NBR Complete Transcripts: 03-12-2007
Monday, March 12, 2007The Sub-Prime Slide Hits New Century Financial
SUSIE GHARIB: Everyone, more fallout in the troubled sub-prime housing market. The nation's largest independent sub-prime lender appears to be on the verge of bankruptcy tonight. New Century Financial said today that all of its bank lenders have now cut off funding, which will likely prevent the company from meeting its financial obligations. It owes nearly $8.5 billion to its creditors, who could demand repayment immediately. Erika Miller reports.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: New Century has become the poster child of the sub-prime meltdown. Shares of the largest independent sub-prime lender were halted and never traded at the New York Stock Exchange today. And the NYSE says it is considering whether to de- list the stock, which is already down 90 percent this year. Morningstar analyst Ryan Lentell explains New Century's implosion.
RYAN LENTELL, SPECIALTY FINANCE ANALYST, MORNINGSTAR: In a nutshell, basically New Century just borrowed too much money in short-term financing. And when some of their loans started to go bad, their lenders got nervous and started to run away.
MILLER: Those lenders include Bank of America, Citigroup, Credit Suisse, Goldman Sachs and Morgan Stanley. All appear to be on the hook for hundreds of millions of dollars, but analyst Stuart Plesser of Standard & Poor's doesn't expect much long-term impact on those companies' profits.
STUART PLESSER, MORTGAGE BANKING ANALYST, STANDARD & POOR'S: The investment banks certainly make their money from a wide array of different investments. And they definitely will get hurt if these sub-prime borrowers, lenders do not pay them back, but this is not going to be a significant hit.
MILLER: Most industry analysts do think there will be more trouble from other sub-prime lenders like Novastar Financial, Accredited Home Lenders and Freemont General. Those stocks all got clobbered today. Countrywide Financial, the largest U.S. mortgage lender, says less than 10 percent of its loans are sub-prime, but it acknowledges it could still feel a drag on earnings near term. Longer term, analysts predict Countrywide will benefit from the shake-out in the sub-prime housing market.
LENTELL: It should benefit the other surviving sub-prime lenders in the long run, as they are able to charge a higher interest rate to people looking to finance loans.
MILLER: You might think the troubles at New Century would sour big investment banks on the sub-prime market. Instead, many analysts are predicting major Wall Street firms will step in to buy the distressed companies or their loan portfolios at deeply discounted prices. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Sub-prime Lending Has Become A Capitol Concern
JEFF YASTINE: Sub-prime lending is also getting attention on Capitol Hill where Congress is trying to figure out how to prevent future problems. One looming question is how to help people who might be in danger of losing their homes or might be shut out of the housing market by tighter lending standards. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: North Carolina Congressman Brad Miller wants to give every borrower in the United States tougher protections against predatory lending. But Miller says, it is important for Congress to strike a balance.
REP. BRAD MILLER (D) NORTH CAROLINA: There's a balance between protecting consumers against predators, against mortgage lenders who want to take advantage and betray their trust and take as much out of a loan as they possibly can, and making sure we don't protect credit to death, that it is still possible to lend money with a reasonable profit.
GERSH: Miller's legislation would target what he calls some of the worst sub-prime abuses. It would limit up-front fees, set national suitability rules to make sure borrowers get the right loan and define lending standards to require borrowers are able to repay not just a teaser rate, but also the interest rate that might kick in a few years later. Jonathan Jacoby is associate director for economics at the Center for American Progress. A new report from the center suggests Congress go further, targeting extra assistance to states hit hard by predatory lending. Jacoby also wants to see temporary loans for sub-prime borrowers about to lose their homes.
JONATHAN JACOBY, ASSOCIATE DIR., CENTER FOR AMERICAN PROGRESS: These are programs that will help those that are facing foreclosure to be able to either make payments or to lower their interest rates so they will be able to cover their payments to tide them over until they are back on firmer financial ground. These programs also do person-to-person counseling for people that are facing the psychological burden of foreclosure.
GERSH: The sub-prime crisis is adding new urgency to efforts to expand affordable housing programs. At this hearing, lawmakers are considering a bill to carve out a $500 million pool of affordable housing money with contributions from mortgage giants Fannie Mae and Freddie Mac. But banking expert Alex Pollock says markets are already adjusting to the sub-prime crisis by tightening credit and he says it's a good idea to reintroduce the housing market to the idea of personal savings.
ALEX POLLOCK, FINANCIAL POLICY ANALYST, AMERICAN ENTERPRISE INSTITUTE: Major lenders historically, up to the 1980s in this country for mortgage loans, were savings and loans -- savings and loans. And over the last, let's say decade or two, it seems like we forgot about the savings part and all the emphasis has been on the loan part.
GERSH: By the summer, Congress is expected to take up a predatory lending bill. House Democrats are also considering ways to raise money that could be used to help more moderate-income borrowers avoid sub-prime loans altogether. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
One on One with Jonathan Tisch, Chairman & CEO of Loews Hotels
SUSIE GHARIB: The slowing U.S. economy is having little impact on the hotel industry. So says Jonathan Tisch, chairman and CEO of the Loews hotel chain and author of a new book called "Chocolates on the Pillow Aren't Enough." Earlier today I sat down with Tisch at his flagship Regency hotel here in New York and asked him to characterize current business conditions.
JONATHAN TISCH, CEO, LOEWS HOTEL: Here in New York, business remains extremely strong. We had 44 million visitors last year. But on the consumer side, confidence weakening a little bit, gas prices going up. I have a feeling that this mortgage crisis might make people feel less wealthy than they actually are. They're worrying a little bit what their home is worth. That concerns me a little bit.
GHARIB: Jonathan, recently there's been a lot of talk about a recession or at least some kind of severe economic slowdown. Are you seeing any signs of that?
TISCH: We are not seeing it yet. As I said, occupancies are strong especially here in New York City, in other cities around the country and really around the world. So yet we are very responsive to choppiness in the marketplace. And things seem to have stabilized a little bit, but clearly we worry about outside factors that could have an impact on global tourism and especially national tourism.
GHARIB: Many people were shaken recently by this big market meltdown. How does a market event like that impact your business?
TISCH: Travel is usually the first or second thing to go when CEOs want to make their bottom line look a little bit better. They don't let their executives go to meetings. They send two instead of four. They don't let them go to conferences. That has not happened yet, but certainly if you combine some of these issues with the possibility of higher fuel prices, then that could have an impact on the industry.
GHARIB: When you look around the world, where are you seeing the strongest markets and the strongest market strength?
TISCH: You're starting to go see a lot of strength in Asia. People are traveling obviously overseas. They're going to China. U.S. brands are now starting to get big in the Chinese market, the Sheratons, the Marriotts of the world. Contrary to that, you're seeing Asian brands coming to the United States with Mandarin and Peninsula and Shangri-La. Europe is still pretty strong. So the major markets are holding up very, very well.
GHARIB: How competitive is the U.S. hotel industry?
TISCH: The United States has lost its edge in terms of being an international destination. The countries that we compete with are really going after that traveler to come visit them instead of us. When you add to that some challenges that we now see in the immigration process, getting visas and the entry of international visitors, it's making it a little bit of a problem for travel and tourism and for the U.S. economy in general.
GHARIB: Jonathan, you said recently that you wanted double the number of hotels in the Loew's chain. What's the strategy?
TISCH: We want to be in central business districts that we're not currently in, namely Boston, Chicago, San Francisco, Atlanta. We're strong in Florida with resorts. We'd like to do some more resort properties, Arizona and California. The challenge is that there's a lot of capital chasing deals right now in the hotel industry. The combination of off- shore money, REITs, private equity and very, very wealthy individuals who want to be in the hotel business make it a little bit difficult for us or anybody to try to find deals that make economic sense as well as fit into our portfolio.
GHARIB: Given everything you've said about the global economy, is this the right time to be doing a major expansion?
TISCH: It is the right time for us because our expansion is based domestically. We know that we are a very well known domestic company, 16 properties in the U.S., two in Canada. We have no plans to expand overseas at the current time. Anything that we do will be done in the United States, North America, Mexico, Canada.
GHARIB: In your book, you say that competition everywhere is intensifying. What are the competitive pressures facing Loews and how are you doing with it?
TISCH: When you really cut it down, we all have nice lobbies with marble. We all now have upgraded our bedding products. We have flat screen TVs in the room. What really makes a difference is the attitude and the service provided by my co-workers. In the old days -- and I'm a third generation hotelier, I've grown up in the business - I've been in this for 30 years, chocolates were enough in the old days. You come back from dinner and say, oh, they really care about me. You have to do that so much more in the lodging industry, in every business and that's what we talk about in the book.
GHARIB: Jonathan, thank you so much and good luck with your book.
TISCH: Thanks, Susie.
"Kevin McCormally's Tax Tips" - AMT & Municipal Bonds
SUSIE GHARIB: Well, just 36 days away from April 17, the deadline for filing your 2006 Federal income taxes. To help you get prepared, we'll have some tax advice every Monday night for the next five weeks. In tonight's tax tips, Kevin McCormally, editorial director of "Kiplinger's Personal Finance," says when it comes to tax-free muni-bond investments, beware the AMT.
KEVIN MCCORMALLY, EDITORIAL DIR., "KIPLINGER'S PERSONAL FINANCE"" Investors are getting a nasty surprise this spring. Income they thought was tax-free is being smacked by Uncle Sam with a 26 or 28 percent tax. Welcome to the topsy-turvy world of the alternative minimum tax and the oxymoron of taxable tax-free municipal bonds.
The municipal bond market is divided into two parts: public-purpose bonds and private-purpose bonds. Interest on public-purpose bonds, used to build schools, for example, is indeed tax-free. Interest on private purpose bonds, used to finance a sports stadium perhaps, or industrial project, is tax-free, too, unless you're subject to the AMT. For taxpayers trapped in that parallel tax universe, interest on these tax-frees is fully taxable at 26 percent or 28 percent. This has been the rule for a couple of decades, but it's really coming home to roost this year for a couple of reasons.
First, more people than ever are falling victim to the AMT. Second, because of reason number one, Congress ordered that brokers and mutual funds start separately reporting private-purpose bond interest on the 1099 forms that go to investors and to the IRS. That's why millions of forms were late this year. Brokers and funds had trouble getting the extra info. You'll find it on line nine of your 1099-int. Now, if part of your tax- free interest is hit by the AMT this year, you've got to pay the piper. Going forward, though, you might want to move your tax-free money into a bond fund that promises to avoid private-purpose bonds. I'm Kevin McCormally.
Paul Kangas' Stocks in the News
JEFF YASTINE: Stocks managed to spurt higher in spite of the worries over the sub-prime mortgage market. Sideways trading dominated the morning but with little selling pressure evident, the bias was to the upside. The Dow had a 20-point lead by midday. Oil prices, down by another dollar, to below $59 a barrel, gave the bulls more room to run in the afternoon with the NASDAQ up 15 and the Dow up 70 until selling in the final hour trimmed the closing gains. So the Dow closing up 42.3 at 12,318.62 and the NASDAQ gaining to 14.74 points to 2402.29 and the S&P 500 climbing 3 3/4 points to 1406.6 and the sub-prime woes giving a slight boost to bonds. The benchmark 10-year note rising 8/32 to 100 17/32 and the yield at 4.56 percent.
And as we mentioned a moment ago, Dollar General (DG) gaining more than $4 on the $22 a share buyout offer to be taken private by Kohlberg Kravis Roberts. That's nearly a two-year high for Dollar General by the way.
And that news had investors seeing dollar signs for a couple other discount retailers. Family Dollar (FDO) gaining $1.75.
And Dollar Tree Stores (DLTR) up what else, $1.
And then we have CVS Corp (CVS) falling $0.62. Shareholders of their acquisition target, Caremark Rx are meeting Friday to decide whether to accept CVS' offer or not. Express Scripts said their offer made last week was their best and final buyout price.
Then there's Caremark Rx (CMX) which ended off $1.20. In a statement late Friday, Caremark's board said they remain committed to a merger with CVS and said the deal with Express Scripts, the other rival, would not be possible because of antitrust concerns.
Ford Motor Co (F) dropping $0.11. The auto maker selling its British Aston Martin unit to a group led by the auto racing magnate David Richards.
And then General Electric (GE) gaining $0.12.
AT&T (T) rising $0.65. Published reports Friday said AT&T was reconsidering its alliance with Yahoo!, but AT&T's COO called the deal a great partnership and Yahoo!s Terry Semel making similar noises.
Motorola (MOT) gaining $0.07.
Pfizer (PFE) slipping $0.03.
ExxonMobil (XOM) dropping a quarter.
Altria Group (MO) off $0.20.
And then Johnson & Johnson (JNJ) falling $0.35. Federal prosecutors in Boston, Philadelphia and San Francisco issuing subpoenas seeking information on the sales and marketing of Risperdal, Topamax and Naturcor, all of which J&J makes. The company's cooperating with the investigation.
Countrywide Financial (CFC) falling nearly $1. It warned that turmoil in the sub-prime market will hurt upcoming results and if the cred - rather the lender stopped writing sub-prime loans, an analyst at Credit Suisse said that could whack up to $0.60 a share out of Countrywide's profits. It's the fourth largest writer of sub-prime loans.
Then on to DR Horton (DHI) which also got a lack (ph) from the fallout in the sub-prime market today.
And some others in that same sector, Beazer Homes (BZH), Centex (CTX), Pulte Homes (PHM), Lennar (LEN) all down at least 20 percent from their December highs and all down for today.
Sierra Health Services (SIE) surging over $5. United Health says it wants to buy the company for $2.6 billion. That offer is mostly in cash, $43.50 a share.
And then on to Santa Fe Energy (SFF) sliding over $5. The oil trust may have been over paid on royalty payments by its parent, Devon Energy.
Now onto the NASDAQ where Apple (AAPL) jumped nearly $2.
Amgen (AMGN) dropping $0.18. New FDA warning labels for Amgen's anemia drugs Aranesp and Epogen could mean less use and fewer sales.
Google (GOOG) climbing $1.79.
Intel (INTC) up $0.38.
And there's Yahoo! (YHOO) gaining $0.87 on renewed thoughts that it will still have that deal with AT&T.
Microsoft (MSFT) gaining $0.15.
Express Scripts (ESRX) climbing $3.50. Investors perhaps relieved that it won't go through with its efforts to buy Caremark.
And then Research in Motion (RIMM) advancing more than $2.
Cisco Systems (CSCO) gaining a fraction.
Qualcomm (QCOM) losing a fraction.
And finally, Cimatron Ltd (CIMT) advanced $1.64. Investors applauding the turnaround of the company, which makes software for the tool making and manufacturing industries. Cimatron posting a net income of $0.07 a share for the quarter compared to a net loss of $0.22 in the year ago period. By the way, its China subsidiary grew revenues by 80 percent.
Then finally Tom Online (TOMO) surging more than $3. This is a Chinese Internet portal and it's being bought out and taken private by its parent company, Tom Group Ltd based in Hong Kong and the buyout values Tom Online for about $15.50 a share in cash.
Those are the stocks in the news tonight.
