Business Notes: Nov. 4, 1985

INFLATION The Little Payoff

It was good news that no one could dismiss as a lucky fluke. The Department of Labor last week announced that consumer prices rose a mere .2% in September, the same rate as for the past four months. Largely because of declining food and energy prices, inflation is now running at an annual pace of just 2.3%, its lowest level since 1965.

Still, that is a mixed blessing for the 37 million people who receive Social Security benefits. While they certainly profit as much as other consumers from low inflation, their federal income supplements, which since 1975 have been indexed so that they rise along with prices, will be boosted only 3.1% for 1986. An average retiree, who now receives $464 a month in benefits, next year will draw $478. That represents the smallest increase in eleven years.

Personal income tax brackets are also adjusted for inflation. They will go up 3.7% next year, thus taxing more income at lower rates. The personal exemption will rise from $1,040 to $1,080. The federal income tax for a one-earner couple with two dependents and an adjusted gross income of $33,437 will be $3,501 for 1985 but $3,420 for 1986.

STOCK MARKET Amex Puts Out Its Fire

The stock offering was a spectacular success and an unlikely one. Last week American Express, the $12.9 billion (1984 sales) financial-services conglomerate, sold to the public 54% of Fireman’s Fund, its property-and-casualty-insurance subsidiary. Investors snapped up 35.2 million shares for a total of more than $900 million. It represented the country’s largest initial public offering ever.

American Express was hardly selling off one of its crown jewels. In the past 2½ years, Fireman’s had underwriting losses of $1.8 billion. William McCormick, formerly a top American Express executive, has been Fireman’s president since December 1983. Last June the subsidiary was put up for sale, but no corporation wanted to buy it. “They couldn’t sell it to anyone else, so they sold it to the public,” explains one analyst.

Why were investors so eager to buy? The fund earned $20 million for the three months ending Sept. 30. American Express also helped its own cause. When it came to selling the Fireman’s stock, its Shearson Lehman Bros. division turned into a high-powered marketing machine.

CORPORATIONS “It’s Just That Awful Word”

After 56 years of quiet business, the AID Insurance Co. recently found itself the object of unwelcome attention. No matter that there is no connection between the company (1984 sales: $169 million) and the dread disease acquired immunodeficiency syndrome (AIDS). “The associations are incredibly unpleasant for us,” said AID Insurance President John Evans. “We didn’t see it getting any better.”

The Des Moines-based property and casualty insurer has now decided to adopt a new name. A contest is being held among the firm’s 980 employees to suggest the best alternative. The winner will be given $5,000. AID executives have not decided how to modify the firm’s logo. Says Evans: “The color might stay the same. The shape might stay the same. It’s just that awful word.”

Meanwhile, officials of Jeffrey Martin Inc., the company that makes the appetite-suppressant candy Ayds, claim they have no trouble with their product’s name. The company reports that sales of Ayds were up slightly for the fiscal year that ended July 31. Says Frank DiPrima, executive vice president of Jeffrey Martin: “This product has been named Ayds for more than 45 years. Let the disease change its name.”

INVESTMENTS Abdul-Jabbar’s Tall Story

Along with doctors and Hollywood movie stars, professional athletes often find it easier to make money than invest it. Nonetheless, Kareem Abdul-Jabbar, 38, the basketball superstar for the Los Angeles Lakers, hopes to become a savvy financier. He is now a member of a partnership that includes eight current and former basketball players. Among Abdul-Jabbar’s investor mates are Ralph Sampson of the Houston Rockets and Terry Cummings of the Milwaukee Bucks. Their first investment was the $1 million Redmont Hotel in Birmingham, which they are spending nearly $5 million to remodel. A $22 million Los Angeles health club is under construction. The group is also negotiating to buy the Inn of Laguna in Laguna Beach, Calif. Asking price: $4 million.

Abdul-Jabbar & Co. offers basic hotel management with one unusual touch. Some rooms are customized to accommodate exceptionally tall guests. There are 12-ft.-high doors, 15-ft. ceilings and extra-long beds. Says Thomas Collins, the group’s financial adviser: “One of the worst things that happens is when the guys travel and the beds are too short or they can’t get in the shower.”

SURVEYS Money vs. Sex

Wise people do not discuss sex or money, and a new survey shows why. MONEY magazine polled a national sample of 2,491 adults, all of whom described themselves as the main financial decision makers in their households. Sixty-three percent of the respondents were men; 37% were women. Among the findings: 51% of the women polled said they think about money more often than sex, in contrast to only 27% of the men. One sobering statistic: nearly one-third of all women said they enjoy money more than sex; a mere 26% favored sex. Men had decidedly different priorities: 47% voted for sex, while only 16% of them opted for money.

Women were not shrinking violets in evaluating their own worth as money managers. Half the women said they felt females made better financial managers, and 21% of the men concurred. Some of the findings seemed less surprising. Women make bets less frequently than men. Their average wager is $1.80, vs. $3.10 for men. And sexual liberation or no, if one were to stop a couple on the street, the man would probably be carrying more cash than his companion. Women’s wallets hold an average of $29; men carry $52.