NBR Transcripts-February 14, 2008
Thursday, February 14, 2008Bernanke & Paulson Head To The Hill
SUSIE GHARIB: A gloomy economic forecast today from Ben Bernanke. The chairman of the Federal Reserve told the Senate Banking Committee that the U.S. economy continues to quote deteriorate. He also said policy makers are prepared to cut interest rates further to help boost growth. At that same hearing, Treasury Secretary Henry Paulson told lawmakers that the Bush administration is working to reduce the strains of the credit crunch on the economy. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: It's not a pretty picture. Rising foreclosures are adding to an already glutted housing market and job losses are increasing in construction and manufacturing. Fed Chairman Ben Bernanke told the Senate Banking Committee the Fed will lower its growth forecast next week.
BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE: Growth looks to be weak, but still positive, during the first half of the year and with some expectation of strengthening later in the year. But again, that is a baseline and there are risks to that forecast.
DHUE: The risks include consumers' cutting back on spending because of jobs losses, higher energy prices, lower stock prices, and declining home values. Bernanke is also worried that problems in the financial system will continue to make credit harder and more expensive to get. He urged banks to quickly write off bad debt.
BERNANKE: The best remedy to that is for the banks to reveal their losses, to get them behind them, then to go out and raise more capital, so that they can operate in a safe way and in a normal way.
DHUE: Bernanke says the stimulus package, along with interest rate cuts, should make the economy stronger and more resilient in the second half of the year. But lawmakers are concerned. Senator Jack Reed is especially worried about declining home values.
SEN. JACK REED (D) RHODE ISLAND: There could be as much as a 20 to 30 percent devaluation in the value of homes in the United States, which some people have estimated to be on the order of $4 to $6 trillion in household wealth. That is going to be a huge shock to the quality of life of most Americans.
DHUE: The weakening economy appears to be strengthening political battle lines -- witness this testy exchange about a potential recession between Treasury Secretary Henry Paulson and Democratic Senator Robert Menendez.
SEN. ROBERT MENENDEZ (D) NEW JERSEY: I don't want to talk down the economy, but at the same time, we need to be able to work to build it up if we know we have challenges and part of that challenge is the housing crisis.
HENRY PAULSON, US TREASURY SECRETARY: If you're trying to talk the economy up, I'd hate to see you try to talk it down but to.
MENENDEZ: I'm just not trying to hide my head in sand.
PAULSON: I'm not, either.
DHUE: Meanwhile this afternoon, Senate Democrats unveiled what they call a second stimulus plan. A key and controversial piece would let bankruptcy judges modify home loans. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
One on One with Jamie Dimon, Chairman and CEO of JPMorgan Chase
SUSIE GHARIB: CEOs of big American companies expect their industries to struggle over the next six months as economic growth slows. That's the result of a survey of the Business Council. The group of corporate leaders is meeting in Fort Lauderdale, Florida this week, and also says it expects the economy in the U.S. and Europe to worsen over the next six months. But when I talked today with JPMorgan Chase Chairman and CEO Jamie Dimon, he said his bank is doing OK, whether the economy is in recession or not.
JAMIE DIMON, CHAIRMAN & CEO, JP MORGAN CHASE: We're going to be in good shape regardless. And we're going to be out there selling consumer loans and doing mortgages and dealing with our clients and trying to gain share. Earnings may be down a little bit but we have the capital and the wherewithal to create job service to clients. I hope we can take advantage of it.
GHARIB: Jamie, looking at your business, whether we are talking about credit cards or home equity loans, how would you describe the financial health of consumers?
DIMON: We don't see a very strapped consumer. And your delinquencies are going up and charges are going up, but they're still rather low. And they're going up in the places of the country you expect them to go up. So while we're looking for, we don't really see it. They seem still to be spending money and income growth seems to be up. So so far we don't quite see that.
GHARIB: I understand that JPMorgan has boosted its share of the mortgage market. Is this the right time to be lending? Is there a downside risk?
DIMON: Going into these issues we have like a five percent share of the mortgage market. Now we are a little north of 10. And we want to gain share in the market. So we are taking advantage of our capital base and our ability to create loans including jumbo loans and sub-prime because there are still good sub-prime loans to gain share. I'm not sure it is the best time in the world but we would rather do a great job with the consumer and grow share right now. It is still the largest market in the United States of America and the most, probably the most important consumer product.
GHARIB: We know that the sub-prime mortgage market has been tough for everyone. But what about people with prime mortgages? Are you seeing that they are having a difficult time making their payments?
DIMON: Prime mortgage delinquencies are up a little bit but not terribly. I think if the economy deteriorates, you will see more issues in housing and mortgage delinquencies et cetera, but I think for prime it's going to be very much dependent on the economy.
GHARIB: We have seen so many interest rate cuts by the Federal Reserve. Are you writing more loans as a result of that?
DIMON: I think will you see applications go up, refis go up. I think it does make it easier for consumers to finance certain things. And for some finance institutions to carry assets and earn a better spread. But I think as a bank we're generally matched interest rates. So all things being equal, that will just help us a little bit.
GHARIB: Many banks seem to be less willing to lend money even with all of these rate cuts. Do you think that banks are worried about taking on more risk?
DIMON: Yes, I think a lot of banks because of what has happened, mortgages are tightening up, mortgages in all consumer products. And they're probably a little more careful about commercial real estate loans, commercial loans, corporate type loans. And so I do think that that people are being more conservative.
GHARIB: JPMorgan has come through this whole sub-prime mortgage crisis in pretty good shape, a survivor compared to many financial institutions. But still, has the bank changed the way that it measures risk?
DIMON: Obviously when it comes to mortgages and sub-prime we have tightened up several times how we underwrite. But in reality, you know, to me good risk management is people transparent with numbers, that you have a disciplined review of them, that you share them with the smart people in the company, that people have the right to ask questions. That we haven't changed. That we have been doing for years.
GHARIB: As you know, there is a lot of anxiety out there that the financial crisis is not over, that there is another shoe to drop. What is the next big thing you are worried about in terms of credit quality?
DIMON: We go through this every five or six years and you can just go back in history. They are always a little bit different. But there are a lot of commonalities: Fear, specter of recession, credit assets, re-price, spreads re-price, etcetera. You've seen sub-prime, SIV, CDOs, CLOs (ph) and now it is monolines, municipals, wraps. But at the end of the day, those things will resolve and our system has resolved a lot of them. A lot has been de-leveraged. A lot has been paid off. A lot of problems have popped up are now gone. It's not over yet, but you know, I would be surprised if the financial part of this isn't over by the end of the year.
GHARIB: The other day I was talking to the chairman & CEO of General Electric, Jeffrey Immelt and he was saying that this choppy economic period is actually a good time to be making acquisitions. Are you going to take advantage of this turbulence and make some acquisitions as well?
DIMON: If you were prepared you could be predator and not prey and that could be asset purchases, people just be more aggressive, marketing. And it could be acquisitions. I don't feel like JPMorgan has to do an acquisition to be successful. We can grow and do a great job for our clients and shareholders for a long time without doing one, but if there is a proper one for us, yeah, we certainly would be willing to do that.
GHARIB: There is a lot of speculation that JPMorgan Chase pick up Citi Smith Barny or Bear Stearns, even Merrill Lynch. Do any these make financial sense to you?
DIMON: It is always my job, when people bring ideas to you and say would you think about this, if it is available. We would think about it. We would think about just about anything.
GHARIB: But does it make sense for you to make a big acquisition, something in financial services?
DIMON: If the price is right, it had a lot of business logic and we had the ability to make it work for or shareholders, yeah it would make sense.
GHARIB: JPMorgan stock has performed better than most financials. But what do you think it's going to take to pick up the stock from here?
DIMON: We're really confident we are building a really great company that for our shareholders and for the employees, et cetera. And you know, I am not going to guess the short run because the stock could easily go down in the short run. We brought back a lot of stock at price when we think it is cheap. We have enormous financial capability, enormous innovative capability and technology and to me, the stock will do fine.
GHARIB: Jamie, thank you so much for your time and great seeing you again.
DIMON: Good seeing you again too. Thank you.
"The New Business of Education"-Educational Technology
SUSIE GHARIB: From computers to touch screens, learning has come a long way from the little red school house. With the government mandating standardized testing, school administrators are looking to technology to help boost the learning curve. Tonight as we continue our series, "The New Business of Education," Jeff Yastine looks at the growth opportunities many high tech firms are seeing in education.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: When it comes to education and technology, there's old school -- a teacher and a class -- and there's new school, with devices like this high-tech active board, displaying lessons electronically, while students write directly on the screen. In fact, here at Nob Hill elementary school in Broward County, Florida, technology is in heavy use nearly everywhere, from wireless Internet nodes in each classroom to laptops bought and paid for by the school district right down to the Internet portals dedicated to use by teachers and students
Computers of course, have been used in schools for years. The difference now is the variety of software and hardware that's available to enhance teaching and learning in the classroom. It amounts to nothing less than a revolution that's being embraced by larger numbers of school districts and supplied by an increasingly robust education technology marketplace.
And a glimpse of that marketplace is seen at conferences like this, where companies across the tech spectrum -- from giant names like Hewlett-Packard, Dell and Adobe to niche education providers like Vernier Software and technology -- pitching software and hardware of all kinds to educators. This year, one of the hottest areas in educational tech is test-taking software. It enables wireless devices like these to be used to quiz entire classes electronically and the results tabulated instantly. A company called Qwizdom has gone a step farther in its software, by making correct answers the fuel to power race cars in a competitive car racing game.
And if that's not enough, the quiz results are then stored and correlated, so that teachers and administrators can see if classes are making enough progress to meet state standards on the subject. Not long ago, teachers were thought too stodgy to take advantage of such advanced technology. But Mike Eason, executive director of the Florida Educational Technology Conference, says there's a changing of the guard going on, as technology-literate educators take over.
MIKE EASON, EXEC. DIR., FL EDUCATIONAL TECHNOLOGY CONF.: As that population, that bubble goes of all these kids that have grown up with the technology, that they become educators and become part of that education community and they have embraced the technology already, they're going to use the technology more and more in the education process.
YASTINE: But technology involves big dollars in fiscally conservative school boards and they need to analyze what technology to buy, how quickly it will become obsolete and whether it's truly effective for teaching and learning. Schools also need infrastructure and support services. Advisers like Dr. Jeanine Gendron say school boards need a strategic plan and a commitment for technology in the classroom to be truly effective.
JEANINE GENDRON, DIR., INSTRUCTIONAL TECH., BROWARD CTY. PUBLIC SCHOOLS: You really have to look at what your vision is in the district and where as a whole you want teaching and learning to go. And that vision will actually drive the decisions that are made and take you to the new learning environment.
YASTINE: Right now, annual sales of educational technology are estimated to be worth up to $5 billion. But as schools and teachers become more comfortable using technology, the educational market could be the next big frontier for high tech. Jeff Yastine, NIGHTLY BUSINESS REPORT, Sunrise, Florida.
"Commentary"-The Neglected Middle Class & Middle Aged
SUSIE GHARIB: Tonight's commentator says employers need to wake up to the needs of their 30 and 40-something employees. He's Bob Morison, director of research at the BSG Alliance and co-author of "Workforce Crisis."
ROBERT MORISON, DIRECTOR OF RESEARCH, BSG ALLIANCE: Let's talk about the neglected middle class -- not the middle-income Americans that the politicians are trying so hard to appeal to in an election year, but employees in mid- career, their late 30s through 40s, often with significant tenure. They're a large segment of the workforce, and they're largely neglected as employers concentrate on recruiting young workers and retaining older ones with hard-to-replace experience.
It's a mistake to assume that long-term, uncomplaining, mid-career employees are doing just fine. Our research shows that, compared to younger and older cohorts, mid-careers put in more hours and have too much on their plates. They are less likely to find the workplace enjoyable, to have the opportunity to try new things or to be satisfied with their managers. Over one third feel dead-ended and over 40 percent report burnout. Many find responsibilities on the home and work fronts to be peaking simultaneously. Others are, upon mid-life reflection, frustrated with how their careers have turned out.
The more self-reliant may unexpectedly jump ship, but most remain frustrated in place. Few are immune from the mid-career blues, including managers and top performers. Most older employees report at least one period of mid-career crisis. There may be no prevention of these mid- career blues, but there are cures, usually in the combination of a fresh and energizing assignment and more flexible work arrangements. So pay attention to the middle class and show them some love, because curing the blues of employees is good for productivity today and retention tomorrow. I'm Robert Morison.
Paul Kangas' Stocks in the News
PAUL KANGAS: After three straight days of gains, stocks on Wall Street opened lower on profit-taking pressures. The sell off continued on Fed Chairman Bernanke's comment that the economic outlook has worsened. By noon, the Dow had fallen 113 points, with the NASDAQ off 28 points. More talk of a slowing economy kept the market on the defensive throughout the rest of the day, so most stocks ended at the session's lowest levels. The Dow Industrial Average closed off 175.26 points at 12,376.98, losing just about what it gained yesterday. The NASDAQ fell 41.39 points to 2,332.54. Standard & Poor's 500 lost 18.35, exactly what it gained yesterday and now stands at 1,348.86. Over in the bond market, the 10-year note fell 22/32 to 97 11/32, putting the yield at 3.82 percent. Once again at the top of the active list, Citigroup (C) trading 21.6 million shares today, down $0.60. After the close, it was disclosed in an SEC filing that billionaire investor Eddie Lampert (ph) slashed his hedge fund's stake in Citigroup by almost one third, from 23 3/4 million shares down to 19.1 million shares of the last part of last year. General Electric (GE) $0.59 loss.
EMC Corp (EMC) bucking the trend was a $0.28 gain.
Pfizer (PFE) down $0.29.
And then Bank of America (BAC) in the weak financial group today, off $1.09.
JPMorgan Chase (JPM) off $1.49.
Hewlett-Packard (HPQ) fell $0.79.
Wells Fargo & Co (WFC) $0.88 drop.
Wachovia (WB) off $1.39.
And then AT&T (T), tenth in volume, an $0.83 loss there.
Bear Stearns (BSC) dropping $2.06. Citic Securities of China wants to renegotiate its $1 billion investment in BSC because Bear's stock has fallen. Citic is now seeking a 9.9 percent stake in Bear Stearns for its $1 billion investment and that's off from the original 6 percent.
Goodyear Tire (GT), well let's recap what happened there today, the stock up $1.87. Fourth quarter earnings, $0.27 versus a loss of $1.74 last year. Some of the company's top line tires have very good sales.
And then Cabot Oil & Gas (COG) up $2.55, nicely higher fourth quarter earnings, $0.43, up from $0.33 last year.
Avis Budget (CAR) up $1.18. Fourth quarter earnings came in at $0.27 a share. That was $0.09 better than the Street was expecting. That does include or exclude one-time items.
Liz Claiborne (LIZ) dropped $4.12. The company sees fourth quarter loss at $0.90 to $1 versus earnings of $0.71 a year ago. Standard & Poor's downgraded Liz stock today from "buy" to just a "hold."
And then Thomson (TWS) off $1.92. This is a French media services firm. 2007 earnings $0.90 a share, well down from the Wall Street estimate of $1.25.
Build a Bear Workshop (BBW) $2.66 loss. Fourth quarter earnings dropped to only $0.48 from $0.75 a year ago. That was $0.18 below the Street estimate.
And Dreamworks Animation (DWA) off $1.52. BMO Capital downgraded it from "out perform" to "market perform."
And New Orient Education (FDU) up $4.75. The company's board of governors has approved the buyback of up to one million American depository shares.
Chipotle Mexican Grill (CMG) closed down $1.05. After the close it came in with higher fourth quarter earnings, $0.53 versus $0.33 a year ago, but that was $0.02 below the Street estimate and the company says 2008 will be challenging. In after hours trading, the stock was down as low as $94 a share from this price.
Apple (AAPL) topped the NASDAQ active list, losing $1.94.
Baidu.com (BIDU) up $3.41. It hit a high of $280 today on the company's strong fourth quarter earnings, $0.17 above the Street estimate.
Google (GOOG) down $2.37.
First Solar (FSLR) down $4.35. Yesterday that stock was up almost $53 a share. That was a net change and fourth quarter earnings were very strong.
Microsoft (MSFT) $0.46 loss there.
Research in Motion (RIMM) down $1.22.
Intel (INTC) $0.75 loss. Goldman Sachs removed Intel from its "buy" list today.
Cisco Systems (CSCO) $0.53 loss.
And Nvidia (NVDA) off $4.41. After the close yesterday, it had higher earnings, $0.42 versus $0.27 but Standard & Poor's today cut its 2008 earnings estimate and so did BMO Capital.
Then Yahoo! (YHOO) up a dime, was tenth in volume.
Comcast "A" (CMCSA) up $1.43. Fourth quarter earnings in at $0.20, up from $0.15 a year. The company plans to resume an annual cash dividend of $0.25 a share and also hopes to complete its $7 billion stock buyback by next year. Those are the stocks in the news.
