tv Nightly Business Report PBS January 8, 2013 1:00am-1:30am PST
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reports, they put to rest some big problems left over from the housing bust. >> reporter: it's an expensive time for bank of america. the company announced today it will pay out billions of dollars in two separate mortgage settlements. the first lays to rest a dispute between fannie mae and countrywide- the troubled mortgage giant bank of america bought in 2008. bank of america will pay $3.5 billion directly to fannie mae. and buy back almost $7 billion worth of bad mortgages that countrywide sold to fannie mae before the housing bust. bank of america will also sell servicing rights on two million mortgages, bringing the total value of the settlement to over $11 billion. the deals get most of countrywide's liability off the corporate balance sheet, a big step in moving bank of america past the housing crisis. >> i do think it's another quarter in which their shareholders aren't taking home any money, so it's painful, its costly, but it does get you closer to putting the whole thing behind you and not going
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to compromise the capital position of the bank in any way. >> reporter: also today, ten major banks, including bank of america settled claims they abused the foreclosure system, seizing defaulted homes without proper paperwork. >> the banks agreed to fix those abuses two years ago, with a case-by-case review of foreclosure practices. but that just wasn't moving fast enough, and proved too costly. bring in today's deal: the banks will pay a total of $8.5 billion. three billion of that will go to homeowners hurt by the banks; the rest, five billion to assistance programs like loan refinancing, for homeowners who are struggling. >> it helps current homeowners and it's going to help the marketplace at the margin. you know, the con, if there is one, is the fact that we'll never, it will make it less likely now that we'll ever get a full accounting of the foreclosure irregularities that existed. and how widespread were they, what were the types of irregularities and what were the full dollar amounts. >> reporter: but experts do expect some of these settlements will have lasting impacts. >> at the end of the day, the unintended consequence of all this is going to be a little
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harder to get a mortgage and it's going to cost you a bit more. >> reporter: while kotowski says the worst of the housing crisis is over for banks, he thinks bank of america has more work to do to get out from under its mortgage burdens. sylvia hall, "n.b.r.," washington. >> tom: while the nation's biggest banks are trying to put the mortgage crisis behind them, they're also recovering from the worst financial crisis since the great depression. erika miller tonight takes a closer look at the financial health of the country's banks. >> reporter: the economy may be weak, but the nation's biggest banks are in their best shape in years. >> capital levels now are double, and in some cases triple what they were at the height of the financial crisis. most banks are making money again. most bad loans have been charged off. so overall, the banking sector is in pretty good shape. >> reporter: an increasing number of banks are expected to get the fed's approval to give back more money to shareholders, in the form of higher dividends and stock buybacks. citigroup is expected to get permission for its first share buyback since 2007.
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>> i think if they get that this time, it will be a clear sign of a positive situation. because suddenly you have what was arguably the most impaired surviving bank able to have a share repurchase and increase their dividend. >> reporter: investors have taken note. the k.b.w. bank index is up 4% this year. that's on top of a 30% gain last year. but it's not all smooth sailing for big banks this year. economic growth is far from robust. another big problem is the low interest rate environment. >> essentially the challenge is the spread between what they can pay for deposits and what they can earn on loans because of these very low interest rates is compressed. that makes earning money difficult. >> reporter: that said, some argue it's a good time to buy bank stocks because valuations are still relatively cheap. at 11.2, the financial sector has the lowest price to earnings ratio of any group, based on projected 2013 earnings. jim sinegal isn't impressed. >> there's good reason banks
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should trade at lower multiple than other sectors. there's a lot of risk there. a lot of leverage and banks aren't going to be as profitable going forward as they were in the past. >> reporter: investors will be watching friday for more hints about the health of the sector. that's when wells fargo will become the first of the big banks to release fourth quarter numbers. erika miller, "n.b.r.," new york. >> tom: still ahead, tonight's "word on the street," electronics. how semiconductor giant intel is working to break further into the consumer electronics business. james rogers of thestreet.com joins us. investors had a bad case of nerves today as they ready for the official start of earnings season, tomorrow. the dow closed down 50 points, the nasdaq lost nearly three points, and the s&p 500 was off four. tomorrow, aluminum giant alcoa will be the first dow component this period to report quarterly results. it's expected to show decent profit growth, but on the whole corporate america has seen far
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better quarters. suzanne pratt reports. >> reporter: after weeks of fiscal focus, wall street could use a more fundamental topic to chew on. earnings season could provide that distraction, but, it may not be a positive one. s&p 500 firms are expected to post on average only a 2.8% increase in q4 profits. just a few months ago, analysts were hoping for a much healthier 10% gain. so what happened? >> it's just a continued slow growth environment. you know in the third quarter earnings were basically flat. so this is actually an improvement over last quarter, even though earnings growth is still expected to be very low. >> reporter: specifically, businesses felt after effects from hurricane sandy, and they were unwilling to spend with all the fiscal cliff uncertainty. on top of that, demand from europe as well as china was weak. but, here's the good news.
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a low earnings hurdle ultimately makes it's easier for companies to impress investors. and, s&p's sam stovall says they could get a little help from lower expenses. >> the things that might end up acting as tailwinds i think could be a near 8% decline in the cost of oil and also the reduction in the commodity costs. >> reporter: digging into the q4 numbers, six out of 10 sectors are expected to post a gain in profits, with financials and consumer discretionary stocks topping the list. on the other hand, the industrials sector has the weakest anticipated growth. still, anticipation of an anemic earnings season has yet to trouble the stock market. don't forget the s&p 500 hit a five-year high on friday. >> i think all of this has to do with anticipation. that things are expected to get better. that there is a muted v-shaped recovery anticipated for global g.d.p. and for u.s. corporate earnings.
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>> reporter: tomorrow, our earnings coverage continues when we interview alcoa chairman klaus kleinfeld. he'll detail how his business is likely to shape up in 2013. suzanne pratt, "n.b.r.," new york. >> tom: even with investor attention moving quickly from the fiscal cliff, now to corporate earnings, 2013 has gotten off to a very fast start. it's the best beginning to a year since 2010. chris hizy is the chief investment officer of u.s. trust. he joins us from that firm in new york. 2010, chris, you'll remember it, pretty good year, s&p
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500 up 14%. dow anticipate similar returns this year? >> yeah, just almost to the exact number. we're expecting all-time highs probably sooner rather than later. i know we always use the year end as a way to put a line in the sand on a number. but we're looking at 1600, which is basically a little multiple expansion this year based on policy transparency. not the policy itself but fiscal policy transparency times about 108 in earnings, maybe 10 on the low end and that gets you to a new all-time high. >> tom: 1600 on the s&p 500 that is about 10% over where we are trading even today after this fast rally, you mentioned fiscal policy transparency. a lot of people want to watch it being made again. you think it is over for investors. >> they are telling us that, it has been telling us that for a while. bond yields-- the uncertainty is in beyond land than equity land this is what we call the great rotation year. it has been the great global
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rebalancing in terms of world growth. and now you are saying reflationary efforts in terms of monetary policy wick the baton over to fiscal-- fiscal policy. that becomes the catalyst now and the uncertainty around equities is really what we've all come to know over the last few decades which is are earnings going to be good or not. >> tom: how about it, what about corporate earningsnd really more to the point the quality of the earnings growth. top line revenue growth? >> you know, we've been watching this story unfold since late 2008, early 2009. the bear camp basically said you can't increase your profit numbers -- 009, banner year, low quality, low quality but banner year in terms of profits, quicking off a low of 48 to 59. 2010 double dip fears dismissed. we got not latter part of the year. we rose earnings again. and then in 2011 they said you couldn't grow the top. corporate america was still going to be under deleveraging. they grew the top line 2012, the same thing. third quarter, a little bit of a pullback. basically call in the flat line, fourth quarter should
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be better than expected. global growth has picked up. in 2013, top-line growth, and profit numbers with margins just hanging in there, a little bit better consumer, better housing, better global growth, looks good. >> within sectors where dow find that equity price growth? >> you know from, a sector standpoint we're shifting more and more and rebalancing over the course of the next few weeks. we've been doing that, towards cyclical and away from defences. we don't believe the dividend story in and of itself. that is dividend growth is overplayed. high dividends are, in terms of the defensive nature of where to put money so we're moving more towards cyclical. an still is technology, a little bit in financial, materials and energy. >> tom: growth and optimism there from u.s. trust. it's chris hizy with us from new york. >> tom: in just a few weeks the debate over government spending cuts will heat up. the defense industry is one of those targeted, and today president obama nominated former rebublican senator chuck hagel as his next secretary of defense.
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hagel is a decorated vietnam veteran and former businessman. the president called him, "the leader our troops deserve." >> as a successful businessman he also knows that even as we make tough fiscal choices, we have to do so wisely, guided by our strategy, and keep our military the strongest fighting force the world has ever known. >> tom: hagel's not a shoe-in for the position. he's received criticism for his record on israel, iran, and gay rights. current defense secretary leon panetta says he will retire when his replacement is approved by the senate.
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>> tom: tonight we begin a new weekly series here on nbr. we partnered with some of the nation's top universities to bring you the best research on business, the economy and investing. we call it nbru. now our partners in this combine over 400 years of business knowledge. they include harvard university, standford, wharton and vanderbilt universities. each monday we will speak with top professors about key money issues and you can read in-depth at nbr.com, just look for the tab. now we begin our series with the corporate focus on shareholder value. every c.e.o. of a publicly-traded company concentrates on-- most prominently on display every day. that focus on share price hurts the economy, according to margaret blair, a professor at vanderbilt university. professor, is shareholder value first best expressed by today's stock price? >> yes, tom, thanks for having me on this show.
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the shareholder, the share price is something we can look at and find out what it is almost minute-by-minute, literally minute-by-minute. and so that tends to be what people think of when they think about shareholder value. but in fact some shareholders have a short-term interest and some have a long-term focus. and so what's valuable to one shareholder might not necessarily be the most valuable to another shareholder. >> why do you contend focus on that value beat other long or shirt term is harmful? >> well, because there are really two big problems with an excessive focus on shareholder value. of course corporations have to have a profit. but the first problem with it is that if you focus on that exclusively t comes in, it comes in to conflict with a combination of two corporate characteristics. one is externalallities, many times the risks that corporations take in order to pursue a business activity don't fall only on the companies. some of it falls on people outside the company or some of it falls on the employees or some of it falls on the
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creditors. but shareholders are protected from that. so with limited liability, their shareholders have a huge incentive to have the firm take excessive risks which are then laid off on to other people when the thing goes bad. the shareholders win when it works out but the rest of society loses when the risk fails. >> but doesn't the market make adjustments based on those other stakeholders in an efficient market that we have? >> well, there's no reason why the stock price should reflect the value that might be otherwise captured by employees, for example. in fact, if you pay workers more or if you give them better health plan, that usually comes out of profits for the shareholders. >> but for instance, in environmental cost for an energy company, we saw the share price by bp get hit significantly during the oil spill back in april of 2010. so that was an exslernl-- external event that showed up immediately in shareholder value. >> well, exactly.
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but the interesting thing is that bp apparently didn't take that into account in advance. the top leaders at bp were so focused on share value that they were cutting costs. and they were cutting back on safety procedures on that deepwater drilling rig and maybe on others, probably on others. >> our time is always short here, too short. how do company decision makers find a balance between all stakeholders? >> well, i think the big thing is that if you talk to a person that you know works for a particular company and you say well what does your company do, you never hear that person say oh we maximize share value. the company has to have a vision about what it does. it has to have a vision about who are its customers and what they want. and then you motivate your employees by getting them excited about serving that customer. >> read the vision statement before the financial statement, maybe. it's nbru tonight, margaret blair of vanderbilt university. you can read more on this and other investing and
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business research, visit nbr.com. click on that nbru tachblt >> tom: stocks took a breather after their big gains last week. with no news regarding the fiscal cliff, corporate earnings or economic data, the index traded in a 10 point range, with the losses reduced in the final hour of trading, ending down 0.3%. trading volume was 625 million shares on the big board. 1.75 billion on the nasdaq. the utility sector suffered the most selling, down 1.1%, while the telecommunication sector had the best gain, up 0.6%. big banking stocks did not see much movement today despite the mortgage servicing settlement with the federal government, but mortgage servicing stocks were in focus thanks to a bank of america deal. bank of america sold the mortgage servicing rights on
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$215 billion or home loans to nation-star mortgage. the deal doubles the number of home owners nation-star will work with. shares of nation-star jumped 16.9%. volume was 10 times normal, taking shares to a new high. other companies in the servicing business jumped. walter investment management gained 8.2%. ocwen financial was up 5.4% on heavy volume. both are less than a dollar away from new highs. other stand-outs today ranged from an online super-store to the house of the mouse. investment bank morgan stanley upgraded its view of amazon.com, thinking its overseas is poised to grow more quickly than expected. shares jumped 3.6% to close at an all-time high. disney shares fell 2.3%. the company is considering job cuts at its studio operations according to reuters. a settlement over student loans hit shares of for-profit school i.t.t. educational services.
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the school agreed to pay $46 million to s.l.m., known as sallie mae. sallie mae had sued, arguing i.t.t. owed it money for student loans going bad. i.t.t. educational lost almost a fifth of its market value, with shares dropping 19.3%. this is more than a 10 year low. s.l.m. slipped 0.6%. four of the five most actively traded exchange traded products were lower. the lone winner was the nasdaq 100 tracking fund, up a fraction. and that's tonight's "market focus."
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>> tom: tonight's word on the street: electronics. beginning tomorrow in las vegas, the newt computers, smart- phones, televisions, just about any high tech gadget you can think of will be on display at the consumer electronics show. intel is among the companies hoping to make a splash. intel is-- intel is paging a big splash this year, james roger is with thestreet.com. he joins us from the nsye. they wrapped up what it will preview the show in las vegas what did you learn. >> there were big announcements there. first i will talk about one thing we didn'tee. we didn't see a big set-top box announcement there were rumors about that running into the show. intel did announce a video gateway powered by one of its chips that is part of a collaboration with comcast but no big set-top box news. what there was was a lot of news around chips. mobile devices and things that intel is really, really going to focus on. we saw intel talk about how its lowered power
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consumption on its bridge chips and also on its-- core architecture, part of intel's big push toward ultra books and convertibles, also high power tablets as well. so there was a lot of information about that type of thing, as well as also intel's efforts around, you know, windows 8 tablets. and also it gave a sneak peek of its fourth common trail chip which will be launched for the holiday season 2013. >> a lot of technology involved there with intel, really focused on the technology side of it as opposed to the consumer side because it goes inside the gear obviously. as you know the traditional computer represents the bulk of intel's revenue over the past several years, still two-thirds of its revenues. mobile computing is just a small share. it's less than 10% so this focus on mobile really is the opportunity. but how far behind is intel to its competitors? >> well, you know, you look at things like smart phone where intel is significantly behind. but intel clearly sees a big opportunity around tablets
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and these trawl books which is superskinny lap tops. if you look at what the analysts are saying, intel recently got a big upgrade from lazard capital markets. one of the reasons for that as well as improving margins and money factoring strength was also the fact that a lot of these trawl books are common to market, particularly toward the second half of the year. so i think that there is a lot of momentum around this. and also i think with windows 8 tablets i think we're only really scratching the surface at the moment. and i think there is more that we can see. >> just 30 seconds left. you mentioned the upgrade intel received today ahead of the consumer electronics show. the stock has had a tough time over the past 12 months though clearly lagging as the pc business has been peeled away. what is the prospect for that traditional business? >> you know, i think that there is going to be more pain in the pc market. like that is what we are hearing from a lot of analysts t is really a question about how quickly companies like intel and others can really move forward around tablets and other types of devices from what i heard today i thought
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it was reasonfully-- reasonably positive. this is clearly a long way to go. >> dow own any shares of intel, james. >> none whatsoever. >> probably use product with intel chips inside. james rogers tonight, with thestreet.com. thank you. >> thank you tomorrow on "n.b.r." last year, global headlines were dominated by europe's debt crisis, so is the situation any better. we talk global market risks, with the eurasia group's ian bremmer. while washington lawmakers finally reached a deal on the tax part of the fiscal cliff, tonight's commentator says something is missing from the solution: clarity. here's simon constable, columnist at the wall street journal. >> if the shenanigans in congress at year end have taught us anything it's that washington just cant help but do stupid things. while the tax situation for many americans may now have been solved, the problem of spending cuts hasn't. that's bad in itself, not getting an important job done, but it's also actually harmful
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to the u.s. economy. not solving it has increased what economists call policy uncertainty. broadly speaking that's ambiguity around what the government is going to do with laws etc. when uncertainty is high, businesses, the real drivers of job growth in the economy, tend to invest in fewer factories and hire fewer people. despite congress managing to avoid the fiscal cliff, uncertainty in the u.s. is still elevated. how do we know? the smart people at stanford and chicago measure it in the us economic policy uncertainty index. that index is now around three times the level it averaged during 2006. in a recent paper, the same authors that track uncertainty say: "increases are driven mainly by tax, spending and healthcare policy uncertainty." the consequence: lower economic growth and millions of potential jobs lost. now if our government can just get its act together, provide some clarity and then get out of the way of the private sector
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then maybe our economy can get roaring again, just like it used to. i'm simon constable. >> tom: finally tonight, a twitter inspired term garnering new fame: the american dialect society named "hashtag" its word of the year for 2012. for those who don't tweet, hashtag is the practice used on twitter for marking topics with a hash symbol (#) followed by a word or phrase. the runner ups for word of the year included: fiscal cliff, gangnam style, and marriage equality. past winners include, occupy, tweet, and bailout. that's "nightly business report" for monday, january 7. have a great evening everyone, we'll see you online at: www.nbr.com and back here tomorrow night. captioning sponsored by wpbt
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