As Usual, Biggest Aftershock Was Felt in California : Major Southland Stocks Tumbled an Average 17% in Week as Dow Slid 13%

At 6 a.m. last Monday, the radio alarm went off in Henry Gluck’s West Los Angeles bedroom, and the chairman of Caesars World heard that the financial markets in London and Tokyo were jittery. It signaled to Gluck that the day would not be good.

The stock market in New York would not open for 30 minutes. Even Gluck’s instincts--finely tuned by months of financial battles to protect his casino company--could not have prepared him and other top executives in Southern California for just how bad that day would turn out.

But the drama was unfolding with frightening speed as business leaders were awakening to what would become the biggest one-day decline in market history--and the start of a week that would drive down the stock price of major Southern California companies an average of more than 17% and leave just one gainer.

AFG Trading Delayed

At 7 that morning, the chief financial officer of MCA, the giant entertainment conglomerate, placed his customary telephone call to his broker from home. What Hal Haas heard was far from the usual. By that time, a catastrophe was in the making. The market was already down 100 points. Haas hurried to MCA’s headquarters in Universal City.

At 7:45 a.m., an employee telephoned AFG Industries treasurer Gary G. Miller at home. The big glass producer’s stock had not opened. There were too many sell orders and too few buyers. Nearly 700 of the 1,600 companies listed on the Big Board were delayed in opening for the same reason.

Arriving at AFG headquarters in Irvine a short time later, Miller learned that the stock was expected to open soon--at 20% below the previous day’s close. He began trying to reach the company’s chairman, Randall D. Hubbard, who was traveling, so they could plan a response.

The spectacular 508-point drop in the market last Monday and the week that followed seemed to batter the stocks of businesses in Southern California even harder than in the rest of the country.

While the Dow Jones industrial average was down 13.19% for the week at the end of trading Friday, the stocks of 80 major companies in Southern California were down an average of 17.08% from closing prices of Friday the week before. As a group, the 80 stocks finished the week 24.5% below the level of a month ago, and 3.69% below their level at the start of 1987. (The percentages are calculated for The Times by MPACT Securities of Austin, Texas.)

Attempt to Reverse Trend

The big local losers for the week among the 80 stocks were Maxicare Health Plans in Los Angeles, which went down 36%, Financial Corp. of America, the troubled savings and loan holding company, which dropped 34.8%, and retail giant Carter Hawley Hale Stores, owner of the Broadway, down 34.05%.

Lorimar-Telepictures sustained the heaviest loss among the major local entertainment stocks, with shares declining 32.65% despite the company’s attempt to reverse the trend by buying back its own stock Monday and Tuesday.

Tosco, the independent refiner in Santa Monica, led energy-related losers, with its stock dropping 33% for the week. Computer-related declines were led by Western Digital, a semiconductor and computer equipment maker in Irvine, which was down 29.75%. Among local defense contractors, Northrop was hardest hit with a 25% drop.

Columbia S&L; Gains

Among banking stocks, the major Southern California loser was First Interstate Bancorp, which unveiled a major restructuring last week. Its stock was down 14.6% by Friday.

The sole Southern California gainer among majors was something of a surprise--Columbia Savings & Loan, a big player in the equity and “junk bond” markets. Its stock rose 6.25%, and Columbia’s chief executive, Thomas Spiegel, said he was at a loss to explain the increase.

“I just don’t have an answer,” said Spiegel, whose family controls most of the S&L;’s stock. “But I’m pleased with the price of the stock.”

It was a week of wild gyrations and high emotion that tested the mettle of managers here as they tried to influence events that seemed beyond anyone’s control.

Perhaps few companies were as well prepared to deal with the upheaval as Caesars World, the gambling concern that operates two Nevada casinos and one in Atlantic City, N.J., and the most actively traded Southern California stock last week.

Last March, Henry Gluck and Caesars World were embroiled in a fight against a hostile takeover attempt by Martin S. Sosnoff, a New York investment adviser. As part of the battle, Gluck and his top officers honed an ability to react fast.

“You have to keep your wits about you in a tough situation,” Gluck explained last week.

Caesars Hurt Badly

During the takeover, Gluck, financial chief Roger Lee and communications head Jack Leone were on the telephones almost constantly, soothing uncertain stockholders, answering the questions of securities analysts and reassuring the company’s 10,000 employees.

Those skills were pressed into action Monday morning in corporate headquarters on the 26th floor of 1801 Century Park East as the stock began a plunge that was even worse than the overall market’s 22% drop for the day.

By the end of Monday, Caesars World’s stock had lost more than a third of its value, dropping from $22.13 to $14. Tuesday, it dropped another $3.25. But Gluck and his team kept the lid on emotions, and the stock managed a slight rally. By the end of the week, Caesars World was the most heavily traded Southern California major stock for the week, and the price closed Friday at $16.50, down 25.44%.

Sosnoff Turns Up Heat

One reason for the trading volume was Sosnoff, the New York investor. He filed a statement with the Securities and Exchange Commission disclosing that he sold 2.5 million shares of Caesars World between Monday and Thursday at prices from $10.50 to $20 a share.

In Orange County, when AFG’s stock finally opened last Monday, it was almost $6 down from the previous Friday’s close of $25.75. Gary Miller and Randall Hubbard decided to act fast to try to stave off further declines and pick up what they viewed as value for the company.

Miller determined that AFG, cash rich and profitable for 27 consecutive quarters, had roughly $160 million of cash and marketable securities that could be used in the stock repurchase. With the stock down around $20, the company could repurchase a huge chunk of its own stock by acting fast.

By 11 a.m., Miller and Hubbard got all seven of the company’s directors on the telephone in a conference call, and the stock repurchase plan was approved in a matter of minutes.

AFG issued a press release about noon outlining its repurchase plan, one of the first such actions announced amid Monday’s crash but a tactic eventually adopted more than 100 companies nationwide. Miller said they decided to hold off actual buying until Tuesday morning to give the market time to react to the announcement.

Over Tuesday and Wednesday, the company repurchased 250,000 shares of its own stock at an average price of under $23. It was a tactic that seemed to work. By the close of trading Friday, AFG stock was selling at $25.38, a decline of just 1.44% and good enough to make it the third-best performer in Southern California.

MCA Heavily Traded

At MCA headquarters in Universal City, more than 50 miles north of AFG’s offices in Irvine, financial chief Haas watched throughout the morning and early afternoon Monday as the company’s stock steadily declined. “You shrug your shoulders and focus on business,” said Haas.

On Monday, MCA closed at $38.75, down $8.75. On Tuesday, it declined to $37, a 52-week low.

That day the company took action. It announced a repurchase plan, authorizing the company to buy as much as 10 million shares--13% of the outstanding stock. MCA declined on Friday to disclose how much stock it repurchased or how much was spent in the program. But MCA was the third most traded Southern California stock last week.

Despite the repurchase, MCA dropped 20.56% for the week, closing Friday at $38.13.

Other entertainment stocks also fell. In addition to the drop at Lorimar, MGM/UA Communications closed the week down 23.12% and Walt Disney was down 19.39% in very heavy trading.

The biggest loser among Southern California businesses, Los Angeles-based Maxicare Health Plans, is the nation’s largest publicly traded health maintenance organization. The stock closed at $6.88 after starting the week at $10.75, a loss of 36%. A spokesman said Fred W. Wasserman, the company’s chairman and chief executive, would have no comment.

The second-biggest loser, Irvine-based Financial Corp. of America, is the parent of American Savings & Loan in Stockton. Reeling from high interest rates and loan-quality problems, the company announced Monday that it lost $75.8 million in the third quarter and its stock was already very low. By week’s end, it was trading at $1.63, a drop of 34%.

‘Illogical Panic’

John M. Gailys, chief financial officer for the No. 3 loser, Carter Hawley Hale Stores, linked the Los Angeles-based department store operator’s 34% decline to problems throughout the retail industry nationwide, which had some of the market’s biggest losers.

“I think the market has oversold the retail stocks,” said Gailys. “It was an illogical panic, and we didn’t do anything in terms of propping up the stock.”

Even managers who did not go in for the dramatics of stock repurchases tried to find some way of responding to the dizzying events.

Froley, Revy Management in Westwood handles $600 million worth of investments for 45 clients, mostly pension plans such as the Catholic Archdiocese of Los Angeles, the major league baseball players association and the State of Oregon.

After the market closed Monday, Thomas Revy sat down with his partner, George A. Froley, and said, “We owe our clients a letter explaining this.”

By the end of the afternoon, Revy had sent express-mail letters to clients warning that the turbulence in the market was likely to continue, but reassuring them that their portfolios remained in good shape.

“We’d never written a letter like that before, but we felt it was very much in the best interests of our clients that they get some input from the front-line troops,” said Revy Friday. “It wasn’t the time to panic.”

20 HARDEST-HIT SOUTHLAND COMPANIES

Each week, the stock prices of 80 major companies based in Southern California are tracked on a chart prepared for The Times by MPACT Securities of Austin, Tex. Here are the 20 companies on the list that showed the largest percentage drop in their stock prices last week. The percentage is based on the change in closing price between Oct. 16 and last Friday. For a list of all 80 stocks, see Page 6.

Company Headquarters % Decrease Maxicare Health Plans Los Angeles 36.00 Financial Corp. of America Irvine 34.80 Carter Hawley Hale Stores Los Angeles 34.05 Citadel Holdings Glendale 34.00 Tosco Santa Monica 33.30 Lorimar-Telepictures Culver City 32.65 Summit Health Los Angeles 31.51 Wickes Cos. Santa Monica 31.03 Argonaut Group Los Angeles 30.90 Intermark La Jolla 30.35 Ducommun Cypress 30.30 Western Digital Irvine 29.75 Tiger International Los Angeles 28.82 First Executive Los Angeles 27.78 Transcon El Segundo 26.67 Bergen Brunswig Orange 25.73 Caesars World Los Angeles 25.44 Northrop Los Angeles 25.00 First City Industries Beverly Hills 24.73 Dataproducts Woodland Hills 24.68