NBR Transcripts- June 12, 2008
Thursday, June 12, 2008The Yahoo! /Google Connection
SUSIE GHARIB: Microsoft and Yahoo! ended their merger talks for a second time today and tonight, Yahoo! has inked a new deal with Google. Microsoft and Yahoo! walked away from the negotiating table earlier today with Microsoft saying it didn't want all of Yahoo! and Yahoo! saying it wasn't interested in a partial deal. Now Yahoo! has an online advertising partnership with Google. The two companies are expected to hold a conference call at this hour. We hope to have them later in the newscast. Standard & Poor's equity analyst Scott Kessler says Google's technology would be good for Yahoo!'s bottom line.
SCOTT KESSLER, EQUITY ANALYST, STANDARD & POOR'S: Basically it will enable them to generate more associated revenues and earnings from search queries and it will make them more competitive from the perspective of doing better vis-a-vis search. The bottom line is a deal with Google, it won't enable them to gain share, it won't enable them to gain standing in the search market, but it will enable them to be more profitable and that's pretty important, too.
GHARIB: Kessler expects Yahoo! to announce a major stock buyback very soon, even if it has to raise debt to do it.
Lehman Brothers Rebuilds With Top Management Shake Ups
PAUL KANGAS: A surprise management shakeup at Lehman Brothers today. The investment firm ousted its high profile chief financial officer Erin Callan and Chief Operating Officer Joseph Gregory, although both will remain with the company. Lehman is already dealing with a massive earnings loss expected next week and a sharp slump in its stock price. Suzanne Pratt takes a look at what's in store for the legendary Wall Street firm.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lehman's executive reshuffling is viewed as an attempt to calm shareholders and silence speculation about additional losses. The firm's future has come into question this week, as Monday it pre-announced a second quarter loss of nearly $3 billion -- its first since going public in 1994. On top of that, it got a $6 billion cash infusion to offset the loss. That's after management repeatedly said it didn't need to raise capital. Keefe, Bruyette & Woods analyst Lauren Smith, whose firm has done investment banking with Lehman and personally owns the stock, doesn't believe Lehman will collapse, but she's concerned about its financial condition.
LAUREN SMITH, BANKING ANALYST, KEEFE BRUYETTE & WOODS: I can't say to you with complete conviction that there aren't perhaps more write-downs to be taken or that Monday when they report final earnings, that I have to at least put the possibility out there that the loss will be greater than the pre-announcement.
PRATT: The lack of confidence in Lehman's leadership has existed for several weeks and it's compounded by the fact that Bear Stearns crumbled in March following similar rumors. The Federal Reserve then stepped in to negotiate the sale of Bear to JPMorgan Chase. And while Lehman's troubles have breathed new life into takeover rumors, some analysts are not convinced the firm will take that path.
SMITH: There are not a lot of pristine, balance sheet financial companies right now. And even though their market cap has fallen considerably, it's still a $13 or $14 billion market cap organization. So, it's not easily digestible.
PRATT: Under the weight of all its troubles, shares of Lehman have fallen 65 percent this year. Most other financial stocks also remain under pressure with few analysts recommending investors increase their exposure to the sector. Money manager Manny Weintraub says that's because the credit market crisis is a long way from over.
MANNY WEINTRAUB, MANAGING DIRECTOR, INTEGRE ADVISORS: There are plenty of shoes to drop in this crisis. It's not going to end even with Bear Stearns being thrown to the wolves or if Lehman Brothers restructuring as they're doing. It ends when the underlying asset which is the American home, stops going down in price.
PRATT: In addition to Lehman, Goldman Sachs and Morgan Stanley are scheduled to report quarterly results next week. Those numbers are expected to be weak as the firms continue to deal with the fallout from bad bets on mortgage-related securities. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
"Economic Choices '2008"-Dan Tarullo, Shares Sen. Barack Obama's Economic Strategy
SUSIE GHARIB: April 15 is long gone, but it's still tax season for the presidential campaigns. Senator John McCain's economic advisors said today rival Barack Obama will raise taxes sending up capital gains rates for seniors. In response Obama said charges like that are misleading and that he will cut tax rates for most American families. Tonight as we continue our coverage, Darren Gersh talked with Obama's senior economic adviser Dan Tarullo and began by asking what the senator's top economic priority will be.
DANIEL TARULLO, SR. ECONOMIC ADVISER, BARACK OBAMA CAMPAIGN: His main concern from the outset of his campaign has been the position of the middle class, the squeeze on the middle class. And I think what you see in his economic policy programs is a set of initiatives that will both relieve the squeeze on the middle class that has resulted from stagnating wages and higher cost-of-living and at the same time, make the kind of investments in our country that are necessary to create the good jobs of the future.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, as you know the Center for Tax Policy has taken a look at the policies that Senator Obama advocates to do that and added up the tax numbers and come up with a figure that the Obama plan would add $3.5 trillion to the deficit over the next 10 years. Have you seen that analysis? Is it accurate and if it is, what does that say about Senator Obama's goal of being fiscally responsible?
TARULLO: Well, we certainly looked at the analysis and I think I'd say two things about that. First, Senator McCain, the number that the Tax Policy Center assigns to Senator McCain's proposals is substantially greater than that, that is over $4.5 trillion. But secondly and probably more importantly, the Tax Policy Center is working with a baseline that assumes the disappearance of all the Bush tax cuts. So they're not looking at today and what our situation is today. Instead they're looking at an artificial situation which won't ever exist. If you just look at the difference in Senator Obama's tax proposals and his tax cut proposals, you will see that according to the Tax Policy Center, over 10 years, there is a net revenue increase of three quarters of a trillion dollars.
GERSH: But essentially they have also said that Senator Obama is looking for roughly close to a trillion dollars in savings from loophole closures, things like that, which they gave him the benefit of the doubt on. But they said we don't see how he gets to this number. But he says he is going to get to this number so we are going to give him credit for it. Are you really going to find a trillion dollars in savings from closing loopholes and things like that when the campaign hasn't really specified them?
TARULLO: Well, we certainly have specified the tax increases on the very upper income people. We've specified a number of the sources of revenue, the loopholes, obviously, (INAUDIBLE) leave oil & gas corporate tax preferences, I don't think you should underestimate the importance of cracking down on international tax evasion. So yes, we are confident that there will be adequate offsets.
GERSH: Let me ask you about trade which is something you worked on a great deal when you were in the Clinton administration on expanding free trade agreements. Right now the economy, basically the only thing keeping the economy out of recession right now is exports. Exports are doing quite well in this economy. It would seem like this would be a moment when the next president should be talking about expanding exports and coming up with ways to further trade agreements to expand exports. Senator Obama is talking about taking a different approach and pausing on trade agreements and re-examining them. Why is that the right approach if exports are holding this economy up?
TARULLO: Well, first off Senator Obama has never said that he would pause on trade policy. What he has said is that we need to follow a different set of trade policies than have been followed in the past. He has reiterated on many occasions, most recently this past Monday in a speech in North Carolina, that he is for trade. He believes in free trade. But it's got to be a trade policy which works for all Americans. And that's why he wants to shift the kinds of trade agreements and the kinds of trade policies that an administration will pursue.
GERSH: Mr. Tarullo, senior economic adviser to Senator Obama, thank you for your time.
TARULLO: Thank you.
GHARIB: A note regarding the presidential election. We have invited Senator John McCain's top economic adviser to appear on the program, as we continue our "Economic Choices '08" coverage.
Help Wanted--Teens to Fill Summer Jobs
SUSIE GHARIB: If you have a teenager who wants a summer job, he or she may be in luck. Despite the dismal employment picture for adults, the outlook for teens isn't too bad this year. But as Erika Miller explains, analysts are concerned about the summer prospects for retailers who cater to those teens.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: As the school year ends, many teens are looking for summer jobs. Some may be worried about tough competition this year given the slowdown in the economy. But Bernadette Kenny, chief career expert at staffing firm Adecco North America, is fairly upbeat.
BERNADETTE KENNY, CHIEF CAREER OFFICER, ADECCO GROUP: I think the job market is pretty good. I think we shouldn't be scared by the economic press. There has always been a good job market for teenagers willing to work and there continues to be.
MILLER: Competition is likely to be tight in some areas like retail. However, in other industries, including construction, there are expected to be plenty of openings. Challenger Gray and Christmas, which tracks employment trends, predicts American companies will hire at least 1.5 million 16- to 19-year-olds this summer. That would be a 25 percent drop from a decade ago, but only a slight dip over last year. But experts say it's not fair to blame all of that decline on the economy.
KENNY: I think you have to combine that with a good number of teens who choose not to work, teens who go to Europe for the summer, teens who volunteer for the summer, teens who just decide to hang out.
MILLER: If the teen labor market is soft this summer, Citi analyst Kimberly Greenberger warns teen retailers will likely feel the pinch.
KIMBERLY GREENBERGER, RETAIL ANALYST, CITIGROUP: The labor market for teens is really important when it comes to that incremental spending on the part of teens. They may get some regular allowance money from their parents. But when teens are looking to spend on splurge items or more discretionary apparel purchases that may be above and beyond their needs, they really do rely on that income.
MILLER: That's not the only headwind facing retailers like Steve & Barry's, a clothing chain popular with teens. High food and gasoline prices are also crimping spending. As a result, retailers are doing what they can to attract teen dollars. Here at Steve & Barry's, they are promoting exclusive celebrity clothing lines. The chain offers fashions designed by actresses Amanda Bynes and Sarah Jessica Parker. Teen stores are one of the most recession-resistant categories in retail. Many parents would rather cutback on purchases for themselves than for their kids. But analysts say budgets are stretched so thinly for some families, that they are forced to make cuts across the board.
GREENBERGER: We've got very high food inflation, high gas prices, home prices continue to fall already after two years of declines, so there are a lot of pressures facing parents today. And it may be starting to trickle its way into lower spending on teens.
MILLER: Given the competitive environment, there many be an upside for shoppers. Many stores are focused on value pricing in an effort to attract customers. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
"Bill of Health"-Self Service in the ER
SUSIE GHARIB: It's no secret the health care industry doesn't always have the best customer service. But at a time when hospitals and clinics are struggling for profits, many are improving the patient experience to improve their bottom lines. As Jeff Yastine reports in tonight's "Bill of Health," self service could be coming to a hospital near you.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: At gasoline stations, we've all gotten used to the idea of self service. It's a similar story at airports, where self-service kiosks punch out boarding passes. But when it comes to visiting an emergency room, clinic or doctors office, most of us still resign themselves to long waits or filling out a blizzard of legal and insurance forms. That's why some hospitals and clinics are beginning to use self-service check-in computers designed to speed the process along for patients.
UNIDENTIFIED FEMALE: First time I ever used it, so I found it quick. I did find it easy. I really had no problems with it.
YASTINE: These kiosks are a part of improving customer service at this diagnostic imaging center run by West Boca medical center in Boca Raton, Florida.
UNIDENTIFIED MALE: So I'm going to type in my last name. I'm going to hit next. It's going to ask me for a piece of information, my date of birth.
YASTINE: Gary Grandovic's job is to bring in more customers here, in part by making the experience as fast and hassle-free as possible. The kiosks figure prominently into that strategy.
GARY GRANDOVIC, DIR, WEST BOCA DIAGNOSTIC IMAGING CENTER: Let's be honest, the health care industry hasn't been known to provide timely service, people sit in doctors' offices for a while, people sitting in waiting rooms for a while. We wanted to get away from that. We wanted to make sure that if you had a 3:00 appointment, you were going to be seen real close to that 3:00 time window. And by having all the paperwork done in advance, by being able to have that person kind of expedite themselves, it helped that process.
YASTINE: More than 100 hospitals and clinics now use the kiosks, which are made by NCR. The company's chief strategy officer Mike Webster says patient expectations are driving sales.
MIKE WEBSTER, CHIEF STRATEGY/COMMUNICATIONS OFFICER, NCR: If you look at the registration experience itself, it's a process that hasn't changed much in the past 50 years. It's still the same paper based, check the box kind of experience for the patient. So if we look at what's really changed in terms of why hospitals are now adopting it, I believe it's because the patients are demanding a better experience and a more convenient way for them to interact with their healthcare professionals.
YASTINE: Worries about the privacy of patients' insurance and medical records are one reason why hospitals in the past have been reluctant to embrace kiosk technology. As safeguards improved, so has interest from healthcare administrators. The average system costs roughly $150,000, but analysts say hospitals see a fairly quick return on their investment, because the kiosks make them more efficient and reduces patient wait times. Jeff Yastine, NIGHTLY BUSINESS REPORT, Boca Raton, Florida.
Paul Kangas' Stocks in the News
PAUL KANGAS: Better than expected May retail sales gave Wall Street a nice opening rebound from yesterday's steep sell-off. A sharp early drop in oil futures also inspired buyers. Two hours into trading, the Dow was sporting a 181 point gain while the NASDAQ was up 37 points. The market held most of its gains over the next few hours with the financial sector doing well on an upgrade from Morgan Stanley. A rebound in oil futures however, caused stocks to end well below the day's best levels. The Dow Industrial Average closed up a modest 57.81 at 12,141.58. The NASDAQ rose 10.34 at 2404.35 while the Standard & Poor's 500 Index gained 4.38 at 1339.87. In the bond market, the 10-year note slid 1 4/32 to 97 9/32, putting the yield up to 4.21 percent.
Now let's take a look at our other stocks in the news tonight. Big board volume leader on 26 million shares, General Electric (GE) losing $0.78.
Citigroup (C) was up $0.68. The financial stocks were rather firm today on a Morgan Stanley upgrade from the group from "under weight" to "neutral" in the belief the worst is behind us.
Lehman Brothers (LEH) down $1.05. As you heard, the company undergoing a top management shakeup.
Washington Mutual (WM) a firm financial, up $0.58.
Similar gain from Bank of America (BAC) gaining $0.59.
Anheuser-Busch (BUD) up $3.05. As we reported yesterday, the company is evaluating ImBev's $65 a share takeover bid. After the market closed today, the "Wall Street Journal" reported Anheuser-Busch has begun preliminary talks with Mexico's Grupo Modelo brewing company about a combination that could help Anheuser thwart ImBev's takeover bid.
Keycorp (KEY) down $3.73. The company's cutting its annual dividend 50 percent from $1.50 down to $0.75 and plans to raise $1.5 billion in new equity capital.
Pfizer (PFE) in there with an $0.18 gain.
JPMorgan Chase (JPM) moved up $0.88.
Then Wells Fargo (WFC) with a $0.47 advance.
Caterpillar (CAT) did well, up $1.57. It traded as high as $81.79 today. The company's expanding production of its mining equipment with Navastar on a global basis and cutting production on on-highway truck engines in the U.S.
Well that news of the cutback is very good for Cummins (CM) since their specialty is on-highway truck engines. The stock did very well.
Archer-Daniels-Midland (ADM) down $3.76. Citigroup downgraded it from "buy" to "hold" on Midwest flooding and higher corn prices hurting ethanol sales. Also BMO Capital downgraded ADM from "out perform" to just a "market perform" rating.
Talbots (TLB) department store did well, up $2.16. The majority shareholder, AEON Corp. is providing the company with a $50 million line of credit to support its turnaround which seems to be going well.
EnerSys (ENS) up $4.78. The industrial battery maker had fourth quarter earnings nearly double last year, $0.42 versus $0.22 then and sales shot up 41 percent. Jeffries upgraded the stock on a price basis from $32 to $43.
Applied Biosystems (ABI) gaining $1.72. Invitrogen Corp. will acquire it for $38 a share, 45 percent of that cash, 55 percent stock. Invitrogen stock itself fell $4.62 on the news.
And Franklin Resources (BEN) the big asset management and mutual fund company, got an upgraded from Keefe Bruyette Woods from "market perform" to "out perform." Stock up over $5.
Apple (AAPL) topped the active list, down $7.55.
Microsoft (MSFT) up $1.12. As you heard, it's no longer talking to Yahoo! about an agreement.
Google (G00G) up $7.75.
And Yahoo! (YHOO) itself down $2.63. Now here's an update on the Yahoo! Google deal we told you about earlier. The agreement allows Yahoo! to display ads sold by Google. Yahoo! will decide which Google ads run and where. The deal's initially for four years with an option for 10 years. It's expected to bring in up to $800 million in annual revenue for Yahoo!
Qualcomm (QCOM) up $2.67. The company boosted the outlook for its June quarter, nice gain in the stock.
Research in Motion (RIMM) down $2.20.
Then First Solar (FSLR) up $8.61.
Followed by Intel (INTC) $0.24 advance there.
And Cisco Systems (CSCO) $0.31 gain.
And Baidu.com (BIDU) fell $3.56 per share.
And that is our look at stocks in the news tonight.
