PARANOIA

A six-year-old article mistakenly seen by Bloomberg financial news users yesterday reported the bankruptcy of United Airlines and triggered a massive sell-off that nearly obliterated the company's stock in a matter of minutes. [...]

United parent company UAL opened trading on the Nasdaq Stock Market yesterday at $12.17 per share. The 2002 bankruptcy article appeared on Bloomberg monitors on Wall Street just before 11 a.m. In the minutes that followed, some 15 million shares of UAL traded and the stock plunged to $3 per share. Trading was halted at 11:30 a.m. for an hour. The stock closed down $1.38 at $10.92 yesterday.

United said it is unsure whether the incident will cause the already-shaky airline material damage.

At United's Chicago headquarters yesterday morning, the airline's financial services division watched in horror as the stock plummeted, while its shocked media relations department was besieged by reporters asking why the company had declared a surprise bankruptcy, only six years after its last one. UAL filed for bankruptcy protection in 2002 and emerged in 2006.

The bizarre chain of events began early yesterday, when a reporter at Income Securities Advisors -- a Miami- based investment service that disseminates news about distressed companies -- typed in a Google search: "bankruptcy 2008." Up popped the six-year-old article from the South Florida Sun-Sentinel, which originally appeared in the Chicago Tribune on Dec. 10, 2002, the day after United declared bankruptcy. [...] The cascade of failure may have stopped there had the article carried its correct publication date. Instead, it was undated. [...]

In the mind of the reporter, Wall Street would want to know about a major airline declaring bankruptcy. The reporter posted the story to the Bloomberg Professional service at 10:53 a.m. yesterday.

Six minutes later, Bloomberg posted a news article headlined: "UAL Shares drop 33% at 10:58 a.m."

At 11:16 a.m., Bloomberg posted a correction in several languages, highlighted in red on the company's proprietary monitors: "UAL SAYS IT HASN'T FILED FOR CHAPTER 11."

"It shows the market apparently reacts to a headline as much as anything else," said Richard Lehmann, president of Income Securities Advisors.

Labels: info cascade, panic