NBR Transcripts-September 30, 2009
Wednesday, September 30, 2009Bank of America CEO, Ken Lewis Calls it Quits
SUSIE GHARIB: Ken Lewis is stepping down as CEO of Bank of America. In a surprise announcement late today, Lewis told the board of the banking giant he'll retire at the end of the year. He's leaving after a tenure marked and marred by the bank's purchase of Merrill Lynch on January 1st. Lewis and B of A have come under fire since it was learned Merrill gave billions of dollars in bonuses to employees while getting bailout money from the government. Lewis says he's confident in leaving now, because B of A is ready to meet the challenges of a global economy. The bank says Lewis was a key player in establishing it as a global financial franchise and now it will look for a successor. Joining me now on the phone for more analysis, Dick Bove, bank analyst at Rochedale Securities. Hi Dick.
DICK BOVE, BANKING ANALYST, ROCHDALE SECURITIES: Hello Susie.
GHARIB: Start off by telling us, why now? Why the timing of today's departure?
BOVE: I think there are just too many governmental actions being brought against the company. I think that New York state and Ohio are both suing the company. You've got the SEC, Congress and a Federal judge all wanting to do something against the company. So that's the reason why now.
GHARIB: Do you think that the Obama administration had anything to do with Lewis' departure?
BOVE: Well, to the degree that they control the SEC, the answer would be yes. But I'm not sure it's at the top of their agenda.
GHARIB: All right. Who will be Lewis' replacement? Do you see it as being someone come from the outside or somebody from inside the bank?
BOVE: Well, the two people that I think would be in top position would be Brian Moynihan, who is the head of the retail bank and the person that I like the best is Barbara Desoures (ph), who is the head of Countrywide.
GHARIB: So you think it's going to be an insider?
BOVE: I believe so. It would be totally against the tradition and culture of this company to take someone from the outside.
GHARIB: What about Sally Krawcheck who just got a big job over at Bank of America?
BOVE: She's not in the running because she's not a Bank of America person and she has no history at the company.
GHARIB: What do you think is going to be the number one job of the new CEO?
BOVE: You've got to control the loan losses that are in the company. I think that the acquisitions of Merrill and Countrywide, despite what people think, were huge successes for the company. They benefited the bank. The area where the bank has serious problems are in the loan losses. That's where the greatest attention has to be paid.
GHARIB: Dick, Bank of America stock is up in after hours trading. Would you be a buyer of this stock at these levels at around $17?
BOVE: Yes, I think that the upside potential of the stock is enormous given the fact that its loan losses over the next few years should contract from $55 billion a year down to about $10 billion a year and that will cause earnings to soar.
GHARIB: All right, Dick, thank you so much for coming on the program.
BOVE: Thank you.
GHARIB: My guest tonight, Dick Bove, bank analyst at Rochdale Securities.
IPO's Show Signs of Recovery
SUSIE GHARIB: It's one of the biggest initial public offerings this year. Late today, casino operator Wynn Resorts raised more than $1.5 billion in an offering for its casino and resort in Macao. The stock begins trading in Hong Kong on Thursday. September has been a busy month for new public offerings after a drought in the IPO market due to the recession. So is this the beginning of a gusher of newly public companies? Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: With the market rally, it was only a matter of time before the green shoots of initial public offerings sprouted. After seven months of a virtual shut down in the IPO market, the number of new issues has been rising, although it remains well below last year's levels. Just last week, A123 Systems went public on the NASDAQ. This company makes batteries for electric cars, an industry targeted for funding in the economic stimulus package. Investors have already bid its stock price up by 50 percent. But David Menlow of IPO Financial Network worries they are being too speculative.
DAVID MENLOW, PRESIDENT, IPO FINANCIAL NETWORK: The big trap for investors are going to be those companies that come into the marketplace as a result of any stimulus spending that is coming around the corner, next week, next month, in the next quarter, what have you. These are companies that will not immediately benefit from whatever money is being thrown around, but it will be the perception that everybody will get trapped in.
GURVEY: In fact market performance for several new issues has been poor, with prices staying around their first trade. Two real estate investment trusts had rocky roads to market this month. Two others were canceled. William Smith of Renaissance Capital says the current market reminds him of the 1970s.
WILLIAM SMITH, CEO, RENAISSANCE CAPITAL: It was a very troublesome period. There was no IPOs during that period. Right after, when, in the mid to later seventies, the IPO market did come back. However it took a longer time to do that. It was more in dribs and drabs as opposed to a big bang. And so we're not expecting any kind of a big bang anytime soon.
GURVEY: The experts warn investors to pay particular attention to each specific offering. This is not, they say, a climate where a rising stock market will lift every IPO.
MENLOW: Obviously the big question is how do you find the right deal? And it's going to be really as simple as investors doing their homework and not relying on other people to say, hey this is a great stock. You got to do it.
GURVEY: There is still a lot of money sitting on the sidelines and private equity firms have invested in many companies they eventually plan to take public. That means next year may be the year the IPO market returns to some sort of normal. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
The Commerce Department Opens the Internet Floodgate
SUSIE GHARIB: The Internet is a little more global tonight. The Commerce Department agreed to relax control over the non-profit company that sets the rules for web site domain names. In theory, it means the Internet will now better reflect its global footprint. In practice, it means stay tuned for a ton of new places to surf, which may be good or bad news. Darren Gersh explains.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Just when you think you're a master of the Internet, they throw in something new.
ROD BECKSTROM, CEO ICANN: A dot sport, you know or a dot Berlin or a dot New York City.
GERSH: That's Rod Beckstrom, CEO of the Internet Corporation for Assigned Names and Numbers, Icann for short. Icann is like the Internet's postmaster general, making sure every website has a unique address. And the number of possible addresses will explode next year as Icann expands the neighborhood beyond top-level domain names like dot com and dot org.
BECKSTROM: When Icann was created by the U.S. Department of Commerce 11 years ago, the mandate, right there in the top was you need to create competition in this market space for names by creating new top-level domains. And in general people like to have options and choice and it leads to innovation.
GERSH: So how much option and choice are people going to have now that they didn't have before?
BECKSTROM: What they didn't have before is firstly, they had to have Latinate characters, what we think as English characters all the way through the dot com or dot net. That is going to change.
GERSH: That means a website in China will be able to write its domain name using Chinese characters. And for companies, instead of, say, coke.com, you might simply use coke. But where Icann sees choice, many businesses see added cost. After the expansion, companies will have to register hundreds of new domain names to protect themselves from cyber squatters, those people who register valuable online names and sell them off to the highest bidders. Steve Delbianco represents e- commerce giants like eBay and Verisign. At a recent congressional hearing, he argued new domain names won't lead to more innovation.
STEVE DELBIANCO, EXECUTIVE DIRECTOR, NETCHOICE: Dot food won't create a single new restaurant. It won't create a new webpage. It won't create new restaurant reviews or online reservation sites for restaurants. They've already got those.
GERSH: Beckstrom says when dot com was created, critics said the same thing.
BECKSTROM: Someone said we are going to create this dot com, but no one is going to use it. Why is there any reason to have dot com? We don't need it. And the reality is that dot food may or may not make it. Dot New York City may or may not make it. But why not let the free market decide?
GERSH: This is an important day for Icann. The U.S. government has agreed to relax its control over the non- profit company, making it more international.
BECKSTROM: Over 100 million new users will come to the Internet this year. Ninety, 95 percent of those are outside the United States of America. So the Internet is a truly global phenomenon and we need the buy in of the community and the stakeholders worldwide. They should be governing this collaborative body, not just one country.
GERSH: Online experts say domain names matter less now, since most people find sites through search engines. But Annalisa Rogers thinks dot green will be different. She's setting up a non-profit registry that will help people find companies and programs that help the environment.
ANNALISA ROGER, FOUNDER, DOTGREEN REGISTRY: I think it's a big deal for the environment and for the planet as a whole. I think the dot green, the movement is happening and dot green gives it a chance for the green movement to happen online.
GERSH: You can see the complete interview with Icann's Rod Beckstrom at NIGHTLY BUSINESS REPORT on pbs.org or pbs.media or pbs.interesting or pbs.watch or just plain at PBS. Just kidding, at least for now. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Sam Stovall, of Standard & Poor's Reviews the 3rd Quarter
PAUL KANGAS: It's the end of the third quarter on Wall Street and a September to remember. Joining us for a look at the quarter and where we could be headed next is Sam Stovall, chief investment strategist at Standard & Poor's. Sam, good to see you again. Welcome.
SAM STOVALL, STANDARD & POOR'S EQUITY RESEARCH: Thanks, Paul, good to talk to you.
KANGAS: What a bullish quarter it was. I mean look at these gains. Let's have a look at some of these averages and they are really up 15 percent and better. What do you make of this quarter? Why all the bullishness?
STOVALL: Well, Paul, certainly it was a good quarter. It was the fifth best third quarter since 1929 for the S&P 500. And I think certainly it's because we have investors who are hoping that the third quarter GDP will come in stronger than expected because of a weaker year over year changes in energy prices and a weakening dollar that that probably could signal an improvement that third quarter earnings results.
KANGAS: What sectors led the market higher in the quarter?
STOVALL: Well, with this kind of performance I think you'd be surprised if it were not the cyclical sectors and yes they were the leaders. Industrials, financials and material stocks all led the way higher by about 19 percent or so.
KANGAS: And the weakest of the sectors was?
STOVALL: Well, basically a rising tide lifts all boats, so these three were higher, but they were definitely the defenses of consumer staples, health care and utilities.
KANGAS: To learn more, we have a section on our website that has the quarter's top winning and losing individual stocks. Now looking ahead to the fourth quarter, can we expect the gains to continue, Sam?
STOVALL: I think the gains will continue, but probably not at the same magnitude. October, which is usually a relatively flat month, I think could end up being a little better than expected similar to September because it is the first October since the new bull market and traditionally the first month following the end of a bear market does relatively well. And if economic growth is likely to continue to be working its way slowly higher, then I think that could help pull prices with them.
KANGAS: What types of stocks do you think will lead us higher should we go that way?
STOVALL: Again, I think that it will probably be the cyclical areas, in this case consumer discretionary, probably industrials and technology stocks could do fairly well.
KANGAS: What sectors would you absolutely avoid over the next three months?
STOVALL: Again, I would tend to say that if the market is in an upper trend, the trend is your friend is the old saying, that traditionally the defensive areas are the ones that lag. They have good dividend yields, but health care, consumer staples and utilities probably will be under performers on a price basis.
KANGAS: We've had a lot of analysts saying that the market has gotten ahead of itself when you compare to it the improvement in the economy. What are your thoughts?
STOVALL: Well, Paul, I think what traditionally happens is that investors underestimate the strength of a new bull market. There's an awful lot of cash on the sidelines. A lot of people have been waiting for a correction in the stock market that really has not materialized. And if history is any guide and certainly not gospel, we could see 1200 for the S&P 500 by the summer of next year.
KANGAS: And where do you see the Standard & Poor's 500 at the end of this year?
STOVALL: I think Paul certainly higher than where we are right now, probably approaching the 1100 level.
KANGAS: 1100 level, fair enough. Any last thoughts for our viewers as we end the third and start the fourth quarter?
STOVALL: Well, Paul, certainly I would just say that we are looking for an economic recovery. Probably the word recovery will not be spelled with the letter V, but probably with an elongated U. So I would say be optimistic but not overly so. KANGAS: Sam, I want to thank you very much for sharing your views with us once again.
STOVALL: My pleasure as always, Paul.
KANGAS: My guest, Standard & Poor's Sam Stovall.
"Money File"-Cash on the Sidelines
SUSIE GHARIB: In the "Money File" tonight, why the sidelines aren't the best place to be if you're planning for retirement. Here's Charles Bennett Sachs, vice president and wealth manager at Evensky and Katz.
CHARLES BENNETT SACHS, VP, WEALTH MANAGER, EVENSKY & KATZ: Here's why safe isn't always safe. It was Mark Twain who said that he was more concerned about the return of his money than the return on his money. In this time of uncertainty, it is this very reason why investors have so much cash on the sidelines these days. And who can blame them after the year we just lived through in the investment markets? We are in the midst of a global slowdown the likes of which we haven't seen in decades and while many see glimmers of hope, of light at the end of the tunnel, some see sustained darkness for some time. Cash holdings, while generally safe from a principal protection standpoint are far from safe when it comes to meeting future spending goals primarily due to time and inflation. Time because you are probably going to live longer than you think. In fact there's a one in four chance that you or your spouse will live until at least age 95. Inflation acts as the hidden tax always working to erode ones buying power with devastating results over long periods of time. The solution? Being an owner in a diversified basket of businesses affords one the opportunity to share in the profits of those businesses. And while individual businesses will fail, the overall basket tends to do well over time. It's also important to realize it's not necessarily an all or nothing game. Studies have shown that while humans tend to gravitate to an all-in or all-out approach, having some blend of cash, stocks and bonds is most appropriate for the vast majority of investors. Don't let the powerful feelings of fear and greed cloud your judgment and derail your long term plan. I'm Charles Bennett Sachs.
Paul Kangas' Stocks in the News
PAUL KANGAS: It was a rough start for Wall Street today as investors focused on a weak private reading on employment and a survey showing a contraction of Midwest manufacturing activity. By 10:00 this morning, the Dow had tumbled 130 points and the NASDAQ off 28 points. Then cash-laden investors bought into the weakness lifting the Dow to 13 point gain by 1:00 p.m. with the NASDAQ up 11 points. The energy and tech stocks led the comeback, faded late this afternoon but still helped the market close well above the day's lowest levels. The Dow Jones Industrial Average ended down 29.92 at 9712.28, nice comeback. The NASDAQ lost only 1.62 ending at 2122.42, while the Standard & Poor's 500 Index fell 3.53 ending at 1057.08. In the bond market, the 10-year note fell 4/32 to 102 22/32, putting the yield at 3.31 percent.
Most active big board issue on 220 million shares, Citigroup (C) moving up $0.14.
Followed by CIT Group (CIT) down nearly $1. The company giving out two options: one, an exchange offer that would give bond holders control of the firm and wipe out the value of many common stock, hence the big loss percentage wise in the stock today. The other option: a prepackaged bankruptcy, not much of a choice.
Bank of America (BAC) down $0.24. As you heard, Ken Lewis stepping down. In the meantime, the company is selling part of its Columbia management business to Ameriprise and we'll have details on that in just a moment.
General Electric (GE) $0.29 loss there.
Pfizer (PFE) fell $0.22.
Ford Motor Co (F) $0.24 loss.
Motorola (MOT) moved up $0.18.
Wells Fargo (WFC) a $0.17 drop.
AT&T (T) $0.19 loss there.
And then Regions Financial (RF) fell $0.24 a share.
Nike (NKE), one of the stars of the day, up $4.61. First quarter earnings came in at $1.04, only a penny more than last year, but $0.07 above the Street estimate and the company said cost cuts offset a 12 percent drop in revenues. Goldman Sachs today upgraded Nike from "neutral" to "buy," pointing out the benefits from the upcoming national basketball season.
There you see Ameriprise Financial (AMP) up nearly $4 a share. The company will acquire the long-term asset management business of Columbia management from Bank of America for about $1 billion in cash. That acquisition should be accretive to Ameriprise within one year according to officials.
Omnova Solutions (OMN), this is a chemical company, up $1.38, a 27 percent jump. The company more than tripled its third quarter earnings from last year, $0.23 versus $0.07 then and the company cited lower raw material costs as the reason and the company sees fourth quarter earnings well above year ago levels.
Darden Restaurants (DRI) down $2.02. The company had higher first quarter earnings though, $0.67 versus $0.58 last year, but the company's cautious on the outlook for the restaurant industry. That had the restaurant group under a little pressure today and Standard & Poor's repeated a "sell" on Darden.
Worthington Industries (WOR), which is in metal processing, down $1.94. First quarter earnings came in at only $0.08 a share, down from $0.86 a year ago. Sales tumbled 54 percent. Standard & Poor's repeated a "sell" recommendation.
Colonial Properties (CLP) down $1.01. The company is offering nine million shares at $9.50 each, a little earnings dilution potential.
Apple (AAPL) topped the active list with a $0.03 loss.
Research in Motion (RIMM) down a penny, although Research and Saxon Innovations settled their patent dispute.
Microsoft (MSFT) a $0.03 loss.
Google (GOOG) down $2.68.
Bucking the trend was Cisco Systems (CSCO) up $0.24.
Intel (INTC) a $0.09 gainer.
Oracle (ORCL) $0.28 loss.
$0.52 drop in Qualcomm (QCOM).
Baidu (BIDU) off $3.37.
And Yahoo! (YHOO) fell $0.36 a share.
And finally, shares in American Superconductor (AMSC) jumped $3.18 after the company won a $100 million contract to supply electrical components for a company making wind turbines in China.
