NBR Transcripts-February 11, 2009
Wednesday, February 11, 2009Bank CEOs Get Grilled on the Hill
SUSIE GHARIB: We will pay the money back. That's what the CEOs of eight of the nation's biggest banks told lawmakers in Washington today. They plan to reimburse taxpayers with interest for billions of dollars in government loans. Citigroup and Bank of America even agreed to temporarily suspend foreclosures. The promises came at a grueling hearing of the House Financial Services Committee, where Citigroup, Bank of America, JPMorgan and others came under harsh questioning for how they spent government bailout funds and their lack of willingness to lend money to consumers. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The leaders of the nation's biggest financial institutions were subjected today to a kind of financial psychotherapy. House Financial Services Committee Chairman Barney Frank said banks had to put aside their denial and accept the anger over government bailouts.
REP. BARNEY FRANK, CHMN., HOUSE FINANCIAL SERVICES COMMITTEE: I urge you strongly to cooperate with us, not grudgingly, not doing the minimum, but understanding that there is a substantial public anger and alleviating that public anger, not with mumbo jumbo, but with reality, is essential if we're going to have the support in the country to take the right steps.
GERSH: The bankers, all of whom forswore their private jets to take public transportation to the hearing, got the message. When one member of Congress mockingly called the CEOs captains of the universe, Bank of America's Ken Lewis demoted himself.
KEN LEWIS, CEO, BANK OF AMERICA: First of all, I feel more like corporal of the universe, not captain of the universe.
GERSH: Above all else, members of Congress wanted to know whether taxpayer dollars were going to pay huge bonuses. The New York attorney general today charged Merrill Lynch executives secretly paid $3.6 billion in bonuses earlier than usual, just before Bank of America took over the company. Lewis said Bank of America did ask Merrill executives to reduce payouts.
LEWIS: Major changes will be made, but we could not make them until we owned the company.
GERSH: Chairman Frank had a more basic question.
FRANK: Why do you need to be bribed to have your interests aligned with the people who are paying your salary?
GERSH: Morgan Stanley's John Mack said the bonus system grew out of a time when Wall Street firms were partnerships and the owners split the profits at the end of the year.
JOHN MACK, CEO, MORGAN STANLEY: And without question, given the kind of risk that we take today, the global nature of our business and the size of our business, all that has to be looked at again. If you gave me no bonus in the best year, I would still be here.
GERSH: One member of Congress called the hearing a shareholders' meeting. Not much of a stretch when many on Wall Street are wondering whether taxpayers will end up owning outright many of the banks that were represented today. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Transportation Secretary Ray Lahood Talks About the $50B Piece of The Stimulus Bill Pie
PAUL KANGAS: The stimulus bill could be a godsend for heavy equipment maker Caterpillar. The company said today, if the bill is passed it could rehire some of the 20,000 workers it's been forced to lay off. $50 billion in that bill is headed for transportation projects. So Stephanie Dhue caught up with Transportation Secretary Ray LaHood at the White House and asked him how Caterpillar could benefit.
RAY LAHOOD, TRANSPORTATION SECRETARY: If the stimulus works and people that build roads and bridges buy off-the-road equipment from Caterpillar, people are going to go back to work. I don't know what the number is, but I think the fact that they've said it is a pretty extraordinary statement. And it's got to give hope to the people that have been laid off.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Now if the stimulus works, there's a lot of debate about whether it will work and whether it is stimulative enough. There's $50 billion for transportation projects, but there's also a lot of things in there that aren't stimulative like an extension of the AMT patch.
LAHOOD: Look it, from my point of view as the secretary of Transportation, I know from meeting with 43 secretaries of Transportation from around the country today they tell me they have projects that are ready to go. We have to get them the money. It will be done by the book. No shortcuts. And people will go to work. This is the first leg of the stool. It's a big, a big leg. But it's only the first leg.
DHUE: How can you be sure these transportation projects will be productive, that we don't have bridges to nowhere?
LAHOOD: Because first of all, we've said there's going to be a lot of transparency, everything will be up on the web site here at the White House, where the money is going, how many jobs. And we've been told by these 43 secretaries of Transportation today these projects have been sitting on a shelf in their offices because they haven't had the money to fund them. They get it here. These folks really get it. And they've told us that they have very worthwhile projects that will put people to work.
DHUE: How quickly really can you get the money out the door, the people to work, the projects going? Some people have said it's going to take two to three years to get some of these things going.
LAHOOD: We did not hear one complaint today from any of the 43.
DHUE: You don't often hear complaints where you're handing out tax dollars.
LAHOOD: No, but the purpose of the meeting really today was to say can you get this done in the time frames? To a person, they said absolutely.
DHUE: And we're less than a week away from the auto makers having to report their progress. Car sales are worse than they were before. Aren't they going to have to ask for more money?
LAHOOD: Look, if they just started receiving their money, you know, right at the first of the year and obviously they have certain requirements that they have to meet. We have the highest unemployment we've had in a long time. There are a lot of people out of work. When you're out of work, you're not going to be buying a car. If we put people back to work they'll have the ability eventually to buy cars. You know, that's longer term.
DHUE: We've been speaking with Ray LaHood, Transportation secretary. Thank you.
LAHOOD: Thank you.
As Bankers Feel The Heat on the Hill Credit Markets Start To Thaw
SUSIE GHARIB: As we reported, lawmakers in Congress today pushed top American bankers to increase their lending to businesses and consumers. While the edges of the U.S. credit markets are starting to show improvement, experts say there's still a lot work that needs to be done. Suzanne Pratt reports.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Today New York City experienced a midwinter thaw as the temperature topped 60 degrees. For months now, investors and consumers have been hoping for a similar defrosting in U.S. credit markets. While most experts agree it's underway, exactly how much melting is going on is a matter of debate. Credit strategist Andrew Brenner says some markets are definitely in the process of unlocking.
ANDREW BRENNER, CREDIT STRATEGIST, MF GLOBAL: The corporate markets, which I think is a real big indicator of thawing, is starting to come to life. Corporations are able to come to market and January you had one of the largest issuances of new issue corporate bonds that you've ever had.
PRATT: Large companies from Cisco to General Electric have recently raised billions of dollars through investment grade corporate bond offerings. That money can be used for everything from payrolls to acquisitions. And today, chief executives of major U.S. banks told Congress they were lending despite serious economic headwinds. On top of that, mortgage rates have tumbled thanks to the Federal Reserve's recent purchases of mortgage-backed securities. Nevertheless, there is a perception that business and consumer loans are tough to come by. Despite those lower mortgage rates, lending requirements at savings banks have recently become more stringent after a slight easing in January. As one mortgage expert described it, every day banks tighten the screws a little more for borrowers. Charles Blood of Brown Brothers Harriman says it's far from business as usual for much of the private banking system.
CHARLES BLOOD, DIRECTOR, STRATEGY RESEARCH, BROWN BROTHERS HARRIMAN: Can the banks do what they normally do? There we see the answer is not yet, that they're basically stuck where they were 10 or 11 months ago.
PRATT: Taking the temperature of U.S. credit markets is tough because there's no single indicator to watch. Still, most experts agree since last fall when virtually no one could borrow anything, credit markets conditions have definitely improved. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
Street Critique - Hilary Kramer, Chief Market Strategist, GreenTech Research
PAUL KANGAS: Tonight's Street Critique guest says the stock market is still a treacherous place. She's Hilary Kramer, Chief Market Strategist at GreenTech Research and author of "Ahead of the Curve." Hilary, good to see you again. Welcome.
HILARY KRAMER, CHIEF MARKET STRATEGIST, GREEN TECH RESEARCH: Thank you. Nice to be here, Paul.
KANGAS: You call the market treacherous. What kind of condition would bring that about?
KRAMER: Well, there's a lot of things going on in this stock market because you have investors continuously jumping back in, thinking the bottom has arrived, just to turn around and find out we're going to hit a new bottom. There are a lot of sellers in this market...big institutions, pension funds, endowments. Every individual investor should be careful before jumping in.
KANGAS: Let me give you a theoretical question. You're an investor who has lost 50% of your portfolio value. Do you sell, rotate into other stocks, or just hold on?
KRAMER: First of all, it's not theoretical. Most investors have lost close to, if not more than 50% on their portfolio. My answer there is if you don't need the money for ten years or more, stay with it. Stay the course. Don't try to chase performances. You know, China is doing well. Don't jump in there because it's up 23%. But, if you need that money, don't continue to wait and think it can't get much worse because it always gets much worse if you hold on...because you think it can't be any worse that it is.
KANGAS: Is there anywhere to make money now?
KRAMER: Well, you have to be very careful in the stock market. I find that the way I make money on the long side buying stocks is I go in and out of undervalued, real stalwart companies, you know, the Intels, Microsoft. You know, I'll do that on a day the market is down. I'll buy a little bit. I'll sell it withing 24 or 48 hours, otherwise you have to be careful.
KANGAS: Less than a minute. What sectors should be avoided? Quickly.
KRAMER: Be very careful on the online education, for-profit education areas. This is the most frothy right now. Everyone things that this is where the money should be, but in actuality there's almost a subprime lending problem brewing there. Be careful of the commercial. That's an area that the stock is $4. Don't think o fit that way. Also, big retail. I'm very ware about a company like Sears, for example.
KANGAS: Will the stimulus have a positive impact? Will it work?
KRAMER: Even though it has some pork in it, it has many programs for both the employed and unemployed to make life easier. I'm very, very happy to see the progress that was made today.
KANGAS: It will take a little time to work, but you think it will work?
KRAMER: Absolutely. Over time.
KANGAS: Hilary, great to see you again. Thanks for being with us.
KRAMER: Thank you, Paul. Thank you for having me.
KANGAS: My guest, Hilary Kramer, Chief Market Strategist at GreenTech Research.
Reviving the Economy: Jobs - Investing in Your Employer
SUSIE GHARIB: With job security fleeting and a bear market in full force, more Americans are focused on their personal finances than ever before. So tonight's "Money File" combines all of those concerns. As continue our month-long series, "Reviving the Economy: Jobs," we have some tips on investing in your employer. Here's Jason Zweig, personal finance columnist at the "Wall Street Journal."
JASON ZWEIG, PERSONAL FINANCE COLUMNIST, WALL STREET JOURNAL: When you're trying not to put all your financial eggs in one basket, don't forget that one of the eggs is you. Stocks, bonds, mutual funds and cash make up your financial capital, but your career and your salary are what's called your human capital. Those parts of your portfolio are very closely tied to the fate of the industry you work in. Often, the value of your house is, too. If your company falls on hard times, that can hit your salary, job security and home value all at once. To avoid this triple-whammy, don't over-invest in your own firm. Putting even 10 percent of your assets into your own company's stock is double-dosing. You should also avoid sector funds that own other stocks in the same field. Instead, look for investments that could help when your human capital is hurting. If you work in plastics, then a rise in oil prices could crimp your firm's profits. So you might buy a fund that holds oil stocks; that way, if your firm's earnings go down as oil prices go up, at least your mutual fund could do well. If you work for a travel agency, then perhaps you should own an Internet fund, since it may hold the very firms that are taking business away from yours. Every situation is different, of course. The whole point is for you to make sure you never have a basket in which all the eggs break at once. I'm Jason Zweig.
Top 30 Innvoations of the Last 30 Years - Medical Advances
SUSIE GHARIB: Medical advances like heart disease treatments, robotic surgery and DNA mapping have touched many lives and they have the potential to save millions of people from pain and suffering as new treatments are developed. As we continue our look at the top 30 innovations of the last 30 years, NBR's "Bill of Health" reporter Jeff Yastine looks at where medical advances are headed.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Next time you visit someone in the hospital, stop by the physical rehabilitation lab. Chances are you'll see this -- patients using video games to relearn nerve and muscle control. And that, says health futurist Doug Goldstein, is a growing trend. Healthy gaming goes beyond rehab; Goldstein says there's a surge in games aimed at maintaining good health and sharpening memory.
DOUG GOLDSTEIN: Last year in the United States, Americans spent $6.7 billion on healthy games. That includes brain fitness games, healthy eating games, exer games. So it's real dollars, it's a real market and it's generates real activity and exercise.
YASTINE: Another advance: software that can catch errors in diagnosis and treatment before a mistake harms a patient. But the systems work best when all of a patient's healthcare records are digital, says Doctor Sanjaya Kumar, president of medical software developer Quantros.
SANJAYA KUMAR, CEO, QUANTROS: Things happen. Errors are due to systems issues and the only way that you can actually find out what is wrong within your system is to track and monitor and trend the appropriate data points over time.
YASTINE: Thanks to advancements in digital pathology, personalized medicine is expected to take off in coming years. Your DNA will be used to custom-design cancer therapies, drug cocktails and other treatments. That focus on the individual, say experts like Goldstein, is the key to a better quality of life.
GOLDSTEIN: Those advances have made a tremendous difference in the ability to treat and take care of illness and disease and expand life span. But there are many things that we can do. An ounce of prevention is worth a pound of cure.
YASTINE: In an era when the cost of medical care continues to rise, maintaining your good health may be the biggest medical innovation of all. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street moved higher early today in a technical rebound from yesterday's drubbing. After two hours of trading, the Dow was up 92 points and the NASDAQ Composite rose 14. Stocks eased over the next few hours as those bank CEO's testified on Capitol Hill. Late in the session however, the market firmed up on word of the economic stimulus deal. The Dow Industrial Average closed up 50.65 points at 7939.53. The NASDAQ Composite up 5.77 ending at 1530.50. And then the Standard & Poor's 500 rose 6.58 points to 833.74. Over in the bond market, the 10-year note rose 14/32 to 108 14/32, pushing the yield down to 2.76 percent. Once again the most active big board issue, trading 62.8 million shares today, Bank of America (BAC) rebounding $0.51 as did the banking sector in general rebound.
Citigroup (C) up $0.34.
General Electric (GE) $0.32 advance there.
JPMorgan Chase (JPM) gained $1.47.
Pfizer (PFE) in there with a $0.31 advance.
Mead Johnson Nutrition (MJN), this is the first new issue of the year believe it or not. This is a unit of Bristol Myers. Thirty million shares were offered to the public at $24. Bristol Myers will still own 85 percent after the IPO. The stock opened at $26, had a high of $27.07, then closed up $2.43 from the offering price, a nice debut for that new issue.
Co Vale do Rio (RIO) $0.07 loss there.
Sprint Nextel (S) up $0.17.
Wells Fargo (WFC) in the firm banking sector, up $1.15.
Petrobras (PBR) a $0.53 advance there.
ExxonMobil (XOM) fell $1.56. The International Energy Agency said global energy demand this year will post its biggest decline since 1982. Also U.S. crude inventories were up in the latest week.
XL Capital ltd (XL), look at that percentage gainer, up over 61 percent. Fourth quarter operating earnings, $0.58, up from last year's $0.55, as lower expenses offset a 42 percent drop in revenues. Standard & Poor's upgraded the stock from "hold" to "buy," even though it's cutting its quarterly dividend by 47 percent down to $0.10 a share and also cutting its work force by 10 percent.
Coca-Cola Enterprises (CCE) up $1.15. Fourth quarter earnings, $0.22 below $0.29 last year, but $0.03 better than the Street was expecting.
Marsh & McLennan (MMC) did well, up $2.70. Fourth quarter earnings rose to $0.37 from $0.24 a year ago, $0.05 better than the Street was expecting there.
And Davita (DVA), which is in the kidney and dialysis business, up $5.61. Fourth quarter earnings shot up to $0.94 from $0.79 a year ago, $0.04 above the Street consensus.
Great Plains Energy (GXP) down $4.16. Fourth quarter earnings plunged only $0.06 from $0.56 last year and the company cut its 2009 guidance by $0.20 a share to $1.40 at best and also cutting a quarterly dividend in half to $0.2075 per share.
Healthspring (HS) down $2.16. Higher fourth quarter earnings of $0.51 versus $0.46 a year ago, but that was $0.03 below the Street estimate.
Research in Motion (RIMM) plunged $8.28, traded as low as $46.35 after the company said it sees fourth quarter earnings and profit margins at the low end of its previous guidance.
Apple (AAPL) down $1.01.
Google (GOOG) fell $0.47.
Microsoft (MSFT) bucking that trend, up $0.41.
No change at all in Intel (INTC) on the day.
Qualcomm (QCOM) $0.41 loss there.
Cisco Systems (CSCO) up $0.12.
Amazon.com (AMZN) gained $1.04.
Oracle (ORCL) $0.22 advance.
And First Solar (FSLR) was up $1.63.
And finally, Nvidia (NVDA) fell $1.17 after reporting a fourth quarter loss of $0.18 versus earnings of $0.49 year ago. Revenues plunged 60 percent and that loss was twice the size of analysts' estimates.
