NBR Transcripts-January 12, 2009
Monday, January 12, 2009Alcoa's 4th Quarter Multi Billion Dollar Loss
SUZANNE PRATT: Earnings season officially began late today with a big dent from Alcoa. The aluminum giant posted its first quarterly loss in six years on sharply lower metals prices. The $1.2 billion loss was bigger than Wall Street expected. Excluding restructuring charges, that works out to a loss of $0.28 a share. Analysts were looking for a loss of $0.10. Revenues dropped to $5.7 billion, but that was still stronger than expected. The dismal results come just a week after Alcoa announced plans to cut more jobs, sell assets and slash spending to combat those lower prices and weak demand. Morningstar analyst Min Ye says Alcoa's fortunes are tied to demand from the global economy.
MIN YE, EQUITY ANALYST, MORNINGSTAR: It takes a recovery of U.S. auto sales and more importantly, a recovery of China fixed asset investment for global demand of aluminum to recover.
PRATT: Ye expects sales volumes for Alcoa and the rest of the aluminum industry to decline through the first half of this year.
Citigroup & Morgan Stanley Continue Building Their Brokerage
PAUL KANGAS: Citigroup and Morgan Stanley appear to be inching closer to a deal to combine their brokerage units. Morgan Stanley would reportedly pay Citigroup between $2 billion and $3 billion for a 51 percent stake in a joint venture. Morgan would then have the option to buy the rest of Citi's Smith Barney division over the next three to five years. But as Erika Miller reports, analysts aren't sure it would make long-term strategic sense for Morgan Stanley or Citi.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here's a riddle: what does club soda have to do with Morgan Stanley's possible stake in Smith Barney? For the answer, ask Brad Hintz at Sanford Bernstein.
BRAD HINTZ, BROKERAGE ANALYST, SANFORD C. BERNSTEIN: I have an example of an old Morgan Stanley. At one point, they had club soda that they offered in the United Kingdom. And so the question I have to Morgan Stanley is do you know what you want to be when you grow up?
MILLER: Hintz owns Morgan shares and his firm has done business with Morgan over the past year. Like many industry experts, Hintz is not exactly sure what's motivating Morgan Stanley's apparent desire to control Smith Barney. Is it merely an opportunity that's too good to pass up? Or does Morgan want to evolve into more of a retail brokerage house? If it's the latter, Hintz believes a joint venture could prove profitable.
HINTZ: This is a great opportunity for Morgan Stanley to gain scale in retail. And the retail brokerage business, you are more profitable the larger you are and over time, everyone has tried to become Merrill Lynch. This is an opportunity for Morgan Stanley to leapfrog everybody and get to that same level as Merrill Lynch.
MILLER: Plenty of financial firms besides Citigroup are in desperate need of capital. However, S&P analyst Stuart Plesser predicts most other major banks will be able to avoid asset sales.
STUART PLESSER, BROKERAGE ANALYST, STANDARD & POOR'S: I think that you really have to look at the situation bank by bank. I think that the banks that have low capital levels at this point in the game will likely either A, need to cut their dividends further and/or raise equity capital further down the line.
MILLER: But for the most troubled companies like Citigroup, Plesser says even asset sales might not be enough to avoid government help.
PLESSER: I'm not fully convinced that the government won't have to come back in and inject more capital to the company somewhere down the road.
MILLER: If it happens, analysts say a Citigroup-Morgan Stanley deal would likely encourage more consolidation in the financial sector. That they say, would ultimately be positive for the industry by squeezing out the weakest players. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Will The Auto Show Be Just That...A Show?
PAUL KANGAS: The future of the auto industry is on display in Detroit this week. Manufacturers from around the world are rolling out new vehicles they hope will roll into showrooms over the next few years. But financial trouble at General Motors and Chrysler, along with slumping sales, have many experts wondering if these products will ever appear on dealer lots. Diane Eastabrook has the latest from Detroit.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Chrysler turned heads at the North American international auto show with two bold electric concept cars: the Circuit and the C200 sedan. But after getting a $4 billion government bailout last month, many industry watchers question if Chrysler even has a future. CEO Robert Nardelli says it does.
ROBERT NARDELLI, CEO, CHRYSLER CORPORATION: I think we're doing all the right things. It isn't that we haven't made some mistakes over the 83 years. You know, people who do things make mistakes. They never make the biggest mistake of all, doing nothing. And so we're doing a lot to try to cement our viability for the future.
EASTABROOK: The North American international auto show is the industry's debutante ball for new products, but slumping global sales are taking the glitz out of this gala. Veteran auto analyst John Casesa says also taking the shine off this event is the prospect of Chrysler and GM needing another round of government aid.
JOHN CASESA, MANAGING PARTNER, CASESA SHAPIRO GROUP: For the most part people are waiting to figure out what the government will do next because that's really the story of the industry in the near term.
EASTABROOK: Bowing to government demands for more fuel efficient products, GM introduced the subcompact Spark, which it says will get 40 miles per gallon and the electric Cadillac Converj concept. Chairman and CEO Rick Wagoner thinks going green is the right thing for GM to do, even if oil prices are currently cheap.
RICHARD WAGONER, CHMN. & CEO, GENERAL MOTORS: We believe based on our best look that over time oil prices will resume their increase and oil is going to be more expensive in the future than it has been in the past. So, we think it's a prudent thing to do from a business perspective.
EASTABROOK: Meanwhile, Ford is bringing back an old standard: a newly designed Taurus. Mark Fields, Ford's president of the Americas, thinks reintroducing the Taurus later this year is a good bet in a troubled economy.
MARK FIELDS, PRESIDENT OF AMERICAS, FORD MOTOR CO.: We feel we have a best in class product here that looks great and is going to represent a really good value to customers.
EASTABROOK: Toyota is also sticking to a standby. It rolled out the third generation Prius hybrid. While hybrid sales slumped in the U.S. late last year, Toyota Motors' Senior Vice President Donald Esmond thinks they'll rebound in the second half of this year.
DONALD ESMOND, SR. V.P., TOYOTA MOTORS: There is a future for Prius. There is a future for hybrids and again we just have to get over this little bump, this recession bump that we're going through, but we think there's a very good market for Prius.
EASTABRROK: Another sign of the times at this year's North American international auto show is who isn't here. Six manufacturers, including Nissan and Suzuki, didn't even bother to come. Hyundai is here, but isn't rolling out any new production or concept vehicles. Instead, Hyundai Motor America CEO John Krafcik is promoting the company's new assurance program. It lets buyers return new vehicles during the first year of purchase if they lose their jobs.
JOHN KRAFCIK, CEO, HYUNDAI MOTOR AMERICA: We are hearing from customers, from dealers. This is an amazingly creative program and you are responding to a real consumer fear and we appreciate that.
EASTABROOK: Industry watchers are optimistic about many of the fuel saving technologies and smaller cars rolled out at this year's show. They only wish they could be as optimistic about the industry's prospects for the next year. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Detroit.
"Get Your Finances Ready for Retirement"-The Pros & Cons of Variable Annuities
SUZANNE PRATT: With Americans living longer, many are worried about outliving their money in retirement. That concern is providing a big boost to sales of annuities, many of which promise lifetime income. Tonight, we continue to "Get Your Finances Ready for Retirement." Connie Hicks wraps up our two-part look at annuities with the pros and cons of variable annuities.
JUNE GORDON, RETIREE: I've been going through some of the things relating to your adventure, there, during World War II.
CONNIE HICKS, NIGHTLY BUSINESS REPORT CORRESPONDENT: As a Navy pilot, Bill Gordon's adventure was to successfully bomb a Japanese submarine. Returning home, the young man got a job as an industrial engineer. He and his wife, June, retired 10 years ago to Sarasota, Florida. That's where they met Phil Couture, a certified financial planner. Couture recommended the Gordon's put part of their funds into variable annuities, which in their case, had tax advantages. That's because variable annuities let investments grow tax-deferred, like money in an IRA or a 401(k).
PHIL COUTURE, CFP PRESIDENT, COUTURE FINANCIAL: In the case of Bill and June's investments, we have lots of profits we've generated over time that we were able to avoid taxes and will now be able to pay them at a lower tax bracket for them so they have less tax to pay than they would have had 15 years ago.
HICKS: Funds in the Gordon's variable annuity are spread among various sub-accounts, which are like mutual funds. Because the sub-accounts contain stocks or bonds, their returns will vary. That's what makes variable annuities different from fixed-rate immediate annuities. While Gordon, with his military background, is used to taking risks, others like the peace of mind knowing that they've got a guaranteed income. That's exactly the case with Myra Wolf. She continues to work part-time as a real estate agent in Aventura, Florida. She says she needs an investment she can count on. So Wolf's financial planner, Austin Frye, sold her a variable annuity that features guaranteed income. He says this assures her an annual payout of 5.5 percent on her original investment for the rest of her life and possibly even higher returns.
AUSTIN FRYE, CFP/PRES & FOUNDER, FRYE FINANCIAL CENTER: Now if in fact, the market does very well and she has more money, that's terrific, but that really wasn't the key. The key is guaranteed income and the possibility later on of increasing it. But security is what's most important to Myra.
HICKS: But Phil Couture, the Gordon's planner says extra features like guarantees, often end up being expensive with limited benefits and variable annuity charges can add up. Typical ones are: management fees on sub- accounts; custodial fees to the insurance company; mortality and expense charges. To see if charges are excessive, Couture says finding out the insurer's annual custodial fee is a good place to start your research.
COUTURE: The actual custodial cost in most of them is at least 1 percent a year of the actual asset value to as much as 1.5 percent or more per year on the asset. That's a big charge just to provide a custodian account and unless there's a real reason to do that, it doesn't make any sense.
HICKS: Couture says it's also important to look at surrender charges, which can mean big penalties if a variable annuity is cashed in early. But Hugh McHaffie of John Hancock, which sells variable annuities with guarantees, says they can still be a good retirement investment for many people.
HUGH MCHAFFIE, PRES., JOHN HANCOCK WEALTH MANAGEMENT: Mutual funds don't provide guaranteed levels of income. Savings accounts don't provide guaranteed levels of income. So we feel they are fairly priced and we think they are well-suited for a portion of someone's financial planning in their retirement years.
HICKS: As Bill Gordon knows from experience, risks and costs aren't to be taken lightly. So if you're thinking of buying a variable annuity, be sure to consider those carefully before you buy. Connie Hicks, NIGHTLY BUSINESS REPORT, Sarasota, Florida.
"Commentary"-Rebuilding The Economy One Mortgage At A Time
SUZANNE PRATT: Tonight's commentator says mortgage help remains the key to shoring up the financial crisis. He's Douglas Holtz-Eakin, president of DHE Consulting and former director of the Congressional Budget Office.
DOUGLAS HOLTZ-EAKIN, PRESIDENT, DHE CONSULTING: Back when Wall Street started melting down and the economy started heading south, there was an easy-to-see source of our problems: bad mortgages and a housing collapse. Now the recession is a year old. We've seen the Federal Reserve run through its playbook. We've tried rebate checks, bailout bills and now Washington is talking stimulus, but we've never solved the basic problem. One in six - - 10 million families -- are stuck with mortgage debt larger than the value of their house. Millions more can't make their payments. The result is a vicious cycle of defaults, foreclosures, lower housing values, cash- strapped families and ruined neighborhoods. We've tried some band-aids called Hope Now and Hope for Homeowners and the situation is just as hopeless as before. It's time to get serious. What's the solution? Money. In particular, we should take the remaining $350 billion from the financial bailout bill and use it to help homeowners refinance their homes so the mortgages match the new housing values and the payments match their budgets. It's a two-for: stimulus and financial rescue. With a manageable mortgage, families can spend on their other needs. That's great stimulus. With the threat of default eliminated, complex securities can be valued. Banks can tidy up their balance sheets and get back to lending. Putting the bailout money on the table will give everyone an incentive to jumpstart fixing these mortgages. Is it perfect? No, it's really expensive. Some of the people who will get help were foolhardy, not victims. Some bad lenders will not bear the full brunt of their actions. These problems also occur with unemployment benefits, food stamps and welfare, but we keep those programs because of their contribution to the greater good. In this case the greater good is fixing the housing market, saving American families and propping up the economy. I'm Douglas Holtz- Eakin.
"Last Word"-Presidential Bikes Burglarized
SUZANNE PRATT: And finally tonight, former President Jimmy Carter is no longer a big wheel in Atlanta's recreation scene. His eight speed bike and one belonging to his wife were stolen from inside the Carter Center this month. The Nobel Prize winner and wife Roslynn used the bikes to pedal through a nearby park in their free time. But Paul, not a huge loss even though the bikes were worth a thousand dollars each. Carter said he got them for peanuts. They were donated by a local bike shop two years ago.
KANGAS: That you news came from a true spokesperson, correct?
PRATT: Yes, I just got that.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street moved in a slow downward spiral this morning, as investors grew nervous ahead of Alcoa's after the bell results and what that report could say about earnings season overall. By noon, the Dow posted a 106 point loss with the NASDAQ down 21 points. An early afternoon rally attempt was too feeble to attract a following, so sellers took it right on into a broadly lower close. The Dow Industrial Average ended the day down 125.21 points at 8473.97. The NASDAQ Composite lost 32.80 ending at 1538.79, while the Standard & Poor's 500 Index fell 20.09 to 870.26. Over in the bond market, the 10-year note rose 25/32 to 112 19/32, putting the yield at 2.31 percent.
Most active New York exchange issue and it was active, 56.7 million shares, down $1.15, negative reaction. As you heard, Citigroup (C) and Morgan Stanley may merge their brokerage operations.
Then came Bank of America (BAC) down $1.56. Citigroup says Bank America will have a fourth quarter loss and may cut its quarterly dividend from $0.32 down to $0.05 a share.
General Electric (GE) $0.17 loss.
JPMorgan Chase (JPM) fell $1.06.
AT&T (T) down $0.74.
$1.34 loss in Wells Fargo (WFC).
Advanced Medical (EYE) was up $12.65, a mere 143 percent advance. The news, Abbott Laboratories will acquire this company for $22 a share in cash. That'll put Abbott Labs in the eye products business.
ExxonMobil (XOM) down $1.30.
Pfizer (PFE) an $0.08 loss there.
And SprintNextel (S) down $0.14.
Aetna (AET) of $1.03. The company cut its 2009 earnings guidance because of higher than expected pension costs and it say 2009 results will be lower than those of 2008.
More insurance stocks on the downside here, Hartford Financial (HIG), Lincoln National (LNC) and Principal Financial (PFG) under pressure after Standard & Poor's expects to cut their ratings and also lower their rating outlooks over the next six months.
There was an upside for one insurance company, Zenith National (ZNT), which specializes in workmen's compensation insurance. The company got an upgrade from Oppenheimer from "market perform" to "out perform."
Harley Davidson (HOG) taking a flop, $1.87 drop there. Goldman Sachs cut its rating from "neutral" to "sell" and cut its price target on Harley from $30 all the way down to $11 a share. On top of that, RBC Capital cut its 2009 earnings estimate from $2.70 a share all the way down to $1.98.
Landry's Restaurants (LNY) tumbling $4.19. The chief executive officer has terminated his plan to take the company private for about $13.50 a share due to funding disclosure problems.
And the company that makes the cleaning products, Zep (ZEP) off $4.30. A first quarter loss of $0.07 a share versus earnings of $0.30 last year and after the close, the company's chief operating officer resigned.
Then we see Satyam Computer (SAY), the Indian computer company, down 84 percent. Last week, the chairman was arrested after he said he overstate the company's cash balances by over $1 billion and India's regulators are taking control of the board of directors.
NASDAQ's most active, down $1.92, Apple (AAPL).
Followed by Google (GOOG), off $2.38.
Microsoft (MSFT) dropped a nickel a share.
Cisco Systems (CSCO) off $0.30.
Research in Motion (RIMM) down $1.01.
Intel (INTC) fell $0.36.
First Solar (FSLR) off $12.61.
Oracle (ORCL) dropped $0.31.
Amazon.com (AMZN) down $3.59 on a weak high tech group, after Broadpoint, which is a research firm in the high tech area downgraded a lot of those stocks from "buy" to "neutral" today.
Celgene (CELG) down $0.60 a share, tenth in NASDAQ volume.
Dryships (DRYS) off $1.30. Al Frank Asset Management's chief investment officer recommending selling Dryships and taking some profits because it's had a sharp recent gain.
And Aladdin Knowledge (ALDN) down, up $1.36. A group led by Vector Capital will acquire this company for $11.50 a share in cash.
And those are the stocks in the news tonight.
