly backed by subprime mortgages? Ask Bristol-Myers Squibb, which took a $275 million write-down on so-called "auction rate securities" that had fallen in value to $419 million from $811 million. It also recorded a $142 million loss from a "temporary" plunge in the value of similar securities without subprime backing.
At the time BMS made these investments, the securities had triple-A status with the ratings agencies; they were part of the company's cash-management strategy. Now, says CEO James Cornelius, BMS will trade higher yields for safety, boosting its investment in T-bills.
This footnote to BMS's quarterly results shines a bright light on the subprime monster's many tentacles. Persuaded by the ratings' agencies thumbs-up, lots of savvy investors indulged. How many other seemingly conservative investment portfolios have been touched?