NBR Transcripts-August 21, 2008
Thursday, August 21, 2008Auction Rate Security Reimbursements
SUSIE GHARIB: Three more big Wall Street firms have agreed to reimburse investors holding auction-rate securities. Merrill Lynch, Goldman Sachs and Deutsche Bank reached a settlement late today with New York Attorney General Andrew Cuomo. Under the agreement, Merrill will buy back between $10 and $12 billion of auction-rate securities, starting October 1. The investment firm will also pay a fine of $125 million. Goldman will buy back $1.5 billion and pay a penalty of $22.5 million. And Deutsche Bank will reimburse its customers $1 billion and pay a $15 million fine. Cuomo has now reached auction-rate securities deals with most major banks and brokerage firms, with one holdout: Bank of America. Also today, Merrill reached a separate settlement with Massachusetts' secretary of state to buy back $10 billion in securities.
Now May Be The Time To Finance The Financial Sector
PAUL KANGAS: Financial stocks were already under pressure today before the Cuomo announcement, as investors fretted over whether credit write-downs would ramp up in the third quarter. Concerns about increased Fannie Mae and Freddie Mac also, with many experts predicting a government bailout coming soon. As Suzanne Pratt reports, even though the financial sector still faces hurdles, some analysts say it may be time to buy in.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fallout from Freddie Mac and Fannie Mae is creating a massive dark cloud over the financial sector. Investors are wondering whether the U.S. Treasury will intervene and if so, when. Many Wall Street experts say a government takeover is inevitable. And while Fannie and Freddie common shareholders will most likely be wiped out. Edward Jones Analyst, Tom Kersting says overall financial stocks will benefit.
TOM KERSTING, BANKING ANALYST, EDWARD JONES: I think it certainly does remove a pretty big question mark that is hovering over the financial services sector today. So I would see that as a modest positve for the sector.
PRATT: But investors are also stressed about third quarter write-downs and losses at financial firms. Analysts continue to take down their numbers for investment banks like Lehman Brothers and Goldman Sachs, as well as for large diversified and regional banks. According to Thomson Reuters, analysts now estimate a 45 percent drop in third quarter results for financials. At the beginning of July, they were predicting only a 4 percent decline. And there are concerns that other areas of the banking business will also suffer as the credit crisis spreads. As for a light at the end of the tunnel for financials, Standard & Poor's analyst Stuart Plesser recommends looking to the housing market, in particular, home prices.
STUART PLESSER, BANKING ANALYST, STANDARD & POOR'S: We can see that the rate of decline of home prices comes down that the write-downs and provisions from the banks should start to come down and that the financial sector should be something that people can feel more comfortable stepping into from a investment standpoint.
PRATT: But other analysts say why wait for a rebound in the housing market to buy financials? By then, they worry many of the companies will have already started to rally.
KERSTING: These stocks are not going to wait for all of this bad news to leave. If you look back at the 1990, 1991 savings and loan crisis, the stocks actually bottomed and moved higher nine months before the problem loans really peaked.
PRATT: Kersting predicts problem loans will peak sometime in the first half of next year and he expects homes prices will bottom at about the same time. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York
The Obama Direct-by-text Marketing Test
SUSIE GHARIB: Democratic presidential hopeful Barack Obama isn't relying on traditional media to announce one of his most important decisions -- his choice of a running mate. Obama is sending the news to his supporters first, by text message. And this isn't just a political event. For corporate marketers, the Obama announcement is a perfect test case for direct-by-text marketing. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: OK, so Barack Obama's vice presidential text announcement is kind of a gimmick. But this is marketing we're talking about. Thousands of people have already forked over their cell phone numbers, eagerly awaiting Obama's VP message. And that's the kind of math corporate communicators understand. Marriott started texting, using the social networking site Twitter just a few months ago and its communications guru, Kathleen Matthews, says other businesses should join the campaign.
KATHLEEN MATTHEWS, EXEC. VP, GLOBAL COMMUNICATIONS MARRIOTT INT'L.: I think, like the presidential candidates, corporations are realizing that you have lots of new media channels where you can talk to your customers and you got to take advantage of them.
GERSH: Marriott is on youtube, facebook and now, text. It's a way to reach those young people glued to their cell phones.
MATTHEWS: If you're sending a message to people through these kind of relevant new channels, as a company, you look like you're relevant and new.
GERSH: For the record, John McCain's campaign doesn't text, something Republican consultant David All wants desperately to change. He also encourages corporate clients to join the conversation and sign up for text- based services like Twitter. He reserved a Twitter account featuring Michael Dell's name and offered to give it to him should the tech icon want it.
DAVID ALL, PRESIDENT, DAVID ALL GROUP: I'm a fan, but if I were Dell, what I would do is I would use text messaging to have a real conversation with people.
GERSH: A text is just 160 characters or so, not much of a conversation there, but David All says there are creative ways to keep the talk going, like using a text message to drive traffic to a web site -- say, www.pbs.org/nbr. The real question for politicians and corporations is whether Obama's text strategy sustains interest in the campaign or whether people just opt out once the big announcement is made.
ALL: Will people stick around for those policy discussions and of course, what Barack is really going after, which is turning out voters on Election Day.
GERSH: No one knows for sure, in part because text is relatively new in the United States. Video blogger and PR executive Andy Plesser expects text here to grow into the multi-billion dollar a year marketing opportunity it already is in Europe and Asia.
ANDY PLESSER, FOUNDER, BEET.TV: And if the Obama campaign can scale up and create a big database and find that that database is powerful and that it drives people to action, that will be a big milestone moment in terms of marketing.
GERSH: Plesser calls it the next step in direct marketing, another way this election could shape history. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Working for Balance"-A Family Friendly Work Life
SUSIE GHARIB: A hot button issue for many American businesses and employees is whether to pay workers for sick days. A Federal law is now being considered that would give all full-time workers seven days of paid sick leave each year. A number of states are also looking at making paid sick days a standard employment benefit as well. And that's because the U.S. is the largest industrial nation not requiring employers to provide paid maternity and sick days. As we continue our series, "Working for Balance," Erika Miller reports on how some companies are finding that offering family-friendly policies makes good business sense.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Like many parents, Sabine Salandy found it difficult to balance work and family responsibilities after she gave birth to her daughter last year. She left her job as a policy analyst four months ago and now cares for 17-month-old Elise at home. A big issue was not being permitted to work a more flexible schedule.
SABINE SALANDY, MOTHER: I was allowed to work home on one day, on Fridays, but that was not enough. I was exhausted from the commute. I'm tired and cranky and I couldn't concentrate on motherhood.
MILLER: Many labor advocates say it is harder to be a working parent in the United States than it is in most other high-income countries. For example, most European nations grant workers the right to work part time, although employers can typically challenge that arrangement. And outside the U.S., nearly all affluent countries give workers the right to paid parental leave. According to the Bureau of Labor Statistics, nearly half of U.S. private sector workers do not get any paid sick days. Heidi Shierholz at the Economic Policy Institute says the lack of a national sick leave policy is what really makes the U.S. family unfriendly.
HEIDI SHIERHOLZ, LABOR ECONOMIST, ECONOMIC POLICY INSTITUTE: A hundred and forty five countries around the globe offer some kind of paid leave, including all industrialized nations and over 100 other countries provide a month or more of paid sick leave. So we really are in this remarkably unique position.
MILLER: The U.S. does have the family and medical leave act, which covers serious illness and pregnancy. It requires companies to grant employees 12 weeks of unpaid leave and it does not apply to all companies. The U.S. is also the only high-income country that does not mandate any paid vacation days or any paid national holidays. The average U.S. worker in the private sector gets a total of 15 paid days off, half of what French workers get. There are many theories as to why the U.S. lags in these areas. One is that Americans generally prefer less government involvement in their personal lives, supporting free market employment principles instead. Political science and sociology professor Janet Gornick also says many Americans view long work hours as a badge of honor.
JANET GORNICK, PROF., POLITICAL SCIENCE AND SOCIOLOGY, THE GRADUATE CENTER OF CUNY: There's a long tradition and it's also very active today of valuizing (ph) hard work and hard work means long hours at work and Americans work the longest hours of almost any industrialized country -- nearly 2,000 hours a year. So when we talk about measures to shorten peoples' work hours and to give them the right to shorter schedules, some people think that's sort of un-American.
MILLER: However, some labor analysts, like James Sherk of the Heritage Foundation, oppose government mandated benefits. He says minimally regulated labor markets are a key reason the U.S. is one of the richest, most productive countries in the world. He also believes leave laws, whether paid or unpaid, are bad for most workers.
JAMES SHERK, LABOR POLICY ANALYST, THE HERITAGE FOUNDATION: All employers care about is the total compensation they pay to their workers. They don't care about what form that takes. If you have the government requiring that they get more paid leave, they'll get more paid leave. But they're going to have less cash wages. They'll have less retirement benefits or the labor costs will otherwise be brought down.
MILLER: Many companies choose to offer family friendly benefits, even though they're not required by Federal law to do so. They say it helps attract and retain workers in a competitive labor environment. A flexible work arrangement helped IBM keep software architect Cait Crawford after she moved to New Hampshire for quality of life reasons three years ago. Since then, she has been commuting to this New York office a few times a month.
CAIT CRAWFORD, SOFTWARE ARCHITECT, IBM: Balance is a time and equilibrium thing. So, there are times when you would look at things I'm doing and say, no, you are working all the time and it's not balanced and there are times where you look at what I'm doing and say, when are you getting work done. But I think IBM and myself and my family have achieved that work/life balance as best we can.
MILLER: Crawford is one of the 40 percent of IBM workers that do not have assigned offices. Randy MacDonald, head of IBM's human resources department, says encouraging schedule flexibility also boosts employee morale and job performance.
RANDY MACDONALD, SR. VP, HUMAN RESOURCES, IBM: People recognize that they can't do the things that they need to do in a normal, traditional work setting, but we give them something unique. Their satisfaction goes up, people feel more productive.
MILLER: Sabine Salandy hopes to eventually find a productive and satisfying work-from-home position. But for now, she has found one benefit to not working -- spending quality time with her daughter. Erika Miller, NIGHTLY BUSINESS REPORT, Teaneck, New Jersey.
"Commentary"-Financial Responsibility
SUSIE GHARIB: In tonight's commentary, how being more financially responsible during an economic downturn makes good fiscal sense all the time. Here's Alfred Edmond, Jr., senior vice president and editor in chief of blackenterprise.com.
ALFRED EDMOND JR., SR. VP, EDITOR-IN-CHIEF, BLACKENTERPRISE.COM: Anybody checking the headlines of business news channels or the cover lines of magazines, including "Black Enterprise," will see plenty of advice on coping with a tough economy, rising prices and the threat of recession: pay down and avoid credit card debt. Cut costs and eliminate unnecessary spending. When you do spend, shop around for the best bargains. Boost personal savings, establishing an emergency fund equal to at least six months of living expenses. Create a budget and stick to it. The funny thing is, these are the smart money habits we should have been practicing all along. In fact, the people suffering most during these times of economic stress are the ones who ignored these common sense rules of personal finance. When times were flush, they bought more home than they could afford, bigger cars than they needed and made every luxury a necessity. But if you look around, you'll notice that some of us are less stressed than others. They are the ones that used our most recent period of economic growth not to spend more, but to boost savings, reduce debt, control spending and solidify their financial positions. The silver lining of these tough economic times is the bracing but liberating realization that we can live on less and we should have been doing so all along. Good money management habits are not just for recessions. We should not wait for an economic downturn to force us to do what we should have been doing anyway. Let's hope that we retain that lesson when the economy rebounds. I'm Alfred Edmond, Jr.
"Last Word"-Warren Buffett's Rising Star
SUSIE GHARIB: And finally tonight, he's a philanthropist, zillionaire and ukulele player. Now, add movie star to Warren Buffett's resume. He appears in a new film opening tomorrow called "IO U.S.A." that looks at America's growing financial challenges. The film is billed as a look at four key deficits: budget, savings, trade, and leadership and it argues the U.S. is going broke in all of them. There's a preview tonight in hundreds of theaters nationwide. And then Paul, those showings will be followed by an in-theater town hall event broadcast from Omaha, with a panel discussion featuring Buffett himself and investor Pete Peterson.
KANGAS: Sounds like a great wake-up call for all of us.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street was still under the black cloud of the troubled financial sector, as stocks opened broadly lower today. And making matters worse for the bulls -- that $6 spike in oil prices. At 11:00 a.m., the Dow posted a 64-point loss and the NASDAQ was off 23 points. Over the next several hours, the market remained mired in red ink, thanks in part to a weak dollar. But gains in the oil and other commodity-related stocks resulted in a mixed close. The Dow Industrial Average ended up 12.78 at 11,430.21. The NASDAQ lost 8.70 ending at 2,380.38. But the Standard & Poor's 500 gained 3.18 ending at 1,277.72. Over in the bond market, the 10- year note fell 8/32 to 101 12/32, putting the yield at 3.83 percent.
Topping the big board's active list on nearly 15 million shares, Fannie Mae (FNM) moving up $0.45. That's the first closing gain in a week for Fannie Mae stock.
Ford Motor Co (F) slipped in there with a $0.19 loss.
And then Freddie Mac (FRE) down $0.09.
Citigroup (C) a $0.02 loss.
And then Lehman Brothers (LEH) a penny down. Analyst Dick Bove of Ladenburg Thalman says the stage is being set for a hostile takeover of Lehman Brothers.
Moving along in the active, Bank of America (BAC) down $0.25.
Pfizer (PFE) moved up $0.09.
General Electric (GE) a $0.10 gain.
Washington Mutual (WM) down $0.20.
And then came Wells Fargo & Co (WFC) losing $0.48.
American Intl Group (AIG) down $1.02. Citigroup cut its price target from $42 to $40.50, a little bit higher than where the stock is now.
The one group that was really strong was the golds and that's because the New York December gold contract jumped $22.70 an ounce to $839 an ounce even. Agnico Eagle (AEN) and Barrick Gold (ABX) and Freeport McMoran C&G (FCX), Newmont Mining (NEM) and Spdr Gold Trust (GLD) on the big board up $2.16 there.
Salesforce.com (CRM) plummeted $12.05. The business software firm did report second quarter earnings much higher, $0.08 versus only $0.03 last year and revenues jumped 49 percent. But the stock is down on concerns that revenue growth is slowing and the company may be losing business to Oracle. So Piper Jaffray brokerage downgraded the stock from "buy" to "neutral." Standard & Poor's cut its price target from $70 to $65.
Then came Burger King Holdings (BKC) down $1.95. Fourth quarter earnings higher, $0.37, versus $0.29. Worldwide sales were up 5.3 percent, but renovation costs and higher food prices are hurting profit margins. That's why the stock was down.
Cato Corp (CTR), the women's apparel retailer, down $1.41. Second quarter earnings were higher, $0.41 versus $0.39 last year, but that was a penny below the Street estimate and the company warned its full year will be about the same as the previous year.
Limited Brands (LTD) up $2.31 on big volume. Second quarter earnings, $0.27, up from $0.20 last year, $0.07 above the Street estimate and the company did give an upbeat outlook.
Then came Dick's Sporting Goods (DKS) up $2.63, lower earnings there, second quarter, $0.39, down from last year's $0.41, but that was $0.03 above the Wall Street estimate.
And then Bally Technologies (BYI) up $2.57. Fourth quarter earnings, $0.54, well above last year's $0.33. Revenues jumped 22 percent. The company makes casino equipment.
Apple (AAPL) topped the NASDAQ active, down $1.55.
Research in Motion (RIMM) up $2.02, a positive reaction to the unveiling of its new Blackberry Bold smart phone today.
Google (GOOG) $1.53 gainer.
Intel (INTC) $0.34 loss there.
$0.11 drop in Microsoft (MSFT). That was fifth in NASDAQ volume.
First Solar (FSLR) up $6.28.
Qualcomm (QCOM) $0.24 loss.
And then Cisco Systems (CSCO) no change there.
Amazon.com (AMZN) gained $1.13.
And Oracle (ORCL) down $0.36.
Nice gain for Thermage (THRM), this is a company that makes medical devices to treat wrinkles and the company received a $5.50 per share cash buyout offer from a party it did not name.
And then JDS Uniphase (JDSU) down $1.48. Fourth quarter earnings in at $0.07, $0.03 below the Street estimate and the company sees first quarter revenues below most analyst estimates by at least $6 million.
Those are the stocks in the news tonight.
