NBR Transcripts-January 16, 2009
Friday, January 16, 2009Citi Splits & Bank of America Gets a Bailout
SUSIE GHARIB: Major developments today at two of the nation's biggest banks: Citigroup and Bank of America. First, Citigroup. It's splitting itself into two separate companies: Citi-Corp and Citi Holdings. Citi-Corp will focus on its core banking operations, without the distraction of hundreds of billions of dollars in toxic assets. Those problem loans, along with Citi's other non-banking businesses will be shifted to Citi Holdings. The moves came as Citigroup reported a quarterly loss of more than $8.25 billion, twice as much as analysts had expected.
Well, the news wasn't any better for rival Bank of America. It reported its first loss since 1991: $1.8 billion and slashed its dividend to a penny a share. B of A was also forced to seek more emergency funds from the Federal government. Uncle Sam is giving the bank another $20 billion on top of a previous loan of $25 billion.
PAUL KANGAS: For more than a decade, Citi has embraced the dream of a financial supermarket. That dream is now dead. Suzanne Pratt takes a look at where the nation's biggest banks, including Citi, head from here.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Citi will now have a split personality. Call it the good bank, bad bank system. The good part holds the best assets, while the bad part holds mostly the toxic ones. Citi's move raises questions about just what is the perfect model for a large U.S. bank. Banking expert Bob Albertson says there's no ideal model, only various needs in the marketplace.
ROBERT ALBERTSON, CHIEF STRATEGIST, SANDLER O'NEILL: The most important we need right now are straight clean basic banks that stay in communities and help fund local job growth and businesses. But, you also need national entities that can aggregate consumer credit and make it efficient. And, you also need some global financial entities to keep you in touch with the rest of the world.
PRATT: Curiously, while Citi has been slimming down, Bank of America continues to bulk up. Last year's ill-timed purchases of Merrill Lynch and Countrywide Financial have put further pressure on B of A. The nation's largest bank said today it expects more and possibly bigger losses in quarters ahead. But to many experts, B of A's problems are less about girth and more about management making bad choices. Still others, like T. Rowe Price portfolio manager Jeff Arricale point to JPMorgan as an example of a bank that gets it right.
JEFF ARRICALE, PORTFOLIO MGR., T. ROWE PRICE FIN. SVCS. FUND: JPMorgan's scale and scope has helped it to generate earnings through most of this cycle. Their credit card charge offs are -- they have one of the biggest credit card books in the world, yet their credit card charge offs are significantly better than that of their peers.
PRATT: When it comes to investors making money in bank stocks, some experts say forget about finding the perfect model. They say investors simply need more clarity from the government about how it will treat struggling banks in the future.
ARRICALE: The government is the largest investor in financials now and they need to determine what their playbook is as far as how they're going to recapitalize, how they're going to deal with toxic assets. They need to determine their playbook. They need to publish the playbook.
PRATT: As large U.S. banks struggle to reinvent themselves, they remain up against dismal economic conditions. Some analysts expect problem loans to peak in 2010 at the earliest. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
"A Time for Change: The Obama Agenda"-Building From The Infrastructure Out
SUSIE GHARIB: President-Elect Barack Obama continues to beat the drum for economic stimulus. Just four days before his inauguration, Obama stressed the need for new jobs and more investment in alternative energy. The comments came as he toured the Cardinal Fasteners plant in Bedford Heights, Ohio. He also said it's not too late to revive the struggling economy, but only if the government moves quickly.
PRESIDENT-ELECT BARACK OBAMA: The way I see it, the first job of my administration is to put people back to work and get our economy moving again. That's why I've moved quickly to work with my economic team and leaders of both parties on an American recovery and reinvestment plan that will immediately jumpstart job creation and long-term growth.
GHARIB: Part of Obama's plans to stimulate the economy include $90 billion in infrastructure spending. That will cover highway construction and repair as well as public transportation investments like rail lines. As we wrap up our series "A Time for Change: The Obama Agenda," Jeff Yastine reports that projects both big and small are ramping up.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: It's the catchword in the nation's capital.
OBAMA: And a new infrastructure, well planned, worthy and needed infrastructure projects.
YASTINE: And in the state capitals,
UNIDENTIFIED FEMALE: Investment in infrastructure
YASTINE: The talk of spending big on infrastructure calls to mind the transforming public works of the last century, the Hoover dam in the 1930s, the first interstate highways in the late '50s. But transportation analyst Robert Poole says, don't think of the stimulus quite that way.
ROBERT POOLE, DIR. TRANSPORTATION STUDIES, REASON FOUNDATION: The stimulus, with hundreds of ready-to go projects all over the country, in every congressional district, is not going to have that kind of effect. It will put some people to work that might be otherwise laid off, or construction jobs and that kind of thing.
YASTINE: But says Poole, projects like those proposed by the U.S. Conference of Mayors, 1,500 pages worth, are not the kind that will transform the nation's productivity in the 21st century and one look shows why: $20 million for a minor league baseball museum in North Carolina, $8 million for a city pool in Alpharetta, Georgia; $20 million for air conditioning at Philadelphia city hall. When it comes to transportation infrastructure, analysts like Janet Kavinoky suggest that bigger region- sized projects with the focus on reducing congestion may be a better payoff for the nation as a whole.
JANET KAVINOKY, DIRECTOR OF TRANSPORTATION INFRASTRUCTURE: People have actually gotten used to sitting in their cars. We've adapted and we Blackberry while we drive. We talk on the phone. In reality if you're sitting in your car day after day after day, for employers, the more congestion there is, the less available workforce there is for them. The less available workforce, the less productive they are.
YASTINE: Big picture investments could also mean projects like truck- only lanes like those considered for I-70 in Missouri. It would mean a multi-billion dollar widening of key interstate corridors. But analysts like Poole say it would reduce congestion and save fuel.
POOLE: Those kinds of things really can make a big difference both in terms of the job, but more importantly the longer term effects of making the economy work better by easing transportation, which is really the lifeblood of the economy.
YASTINE: But infrastructure investments aren't for just moving people and goods. It also means moving information and even electricity more efficiently as the president-elect himself mentioned last week.
PRESIDENT-ELECT BARACK OBAMA: That means updating the way we get our electricity by starting to build a new, smart grid that will save us money, protect our power sources from blackout or attack and deliver clean, alternative forms of energy to every corner of our nation.
YASTINE: Analysts say the smartest infrastructure investments for America's cities should create flexibility and choices for our 21st century economy. But those kinds of investments take longer to plan and build. They are not, in the new administration's terms shovel- ready, which means the nation may not reap their benefits until long after we have shaken off this current economic recession. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
GHARIB: Monday, a day before the inauguration, we bring you a special broadcast: "A Time for Change: The Obama Agenda."
"Market Monitor"-Robert Drach, Publisher, "Drach Weekly Research Report"
PAUL KANGAS: My guest "Market Monitor" this week is Robert Drach, publisher of the "Drach Weekly Research Report" based in Tallahassee, Florida. Welcome back to NIGHTLY BUSINESS REPORT, Bob, good to see you.
ROBERT DRACH, PUBLISHER, DRACH WEEKLY RESEARCH REPORT: Good to see you again, Paul.
KANGAS: Wall Street has now given back most of what it gained during the Santa Claus rally. What's been behind all the selling?
DRACH: I think that the perception that it's just political bickering with the TARP not being allocated and the delays in the stimulus package. It kind of gives a perception of indecisiveness and it weighs on the market (INAUDIBLE) need a lot of confidence. I think that's been a problem.
KANGAS: How do you see the stimulus plan playing out?
DRACH: The money is just massive. The amount of money from the Federal Reserve, what they've done and what they're continuing to do, the central banks around the world, governments, our legislatures. Inept as they might be in getting the money into the economy, it's massive. It's historic. That's additional money supply. That comes into the economy, sooner or later, either with inflation or productivity. There's no way around it. It has to come out some way or be a combination.
KANGAS: What is the time frame when it'll happen?
DRACH: That is the question and the Obama question is what leadership he's going to give to infuse it into the economy. It's going to show up. It's a matter of when and it's been delayed all along.
KANGAS: Now, on your last visit just about a year ago, you were somewhat bullish on stocks because you said the Fed was very accommodative and we were in an election year, which is historically positive for stocks. What happened? The blue chips were favored by you and it didn't perform.
DRACH: The blue chips actually did worse, the worst year since 1931. But I think it was the delays in the infusion and the incompetence surrounding the infusion process. That's still coming. It doesn't stop it. And now you have the higher quality stocks more discounted than ever. So I'm very bullish on the outlook. But how rapid? You have to ask that.
KANGAS: OK. Last January you also recommend buying four stocks. Let's see how they've fared since then. First two, SunTrust (STI) in that group, what did do well? Nothing. SunTrust doing almost a 66 percent drop. Are you still with it?
DRACH: Yes, I'm still with anything quality. And (INAUDIBLE) as we've mentioned are still quality.
KANGAS: Family Dollar Stores (FDO) really did a magnificent job of bucking the trend, up 60 percent. You still like it?
DRACH: Yeah, sure.
KANGAS: OK, let's have a look at the other two recommendations. Johnson Controls (JCI) down almost 50 percent. United Tech (UTX), a true blue chip off 25 percent.
DRACH: These are all A-plus companies and that's typical of what happened last year.
KANGAS: You would buy these stocks at this point?
DRACH: I would buy (INAUDIBLE) of anything in that group. I would not go lower quality because when these infusion cycles progress, higher quality outperforms dramatically.
KANGAS: You also run the NIGHTLY BUSINESS REPORT model stock portfolio, which is a teaching tool on our web site. How has it performed relative to the Standard & Poor's 500 since its inception?
DRACH: There we are. We want to say, we're basically against the Standard & Poor's because that's the universe of stocks we use. And last year, just to hold our gains is what we were trying to do.
KANGAS: You look like you're ahead of the NASDAQ and the S&P 500. OK, good job.
DRACH: Well, so far, so good.
KANGAS: Do you have some new individual recommendations in stocks?
DRACH: Yeah, but I want to emphasize I'm staying with quality. We brought three of them along. Matthews International (MATW), if you can --
KANGAS: We have a chart on that. Let's have a look at the chart. What do they do?
DRACH: They're in the burial business. I bring that up since nobody is going to buy any cars or buy anything else. At least they'll still die, so that's good.
KANGAS: OK, number two?
DRACH: I wanted to put an oil up to stress the inflationary implications of the infusion cycle, an A-plus oil company.
KANGAS: PCZ on the big aboard, right?
DRACH: Petro-Canada (PCZ)
KANGAS: OK and time for one more?
DRACH: Let's pick out something everybody hates is General Electric (GE).
KANGAS: There it is.
DRACH: It's about as depressed as I've ever seen it. But it's still one of the cheap companies that has AAA paper.
KANGAS: And the yield is - do you personally own any of these stocks mentioned tonight?
DRACH: No, we're talking about the model here. It's just mechanical.
KANGAS: So educational-- Bob, we've run out of time, but I want to thank you for sharing your views with us once again.
DRACH: Good to see you, Paul.
KANGAS: My guest Robert Drach of the "Drach Weekly Research Report."
"Money File"-Look Before You Leap Into Refinancing
PAUL KANGAS: In the "Money File" tonight, mortgage rates are looking more attractive, but there are some things to consider before you refinance. Here's personal finance journalist Terri Cullen.
TERRI CULLEN, PERSONAL FINANCE JOURNALIST: Some market watchers are speculating that this week the average 30-year mortgage rate will drop below 5 percent, the lowest rate in the last 50 years on an average long- term fixed-rate mortgage. With mortgage rates near historic lows, many homeowners are wondering if now's the right time to refinance. For people with mortgage rates currently at 6 percent or more, the answer may very well be yes. But because of the costs involved, refinancing doesn't make sense for everyone. Who shouldn't refinance right now? Homeowners who are planning to move in the next three years or so should probably stay put in their current mortgage. Refinancing fees start at $3,000 in many markets, so if you're planning to sell your home in the near term, it's unlikely you'll recoup those costs before you move, even with the lower monthly payments. Before considering refinancing, also check your credit score. If you've missed a payment or two on your debts recently, you may not qualify for the lowest rates advertised. Did you or a spouse lose a job recently? Lenders are looking much more closely at borrowers' ability to repay their loans, so a recent layoff may make it difficult to refinance into a lower- rate loan. And finally, if you're holding a so-called jumbo adjustable rate mortgage, one with an outstanding balance of $417,000 or more and it's about to reset, it might make sense to hold off on refinancing for now. Rates on popular adjustable rate mortgages are near historic lows, too, so the danger of the rate resetting sharply higher may be less than you think. Contact your lender to weigh your options before you spend the money to refinance. I'm Terri Cullen.
"Last Word"-The Inauguration Numbers Game
SUSIE GHARIB: And finally pick a number, any number, and you'll be able to find it in Washington, DC on Tuesday. Here's an example: 32. That's the temperature forecast for inauguration day. 5,000, the number of port-a- potties that will line the national mall, 1,000,000, the number of people expected to view the inauguration from the national mall. And hundreds of thousands more will pack Pennsylvania Avenue to watch the parade. The final number is one. Paul, that's how many people who will be warm and comfortable in my office, watching it all on TV.
KANGAS: That's such a good idea Susie. You sure you don't want to make it two?
GHARIB: Come on up. I'd love to have some company.
Paul Kangas' Stocks in the News
PAUL KANGAS: A stock market starved for good news finally got a little this morning in the report of an unexpected rise in January consumer confidence and a 0.7 percent decline in December consumer prices. This helped the Dow gain 83 points an hour into the trading session, with the NASDAQ up 13 points. Persistent worry about the banks and a 2 percent drop in December industrial production sent the blue chips to an 80 point midday loss. But bargain buyers stepped in later on and lifted the market to a positive close. The Dow Industrial Average ended with a gain of 68.73 points at 9291 - 8281.22. The week, it rose twice, fell three times, had a net weekly loss of 317.96 points or 3.7 percent. The NASDAQ Composite closed up 17.49 at 1529.33 today. It rose in three out of the last five sessions, still had an overall drop of 42.26 points or 2.7 percent. The Standard & Poor's 500 Index gained 6.38 points to 850.12 today, but it was the hardest hit this week of the major indices, falling 40.23 points or 4 1/2 percent. Over in the bond market, the 10-year note lost 1 10/32 to 112 10/32, putting the yield at 2.34 percent.
Most active big board issue today was Citigroup (C) and traded 74.8 million shares. You heard the company had a fourth quarter loss of $8.2 billion or $1.72 a share. The Street estimate was for a loss of $1.32 and the company is reorganizing which you already heard.
Bank of America (BAC) down $1.14. It had a fourth quarter loss of $0.48 a share, versus a nickel earnings a year ago and the company is cutting its quarterly dividend from $0.32 to only a penny a share. And of course, the government's going to give the company $20 billion.
General Electric (GE) moved up $0.19.
JPMorgan Chase (JPM) down $1.52. Standard & Poor's downgraded JPMorgan from a "strong buy" to just a "hold" on concerns it may cut its dividend.
Wells Fargo (WFC) off $1.48 in the weak banking group.
Pfizer (PFE) up $0.11. The "Wall Street Journal" reports Pfizer is close to laying off up to 2,400 people in its sales force.
ExxonMobil (XOM) gained $1.44.
AT&T (T) an $0.11 advance.
SprintNextel (S) lost $0.08.
While Ford Motor Co (F) was down $0.04.
Best Buy Co (BBY) moving up $2.20 a share. Standard & Poor's said Circuit City's liquidation plan will create tremendous opportunities for Best Buy to capture market share and repeated a "buy" on Best Buy.
Barclays Plc (BCS), the big bank, down $1.15. The company said it couldn't account for the mysterious drop which was (INAUDIBLE) as low as $5.72 today. Some analysts say that the lifting of a ban on short selling could be one of the reasons behind the weakness.
Mastercard (MA) down $2.08. Keybanc brokerage downgraded it from "buy" to "hold," did the same with Visa whose stock fell $1.97.
Avon Products (AVP) losing $1.69. BMO Capital brokerage downgraded it from "out perform" to a "market perform."
And then Estee Lauder (ESL)
$2.92 loss there. The company sees second quarter sales down 6 percent versus its previous estimate for growth of 2 to 3 percent, quite a change.
Terra Industries (TRA), the fertilizer maker, up $4.20. CF Industry Holdings is offering to buy all the outstanding shares for about 4.2 of its CF shares. That's worth about $20.50 today. CF was up $1.29.
And Puget Energy (PSD) jumping $3.12. Puget Holdings will buy all the outstanding shares at $30 a share in cash.
And Belden (BDC), which makes coaxial cable, things like that, down $2.75 after the company cut its high end 2008 earnings guidance from $3 a share down to $2.58.
NASDAQ's most active was Apple (AAPL) down $1.05.
Research in Motion (RIMM) moving up $1.87.
Google (GOOG) $0.68 gain.
$0.47 advance in Microsoft (MSFT).
Intel (INTC) up $0.45.
Cisco Systems (CSCO) gained a penny.
Qualcomm (QCOM) up $1.22.
First Solar (FSLR) rising $2.84.
Then Oracle (ORCL) with a $0.38 advance.
Apollo Group (APOL) up $2.27 after a good gain yesterday on news the Obama education plan will offer ample increases on spending and on education.
Elizabeth Arden (RDEN) tumbling $4.50. The company sees second quarter sales down at least 12 1/2 percent from a year ago.
Those are the stocks in the news tonight.
