captioning spoored by wpbt >> no one was toher than i was in trying to protect the american taxpayer. >> paul: former trsury secretary henry pason gets grilleon capitol hill for his rolen the sale of merrill lynch bank of america. the tougquestioning and his answers ahead. >> susie: the bankptcy countdown is on for c.i. tonight. the nation's lding small business lenr is poised to fail. now that uncle sam h put away his checkbook. coming up, what c.i.t.'s faire could mean to small business that depend on it. >> paul: j.p. morg chase ecks in with record second arter revenues. analysis of the resultand a eview of what's ahead for the financial ctor in the second half. >> susie: google continu to search outrofits. the company poed a near 20% rise in seco quarter earnings.

but the gianweb search engine isn't fing on all cylinders. we'll expln. >> paul: i'm paul ngas. >> susie: and m susie gharib. is is "nightly business report" for thursday, july 1 "nightly business rert" is made ssible by:

this program was madpossible by ctributions to your pbs station from viers like you. thank you. 7/ >> susie: good evening, everyone. hank plson was back in the spotlight onapitol hill today, but it wast the kind of homecoming he expected. testifying bore a house committee, the formetreasury secrary was grilled on his role ibank of america's controrsial purchase of merrill lynch. facing harsh accations from lawmakers, pauon defended his decisions anactions in the deal. in the pt month, fed chairman ben bernanke and bk of america ceken lewis also faced tough questiing from this committee. but as dana bateeports lawmakers e still looking for answers. >> reporter: former easury secretary henry pauln may be out of t office, but he's still unr the gun. lawmakers slmed the treasury's

handling of the nk of america deal-- saying paulsobullied ecutives into completing the purchase of merrillynch. but pauln gave little ground as he defended the pressure put on bank of ameri c.e.o. ken lewis. >> i was attempting send a very strong message toen lewis inerms of how strongly the fed and easury viewed this matter. >> reporte they viewed it stronglyecause they worried a cancelled deal would throw the markets in turmoil. significant loss at merrill lynch were giving lewis seco thoughts. but pason says pulling out uld have been a bad call. >> it woulhave shown a lack of judgement,nd i think it would have really dermined the viability of. of a. and rrill lynch and the financia stem. >> reporter: last mont fed chairman ben bnanke told the committee the government did nothing inappropriate to intimidateank of america executives. toda paulson went further saying he s never told by the

feto threaten lewis. congreman dan burton wasn't convinced. >> if you came away fr those phoncalls, somebody must have said, "hey! wean't let them do this!" and i would suggesthat it might have been mr. beake. >> what would say to you. i do n know whether someone in the conversatis or calls expressly said it, or if my understanding came frojust the tone and the forfulness. >> you know, you're a ve smart n, and i don't think anybody buying what you' saying right w. >> reporter: oth lawmakers lashed out at paulson for s la of transparency in bailing out wall street-whether it was by finanng the bank of america deal, orelling the tarp to congress. representative stephenynch says he thinks lawmars have been misled. >>f you had come up here with mr. bernanke andaid, "i got a plan, i want to take800 billion inaxpayer money, i want to give it to mpals in the nine biggest banks i america," how many votes dyou think you would have g up

re? >> reporter: in th case of "he said, she said," many laakers still el taxpayers picked up the tab for the merrl lynch- nk of america deal. but paulsosays what taxpayers really got was ainancial system that is still working danaate, "nightly business port," washington >> susie: i.t. is inching oser to bankruptcy e small business lender is expected to file f chapter 11 protection as on as tomorrow. and that will leave hureds of thousands of firms scraming for financg. erika miller has more abt the impact of a c.i.t.'sailure on small and dium sized businesses. >> reporter: the diffence of just o letter makes all the difference. citi is too big fail. c.i.t. is not. the vernment has decided that c.i.t.s not important enough to the financial system to se and the coany is expected to file for bankruptcy as soon tomorrow. that cld mean big trouble for hundreds othousands of small to medium sized firms that depend on c.t. for loans.

c.t. is the nation's largest supplier of ctoring, a lifeline of the retailndustry. c.i.t. goes under, the national retail federati's mallory dunc says shoppers wi feel the impact. >> if suppliers cannot prode mercndise, then that means thathe retail shelves are sentially empty. if you walk into a retail ste now, you'll see there very little merchandise. but we know that with the christmas season comg up, it's portant that that merchandis be there to help the economyet back otrack. >>eporter: but many small banks say don't worry,hey can pick up thslack if c.i.t. goes under. chs cole at the independent community bankers assoation says hisembers are chomping at the bit. >> ihink most needs will be met. i think thermay be a transiti period. there may be a periothe counities banks will need to get up to speed with theinds of lending-- that very specialized lending at they do i ink we can do that. >> reporter:all street doesn't

seem too worried abouthe impact of a c.i.t. banuptcy on the financial markets. in fact, n.y. economics professor larry whitsays this is the way capitalism is supposed to funcon. >>t's clear that c.i.t. made serious errs in their investment decisions and somebody br the consequenc. do not think they are so important for the financl ctor economy that the neral taxpayer ought tbe bearing the consequences. >> reporte but it won't just be.i.t.'s creditors and clnts who suffer from the company's coapse. c.i. is a major corporate suorter of the arts ranking in e top 10 in new york city. erika miller, "nightly busess report," nework. >> paul:all street got off to a sl start but ended with a late day rally. not much change in the ely going as t broader market

shrugged offhe looming failure of c.i. group and strong results from j.p. morg chase. wel have more on those chase earnings ia moment. at noontime the dow was ne points higher, then big techlogy stocks powered higher ahead of google and i.m.'s after the bell results. and that gave the re of the market a solid late li. the w jones industrial average closed up 95.61 t 8,711.82. the nasdaq gaine22.13 to 1,885.03. the s&p 500 ro 8.06 to 940.74. in the bond market, the 10 yr note re 11/32 to 96-10/32 putting the yield 3.57%.

>>usie: j.p. morgan reported today second quart profits rose 36%. muchtronger than analysts expected. the nation's second largt bank earned 28 cents a share-- wa ahead of estimates of four cents. big gains in investment bankg offset losses in the bk's consumer lending and credit rd operations revenues sged 41% to $27 billion. the strong results came ev though the bank repaid the.s. government $25illion it received in tarp mon. joining us n to analyze the numbers, moshe orenbuch, ban analyst at credit suis. moshe, welco to "nightly busiss report". >> tnks,. >> susie: >> susie: when y look at j. p. mgan's results and what the bank said today about the outlook, what'your take on this? >> basicallyhe investment bank earneabout a dimmore thane were lking for and that'svery strong retur on equity and edit quality continued to worse particully on the commercial side. but they had to add less in

reserves because they starte thquarter with a strong resee. >> susie: so t c.e.o. said today he doesn'txpect the credit card busine to make money this year or in 2010. and also there's a lot of these nonperforming loans that they ha on the books. so when you add it all up, wha kind of ape is j. p. morgan in? >> it has an extmely strong balance sheet in capital and reserbs, and i is profitable, so it's addingto both of those, so it quitetrong despite the loss that you're refering to. >> sie: goldman sachs ported strong earningsn tuesday, today we have these numbers from j. p morgan. wh you add up what we' hearso far, howould you characterize the financial health of the banki stem, from these two outfs? >>ell, there certainly t revenue sidef the equation whic remained qte strong in the seconduarter, got a lile weaker in t third quarter as thing slowedown. but the fixed income markets and equity markets have been relatively healthy.

>> susie: weave some bank reports coming up, w have bank of america tomorrow, also citi tomorrow annext wed lls fargo. what suld we expect those firms to report? >> wl, tomorrow's report bank oamerica and citi also both have strong capital markets, so we're liky to see those to be ratively strong on those lines in bk of america case they added abt 13 billion to their reserve i each of the last t quarters, so thr operating resultwill be a little weaker, they had somewhat higher credit cos an their peers. wells should he a strong quarter on themortgage frt next wednesday. >> susie: how aboutciti? >> we're looking forheir quarter to be on an opering basis, a ltle above break even, which is better tha last quarter. and they've t a bunch of gainin there, so their reported number cod be quite large. >> susie: i uerstand that you're recommeing the stock of j. p. morgan, but ne of

the other banks. tell uyour analysisn that. >> basical what we like about j. p. morga is diversified, each of the businesses aears to be well managed, despitethe losse u refer to in the credit cardusiness. and i thk it's one of the banks thatwill be, its best positioniven its capital basethe fact that it's repaidhearp moneyo take advantagof this current environment and make another assisted acquisition sometime later this year or during 2010, gin the fact that its washington mutual acquisition is fairly cse to being fully integrated. >> susie:can you give usour disclosure on j. p. morn, do you own the stock or does t fi have any relatnship? >> did do not and th do not. >> susie: you her our report been c. i. t., we were loong at the impact on sll businesses if the c. i. t. can'come up with the fincing. but what wld be thempact on t financialystem? everybody always tks about

systemic risk. what's theisk here? >> i think the digs purely on thatasis i thi was correct. c. i. t.does notresent a systemic risk to theinancial stem. u're going to have se hurtingretailers an one should reallyuestion whether this was the time in the econom cycle t makehis stand, if you will, on the too big to fail and systemic risk doctrine because you will haveconomic impas that will be negative. >> susie: thank u for coming on the program and sring your thougs with us, we apprecte it. >> thank y. >> sie: my guest tonight, moe orenbh,ank analyst at credit suse. >> paul: lavh executive pay packages left investors unhay as the financial crisis unfolded now the obama administrati nts to beef up shareholder int. thtreasury sent congress legislatn today that would let shareholde vote on executive pay. the votes woul't be binding and they wouldn't put a llar limits on saries. but,he new rules would give

compensation committs more independence avoiding nflicts of interest th management. >> susie: google says its second-quarter earningjumped 19% despite slowing ad sales excluding items,oogle earned $5.36 a share easi beating wall seet expectations. venues rose 3% to $5.5 biion. it's slowest sales growth te since the mpany went public. that drop is due to the ovall decline in spendg on online advertising. but its search eines are still gog strong.

two out of every three onlin searches, paulare done on ogle. >> paul: google ares closed up $4.43 to $442.62. buafter hours, they were down almost 3%. now let'take a look at some stocks in the news tonight

>> susie: it looksike china's efforts to stimulatets economy are working. said today growth accelerat about 8% in the cond quarter. the auto industris a big beneficiary of china's stilus spending and automakers exct

to post record sales this ye. as nick mack reports, chinese investors aren't the oy ones benefiting from the bo. >> reporr: company boss yin mingshanot a shot in the arm just before the nancial meltdown, selling 13.5% of his motorbike touto manufauring lifan group to none other than a.i.g.or a cool $90 million. then, as a consequen of a.i.g.'s bail-out, themerican taxpayerbecame, effectively, this chinese cmakers second rgest shareholder, after him now with china's stimus measures bearing fruit, a bullish mr. yin is throting up prodtion. and he expects morus strategic investments to folw. >> ( translated ): i think that after experienng this financial crisisespecially the deal with lifan, they will invest more in china eitr with other companies or if ey are willing and lifan agreesthey n have more shar in us.

>> reporr: in the first five nths of 2009, china's auto industry sold almost five llion vehicles-- a million morehan in america. attractive subsidies for fir time buyers,romotions across thcountryside, a 50% sales tax t on smaller vehicles and slashed showroom pris have help return the industry to growth. but that's not to say eryone s a model balance sheet. the ct is, china's auto indust is badly in need of coolidation. of the country 150 registered manufacturer just 20 account for 95% of all sales. the big winns, are the foreign brands with their statowned joint venture partne. they produce the cs of choice- - commanding or two thirds of the market china appears to offer the global badge makers a futu, whilthe u.s. sorts out its own restructuring. ford's china bas car sales in june we up 55% year on year. while general to plans to double its china produion to

over two million units by 20. stefan kracht isxecutive director of the china rket intelligence consultan, ficia. >> thoseho are successfully erating in china, i believe, will see further investment anrather than being new investments, they e deeper investmentinto joint ventures thathey have already set up or within the value chain: component manufacturers or suppliers. >> reporte this positive outlook res on the governnt's continued auto industryupport plus, at the opational level, maintaining low wages. re at lifan, xu yanping work ne hours a day with an hour off folunch, six days a week. holidays amount to 16 dayser year. her monthly takeome pay is $190. in new china, anssembly line couple wld be hard pressed to buy an apartment or own a ca >> ( translated ):f he's an

engineer or in managent, i think we could afforone. ife has the same salary as me, i'm afraide couldn't. >> reporter: the u.s. to unions mayhudder at this hard reality but, for theig brands that build in chin it's their feline. although t government is fectively driving growth and the conser class is expanding, shop-floor wage hikes woulslam on the brakes. anchina's communist party, won't let this hpen. whicis promising news for those lied or linking-up with china. take the case of lifanin april, mr. yin pd a.i.g. a dividend. nick mkie, "nightly business report," choqing. >> pl: tomorrow, our friday market monitor guest is gary motyl chief investment offer at tpleton global equity. >> susie: u.s. homebuilders e starting to feel better out the housing maet. the nationalssociation of homebuilders said today s

confidence indexnched up slightly from june to ly. that's due ipart to low interest rates and inctives boting sales of new single family homes. july's reang of "17" is the highest since last septeer. but it's sti well below "50," which showmarket conditions as favorable for sales. >> pl: meanwhile, home foreclosures are still hting cord levels, despite the adminstration'$75 billion plan to help homeowners at sk. er the last six months, one 84 households got a foreosure- relatenotice, a 15% rise from last year. that's according to reclosure listing service real-trac.

>> susie: with t failure of small business lender c.i.t. group on the hozon, ny people are wondering why lks for additional federal help faid. tonight's "two wayto play" has two takes onhether c.i.t. is too small to save. here's kevin dew of "minyanville" and "minyanville'skevin depew. >> c.t. group, one of the natis largest commercial lenders,s on the bri of failure after being able to secure additionagovernment backing. the obvious question is why isn'c.i.t., with more than a miion small business customers, too big to il? well, thlessonn all of this

isou can save one bank, or as ny as 10, even 20, but inevably there will come a pot when the lifeline just won't reacany farther, and at's what's happened to c.i. 's unfortunate, but not ever bank can be too g to fail. >> no, no, that's not the sson at all. let's get mething straight. one side you have a firm li goldman sachs whe executives sold $700 billion woh of stock ev as they were taking in $10 billioin tarp money; on the otr side the small business lender c.i.t., wch needed just $4 billiono keep the doors open. one firm, thanks to a ttle government hel just posted the richest quarterly profitn its 140-year history, thother is now doomed to failure. does that ke sense? not at all. what's the real lesson here too g to fail has been replac by too connected to fail. >> susie: that "nightly busine report" for thursday, july 16. m susie gharib goodnight, everyone. and good night to yopaul. >> paul: gdnight susie. i'paul kangas wishing all of you the best of goo buys. "nigly business report" is

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