NBR Transcripts-February 27, 2009
Friday, February 27, 2009The Government Gets A Bigger Chunk of Citigroup
SUSIE GHARIB: Citigroup's biggest shareholder got even more powerful today. American taxpayers now own 36 percent of the struggling financial services giant, after the U.S. government changed the terms of its bailout loans. The deal involved no new money, but the government converted $25 billion of its preferred shares into common stock, a move that wipes out nearly three quarters of existing shareholders' stake. Citi also eliminated its dividend. But the actions failed to boost investor confidence. Shareholders dumped Citi shares, which tumbled 42 percent. Stephanie Dhue has more on the factors behind today's Citi deal.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the past when the Treasury injected capital into Citigroup, the government set the price. But by converting preferred shares to common shares today, it used the market to set the price. Attorney Micah Green says doing that may set a new standard.
MICAH GREEN, PARTNER, PATTON BOGGS: They basically said, the Treasury will not pay any more than the best price gotten by a private investor who is putting capital in as part of this transaction.
DHUE: Green says the Citi action underscores the government's commitment to the nation's largest banks.
GREEN: Right now it's not just about a single institution and whether or not it's technically too big to fail, it's also about confidence in the system.
DHUE: The government may have little choice but to keep large banks up and running. The FDIC, the agency that insures bank deposits and regularly takes over smaller banks, doesn't have authority over a massive bank holding company like Citi. It also doesn't have the money. The FDIC has just $20 billion of its own reserves to insure deposits. There's also an issue of human resources. Former FDIC Chairman Bill Isaac says it would be a logistical nightmare that the agency is ill-equipped to handle. There's also no buyer big enough to purchase an institution like Citi once the balance sheet has been cleaned up. FDIC Chairman Sheila Bair says helping finance large banks is the right choice for the economy.
SHEILA BAIR, CHAIRMAN, FDIC: It's the one that's designed to keep these institutions viable and lending into the economy. That's really the only justification providing government support.
DHUE: Institutional Risk Analytics Co-Founder Chris Whalen says bank bond holders also pose a challenge to the Treasury.
CHRIS WHALEN, INSTITUTIONAL RISK ANALYTICS: These are the same people who buy U.S. Treasury bonds, if we cause them to take a loss on Citi, they may not show up for the next Treasury auction and then we all have a problem.
DHUE: Still, Whalen thinks the taxpayers and Congress will tire of supporting Citi and the government will move to completely take over the firm. That's a move the administration said again today it opposes. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
Investors Are Drowning In Recession Worries
SUSIE GHARIB: The problems in the banking sector weren't the only issues weighing on investors today. General Electric surprised shareholders by slashing its dividend by two-thirds to $0.10 a share. The recession appears to be worse than originally thought after the Commerce Department reported that the U.S. economy contracted by 6.2 percent in the final three months of 2008 and consumer sentiment fell sharply in February. Scott Gurvey takes a look at the toll all that bad news is taking on investors.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: More taxpayer money for Citi, a dividend cut for GE, a bad GDP becoming even worse and another decline in consumer sentiment. It's enough to send the market to the psychiatrist's couch. Denise Shull of Trader Psyches says investors are wilting under the bombardment of bad news.
DENISE SHULL, PRESIDENT, TRADER PSYCHES: The average investor who works outside of the market, has their 401(k), there comes a point where they can't just take the pain any more. And they hear all this negative news so the natural thing to expect is, gee the economy is getting worse. The market is going to get worse. I can't take any more pain. I'm selling. And it feeds on itself.
GURVEY: As hard as the news is on market professionals, experts say it is harder on those who are not. Psychologist Herbert Pardus says the pressure could lead to an increase in suicides.
DR. HERBERT PARDES, PSYCHIATRIST & CEO, NY-PRESBYTERIAN HOSPITAL: If somebody who is in their seventies and eighties and retired, all of a sudden lost 80 percent of their funding, their monies to Madoff and can see no prospect of recovering the money, that's a ominous situation. So we haven't seen it yet, but I wouldn't be surprised that you might see it over the next as I said six to 12 months if this thing doesn't start turning around.
GURVEY: One thing investors have been waiting for is a big explosive bear market blow-out typical of a bottom, although some believe we will see signs of an economic revival first. In any event, Shull says once the sign comes, a rebound in sentiment could quickly follow.
SHULL: One thing we see, I see all the time, that drives investors and traders of all types is actually the fear of missing out. And there are a lot of people who want to know, are we at the bottom and they're ready to jump in. They keep jumping in and then we go lower and they get out. But there will be a lot of people ready to jump in and they'll know it very quickly.
GURVEY: For now, the idea of a turnaround seems more of a distant dream. Following today's revision to the GDP report, many economists forecast the longest and deepest recession since the second world war. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
"Market Monitor"-Robert Stovall, Managing Director & Strategist at Wood Asset Management
PAUL KANGAS: My guest "Market Monitor" this week is Robert Stovall, managing director and strategist at Wood Asset Management, based in Sarasota, Florida. Welcome back to NIGHTLY BUSINESS REPORT Bob. Good to see you.
ROBERT STOVALL, MANAGING DIR. & STRATEGIST, WOOD ASSET MANAGEMENT: Thanks for inviting me, Paul.
KANGAS: The recent carnage on Wall Street, do you believe that's an indication that investors really don't believe the Obama rescue plans are going to be effective?
STOVALL: I think believe is a wrong word. I don't think they understand at all. It's quite complicated, wide reaching and hard to get your arms around. So I don't think they disbelieve it. I just think they're confused.
KANGAS: You think all the infusion of funds into the various markets is going to cause an inflationary spiral?
STOVALL: Eventually it will, Paul, yes. We've downgraded the dollar in several different ways over these last few months. And yet the dollar is a strong currency, relative to many others. It's called a safe haven currency. But eventually, we'll have the inflationary impact of these new spending programs and the dollar will weaken, in my opinion.
KANGAS: Your career on Wall Street spans to 55 years. Is this the worst bear market you've seen?
STOVALL: My memory's pretty good, Paul. I can't remember anything like this. This has gone on for so long and it's been so extreme and I've seen days -- several days where you think gee this must be the end, like last October, last November. Here we are starting the month of March and I don't see the end yet.
KANGAS: When are you telling your clients to do in this environment?
STOVALL: We're telling them that they have to just hang tough, stay with it and if they go totally into cash, that they -- they may be left behind if there's an abrupt turnaround. And that's what they do.
KANGAS: All right. Now, you made four stock recommendations when you were with us late in September. Let's have a look and see how they-- they're all blue chips but it didn't make any difference. CSX (CSX) down 56 percent, Johnson & Johnson (JNJ) down 28 percent, the bluest of blue chips and they're still down. Do you still like them, these two?
STOVALL: Paul, I like those two, yes. I own them myself. Actually, I own every stock we're going to talk about today because they're in the Wood Asset portfolio.
KANGAS: OK. There were two others that you recommended back on the 26th of September, Pepsico down almost 33 percent and even Wal-Mart (WMT) down just about 19 percent. It's just unbelievable.
STOVALL: That's right. That's the high quality performers of these last six months for most of that time. I think -- I rarely say average down. I think that's a bad strategy most of the time. But in this case, all four of these are well-run companies in good sectors. I think you just have to stay with it or even buy more.
KANGAS: Patience is a virtue, apparently.
STOVALL: I think so.
KANGAS: OK. How about some new recommendations, despite your rather bearish attitude for the near term? Do you like stocks that you would buy at this level?
STOVALL: That's right. I like dividend-paying stocks Paul and these four, all of them are in plus territory for this new year which is only two months old.
KANGAS: Let's have a look at the first one.
STOVALL: OK. That's Consolidated Energy, Consol Energy, actually, CNX, the old (ph) consolidation coal. It's a strong company in the coal business gaining market sure.
KANGAS: All right. How about number two?
STOVALL: Number two, I like FPL Group, the old Florida Power and Light. It is a major power producer, big in nuclear. Also, they have meaningful positions in solar and wind.
KANGAS: OK. We have about 45 seconds left and number three choice?
STOVALL: Number three choice is McKesson Corp (MCK). That's a distributor of drug products and health care. They don't make the products as much as they market them. Also the last one is an Israeli-based generic drug maker Teva, T-e-v-a and that's the symbol.
KANGAS: And I believe that you have already informed us that you own all of these stocks correct?
STOVALL: That's correct, all of them, these four and the four I mentioned last fall.
KANGAS: We just have a few seconds left, any last-minute thoughts, Bob?
STOVALL: Yes, I think if you give up and capitulate and just put your money in a sack, you're making a mistake, Paul. I know it's painful while they're going down. Keep your money in the U.S. Treasury money funds. That's the safest place to keep them, if that's what you want to do and eventually the turn will come.
KANGAS: All right, very good, thanks for being with us again, Bob.
STOVALL: My pleasure.
KANGAS: My guest, Robert Stovall of Wood Asset Management.
"Reviving the Economy: Jobs"-Job Hunt
SUSIE GHARIB: More than eleven million Americans are now out of work. So over the last month, we've covered the job market from a variety of angles, from preparing your finances in case you're laid off to innovative ways to look for a job. As we wrap up our series "Reviving the Economy: Jobs," Diane Eastabrook updates us on a man we first met last fall. Back then, he had been searching for work for nearly a year.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: When we met Rick Nelson last November he was networking at a human resources convention, looking for a job. He was also scouring the Internet for a position similar to the one he lost a year ago at a small manufacturer.
RICK NELSON, JOB HUNTER: You know, one of the things I've always liked is a lot of diversity and a lot of the different challenges in a job. And the jobs that I've seen on here really seem to have that. Got a minute?
EASTABROOK: Today, Nelson is still looking for a permanent position. But, he has found temporary work helping counselors at the outplacement firm Challenger, Gray and Christmas and remains optimistic he'll eventually find a full-time job.
NELSON: One of the things working in this job with Challenger is that you see people who are still going out there. Companies are still hiring. They still need qualified people. It's just a matter of getting the right connects, talking to the right people and being at the right place at the right time with the right qualifications.
EASTABROOK: Outplacement expert John Challenger says job hunting in this economy has expanded from several weeks to several months. He's advising all job seekers to be aggressive and flexible.
JOHN CHALLENGER, CEO, CHALLENGER, GRAY & CHRISTMAS: In this tough job market, people should be pulling out all the stops. They need to get a fast start into the job search. They need to be open to changing industries. You can be an accountant in a manufacturing company and move to a health care company. You need to be open to changing locations, taking a part time job. Today you just have to get back to work.
EASTABROOK: Nelson says he's taking Challenger's advice and weighing all options. He's looking at ways to transfer his skills to other industries or change careers. He's even considering relocating for the right job.
NELSON: I did not think I would be still looking for my next full time position a year out. But, I draw a lot of encouragement from the people I interact with and with talking to some of the counselors and some of the success stories that they have with their clients.
EASTABROOK: We'll let you know when Nelson becomes one of those success stories. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
GHARIB: We've had lots of positive feedback from viewers on our month- long jobs series. So next week as we kick off March, we're turning our focus to business and the tough choices facing companies, both large and small as they navigate through the recession. From staffing decisions to equipment purchases to getting credit, all month long we'll talk with CEOs, entrepreneurs and business consultants with our series "Reviving the Economy: What Should Business Do?"
Paul Kangas' Stocks in the News
PAUL KANGAS: That big drop in fourth quarter GDP and the Citigroup news had Wall Street heading south near the opening today. The Dow fell about 150 points at the outset while the NASDAQ dropped 20 points. But then the market managed to rebound a bit by midday despite that sharp dividend cut planned by General Electric. Afternoon brought a lot of pre-weekend selling pressure, so stocks ended near the day's lows. The Dow Industrial Average closed off 119.15 at 7062.93. This week, it rose only one and fell 302.74 points overall. The NASDAQ Composite lost 13.63 to 1377.84 today. It also rose only one this week and it fell 63.39 points overall. Standard & Poor's 500 Index ended down 17.74 points at 735.09 today. It lost 34.96 points for the overall week. Over in the bond market, the 10-year note dropped 6/32 to 97 22/32, lifting the yield to 3.02 percent.
Far and away the big board's most active issue on 280 million shares was Citigroup (C) dropping $0.96 or about 40 percent of its value, traded as low as $1.40 today. As you heard, the government is planning to take up to a 36 percent stake. That means severe dilution for existing shareholders and no dividend forthcoming.
Bank of America (BAC) down $1.37 on fear of nationalizing the banks.
General Electric (GE) down $0.59. As you heard, it plans to cut its quarterly dividend from $0.31 down to only $0.10 a share starting in the third quarter of this year.
Pfizer (PFE) $0.39 drop there.
JPMorgan Chase (JPM) lost $0.20.
Wells Fargo (WFC) $2.30 drop in the weak banking group.
ExxonMobil (XOM) fell $3.05.
Sprint Nextel (S) down $0.19.
Co Vale do Rio (RIO) down a nickel.
And Regions Financial (RF) down $0.52, tenth in big board volume.
SLM Corp (SLM), the old student loan marketing down $1.20. It was off $2.59 yesterday. That's a 31 percent drop alone and the possibility there, it exists that private lenders will be eliminated from the student loan market and that would hurt this company's earnings obviously.
Life insurance stocks, particularly weak today after Standard & Poor's cut counter party (ph) credit and financial strength ratings on these stocks among others: Conseco (CNO), Hartford Financial (HIG), Lincoln National (LNC), Metlife (MET), Protective Life (PL) all big percentage losers today.
Continental Air (CAL) dropping $0.76, traded as low as $9.41. JPMorgan downgraded the airline sector's credit rating to "neutral."
World Fuel Services (INT), which is in the aircraft refueling business, did well today. After the close yesterday, fourth quarter earnings, $0.98 up from $0.63 a year ago and the company will double its quarterly dividend to $0.075 a share.
Petrohawk Energy (HK) losing $1.58. The company's making preparations for a 22 million share public offering of common stock. That represents earnings dilution.
Calgon Carbon (CCC) moving up $2. The company just about doubled its fourth quarter earnings to $0.14 from $0.08 a year ago and sales were up 8 percent.
Republic Services (RSG) down $1.94. The company reported a fourth quarter loss of $0.55 a share and that includes the cost of acquiring Allied Waste Corporation.
Packaging Corp of America (PKG) down $1.96. The company is slashing its quarterly dividend from $0.30 down to only $0.15 a share, a 50 percent cut.
Covanta Holdings (CVA), which is in the waste to energy business, down $1.44. Fourth quarter earnings, $0.22, down from $0.25 a year ago. That was $0.03 lower than the Street was expecting.
And Commscope (CTV) had a rough day, down $4.21. Fourth quarter earnings a bit higher, $0.55 versus $0.51 a year ago, but the company sees a challenging business condition ahead and sees first quarter loss. The Street was expecting a profit at $0.46 a share.
Apple (AAPL) topped the NASDAQ actives, up $0.12.
Google (GOOG) $0.81 advance.
Microsoft (MSFT) down $0.27.
Cisco Systems (CSCO) $0.08 gain.
Amgen (AMGN) in the weak health care group, down $2.30.
Intel (INTC) $0.03 gain.
$0.23 loss in Qualcomm (QCOM).
Research in Motion (RIMM) up $0.40.
Oracle (ORCL) a $0.24 drop.
Amazon.com (AMZN) did well, rising $2.45.
Synta Pharmaceuticals (SNTA) plunging about 78 3/4 percent with that loss of $5.03. The company is suspending its late stage trials of its skin cancer treatment due to safety concerns.
And those are the stocks in the news tonight.
