NBR Transcripts-March 17, 2009
Tuesday, March 17, 2009AIG Outrage Heads To Capitol Hill
SUSIE GHARIB: The firestorm over those huge bonuses at AIG heated up today. Washington lawmakers are now threatening to slap new taxes on those bonuses in an effort to recover some of the money. And New York Attorney General Andrew Cuomo sent a letter to Congress providing details of who got the money at the struggling insurance giant and how much. According to Cuomo, 73 employees were paid more than a million dollars each. AIG's Chairman and CEO Edward Liddy will have to answer questions about those controversial bonuses tomorrow when he appears before a House Financial Services Subcommittee. The chairman of that committee is Congressman Paul Kanjorski, a Democrat from Pennsylvania. Darren Gersh sat down with Kanjorski and asked him what he wants to hear from Liddy tomorrow.
REP. PAUL KANJORSKI, CHAIRMAN, CAPITAL MARKETS SUBCOMMITTEE: Well, I want to hear the fact that Mr. Liddy understands how this decision to handle this information on the bonuses and the compensation and withholding it from the administration and from the Congress until the 11th hour was extremely detrimental and I would be less disappointed if I didn't know but I actually related that conversation and that information to him more than six weeks ago. So he should have been and was informed as to how serious it would be. That being the case, he's again caused a destruction of the building of confidence that's so necessary if we're going to save this system.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, when you talked to him, did he just not get it? What did you tell him? And what was his response?
KANJORSKI: Well, first of all it was a response we're going to work with you, congressman. It means we're going to give you the information you need so we can analyze what the possibility of what we're going to have to do or what we're going to do will be known. That's important. Even if he'd done the very same thing -- if he gave me the information and he convinced me beyond an iota that there's no other choice that they had and we'd run through every legal mind that we were aware of and there's nothing else they could have done, we would have been on board with him to explain that to the American people and to our fellow members.
GERSH: I was told by a company source that AIG did go to many of these employees and said, look, we want you to give back some of this bonus. We want you to give back 30 percent if the company is in trouble. You need to make a concession and the employees said no, we have legal contracts. In this environment, we don't trust that if we renegotiate, if we're staying with the company we're going to get paid six months down the road or nine months down the road. Others said I want what I want now so do you think AIG tried?
KANJORSKI: They may have, but they weren't sufficient in trying. They should have extracted some help from the president, from the Congress and the American people. Right now, you know, I'm in favor that we find out who these folks are that got these bonuses. Let's name them, because even if they're not going to give the money back, in Pennsylvania, we have a principle known as shunning. We'll shun 'em! They took four, five, as high as $6 million at a time when this country is on the verge of bankruptcy and they would serve their own purpose ahead of the public purpose.
GERSH: What can Congress do now? Can Congress stop this, stop these bonuses from being paid?
KANJORSKI: Well, he, Mr. Liddy had guaranteed to us that they would give us the information necessary to make these judgments. We did not receive any of that information until this last Saturday night, the very day the payments were made, so it's after the fact. The burden now of proof has shifted and that makes it a very difficult time to change the burden of proof legally. But it just seems to me that they were taking personally defensive action. They were dealing in such a way that their employees would be protected and have the greatest advantage than the American people or the American government and it's just not the way I like to see it happen. If nothing else, I'd rather say to Mr. Liddy, look, Mr. Liddy, nothing against you, but I don't like the way you make judgments that don't come out in a situation that I determine as being fair and equitable. That being the case, let's try new leadership.
GERSH: Are you going to say that tomorrow?
KANJORSKI: I may very easily say that. I'm considering it.
GERSH: Let me ask you about the larger picture, which is this obviously is a blow to AIG and it's got a lot of people upset about the way these financial rescues are working. Has it poisoned the well for the Treasury to come back to Congress and say sorry, we need more money to save the banking system?
KANJORSKI: Right now, they couldn't succeed. That's the judgment of most members of Congress. Now if that's the case and that case prevails, you're talking about a scenario that you could cause the American economic system and the world economic system to collapse. AIG is so important and so intertwined that its survival is essential. That's why I can't believe that on crummy bonuses that they put the whole American and world economic system at risk.
GHARIB: And Darren joins me now to talk more about AIG and tomorrow's hearing. Darren, very interesting interview and I was particularly intrigued that the congressman was saying that he may ask for Ed Liddy, the CEO of AIG, to step down. Does Congress have the power to do something like that?
GERSH: Yeah, it was interesting. Um, Congress as Barney Frank, chairman of the House Financial Services Committee said today, look, the American government owns about 80 percent of the voting rights of AIG. So they could act like an owner and they could replace the CEO if the government wanted to. After all, it was Hank Paulson, the former Treasury secretary who gave Liddy the job, but I have to say, so far, Kanjorski is the only one who is saying he's thinking about changing the leadership at AIG. It'll be interesting to see tomorrow how the hearing goes and whether more people start calling for a change.
GHARIB: Darren, a few weeks ago, I interviewed Ed Liddy and I asked him about how he felt about being in this job because, you're right, he had just gone into retirement and Hank Paulson talked him into taking this job and he said he did it as a service to the country and you probably know he's getting paid $1 a year, so he might be relieved to resign, right?
GERSH: I don't know, maybe they can cut that to $0.50. But, you know, one question about ownership is -- and I think a very real question here would be, who would take the job? And that's a challenge that the government has inherited by being such a large owner of AIG and having such a stake in so many of these financial institutions. If you force people out and you do it in a very public way, it makes it harder to attract new talent.
GHARIB: The other thing is, the other ripple effect of this whole AIG situation is that banks, for example, are going through their stress tests. Some of them are going to need more money from the government. Given everything that's happened with AIG, do you think that Congress is going to be less willing to give banks money?
GERSH: Well, that's what Kanjorski was talking about and I actually went back and looked and if you remember, the Obama administration put a placeholder in their budget of $250 billion for costs related to the financial bailout. And if you do some fancy math there, you can see that the administration might be making room for another $750 billion potentially in bailout money, in other words, almost doubling what we've seen before. And so if those stress tests reveal that the banks are indeed in deeper trouble than we think, Congress will be called upon to make the financial system whole and right now Kanjorski was saying there's no appetite to do that.
GHARIB: All right, Darren. Thank you so much for your report and nice talking to you. If you want to watch Darren's entire interview with Congressman Kanjorski, go to our web site, NBR on pbs.org.
Wall Street Experiences The Luck of the Irish
SUSIE GHARIB: There was plenty of green on Wall Street today and not just because it's Saint Patrick's Day. The Dow has surged 850 points or about 13 percent since last Monday. The big question for investors now is whether this rally is a sign that the markets have turned around for real. As Suzanne Pratt reports, the experts are divided. SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The iconic bull statue is alive and well in lower Manhattan. Many investors, however, worry it may be years before they see an actual bull market again. That's not to say there won't be bear market rallies. In fact, many market pros believe that's what we're experiencing now. Equity strategist Tony Dwyer expects the bear market to continue as long as credit markets are sickly.
ANTHONY DWYER, EQUITY MARKET STRATEGIST, FTN MIDWEST SECURITIES: Ultimately, I don't think the selling of stocks is over, because there's still a problem in the financial sector and the ability of banks to lend or investors to give companies money to fund growth.
PRATT: But other market pros say the 17-month-old bear is looking tired and gray, particularly when you consider that recent bear markets have an average life span of about 13 months. Market veteran John Manley thinks this rally has legs.
JOHN MANLEY, SR. EQUITY STRATEGIST, CITI SMITH BARNEY: The money seems to be headed in the right direction, both here and overseas. And I think at some point in time, it turns. So, if it isn't this time, it's going to look an awful lot like it does this time.
PRATT: Manley says one sign the bear market could be nearing an end is the excessively negative investor sentiment that was palpable a few weeks ago. On top of that, he believes the president's stimulus plan will soon start to help spending. And while he predicts the rest of this year will be choppy for equity investors, he expects the major averages to gain as much as 20 percent from their lows.
MANLEY: I think we end the year higher than we are now and perhaps substantially higher. It's a very tough call. Obviously, it's always a tough call. But this hangs on the economy and what the economy does and our perception of the economy.
PRATT: The unfortunate thing for investors, many who've already lost half of their portfolios, is that we won't know the bear market is over until many months pass. That means investors are likely to miss out on the early gains of the next bull market. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
"Of Mutual Interest"-Penelope Wang, Senior Writer, "Money" Magazine
PAUL KANGAS: In tonight's "Of Mutual Interest" segment, we're focusing on an often-overlooked category -- balanced funds. They could be a good option for timid investors looking to dip their toe back in the market without a lot of risk. Joining us is Penelope Wang, senior writer at "Money" magazine. Penny, welcome back to the program.
PENELOPE WANG, SR. WRITER, MONEY MAGAZINE: Hi, Paul.
KANGAS: What exactly are balanced funds?
WANG: Well, balanced funds are all-in-one portfolios that hold a mix of stocks and bonds. They come in different varieties. Some are more conservative or aggressive than others but a typical fund might have a 60 percent allocation to stocks and 40 percent to bonds.
KANGAS: Who should be looking at buying this type of a fund?
WANG: Well, anyone who is looking to stay invested in this crazy market without taking on too much risk. With balanced funds, you get most of the returns of the market but in market downturns, the bonds can act as a cushion so the most conservative balanced funds have only lost about half as much as the market as a whole over the past year.
KANGAS: So that's one of the benefits of a fund like that in this type of a market? Anything else you can think of?
WANG: There also are very simple investments since the manager keeps the fund balance to whatever the allocation is so it's pretty easy for investors just to buy one of these funds and not have to do much else.
KANGAS: There must be some drawbacks. It seems like there always are when you get some advantages.
WANG: Well, sure. With balanced funds, you're limited to the allocation that the manager of that fund chooses. So if you should want to have a more -- a different portfolio, you would need to buy additional funds or switch out of the balanced fund to a portfolio that you choose.
KANGAS: What specific balanced funds do you recommend?
WANG: On "Money" magazine we like FPA Crescent. (FBACX) is the ticker symbol.
KANGAS: Yes. We have a chart up and it's had a rough time of it.
WANG: That's right. It hasn't escaped the ravages of the market. But over five and 10 years, it's delivered positive returns while the market as a whole is still in negative territory.
KANGAS: OK. We have a minute left. How about another choice?
WANG: We also like Oakmark Equity and Income (OAKBX).
KANGAS: Another fund that's had a rough time of it, but this is the time to buy, right?
WANG: That's right. And over five and 10 years, it's done quite well. It has a 7 percent annual average return over 10 years.
KANGAS: OAKBX and that is the symbol on that one, correct?
WANG: That's right.
KANGAS: Penny, do you own these funds yourself personally?
WANG: No, I do not.
KANGAS: You can't own 'em all, can you?
WANG: Unfortunately, not.
KANGAS: Any final thoughts? We have a few seconds left for our viewers.
WANG: I think for investors who want a simple way to get started in the market or stay invested, a balanced fund is a pretty all-in-one easy decision way to go.
KANGAS: The weight is usually heavier in stocks than in bonds, correct?
WANG: That's right.
KANGAS: So this is a time maybe to be buying because of the sharp drop in the stock market?
WANG: That's right.
KANGAS: OK. Penelope, thanks very much for being with us.
WANG: Thanks, Paul.
KANGAS: Penny Wang, senior writer at "Money" magazine.
"Commentary"-Repairing Financial Regulations
SUSIE GHARIB: Tonight's commentator says the Feds can't do it alone when it comes to fixing financial regulation. He's Fred Joseph, president of the North American Securities Administrators Association and he's also Colorado's securities commissioner.
FRED JOSEPH, COLORADO SECURITIES COMMISSIONER: As Washington works to transform the financial services regulatory system, we must stay focused on the ultimate goal of restoring the trust and protecting the security of Main Street investors. Regulating financial markets is an enormous challenge, one that can only be met by state and Federal regulators working together to protect the integrity of the marketplace and to shield investors from fraud and abuse. State securities regulators have a century- long record of investor protection and should play a pivotal role in the next generation of financial services regulation. Some have called for a new Federal bureaucracy to oversee the nation's financial industry and markets. But one size doesn't fit all -- a large, consolidated Federal regulator is no substitute for an accessible, proactive presence in communities nationwide. As the regulators closest to investors, state securities regulators provide indispensable investor protections through enforcement, licensing, compliance examinations and financial literacy programs. Last year, for example, state-led investigations into the auction rate securities market meltdown led to settlements with major Wall Street firms to return $50 billion to auction rate securities investors. That's smart, strong regulation, the kind that investors deserve and that the Obama administration promises to give to the American people to protect them amid the challenges facing our financial markets. I'm Fred Joseph.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks on Wall Street started the day on a mixed note, but steadily gathered strength. News that February wholesale prices rose just one-tenth of 1 percent contributed to the momentum, as did a 22 percent jump in February housing starts, when a drop was expected. By early afternoon, the Dow was sporting an 80-point gain and the NASDAQ was up 30 points. In the final hour of trading, buyers came on strongly, lifting the market to the day's best levels at the final bell. The Dow closed up 178.73 points at 7,395.70. The NASDAQ jumped 58.09 ending at 1,462.11, while the Standard & Poor's 500 Index gained 24.23 to 778.12. The bond market, the 10-year note fell 15/32 to 97 25/32, lifting the yield to 3.01 percent.
Most active big board issue trading 117 million shares was Citigroup (C) up another $0.18 as it continues its recent comeback.
Bank of America (BAC) up $0.09.
And then a $0.13 rise in American Intl Group (AIG).
General Electric (GE) $0.34 gain.
JPMorgan Chase (JPM) did well, up $2.05.
Wells Fargo (WFC) edging up $0.96.
An $0.11 gain for Pfizer (PFE).
Alcoa (AA) down $0.53, traded as low as $5.33 today. After the close yesterday, as we reported, Alcoa slashed its quarterly dividend from $0..17 to only $0.03 and it's going to offer 150 million common shares to the public, along with $250 million in convertible notes, a total of $1.1 billion worth of securities.
AT&T (T) up $1.01.
Sprint Nextel (S) $0.05 gain there, tenth in volume.
Home Depot (HD) up $1.34 or 6.6 percent. The story here, the Jeffries brokerage upgraded it from "hold" to "buy" and did the same thing with a number of other major retailers like Best Buy Co (BBY), Costco Wholesale (COST), Kohl's (KSS), Lowes Companies (LOW) and Target (TGT), all doing well on the upside on that upgrade. Arcelormittal (MT) , the big steel company, down $1.33. The "Financial Times" reports rumors are making the rounds that the company retained JPMorgan and Deutsche Bank to coordinate a big rights issue, but Arcelor said that is not true.
Another steel stock down, this one Nucor (NUE) off $3.40. The company's forecasting a first quarter loss of $0.55 to $0.65 a share and notes that (INAUDIBLE) demand is still weakening. Resmed (RMD), this is a company that makes products to treat sleep disorders and the stock down $2.40 after Wachovia downgraded it from "out perform" to just a "market perform" rating.
Factset Research (FDS) moving up $3.02. Higher second quarter earnings, $0.71 versus $0.58 last year, $0.02 above the Street estimate and the company plans to buy back an additional $100 million of its own stock.
Ensco International (ESV) gained $1.73. The offshore oil driller got an upgrade from Deutsche Bank from "sell" to a "hold." And then Wright Express (WXS) down $0.87. It traded as low as $15.17 this morning after Keybanc downgraded it from "buy" to "hold."
Then a big percentage loss for Sauer-Danfoss (SHS). This company makes hydraulic systems and it says preliminarily it'll have a fourth quarter loss of $2.09 a share versus $0.18 in earnings last year and sales dropped 25 percent.
And then Labranche & Co (LAB) up $1.36, big percentage drop. It's the New York exchange market maker. The company's forecasting a first quarter loss due to extremely poor market conditions.
NASDAQ's most active, Apple (AAPL) up $4.24. The company introduced software updates for its iPhone and it looks like it was well received.
Google (GOOG) up $15.65.
Microsoft (MSFT) a $0.65 gain.
As was the case with Intel (INTC).
Amazon.com (AMZN) up $4.37.
$0.69 advance in Cisco Systems (CSCO). The story there, Goldman Sachs issued a "buy" in anticipation of Cisco's upcoming unified computing system.
Oracle (ORCL) $0.50 gain.
Qualcomm (QCOM) gained $1.47.
Research in Motion (RIMM) rising $2.49.
But First Solar (FSLR) down $8.90. Barclays Capital downgraded it from "over weight" to "equal weight" and traded as low as $109.84 today.
And finally, Energy Conversion Devices (ENER) sank $4.28 after forecasting flat third quarter revenues and warning that poor economic conditions forced it to pull full year guidance.
