NBR Transcripts-April 24, 2009
Friday, April 24, 2009Which Banks Made The Grade With The Government
SUSIE GHARIB: The scores are out. The nation's biggest banks found out today whether they passed or failed the government's stress tests. But the American public won't get the official results until May 4. Meanwhile, regulators released a 21-page document detailing the guidelines they followed in conducting the tests and how the process measured the health of 19 financial institutions. Washington bureau chief Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: While big banks got their grades today, regulators gave the rest of the world a sort of study guide for the stress test. The document provides some detail about how the banks were evaluated. Standard & Poor's Mike Thompson says that was enough to provide reassurance about the process.
MICHAEL THOMPSON, MANAGING DIR., STANDARD & POOR'S: It's very credible and I think that -- if all the information is correct and accurate and been verified, I think the marketplace will probably take it at face value and I think it's very credible.
GERSH: Regulators stressed the nation's 19 largest banks are all now well capitalized, though some might need to raise more money to weather a deeper recession. Under the stress test, regulators say they are examining everything from bank trading positions to loan portfolios. It's a detailed look at the books, showing everything from credit cards and mortgages to commercial loans, including credit scores and the geographic distribution of borrowers. The next step is to test loan performance in an economy where growth is flat next year and unemployment tops 10 percent. Banks that don't have the resources to withstand that economy will be required to beef up their capital. Regulators did not disclose how big that capital buffer should be or the assumptions they are making about loan losses. Banking experts like Gerard Cassidy say that's critical.
VOICE OF GERARD CASSIDY, MANAGING DIRECTOR, RBC CAPITAL MARKETS: If it comes out that they think the home equity loan losses over a two-year period will be 3 percent, people will say, you know, though the mechanics and the methodology were accurate, the number you're using on losses is too easy -- too light. So the test is really a failure.
GERSH: Regulators are not stress testing the books using current market prices for so- called toxic assets. And former Federal Reserve senior staffer Vince Reinhart says that's better for banks.
VINCE REINHART, SR. FELLOW, AEI: They are not asking banks to say, oh, the markets mark down the value of those assets a lot, how much are they worth in the market today? They're saying just how much income and loss will generate from you holding these loans.
GERSH: More details about how much money banks need to raise is expected the week of May 4. By then, we may no longer be calling this a stress test. The tough economic assumptions regulators made when they started this process months ago now look a lot like the consensus forecast. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
John Wolkonowicz of IHS Global Insight Anaylzes Chrysler's Future
SUSIE GHARIB: Chrysler's in the midst of a major stress test, racing toward a government-imposed deadline to ink an alliance with Fiat by Thursday or go bankrupt. That's deal's contingent on steep concessions from Chrysler's unions and lenders. Today, the lenders offered to take almost a 50 percent loss on the near $7 billion they're owed, but Treasury wants them to do more. Jeff Yastine talked with John Wolkonowicz, senior auto analyst at IHS Global Insight and asked him about the odds of a Chrysler bankruptcy.
JOHN WOLKONOWICZ, SR. AUTO ANALYST, IHS GLOBAL INSIGHT: I think there's probably about a 75 percent chance of bankruptcy at Chrysler.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: And elaborate for us on that. Why 75 percent?
WOLKONOWICZ: I think Mr. Marcione (ph) at Fiat, who I think is still very interested in joining up with Chrysler, I believe he would prefer Chrysler to be cleansed through a bankruptcy so that the bad assets of Chrysler are removed before he gets involved with Chrysler.
YASTINE: So do you think at this point that Fiat representatives there at the table doing all the negotiating, they're just sort of either laying back and letting this thing happen? Do they have any reason at all to move forward on this thing before the next Thursday's deadline?
WOLKONOWICZ: No, I think they probably have already come to an agreement with the government on how this is going to come down. Originally the government had said that Chrysler had to have a formalized agreement with Fiat in order to continue to get government funding after the 30th of April. But you know the government does not really want Chrysler to go away and I think that Mr. Marcione has done some negotiations with the government and with Chrysler and I think they will most likely do a quick bankruptcy to cleanse Chrysler of undesirable assets.
YASTINE: And speaking of going away, we see reports now that Pontiac may be sold or shut down by General Motors? What do you think of that possible headline there?
WOLKONOWICZ: I have heard the same thing. I don't think there is any chance it will be sold. I think it will just be shut down. That's a classic General Motors brand. It would be a little hard to remove it in peoples' minds from General Motors. But GM needs to prune brands both for the government and for the point of being able to have adequate marketing money left for the brands they still have and adequate product development money left for the brands they still have.
YASTINE: General Motors also received about $2 billion or will receive $2 billion in TARP money. What kind of bankruptcy possibilities do you put on GM? Their deadline is June 1st?
WOLKONOWICZ: I think it's very low probability of a bankruptcy at GM because in a way I think GM is too big to fail. We've heard a lot of talk about these quick rinse bankruptcies that can be accomplished in as little as 15 days. But when you throw in a company the size of General Motors into one of these quick bankruptcies, it may not be so quick after all and there are a lot of problems that can develop within a bankruptcy that can quickly cause the bankruptcy to get out of control. I think that the government just doesn't want to take that risk and their prime program at this point would be to try to do a restructuring without forcing GM into bankruptcy.
YASTINE: John, in about 20 seconds, just give us the delineation, Chrysler going into bankruptcy, GM too big to fail. Why?
WOLKONOWICZ: Exactly. GM is quite a bit larger than Chrysler and the impact on the economy, given that the economy is in such a weakened state, if GM were to fail, I think it would be catastrophic.
YASTINE: All right, John, appreciate your time on the program.
WOLKONOWICZ: Good to be with you.
YASTINE: Our guest John Wolkonowicz, senior automotive analyst at IHS Global Insight.
The Federal Government Hangs Out The Help Wanted Sign
SUSIE GHARIB: Since August, New York City has lost more than 30,000 jobs in the financial services sector. Today, hundreds of unemployed Wall Street professionals lined up at a job fair in Manhattan for a chance to speak with prospective employers. As Suzanne Pratt reports, it may surprise you to learn who's hiring.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Forty-four-year old analyst Ken Laudano has been out of work since last October, when he lost his job at a German bank here in New York. Finding a new position has been tough, so Laudano's expanded his search to include working for Uncle Sam. Today at this job fair for financial analysts, he got the chance to meet with recruiters from more than a dozen Federal agencies ranging from the CIA to the SEC.
KENNETH LAUDANO, UNEMPLOYED ANALYST: I think it is helpful because I did find that a lot of my skills are transferable to the government sector.
PRATT: Irene Fang was recruiting for the Treasury's office of the controller of the currency. Those are the people currently stress testing the nation's banks. No surprise. They're hiring.
IRENE FANG, DIR., COMPLIANCE RISK ANALYSIS, OCC: We are looking for talent to fill some of our vacant positions. We're looking for quantitative modelers, people with experience working with data, large data sets, analyzing risk in financial institutions.
PRATT: Fang like other recruiters took in piles of resumes from hundreds of financial professionals who attended. The New York Society of Security Analysts sponsored the event and director Alvin Kressler said his members have the right experience for regulatory jobs.
ALVIN KRESSLER, EXECUTIVE DIRECTOR, NYSSA: We know there's a transformation of the industry. We know that the industry is in a lot of upheaval. But, there are job opportunities out there. Where are they? Well, one of them was -- it became clear that the regulatory mechanisms needed some additional staffing.
PRATT: Some of those jobs are here in New York, but many would require a move to the nation's capital. That potential drain on New York's talent pool worries Kathy Wylde, head of a group promoting business in the city.
KATHRYN WYLDE, PRES. & CEO, PARTNERSHIP FOR NEW YORK CITY: Financial services is about 25 percent of our New York regional economy which is a big number. As a result, there's no industry that can replace it. Nothing has the high paying jobs, nothing is going to produce the tax revenues.
PRATT: Experts predict New York's financial sector could lose a total of 100,000 jobs before the recession ends. Finding new positions for many of those people is critical if New York is to remain the financial capital of the world. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
"Reviving the Economy"-Low Interest Loan Boom
SUSIE GHARIB: If you walked into a Wells Fargo mortgage processing office at the height of the real estate boom, you would have seen a frenzy of activity trying to keep up with an avalanche of paperwork. Ironically, if you walk into a Wells Fargo mortgage processing office today, you'll see that same frenzy of activity. But as we continue our series: "Reviving the Economy," Diane Eastabrook says the real estate bust has generated a different kind of boom.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: At this mortgage processing center near Chicago, Wells Fargo workers are operating in maximum overdrive. They sift through piles of paper, electronically submit customer data at warp speed and nag loan applicants for information. Angela Gordon says she barely gets a break.
ANGELA GORDON, LOAN PROCESSOR, WELLS FARGO HOME MORTGAGE: Walk away from my desk, you know, go outside, breathe a little bit, come back in and begin the process all over again.
EASTABROOK: With rates below 5 percent, their lowest levels since the Eisenhower administration, Wells Fargo home mortgage has watched applications quadruple in the past few months. The company has added staff at its 60 loan processing centers, cramming some workers into conference rooms.
JAMES LINNANE, SR. VP, WELLS FARGO HOME MORTGAGE: The day before Thanksgiving is when the flood gates really opened up and we went from being relatively slow to being crazy busy virtually overnight.
EASTABROOK: Senior Vice President James Linnane estimates four out of five applications are for refinancing -- the rest for new home purchases. But he thinks that ratio could change if more consumers take advantage of the $8,000 tax credit for first-time buyers.
LINNANE: We may be looking at the best first time home buyer opportunity that we have ever seen and so that is starting to resonate with people even though I think there are some questions about the economy.
EASTABROOK: Rising unemployment is one of the biggest questions. Linnane says tougher loan guidelines could make it harder for unemployed consumers to buy or refinance.
LINNANE: We're back to our old fashioned rules of underwriting. We look at all of the documentation and we're making sure that every borrower can afford not only the payment that they are in, but the payment that they are going to be in.
EASTABROOK: Linnane says how long these workers will remain this busy really depends on how long mortgage rates remain this low. Angela Gordon is hopeful it will be awhile.
GORDON: I've never worked this hard my whole life, but I love it.
EASTABROOK: Diane Eastabrook, NIGHTLY BUSINESS REPORT, Downers Grove, Illinois.
"Market Monitor" -Mark Leibovit, Chief Market Strategist for Vrtrader.com
PAUL KANGAS: My guest "Market Monitor" this week is Mark Leibovit, chief market strategist for vrtrader.com and welcome back to NBR Mark! Good to see you.
MARK LEIBOVIT, CHIEF MARKET STRATEGIST, VRTRADER.COM: Always a pleasure to be here, Paul.
KANGAS: From your technician's vantage point, give us an idea of how you think this market has shaped up.
LEIBOVIT: Back in November we were looking for 6500 in the Dow, Paul. That was our downside target. It was met. We staged a rally here which I believe is a bear market rally but still it's tradable. The 200 day moving average in the Dow Industrials is around that 9200 area. A halfway retracement of the entire 7700 point decline is about 10,000. I'm not quite sure if we will see that but it could happen later in the year. Our short- term work says don't chase the market here. We're already rallied a couple thousand points, but we pull back into May and have a little bit of a rest. I think you can jump in for another wave higher, but keep in mind it's a traders' market and it's still a bear market.
KANGAS: But it sounds like you feel the worst is behind us. No more 6500?
LEIBOVIT: Not for now, maybe a year or two later. We will take our annual forecast year to year and we'll deal with the next year as it unfolds. That's always possible. If we find resistance and the 200-day moving average could come down, it could come right back there but that's not for this year, I don't believe.
KANGAS: In this volatile market are you buying anything?
LEIBOVIT: Gold is my favorite. I think we've begun a new rush in gold. This is a new rush like we saw in Internet stocks. I think this is a tremendous opportunity for investors and the move is only beginning. In fact there's a comparison I make to the Dow back in 1982 where it traded between 800 and 100 and when it finally broke through, 1000 became the floor. That's what's going to happen to gold here. When it gets to 1,000, that's the floor.
KANGAS: We have your annual forecast model for gold and it looks very bullish, especially toward the end of this year.
LEIBOVIT: Very bullish, a little setback here in the summer but the model is designed to give you an overall impression of what's coming, so any weakness, that we just broke out of a 20- day channel to the up side, a wedge to the up side. We just experienced a four month cycle low and we're getting volume to the upside so it could be happening now, Paul and you got to be in there.
KANGAS: Your target is $3000 an ounce.
LEIBOVIT: Yes, I'm using that 10 times multiple theories. Stocks went up 10 times, Dow from 1,000 to 10. Real estate went up and we're going to do the same for gold, 3,000 is a reasonable target the next couple years.
KANGAS: I want to tell our viewers that our web site has more of Mark's technical analysis on gold. That's NBR on pbs.org. Now on your last visit in November Mark, you recommended a gold stock. Let's see how it's done since then. We have it up here, Central Fund of Canada (CEF), a gain of 21.3 percent, very nice move. Thank you for that good advice.
LEIBOVIT: And I would stick with CEF.
KANGAS: Is that a new recommendation? We have now charts of your new recommendation.
LEIBOVIT: OK, keep CEF at 60 percent gold, 40 percent silver. I would add Hecla Mining (HL), which is a tremendous opportunity. Stock's down from 13 to $1, now trading around $2.50.
KANGAS: Let's get that chart up there.
LEIBOVIT: Double or triple on Hecla Mining, at $2.50, buy Hecla.
KANGAS: OK. That's two gold and silver stocks. Now we have Denison Mines (DNN).
LEIBOVIT: Denison Mines, also a very similar situation. Stock's way down from $9 to $1 turning higher. Strong volume to the upside, easy double or triple in Denison. Good play in energy as well as metals, mostly metals.
KANGAS: DNN on the American exchange, correct?
LEIBOVIT: Correct and our final recommendation is Northern Dynasty (NAK), which is a gold stock trading around $6.75, easy double here, a pure gold play and nice leverage there as well, trying to keep them to the low price side, Paul because of the leverage potential and I own all of these just to let you know. I love all of these stocks.
KANGAS: All right, very good indeed. I want to thank you once again for sharing your views with us Mark. Mr. gold lover, I guess we could call you.
LEIBOVIT: Yes. Gold bug for sure.
KANGAS: For sure. Thank you for being with us, Mark.
LEIBOVIT: Thank you.
KANGAS: Mark Leibovit of vrtrader.com.
Paul Kangas' Stocks in the News
PAUL KANGAS: A smaller than anticipated loss at Ford Motor and sharply higher European markets set the stage for solid gains on Wall Street today. Bullish enthusiasm was also linked to smaller than feared declines in March durable goods orders and new home sales. The Dow posted a 134 point gain at noon with the NASDAQ up 39 points and the rally continued right throughout the afternoon to the final bell. The Dow Jones Industrial Average closed up 119.23 points at 8076.29. This week it fell twice and rose three times, had a net loss of 55.04 points. The NASDAQ Composite was up 42.08 closing at 1694.29 today. It advanced in four of this week's five sessions for a gain of 21.22 points overall. Standard & Poor's 500 rose 14.31 points today to 866.23. And for the week it fell 3.37 overall. In the bond market, the 10- year note lost 19/32 to 97 29/32, putting the yield at 3 percent even.
Big board volume leader on 72 million shares was Bank of America (BAC) moving up $0.28.
Followed by Citigroup (C) down a penny.
Ford Motor Co (F) a $0.51 gain, good percentage move there. The company reported a first quarter loss of $0.75, but that's well smaller than the $1.23 loss Wall Street was expecting and the company said it has no need for government assistance and is on track to be at least break even by 2011.
Wells Fargo (WFC) gained $1.31.
JPMorgan Chase (JPM) up $0.17.
Host Hotels & Resorts (HST) which is in the midst of offering $66 million common shares at $6.60 each was a $0.70 gainer.
General Electric (GE) $0.23 rise there.
American International Group (AIG) a $0.04 loss.
American Express (AXP) up $4.33. After the close yesterday, it reported better than expected earnings and today Credit Suisse boosted its 2009 earnings estimate for AXP from $0.90 to $1.40 a share.
Las Vegas Sands (LVS), tenth in volume was up $1.16.
Honeywell intl (HON) a $0.93 loss. Sharply lower first quarter earnings, $0.54 versus $0.85 a year ago, sales dropped 15 percent.
Schlumberger Ltd (SLB), the oil service company, $3.12 advance. First quarter earnings, $0.78, down from $1.06 but a nickel above the Street estimate. We see a lot of stocks like that here.
Stanley Works (SWK) up $3.97, $0.48 in first quarter earnings, well below $0.80 last year, $0.09 above the Street estimate and the company's upbeat about the future.
Eastman Chemical (EMN) up $6.91. First quarter earnings of only $0.25, down from last year's $1.48, but $0.11 better than the Street was expecting.
Wilmington Trust (WL) up $3.42, big percentage move, $0.19 in first quarter earnings out today. The Street estimate was for only $0.04 in earnings.
Mohawk Industries (MHK) up $11.18 despite a first quarter loss of $1.55 versus earnings last year, but the company says it sees seasonal improvement in all of its major businesses and sees second quarter earnings of $0.43 to $0.52 a share.
Steak n Shake (SNS) up $1.84, real turnaround, $0.08 in second quarter earnings versus a loss of $0.10 last year.
Devry (DV) the education company, up $2.97. Third quarter earnings came in at $0.70, well above last year's $0.53.
And NBTY (NTY), used to be called Nature's Bounty, up $5.38, $0.37 in second quarter earnings, down from $0.67 a year ago, but $0.04 above the Street estimate. RBC Capital upgraded it from "sector perform" to "out perform."
Microsoft (MSFT) topped the NASDAQ actives with a gain of almost $2 despite yesterday's report of lower quarterly earnings, but analysts like the company's cost-cutting measures.
Apple (AAPL) $1.50 loss there.
Amazon.com (AMZN) up $3.85. After the close yesterday, better than expected earnings. Today RBC Capital repeated an "out perform."
Google (GOOG) up $4.80 there.
Research in Motion (RIMM) a $0.49 advance.
Intel (INTC) gained $0.09.
Cisco Systems (CSCO) an $0.80 rise there.
Oracle (ORCL) $0.11 gain.
Juniper Networks (JNPR) up $3.07. The company gave an upbeat second quarter earnings forecast of $0.16 to $0.18 a share. That's about a penny or so better than the Street was expecting.
And then came Amgen (AMGN) with a gain of $3.01.
Those are the stocks in the news tonight.
