NBR Transcripts-April 21, 2009
Tuesday, April 21, 2009Treasury Secretary Geithner Gets Grilled on the Hill About the TARP
SUSIE GHARIB: Treasury Secretary Timothy Geithner said today the vast majority of American banks are in good financial shape. Testifying on Capitol Hill before a bailout oversight committee, Geithner defended the government rescue programs, saying that while the results are mixed, without them, the nation's economy would have been worse. Meanwhile, the special inspector general overseeing TARP warned today that the $700 billion program could reach $3 trillion. As Stephanie Dhue reports, Geithner was grilled on those issues and more.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Critics have lashed out at the terms given banks like Citigroup, claiming high risk and little reward for taxpayers. Treasury Secretary Geithner defended the bailout plan before the oversight panel.
TIMOTHY GEITHNER, TREASURY SECRETARY: We are not a private investment. We are the government of the United States. When we act to provide assistance for banks, we don't do it for the benefit of those banks. The cost/benefit returns to the American economy, you cannot evaluate by looking at the narrow financial terms of that particular transaction.
DHUE: His concern is the bigger picture.
GEITHNER: You have to look at the action through the prism of what motivated us, which is to how to make sure we have a financial system that is stable, able to lend, support recovery.
DHUE: Worried about government limits on executive pay and interference in their business, seven smaller banks have applied to repay their TARP loans. Goldman Sachs, JPMorgan Chase and Bank of America also want to return the money. But Geithner says the issue is more than any one bank's balance sheet.
GEITHNER: The critical thing we care about is whether the system as a whole is in a position where it has the capacity to support the credit that recovery requires; that is the ultimate test.
DHUE: Former Senator John Sununu wants that test to have a clear answer.
JOHN SUNUNU, MEMBER, CONGRESSIONAL OVERSIGHT PANEL: Objectivity in this regard is absolutely essential. Otherwise, you're going to be creating more uncertainty than you intend and you'll be eventually doing more harm than good.
DHUE: The banking industry says it should be easier to return taxpayer money. Scott Talbot of the Financial Services Roundtable says that hasn't been the case so far.
SCOTT TALBOT, SR. VP, FINANCIAL SERVICES ROUNDTABLE: You have to figure out the price of the warrants. You have to negotiate with Treasury over the price of the warrants that were issued when the original check was cut and that's proven to be very difficult.
DHUE: Treasury is also figuring out just how much information to release about its stress tests of the nation's largest banks. Geithner says whatever's disclosed, the idea is to lift the cloud of uncertainty overhanging the industry. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
Sen. Judd Gregg of New Hampshire Analyzes The Government Rescue Plan
SUSIE GHARIB: One idea Treasury Secretary Geithner is considering to bolster banks is converting the preferred stock the Federal government got for its bailout money into common stock. That would give taxpayers a share in any gains once the banks recover. But it also carries the risk of a greater hit to the Federal budget. Today, Washington bureau chief Darren Gersh spoke with New Hampshire's Judd Gregg, a key Republican spokesman on the budget. Darren asked the senator whether exchanging loans for stock is a good idea.
SEN. JUDD GREGG, (R) NEW HAMPSHIRE: I don't think it's the right thing to do for a couple of reasons. First off, taxpayers (INAUDIBLE) money now. The preferred investment -- and most people didn't appreciate this and still don't but the TARP was an investment in an asset and the assets that we bought with TARP money were preferred stock in these various banking institutions which have a yield of five to eight percent which is significantly higher than you can get for money today if you simply put it in like a CD or in your savings account. So the government's doing very, very well on this investment and then I just don't see that it's necessary. And I think it's a slippery slope to government control because once you become a stock, you have voting rights and once you have voting rights, you can control management and then you got the government making management decisions which is a very bad idea.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: One management decision that you have to make is what to do on the deficit. I'm just wondering, what is the appropriate level of the deficit right now because there's a debate about whether or not you try to balance it sooner because we're going to hit the entitlement problem in a couple years or if you wait until the economy's fully recovered before you start trying to take any money out, that that was the mistake that's been made in the past here. You tried to balance the budget too soon. What's the right thing to do?
GREGG: Nobody's talking about balancing the budget anymore.
GERSH: Or getting closer.
GREGG: And nobody's talking about getting closer any more. The issue is pretty simple. It's a bifurcated issue. In the short run the government has to spend a lot of money because we're the lender of last resort, in fact the Fed is basically the primary lender in the market today. We're the source of liquidity and the government is trying to get the economy moving and in order to do that, we had to put a lot of money into the economy to try to stabilize the financial institutions through the stimulus bill which I didn't support the concept but not the specifics. It was a very poorly drafted bill. It's two and three years out that we have a very serious problem which is not addressed by the president's budget and in fact is significantly aggravated by the president's budget. We should start seeing the deficit numbers start to go down or at least start to stabilize. Instead, just the opposite happened. Under the president's budget, he's projecting not only trillion dollar deficits this year and next year. On average for the next 10 years, he's projecting a trillion dollar deficit every year. And you ask where is the break point? Where is the problem? Well, to try to put this in perspective, if we were to try to get in the European Union today, in other words as a nation trying to apply into the European Union, we could not get in because our debt as a percentage of our gross national product would be too high and our deficit as a percentage of our gross national product would be too high.
GERSH: What about the argument the administration makes which is you need to make these investments. You need to solve these long-term problems we've had. For example, health care. That's an issue that's going to come up in the next couple months. Is there any way that you could support moving forward on that because in this recession, a lot of people are losing their health care and it seems like this is a more pressing issue than ever and some people can't wait two or three years to address it.
GREGG: There's a philosophical issue here. The president in a very forthright way and I admire the fact that he's been forthright. In fact the budget he sent up here was a heck of a lot better than what my Senate colleagues did. They only spent too much, borrowed too much, taxed too much and hid too much, He at least just spent too much, borrowed too much and taxed too much. But he said very openly that he believes that by growing the government significantly and he's talking about significantly growing the government, taking it from 20 percent of GDP up to 24, 25, 26 percent of GDP which is a massive expansion in the size of this government,, that by growing the government significantly, you create prosperity. My view is this. You cannot have prosperity if you have a government you can afford.
GERSH: The president sent up a budget and he did set up ways to pay for it.
GREGG: No he didn't.
GERSH: He had climate change taxes. He had the higher taxes on deductibles and
GREGG: (INAUDIBLE)
GERSH: But it seems like Congress every time they looked at the way he wanted to pay for things pr the portion of it, which is a large portion, Congress said no and I'm just wondering, it seems like we're still stuck in this area where Republicans still don't want to face tax increases. Democrats still don't want to spend it. It doesn't seem like the budget debate has moved at all. Are we in this kind of gridlock situation where people don't want to accept what needs to be done?
GREGG: I would have to change that aggressively because we're in a very different situation/ We're in a situation where a president has taken office with a Congress that supports him who has essentially said I am going to significantly grow, move this government to the left, grow this government dramatically and I'm not going to pay for it and basically it's heading us on an unsustainable path, unsustainable path where basically you create a deficit rate which is too high for the next generation to pay up.
GERSH: Senator Gregg, thank you for your time. Appreciate it.
GREGG: Thank you for having me on.
Airline Earnings May Be Ready To Ascend
SUSIE GHARIB: Airline stocks got a nice lift today after Delta and United Airlines reported smaller than expected quarterly losses. The airline industry has been hard hit by the worst global recession in decades. But as Suzanne Pratt reports, some airline experts see clouds parting for the industry later this year.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: As one Delta executive put it today, things aren't good, but they're also not getting any worse. Those words could be echoed throughout the U.S. airline industry, coping with serious turbulence and billions of dollars in losses from the recession. Revenue is way down, as passenger traffic is off sharply, particularly international business travel. Airlines are trimming capacity and cutting costs wherever they can. Lower oil prices are the only bright spot for airlines, but it's a big one, because jet fuel is their largest expense. S&P analyst Jim Corridore says, without the huge drop in oil prices, prospects for the group would be grim.
JIM CORRIDORE, EQUITY ANALYST, STANDARD & POOR'S: If we were sitting with oil at $147 a barrel here, I think that it would be only a matter of time before half the industry was back in bankruptcy. It would be a huge drain on their cash balances at a time when passengers are not traveling.
PRATT: Corridore believes those sharply lower fuel costs will help the industry return to profitability later this year. Veteran airline analyst Helane Becker agrees with that forecast. She says the 50 percent decline in jet fuel costs lets airlines drop ticket prices and stimulate demand.
HELANE BECKER, AIRLINE ANALYST, JESUP & LAMONT: I think the industry should have a fairly good summer. We think they'll cut additional capacity for the fourth quarter. And we think things are bottoming. We definitely think we're going along the bottom here and we're expecting revenues will be down in the second quarter, but not as much as they were in the first.
PRATT: Since January airline stocks, as measured by the Amex airline index, have been in a steep descent. Recently however, the index has started to gain altitude. S&P's Corridore has "buy" recommendations on Delta, Southwest and Continental Airlines.
CORRIDORE: Airlines, like many other cyclical industries, the time to buy these stocks are sometimes when things look their worst. And if we are seeing a bottoming out of traffic, that could be a sign that maybe things are going to get better in the future.
PRATT: A sustained economic downturn could significantly cloud the outlook for airlines. Experts say lower fuel costs can only help so much, if passengers can no longer afford to fly. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
"Of Mutual Interest"-Penelope Wang, Senior Writer at "Money" Magazine
PAUL KANGAS: In tonight's "Of Mutual Interest" segment, many investors buy mutual funds to help keep fees to a minimum, but that's becoming challenging. Joining me, Penelope Wang, senior writer at "Money" magazine. Penny, welcome back to the program.
PENELOPE WANG, SR. WRITER, MONEY MAGAZINE: Hi, Paul, great to be back.
KANGAS: What is changing in the world of mutual fund management fees?
WANG: The biggest change is an amazing decline in assets held by the sun companies. They're down nearly 40 percent from the peak in 2007 and because assets have declined, they're earning less management fees which are paid as a percentage of those assets. So bottom line investors can look for fees on their funds to go up in the next year or so.
KANGAS: How much would you think they'll go up on average?
WANG: On average it's not an earth-shaking amount maybe five basis points or so though some funds may charge more but any percentage that gets taken out of our return hurts especially when returns are so slow.
KANGAS: So the increases won't be uniform across the industry.
WANG: No, it won't be uniform. It will be on a case-by-case basis but you can expect that some fund companies will try harder to keep fees from rising than others.
KANGAS: Read the prospectus carefully, correct?
WANG: Absolutely and a low return environment, trying to control your cost is really important.
KANGAS: Well, let's have a theoretical situation where the market comes back strongly and the mutual fund assets rebound nicely, can we expect a cut in mutual fund management fees?
WANG: I would expect in a competitive industry like the fund industry, fees will start to come down again. That's been the case up until last year but you can't count on the market bailing you out of a high expense fund, so if you have lower cost options to look at, index funds or lower cost actively managed funds, now's a good time to take a close look.
KANGAS: So you're advising investors to do what at this stage?
WANG: I would advise them to see if their funds charge below average expense ratios, say below one percent for a stock fund or below 60 basis points for a bond fund and unless you're really happy with returns on your fund, take a look at lower cost alternatives, including index funds and ETFs.
KANGAS: That's great information as always. Thanks so much Penny.
WANG: Thank you, Paul.
KANGAS: My guest Penelope Wang, senior writer for "Money" magazine.
Commentary-President Obama is Right & Wrong About the Economy
SUSIE GHARIB: The president, the TARP and a banking conundrum -- all that and more in tonight's commentary. Here's Chrystia Freeland, U.S. managing editor of "The Financial Times."
CHRYSTIA FREELAND, US MANAGING EDITOR, FINANCIAL TIMES: In a big speech on the economy last week, President Barack Obama assured Americans that he understood their moral objections to the bank bailout and then proceeded to explain why in practice recapitalizing Wall Street was essential to Main Street's economic recovery. Unless the bankers get their billions, you won't be able to get that mortgage or home equity loan. Ultimately, the president is right, of course. But in the short-term, he's also wrong - or at least guilty of oversimplifying a complex financial dynamic which is probably his knottiest political challenge. The tricky truth is that there is a contradiction between what's necessary to shore up Americas banks and what's necessary to shore up Americas households. From the moment Congress approved the $700 billion TARP last fall, lawmakers began demanding that bankers hand over the loot to ordinary people. But government regulators have been insisting on the opposite - requiring banks to lower leverage and increase their capital cushions. That is, after all, the whole point of the looming stress tests. Simultaneously satisfying the populist demands of Nancy Pelosi and the prudential ones of Ben Bernanke will be a high-wire act even for the financial wizards on Wall Streets and for the rhetorical one in the White House. The president used the biblical metaphor of the house upon the rock to describe his vision for the American economy. But to build it, he will need to reconcile the complexity of 21st century finance with the sound bite simplicity of 21st century cyber-democracy. I'm Chrystia Freeland.
"Last Word"-Happy Administrative Professional's Day
SUSIE GHARIB: And finally tonight, you think your boss is tough to deal with? Chances are he probably doesn't ask you to inspect his sandwich every day, making sure there are no tomatoes on it or throw a surprise party for an executive's dog or look for anything suspicious after someone called in a bomb threat. But the web site business management daily says all those outrageous stories were sent in to mark administrative professionals' day, which is tomorrow. So, Paul, talk about other duties as assigned. How many times have you heard that?
KANGAS: As a former admiral's aide in the U.S. Coast Guard I really know the meaning of what that is.
GHARIB: I didn't know there was such a thing at administrative professionals' day so happy administrative professionals' day one day early.
KANGAS: Ditto.
Paul Kangas' Stocks in the News
PAUL KANGAS: It was a mixed start for Wall Street today, with the blue chips edging lower on continuing concerns about the banking sector, while the tech sector headed higher on IBM's better than expected results out late yesterday. The market came alive to the upside after the Treasury secretary said most banks have plenty of capital. The rebound lifted stocks to the day's best levels by the closing bell. The Dow Jones Industrial Average ended up 127.83 points at 7,969.56. The NASDAQ Composite rose 35.64 points ending at 1,643.85. Standard & Poor's 500 Index gained 17.69 points to 850.08. In the bond market, the 10-year note fell 13/32 to 98 23/32, putting the yield at 2.90 percent.
Big board volume leader Citigroup (C) on 102 1/2 million shares, moving up $0.30. You just heard the news there.
Bank of America (BAC) in a firm banking group, up $0.74.
American Intl Group (AIG) gained $0.17.
Wells Fargo (WFC) $1.81 advance.
JPMorgan Chase (JPM) did well, up $2.84.
General Electric (GE) $0.35 gain.
$0.11 rise in Ford Motor Co (F).
Pfizer (PFE) dropped $0.07.
US Bancorp (USB) up $3.33. First quarter earnings out, $0.24, down from $0.62 a year ago, but $0.04 better than the Street was expecting.
American Express (AXP) tenth in volume, was up $0.59.
Caterpillar (CAT), there was a number of Dow stocks that were out with earnings today and Caterpillar one of them, $0.91, a $0.91 gain. The earnings, excluding one-time items, $0.39 and believe it or not that was $0.37 better than the Street was expecting. However, the company cut its 2009 earnings guidance from $2.50 all the way down to $1.25 and it's discussing whether to cut the dividend.
Coca-Cola Co (KO), a Dow stock, down $1.24. First quarter earnings excluding items, $0.65, down from $0.67 a year ago, in line with estimates but the company says second quarter results may fall below the Street estimate.
Dupont Co (DD) yet another Dow stock, up $1.32. First quarter earnings, $0.54, $0.02 better than expected and the company thanks strong results from its agro and nutrition operation.
Merck & Co (MRK), Dow stock, down $1.68. First quarter earnings, $0.74, down from $0.89 last year, $0.04 below the Street estimate and sales dropped 8 percent.
Yet another Dow stock, United Technologies (UTX) up $2.18. First quarter earnings, $0.78, up from -- down from $1.03 last year. That was about a penny better than expected, but revenues dropped 12 percent. The company's carrier unit was its weakest segment during that period.
Texas Instruments (TXN), $0.21 loss, but it traded as high as $17.85 today. After the close yesterday, Texas Instruments had a first quarter result of $0.01 in earnings versus $0.49 last year, but the Street was actually looking for an $0.08 per share loss, better than expected.
Delta Airlines (DAL) up $1.30. First quarter loss of $0.96, nowhere near as bad as last year's $16 per share loss and revenues actually took off 40 percent. Standard & Poor's repeated a "buy" on Delta.
Manpower (MAN), the staffing firm, up $5.73. First quarter earnings excluding one-time items, $0.09, down from $0.94 a year ago but the Street was looking for a loss of $0.14 so better than expected by far.
Emulex (ELX) $3.09 jump there. Broadcom Corp. is offering to acquire it for $9.25 a share in cash.
Western Union (WU) up $1.91. First quarter results, $0.32, up from $0.27 a year ago and that's despite a 5 percent drop in sales.
Apple (AAPL) topped the NASDAQ's actives, up $1.26.
Followed by Google (GOOG) up $2.17.
Oracle (ORCL) $0.71 gain.
Intel (INTC) $0.36 advance.
Same thing with Microsoft (MSFT), $0.36. Thursday is earnings time for Microsoft.
Research in Motion (RIMM) up $1.93.
$0.38 gain in Cisco Systems (CSCO).
Northern Trust (NTRS) was down $1.98. First quarter earnings dropped to $0.61 from $1.03 last year. Revenues lost 8 percent.
And then Broadcom (BRCM) down $1.27. As I mentioned, it's bidding for Emulex but it also reported a first quarter loss of $.19 versus earnings of $0.14 a share last year and revenues fell 17 percent.
Qualcomm (QCOM) tenth in volume was up $0.64.
And finally, Yahoo! (YHOO) rose $0.72 but after the close, the web giant posted a 78 percent drop in first quarter earnings and announced plans to cut 5 percent of its workforce. The stock did move higher on those cost cutting plans though, topping $15 a share in after hours trading.
