NBR Complete Transcripts: 11-14-2007
Wednesday, November 14, 2007The NYSE's Loss is Merrill Lynch's Gain
SUSIE GHARIB: Merrill Lynch has a new boss. He's John Thain, head of the New York Stock Exchange. The brokerage firm said late today that Thain will become chairman and CEO on December 1. He replaces Stanley O'Neal who was forced out two weeks ago, after Merrill reported huge write- downs and losses related to bad bets on sub-prime mortgage investments. Thain acknowledged that only one part of Merrill is quote broken. He said it needs better risk management, adding that quote, they are problems I know I can fix. Earlier in his career, Thain worked on the mortgage bond desk at Goldman Sachs and later became president of that firm.
Meanwhile, the new CEO here at the big board is Duncan Neiderauer, who steps up from his current post as chief operating officer. Thain is credited with transforming the NYSE into a global exchange, increasing electronic trading and taking it public.
One on One with Dick Bove of Punk, Zeigel and Company
SUSIE GHARIB: Joining us now for more analysis, veteran banking analyst Dick Bove of Punk, Zeigel and Company. Hi Dick. How are you?
DICK BOVE, BANKING ANALYST, PUNK, ZIEGEL & CO.: Hi Susie.
GHARIB: Well, is John Thain the right man for Merrill Lynch?
BOVE: I think he is. I think that what he said or what you just said that one part of the company was broken and that's the risk management portion of the firm, he has expertise which was developed at the best risk management firm I think in the world, Goldman Sachs. So I think he has the knowledge base to solve the problems that Merrill needs solved.
GHARIB: What is the number one problem that he has to solve?
BOVE: I think there's a misunderstanding of what risk management really is at a brokerage firm. There's a feeling that, you know it's taking $1 billion and investing in Estonian currencies. It really isn't. It's a highly technological business which requires a wide amount of computing skill, the right computer language, in-depth databases that go back historically, right types of stress testing, PhD's who are running the process. So, you know, John Thain understands that because he helped build that at Goldman Sachs. That's what Merrill Lynch does not understand and therefore I think John can fix that.
GHARIB: One thing that John Thain said today was that at Merrill Lynch, the strategy is good. He acknowledged that. And he says that the problems there isn't a matter of deconstructing the firm. It just has to manage risks better. Do you agree with that?
BOVE: 100 percent. I never thought that Stan O'Neal should have been fired, even though he made this terrible error in risk management, because if you looked at Merrill Lynch five years ago when he took over and the enormous challenges that he had to change this company, I think you'd have to argue that he made the right decisions concerning investment banking, trading, going internationally. He made the right decision in building the retail sales force and he had a coup in terms of his sales and investment management division. So in many respects, this firm is not broken. It's actually a superb firm that's well run.
GHARIB: Let's talk about Thain as a leader. His management style is considered to be reserved but also no nonsense. How effective will he be in leading Merrill Lynch?
BOVE: That's the key question, because if you go back to the days when David Komansky ran Merrill Lynch, it's always been a firm led by salesmen because there are 16,000 sales people operating at that company so the net effect is, you would think that you needed a charismatic personality to run the business. But Stan O'Neal isn't charismatic which is probably one of the reasons why he got fired and John Thain is not charismatic. So that could be a problem.
GHARIB: Merrill Lynch stock is down something like 38 percent since summer time. Is it a "buy" now at $57?
BOVE: No, I don't think it is. I think that even though the company is well structured, even though it has a good management team, and even though I think John Thain is going to fix the problems, the overwhelming and overriding problem is that the core businesses which Merrill Lynch, Goldman, Morgan, all of these companies service, are contracting and until those businesses stop contracting and start to expand, I don't want to buy Merrill Lynch's stock.
GHARIB: So Thain's hire was pretty quick, just two weeks ago. Stanley O'Neal was out. Now Thain is already in the CEO job. What about at Citigroup? I know that you follow that bank as well. Do you think that we're going to be hearing an announcement there of a new CEO?
BOVE: I know the market would love to see that, but I hope not, because I think that all the names that have been advanced to this point do not seem to be right to be the new leader of Citigroup. Citigroup needs a man who is well versed in commercial banking. They need someone who has international relationships and none of the people who have been named up to this point have either one of those characteristics. So I think Citigroup has to spend a lot of time sifting through a lot of names before they find the right person to run that organization.
GHARIB: All right. Dick, thank you so much for coming on the program.
BOVE: Thank you, Susie.
GHARIB: My guest tonight, Dick Bove, banking analyst with Punk, Ziegel and Company.
The Fed Vows To Report It's Economic Numbers More Often
SUSIE GHARIB: The Federal Reserve is getting more talkative. Chairman Ben Bernanke said today the Fed will issue an updated economic forecast when it releases the minutes of its October meeting next Tuesday. As Darren Gersh explains, the move is part of a long-studied change in the way the nation's central bank explains itself.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Today, Ben Bernanke took much of the guesswork out of understanding just what the world's most powerful financial institution is up to. The Federal Reserve chairman said he and his colleagues have decided to communicate their economic outlook more often and in more detail.
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: The changes will provide a more timely insight into the committee's outlook, will help households and businesses better understand and anticipate how our policy decisions respond to incoming information and will enhance our accountability for the decisions we take.
GERSH: Under the new Federal Reserve communications strategy, policy makers will release quarterly economic forecasts, up from the two they now give to Congress. The estimates will come from all the members of the interest rate setting Federal Open Market Committee and each member will be asked to predict real GDP, employment and inflation. The Fed will also extend its forecast out to three years. But even more important than giving a number for where prices may be headed, the Federal Reserve will provide a narrative that explains the thinking behind its forecasts. Vincent Reinhart is a former senior Fed staffer.
VINCENT REINHART, ECONOMIST, AMERICAN ENTERPRISE INSTITUTE: And that's an opportunity to provide nuance about the outlook. It's an opportunity to provide information about how they are thinking about policy setting and also what risks there are to the outlook.
GERSH: In the past, Chairman Bernanke has argued the Fed should set a specific inflation target. The new policy does not call for that, but with a three-year forecast, Bank of America chief economist Mickey Levy says analysts will have a much easier time figuring out where interest rate policy is headed.
MICKEY LEVY, CHIEF ECONOMIST, BANK OF AMERICA: This makes their objectives and the path of achieving their long-run inflation objective much clearer.
GERSH: In addition to forecasting so-called core inflation which excludes volatile fuel and food prices, Bernanke and his colleagues plan to issue forecasts for overall inflation. That should help regular investors and businesses set their expectations for future inflation. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"The Business of College Football" Part 3 - The Licensing Game
SUSIE GHARIB: There's more than one way for colleges and universities to make money through their football programs. The stamping of a school's name and mascot on t-shirts, hats and even trendy Crocs footwear is a huge business. As we continue our series "The Business of College Football," Jeff Yastine reports that the practice of logo licensing is getting even bigger.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The sound of these t-shirt screen-printing machines is music to the ears of colleges and universities across the country. For each fan who buys a t-shirt before a game, for every little boy who dresses in dad's college colors, the school gets a piece of the action. And these days, the action in college logo licensing is worth $3.5 billion. Nearly 30 years ago, it was a $200 million business, says Derek Eiler, senior vice president of the Collegiate Licensing Company. Do the math and that works out to a steady 11 percent growth rate year in and year out.
DEREK EILER, SR. VP, COLLEGIATE LICENSING COMPANY: Football is a huge driver of it. It's a communal activity in the fall, a return to college campuses. And there's so much media attention today around big football rivalries and rivalry weekends and the BCS and reaching a bowl game and winning your athletic conference. All those factors really do drive a tremendous amount of success for those big powerful football schools.
YASTINE: For years, schools paid little attention to licensing, but all that began to change in the 1980s when a Federal court case clarified the copyright ownership rules for publicly funded universities. Since then, licensing has gone on to become a significant generator of revenues for all but the smallest of schools. According to Eiler, the University of Texas was last season's champion of the licensing game. UT earned more than $8 million on licensing revenues. Notre Dame, Florida, Michigan and Georgia rounded out the top five. But making big money in licensing doesn't always require a big name. Steve Shatt, president of Knight Apparel/Red Oak Sportswear, says his production can launch into overdrive for other unexpected reasons.
STEVE SHATT, PRES., KNIGHTS APPAREL/RED OAK SPORTSWEAR: As teams become hot, you have tremendous opportunities there, for example, South Florida, a recent phenomenon. We just got out of productions, shipping over 20,000 units into that marketplace. Recently the Kentucky upset of LSU, who's ranked number one, that's driven a lot of demand there. So you have those exciting opportunities. It's fun.
YASTIINE: The Collegiate Licensing Company acts as an agent for universities. It helps schools develop and manage the licensing of their merchandise sales. CLC's Eiler says schools now recognize the value in a name, a mascot, a logo.
EILER: More and more, universities are having to position themselves, like brands, because of the size of their endowments or because of the intensity of recruiting for competitive students. And so they're really are competing not only domestically, but they're competing at the international scale at this point in time and so licensing is a very important face to those institutional brands and a lot more resources and energy and sophistication is going into those programs now.
YASTINE: Some in the licensing industry worry the most popular university brands could eventually become overexposed and lose appeal. But experts say that's not likely to happen. Each year, there is a brand new crop of buyers -- thousands of freshman university students, their parents and grandparents. Another generation of football fans, ready to hit the stores and the stands. Jeff Yastine, NIGHTLY BUSINESS REPORT, College Station, Texas.
Kevin McCormally's Tax Tips-Giving & Getting Back
SUSIE GHARIB: As we head toward the end of the year, we're thinking ahead to tax season. Here with part three of his year-end tips is our tax guru, Kevin McCormally. He's editorial director at Kiplinger's Personal Finance. Tonight he takes a look at making the most of your charitable donations.
KEVIN MCCORMALLY, EDITORIAL DIR., KIPLINGER'S PERSONAL FINANCE: Americans are a generous people. The latest IRS data show that taxpayers who itemize deductions donated about $200 billion to charities in 2005. Who knows how much more the 70 percent of taxpayers who don't itemize gave away. If you're feeling generous this holiday season, let me give you one piece of advice: put away your checkbook. No, I'm not suggesting you play Scrooge. I'm suggesting you take advantage of a rule that lets you leverage your generosity. It's a way to help you give more to others, while helping yourself with the tax man.
I'm talking about donating appreciated property rather than cash. As long as you've owned the asset for more than a year -- whether its stocks or bonds, mutual fund shares or real estate -- you can deduct the full market value of the property. And neither you nor the charity has to pay tax on the appreciation that accrued while you owned it. Let's say the 100 shares of Google you bought in 2004 for $85 a share are now worth $640 a share. And let's say you plan to make a $25,000 charitable contribution.
If you give cash, you can deduct the $25,000 and that will save you about $8,000 in the 28 percent tax bracket. But look what happens if you donate $25,000 worth of Google shares instead. The charity still gets $25,000 and you still get to deduct $25,000. But you also get to avoid the tax bill on nearly $22,000 of gain on the donated shares. That will save you an extra $3,300 in capital gains taxes. That's a way to be generous to yourself and there's nothing wrong with that. I'm Kevin McCormally.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks on Wall Street opened higher as the Dow rose 53 points at the outset of trading on carryover momentum from yesterday's huge rally, but those tepid retail sales numbers and the rise in oil futures put a damper on the upturn. By late morning, the Dow was off three points and the NASDAQ down eight. An afternoon rebound attempt failed as oil continued to surge, while worries about the credit crunch persisted. A late sell-off took the market to a broadly lower close. The Dow Industrial Average ending down 76.08 at 13,231.01. The NASDAQ Composite lost 29.33 points ending at 2644.32, while the Standard & Poor's 500 Index was down 10.47 ending at 1470.58. Over in the bond market, the 10-year note rose 3/32 to 99 30/32 putting the yield at 4.26 percent.
For the tenth consecutive trading session, Citigroup (C) topped the active list, today on 39.8 million shares, closed up $0.14, traded as high as $37.29 during the day. The company's in the midst of selling $4 billion in 10-year notes, no yield on them yet that we've seen.
Mylan (MYL) $0.23 loss. That company's in the midst of a 53.3 million share offering priced at $14 a share.
Then a new issue, Och-Ziff Capital (OZM) went public today on 36 million shares offered at $32, opened at $32.75, got as high as $32.80 and then backed down and ended below the offering price, not a great debut there.
EMC Corp (EMC) down $0.15.
And then General Electric (GE) closed down $0.20 a share. The CEO quashed speculation the company would sell its NBC Universal unit after the 2008 Olympics. And then after the market closed, the stock fell to $38.55 on a "Barron's" report that a short-term bond fund GE manages has suffered sub-prime losses and it's offering its investors $0.96 on the dollar to redeem their holdings.
Moving along we see Pfizer (PFE) a $0.06 gainer.
Ford Motor Co (F) $0.02 drop.
Merrill Lynch (MER) up $1.03, positive reaction to the new management.
And United Rental (URI) down $10.51. The story here is that Cerberus Capital Management has withdrawn its $34.50 take over bid. Apparently the credit crunch is making fundraising difficult for big takeovers.
Time Warner (TWX) $0.66 loss there, tenth in big board volume.
Bear Stearns Cos (BS) gained $2.40. Then the chief operating officer says the company's leveraged finance business is improving, but the company will take a $1.2 billion fourth quarter sub-prime write down. Meanwhile, the state of Massachusetts filed a complaint against the company regarding alleged illegal trading by two of Bear Stearns failed hedge funds.
Pepsico (PEP) moved up $0.72 a share. The company reaffirmed its 2007 earnings guidance of at least $3.39 a share. That's a penny above the Wall Street consensus.
Then Hershey Co (HSY) down $1.86. Bear Stearns downgraded it from "peer perform" to "under perform" on the specter of the need for higher research and development costs.
McCormick & Co (MKC) up $1.61. It's in a pact to buy another spice company, Lawry's division of Unilever for $605 million in cash.
MetroPCS Communications (PCS) up $1.68. Third quarter earnings almost doubled to $0.15, versus $0.08 last year. The revenues up a hefty 41 percent and those earnings were $0.02 better than the Street was expecting.
Leggett & Platt (LEG), which is in the furnishings business, is going to sell a number of its less profitable operations and it will boost its quarterly dividend from $0.18 to $0.25 a share and buy back up to 10 million of its own shares.
Excel Maritime Carriers Ltd (EXM) down $5.75. Third quarter earnings came in sharply higher, $0.96 versus $0.50 last year, but that was $0.11 below the Street estimate.
And then McDermott Intl (MDR) up $3.38. Calyon Securities issued a "buy" recommendation. One of the company's units also got a nice contract as you see.
Apple (AAPL) topped the active list on NASDAQ down $3.85.
Google (GOOG) still under some pressure, off $18.87.
But baidu.com (BIDU) up $2.55. Citigroup repeated a "buy" on baidu.
Research in Motion (RIMM) down $2.60.
Fred's Inc (FRED) $0.48 loss. That was fifth in NASDAQ volume.
Microsoft (MSFT) fell $0.53.
$0.43 drop in Cisco Systems (CSCO).
Intel (INTC) down $0.29.
Qualcomm (QCOM) edged up $0.88. A district court at The Hague ruled in favor of Qualcomm against Nokia in a patent case over there.
And then First Solar (FSLR) was down $2.68.
Greater Community Bancorp (GFLS) up $5.80. The story here, Oratani Financial will acquire the firm for cash and stock worth $21.40 a share.
And Daktronics (DAKT) plunging $8.68. Second quarter earnings dropped to $0.19 from $0.22 a year ago, $0.03 below the Street estimate and the company's future earnings guidance was a bit disappointing.
Those are the stocks in the news tonight.
