NBR Transcripts-May 6, 2009
Wednesday, May 06, 2009The Stress Test Is Expected To Stress Big Banks Even More
SUSIE GHARIB: A new stress test requirement. Late today federal regulators outlined new guidelines for the nation's biggest banks needing additional capital under the so-called stress test. Those banks will have to review their current management and board of directors to make sure they have the right leadership in place. And they'll have to submit a detailed plan for raising that capital. The deadline for both blueprints is June 8th. The firms will also have until November 9th to actually raise the funds. Meanwhile, early reports on those stress reveal that many of the nation's biggest banks need to raise billions of dollars in new capital, but not as much as feared. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: FDIC Chairman Sheila Bair told lawmakers the bank stress test results should reassure investors about the ability of the nation's top banks to withstand further declines in the economy.
SHEILA BAIR, CHAIRMAN, FDIC: I think this will be a confidence- instilling announcement. There will be additional needs for capital buffers for some institutions, but I think there will be mechanisms to do that within the next six months.
DHUE: But many bank analysts, including Bert Ely, aren't convinced.
BERT ELY, BANKING CONSULTANT, ELY & COMPANY: There is a lot of concern in the investment community that the stress test results are going to kind of whitewash a lot of the problems in the banking industry, and that they will not provide realistic assessments of the amount of additional capital that some of the weaker banking companies need to raise.
DHUE: Sources tell NIGHTLY BUSINESS REPORT 10 of the 19 banks tested will need to increase their capital buffer. So far, here is what the numbers look like: Bank of America will need $34 billion; Wells Fargo $15 billion; GMAC, $11.5 billion; Citibank, $5 billion. Regents, Fifth Third (FITB), and SunTrust (STI) will also need a greater capital cushion. Bair gave some details about how those banks could get the capital.
BAIR: Those institutions need to look to non-government sources first. The Treasury can be there as a backstop, but they should look to non-government sources first, and first and foremost to raise new equity if possible.
DHUE: Some banks may also make up the shortfall by converting preferred stock into common stock, a move Ely says would be less than confidence-inspiring.
ELY: These preferred to common conversions don't bring any additional capital into the bank. They just -- it's kind of really kind an act of window-dressing by increasing the amount of common equity in the bank.
DHUE: The stress test results will be officially released tomorrow, with many of the results already being leaked, those disclosing the information, hope it will be a non-event for the financial markets. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
GHARIB: In other stress test news tonight, firms that pass the test have a new requirement before they can repay TARP funds to the Treasury. Regulators say that banks will have to prove they are strong enough and have the money to be able to keep lending through a deeper recession. Right now many banks are raising money by issuing bonds backed by the FDIC. Now if banks want to repay their government loans, regulators say they'll also have to show they can issue debt without any guarantees from the federal government.
One on One with Jim Doyle, Governor of Wisconsin
SUSIE GHARIB: All across the country states are feeling the pain of the recession, including Wisconsin, where unemployment is close to 10 percent. The state expects to receive nearly $4 billion in stimulus money from the federal government. The number could reach as much as $9 billion when tax credits are counted. So where is Wisconsin spending the money, and will it help revive the state's economy? As we continue our series "Reviving the Economy: Government Response," we talk tonight with Wisconsin Governor Jim Doyle. Governor Doyle, welcome to NIGHTLY BUSINESS REPORT.
GOV. JIM DOYLE (D), WISCONSIN: Good evening, Susie.
GHARIB: So where do you plan to spend the stimulus money that will give the biggest boost to the state economy and create the most jobs?
DOYLE: Well, first, let me say I don't know where we would be if we didn't have the stimulus package. The Recovery Act, if we didn't have it, the situation in Wisconsin and every other state would be so dire. One place that it is going to go that I think sometimes doesn't get a lot of attention is that there are funds there that will help support our basic education system. We would be looking at cuts to education of 10, 15, 20 percent if it weren't for the Recovery Act money committed to education. The same is true with health care. We would have to be cutting back dramatically on health care for children and seniors in Wisconsin if it weren't. So a good deal of the funds will go to help support and to avoid large lay-offs of educators and health care workers. In addition, there is a good deal of this will go into basic infrastructure. For example, we will probably have 50 percent more road and bridge projects this summer season than we would otherwise have had. Major water improvement projects to clean drinking water and water treatment, of significant new investments in green energy which is, in the long term, one of the areas that we are really focused on in Wisconsin. In addition.
GHARIB: Governor...
DOYLE: . there is money coming -- yes.
GHARIB: Let me interrupt because I want to get a little bit more color on what the economic situation would be. Your unemployment rate is now around 10 percent. With this stimulus money, with this job creation and all of the jobs that you're going to protect, where do you see the unemployment rating getting, let's say, by the end of the year? Is it going to come down?
DOYLE: Oh, I hope so. I mean, we're generally a very low unemployment state. We were -- when this started in September, we had an unemployment rate of about 4 percent. Our manufacturing economy actually was doing pretty well. Agriculture, high tech was also doing well. After the collapse of the markets in September, the freezing of credit, we have now soared to 10 percent, numbers we haven't seen since the early 1980s. In fact we're now going down into Depression kind of numbers. So we certainly have hoped that this is going to turn around.
GHARIB: I hope so too, for your sake. I want to know, what are you able to do to attract business investment in the state that would create even more jobs?
DOYLE: We really have to be focused on what our strengths are, high- end manufacturing, high skills. So we're putting real investments, even in this difficult time, into worker training to really have a highly skilled work force, a great educational system. We also have a booming -- what was booming and is still a strong high-tech industry particularly around our universities. The University of Wisconsin-Madison is one of the great medical research institutions in the country. It's where stem cell research began. And we're continuing to make investments there, and also in green energy, a lot of investments in wind, solar, and biomass to really help transform our economy.
GHARIB: Governor Doyle, we're hearing a lot from like the Federal Reserve chairman and other policy makers in Washington that they're beginning to see signs of recovery in the economy. As you travel around the state and you look at the situation in Wisconsin and you talk to people, what -- are you seeing signs of improvement? What is the mood of people in the state? Are they feeling better about the economy?
DOYLE: No, I wouldn't say so. We've had, in the automobile bailout area, the Chrysler bankruptcy has come down very heavily on Wisconsin, as has GM's problems. So I think people are still really struggling. Having said that, however, I think for people who are really looking at this, there are a few glimmers. Our real estate markets are beginning to bounce back. Realtors are telling me that people really are sort of figuring right now they'd better get into the market right now. Prices are good. Interest rates are low. So we're seeing some of that. We are seeing -- we're a significant manufacturing state. And we're seeing that we've been really working through inventories. And I'm hearing from manufacturers that they're really going to have to start producing again because they've gone as far as they can up through their inventories. So I think there are a few glimmers of hope. But the real issue for us is that unemployment number. We're a hard-working state. We're a really strong, good middle class state. We don't have a lot of really rich and a lot of really poor. We are really focused on good-paying jobs. And that 10 percent is what is really our -- you know, that isn't just a percent. Those are really good, hard-working people that didn't do anything wrong, never had -- never bought or sold derivatives and now they're really paying a heavy price for it.
GHARIB: I understand. I understand. I feel your pain. Well, good luck to you and to everyone in Wisconsin. And we really appreciate you coming on our program tonight.
DOYLE: Thank you very much, Susie.
GHARIB: My guest tonight, Jim Doyle, governor of Wisconsin.
"Street Critique"-Michael Farr of Farr, Miller, and Washington
PAUL KANGAS: Tonight's "Street Critique" guest says while we've avoided another Great Depression, he's not convinced the worst is over. He's Michael Farr, president of the money management firm Farr, Miller, and Washington and author of "A Million Is Not Enough." And, Michael, good to see you again.
MICHAEL FARR, PRESIDENT, FARR, MILLER & WASHINGTON: Nice to see you, Paul. Thanks.
KANGAS: Signs of hope all around. Green shoots, so to speak. But you're still somewhat bearish. Why?
FARR: Paul, the green shoots are things like the rate of decline is slowing. You know, I think that's a great thing but we're still declining. We're moving closer to a bottom. I'm very encouraged by a lot of what I'm seeing, but the numbers are still negative.
KANGAS: What would turn you outright bullish?
FARR: You know, that's a really good question. I would have to see home prices begin to bottom. I'd have to see credit loosen up. And I'd have to see the consumer employment -- I guess employment would have to start going up and the consumer start spending.
KANGAS: We're well into two months in this rally that has been going on. And you think it's still a bull trap?
FARR: Well, it feels like I would call it more of a bear trap, I think. I thought that we were due for a rally at the beginning of March. And we talked about that on your program, of course. I feel like a 35 percent rally in 60 days is a terrific rally, but certainly the fundamentals haven't improved by 35 percent in the past 60 days. So I'd be a little bit cautious to step in and buy here.
KANGAS: What do you think the bank stress tests that will be released tomorrow are going to show? Are you positive or negative?
FARR: Actually, I'm positive, Paul. And I can't believe that I'm saying this, but I actually think the government has done a pretty decent job in sort of bleeding out this news, leaking it over time. We're seen the share prices go higher, the news about the banks, isn't this horrible. And now bank per share prices are high enough where if they have to go to the public markets, they can raise the capital they need. I think this has been a well-managed program.
KANGAS: Do you think investor confidence is turning? It seems it is for you.
FARR: It's turning a little bit for me. And certainly consumer confidence numbers were up too today. That looked very strong. So, yes, we're feeling a little bit better but I think perhaps the exuberance is a bit premature. It took us a long time to get here. I think it's going to be still a long, steady climb out.
KANGAS: We have a minute left. In January you gave us 10 stocks for this year, all of which are on our Web site. Your picks are gaining ground, up almost 4 percent this year to date, versus the Standard & Poor's 500, only about a 2 percent gain. Any changes in your picks or are you staying with all of them?
FARR: No changes in my picks. I'm going to stay with all of them. I think it's still a defensive portfolio. We really outperform by a greater margin as the market was falling. And we're keeping up nicely as it's going up. It's a defensive portfolio and it was designed to be that way.
KANGAS: OK. And you own all of the 10 stocks in that portfolio for the long run, right?
FARR: Own them all for the long run, personally and the company.
KANGAS: OK. Very good. We have about 15 seconds for a quick comment to our viewers as we close.
FARR: I think that there are good signs to be encouraged but if I took a car and marked it up 35 percent in the past 60 days, you'd probably want to wait until the price came down a little.
KANGAS: OK.
FARR: Be patient. Be diligent. But there's money to be made. Just be patient.
KANGAS: Michael, thanks very much for being with us.
FARR: Thank you, Paul.
KANGAS: My guest, Michael Farr of Farr, Miller, and Washington, and author of "A Million Is Not Enough."
"Robo-Revolution"-Robot Research
SUSIE GHARIB: Godzilla-sized hurdles remain before robots will be as smart, skillful, and safe as human beings. So the Japanese are taking a different tack. Instead of trying to make robots more human, some engineers are trying to make humans a little robotic. Tonight as we continue our series "Robo-Revolution," Lucy Craft tries on some robotic apparel for size.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Japanese engineers are on the case when it comes to figuring out how aging societies can get a leg up, literally, on the ravages of physical decline. Jun Ashihara directs robot research at Honda Motor (HMC).
JUN ASHIHARA, WALKING-ASSIST ROBOT PROJECT LEADER, HONDA (through translator): Workers who have to stay on their feet, who have to bend down a lot, that's who we have in mind for this robot.
CRAFT: Honda hopes its "walking-assist" robot will reduce fatigue among car assembly workers. But the company envisions walking-assist robots perambulating far beyond the auto factory. At tourist sites, entertainment events, wherever long lines form, virtually anyplace where tired pedestrians are looking to take a load off, Honda says, is a potential goldmine for robotic relief.
ASHIHARA (through translator): You just lift it into place, and it gives you seven pounds of support. Flex your legs, and you get 20 pounds of support. And it's springy.
CRAFT: The device is deceptively simply, a pair of shoes, a bicycle seat, and lightweight joints, so the user can be up and walking in a few seconds. Sensors in the shoes tell the motorized limbs how much lift is needed. Seat and frame follow the movement of your legs. You don't feel the power of this robot very much when you're walking on flat ground. But when you're going up and down stairs like I am right now, it really feels like it's supporting your weight. And it's actually quite comfortable. Full-body robo-suits are already helping handicapped patients walk, but this version is designed for healthy users. Tokyo A&T University's robo-suit is rugged enough to wear in a rice paddy or daikon radish patch. Put it on, and voila, the backbreaking job of harvesting produce by hand becomes almost effortless, says professor Shigeki Toyama.
SHIGEKI TOYAMA, ROBOTICIST, TOKYO A&T UNIVERSITY (through translator): The robot does all the work. All you have to do is grab the vegetable and hang on. There is no burden at all on your hips or knees. It's an unusual feeling.
CRAFT: Eventually Professor Toyama plans to put his robo-suits on sale for about $1,000. Demand for a robotic helping hand, he says, is acute in Japan, where most farmers are over the age of 60 and more than a third are 75 or older.
TOYAMA (through translator): I want to not only make their work easier, but more productive. With this device, they can harvest twice as much. Also, if we can ease the physical burden on farmers, they will stay healthy longer and reduce our national health care bill.
CRAFT: The suit still weighs and costs too much, yet Professor Toyama vows that robo-suits will become as common around the farm here as gimme caps and tractors within just a few years. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street's opening blue chip rally this morning faded as the NASDAQ turned negative. But two private reports showing job losses were slowing, helped stocks improve and so did optimism that the bank stress tests won't be as bad as some investors fear. Late in the session, the Dow was up 105 points, but the laggard NASDAQ index was a slight drag on the rally. The Dow Industrial Average still closed up 101.63 at 8,512.28. But the NASDAQ gained only 4.98, ending at 1,759.10, while the Standard & Poor's 500 Index rose 15.73 ending at 919.53. Over in the bond market, the 10-year note rose 2/32 to 96 20/32, putting the yield at 3.16 percent.
Most active Big Board issue on 137.25 million shares, Citigroup (C), moving up $0.55.
Followed by Bank of America (BAC) with a big gain of $1.85. You've already heard the banking story.
AIG (AIG) was up $0.11. First-quarter results from AIG due out tomorrow, the Street estimate, a loss of $1.80 a share.
Wells Fargo (WFC) did well, up $3.62.
And General Electric (GE) moving up $0.57.
JPMorgan Chase (JPM) a nice gain of $2.40.
Las Vegas Sands (LVS) down $1.05 after several days of big gains, a little profit-taking.
Ford Motor (F) was up $0.41. The company said today that its restructuring is on-track.
Then General Motors (GM) up -- down $0.19, the company is requesting an increase in the authorized common shares outstanding. The $62 billion, which, in essence, would allow the 1-100 reverse split, if that should happen.
Pfizer (PFE), a $0.21 loss there, 10th in volume.
Disney (DIS) up $2.72, after the close yesterday, as we reported, better-than-expected earnings today. Barclays upgraded the stock from underweight to overweight.
Dow Chemical (DOW) down a $1.14. The company began an offering of $1.6 billion of common stock. Proceeds will help to -- in the purchase of Rohm & Haas, which Dow is going ahead with.
Devon Energy Corporation (DVN) a big gain of $6.53. Fourth-quarter -- or I should say, first-quarter earnings, $0.48, way down from $1.66 last year, but about $0.20 better than the Street was expecting.
XTO Energy (XTO) up $4.06. First-quarter earnings of $0.91, $0.14 above the Street estimate. A penny only more than last year, but revenues were up 29 percent. And the company is boosting its 2009 oil production growth rate from 14 to 16 percent.
Alpha Natural Resources (ANR) up $4.75, $0.58 in first-quarter earnings, well above last year's $0.39. Standard & Poor's upgraded it from hold to buy.
And U.S. Cellular (USM), a good gain of $6.43, $0.97 first-quarter earnings, well above last year's $0.80. Revenues up 2 percent.
Then we see Speedway Motorsports (TRK) rising $4.73. First-quarter earnings came in at $0.50, down from $0.74 last year. But that was $0.02 better than the Street was expecting.
And Biovail Corp. (BVF) losing $1.35. First-quarter earnings, $0.25, down from $0.35 a year ago. Revenues fell 17 percent. And the company slashed its quarterly dividend from $0.375 to only $0.09 a share. And it will pay GlaxoSmithKline (GSK) $510 million for the rights to Wellbutrin.
Apple (AAPL) topped the NASDAQ's active list, down $0.21. Citicorp says the company may sell its iPhone through other carriers than AT&T (T).
Cisco Systems (CSCO) closed down $0.02. After the close, third- quarter earnings, excluding items, $0.30, down from $0.38 last year, but $0.05 above the Street expectation.
Research In Motion (RIMM) up $1.67. JPMorgan upgraded it from underweight to neutral.
Microsoft (MSFT) no change.
Intel (INTC), a $0.04 drop there, fifth in NASDAQ volume.
Google (GOOG) up $0.48.
A $0.24 rise in Qualcomm (QCOM).
Amazon.com (AMZN) up $0.09.
First Solar (FSLR) did well, up $6.88.
And then DirecTV (DTV) with a $0.73 gain.
And finally shares in private equity firm American Capital Limited (ACAS) plunged $1.50 after the company reported a first-quarter loss and confirmed it was in default on $2.3 billion in debt.
