captioning snsored by wpbt >> no one was ugher than i was in trying to protect t american taxpayer. >> paul: former easury secretary henry ulson gets grild on capitol hill for his ro in the sale of merrill lyncto bank of america. the toh questioning and his answers ahead. >> susie: the baruptcy countdown is on for c.t. tonight. the nation'seading small business lder is poised to fail. now that uncle samas put away his checkbook. cong up, what c.i.t.'s failure cod mean to small businesses th depend on it. >> paul: j.p. morgan cse chec in with record second quarr revenues. anysis of the resus and a preview of what's ahead for the financiasector in the second hal >> susie: google conties to search o profits. the company sted a near 20% rise in send quarter earnings.

but the git web search engine isn't ring on all cylinders. we'll exain. >> paul: i'm paukangas. >> susie: ani'm susie gharib. this is "nightly business report" for thursday, july7. "nightly business port" is madpossible by:

this program was made poible by contrutions to your pbs station from viewersike you. thank you. /& >> susie: good evening, everyone. hankaulson was back in the spotlight capitol hill today, but it wn't the kind of homecoming he expected. testifyingefore a house committee, the forr treasury seetary was grilled on his rolen bank of america's contversial purchase of merrill lynch. facing harsh ausations from lawmakers, plson defended his decisions d actions in the deal. in theast month, fed chairman ben bernanke andank of america o ken lewis also faced tough quesoning from this committee. but as dana ba reports lawmakerare still looking for answers. >> reporter: formetreasury secretary henry pason may be out ofhe office, but he's still der the gun. lawmakers ammed the treasury's

handling of thbank of america deal-- saying pauln bullied executives into completing t purchase of merrl lynch. but paulson ve little ground as he defended the pressurhe put on bank of ameca c.e.o. ken lewis. >> i was attemptinto send a very strong message ken lewis terms of how strongly the f antreasury viewed this matter. >> reporter: ty viewed it strongly becse they worried a ncelled deal would throw the markets to turmoil. significant losses amerrill lynch were giving lewis send thoughts but ulson says pulling out would have been a bad call. >> it wod have shown a lack of judgemen and i think it would have reallundermined the viability b. of a. and merrill lynch and the financl system. >> reporter: last moh, fed chairman benernanke told the committee the government d nothing inappropriate intimida bank of america executives. toy, paulson went further saying hwas never told by the

d to threaten lewis. congssman dan burton wasn't convinced. >> if you came away om those phe calls, somebody must have said, "hey! can't let them do this!" and i would suggt that it might have been mr. rnake. >> whai would say to you. i doot know whether someone in the conversaons or calls expressly said it, or if m understanding came fm just the tone and the fcefulness. >> you know, you're a ry smart man, and i don't think anybo's buying what yore saying right now. >> reporter: oer lawmakers lashed out at paulson fohis lack otransparency in bailing out wall street-- whher it was by financinghe bank of america deal, or selng the tarp to congress. representative steph lynch says he thinks lawkers have been misled. if you had come up here wit mr. bernanke a said, "i got a plan, i want to ta $800 billion taxpayer money, i want to give it toy pals in the nine biggest banksn america," how many voteso you think you would haveot up

here? >> reporter: in is case of "he said, she said," many wmakers stilfeel taxpayers picked up the tab for the meill lynch- bank of america deal. but pauln says what taxpayers really got was financial system that is still worki. da bate, "nightly business report," washington >> susiec.i.t. is inching closer to bankruptcy the small business lender is expected to fileor chapter 11 protection asoon as tomorrow. and that will leave ndreds of thousands of firms scrbling for finaing. erika miller has more out the impact of a c.i.t. failure on small anmedium sized businesses. >> reporter: the difrence of justne letter makes all the difference. citi is too bito fail. c.i.t. is no thgovernment has decided that c.i. is not important enough to the financial system toave and the mpany is expected to file for bankruptcy as sooas tomorrow. thatould mean big trouble for hundredsf thousands of small to medium sized firms that depend on i.t. for loans.

c.i.t.s the nation's largest supplier of facting, a lifeline of the retail indtry. if c.t. goes under, the national retail federation's mallory duncan ss shoppers will fl the impact. >> if suppliers cannot provi merchaise, then that means that t retail shelves are esntially empty. you walk into a retail stor now, you'll see there isery little merchandise. but we know that with the christmas season cominup, it's imrtant that that merchandise there to help the economy g back on ack. >> rorter: but many small nks say don't worry, ty can pick up the ack if c.i.t. goes under. chricole at the independent community bankers associion says his mbers are chomping at the bit. >> i tnk most needs will be met. i think there y be a transitioneriod. there may be a period e commities banks will need to get up to speed with the kds of lending-- that very specialized lending th they do. i thk we can do that. >> reporter: wl street doesn't

seem too worried aut the impact of a c.i.t.ankruptcy on the financial markets. in fact,.y.u. economics professor larry ite says this is the way capitalism is supposed to nction. >> it's clear that c.i.t. ma seriouerrors in their investment decisns. and somebo bear the conseqnces. i do not think they are so important for the fincial sector economy that the geral taxpayer ought to bearing the consequences. >> reporter:ut it won't just be c.t.'s creditors and clies who suffer from the company's collse. c.i.t.s a major corporate suppter of the arts ranking in the top 10 in new york cit erika miller, "nightlyusiness report,"ew york. >> pl: wall street got off to slow start but ended with a late day rally not much change in t early going the broader market

shruggedff the looming failure of.i.t. group and strong results from j.p. rgan chase. we'll have more on those cha earnin in a moment. at noontime the dow s nine points higher, then big chnology stocks powered high ahead of google ani.b.m.'s after the bell results and that gave threst of the market a solid latlift. e dow jones industrial avera closed up 95.61 t 8,711.. the nasdaq gned 22.13 to 1,885.03. the s&p 50rose 8.06 to 940.74. in the bond market, the year no rose 11/32 to 96-10/32 putting the yid at 3.57%.

>> susie: j.p. morgan report today second qrter profits rose 36%. ch stronger than analysts expected. the nation's second rgest bank earned 28 cents a share-way ahead of estimates of fo cent big gains in investment nking offset losses in t bank's consumer lending and cret card operatns. revenu surged 41% to $27 billion. the strong results cameven though the bank repaidhe u.s. government25 billion it received in tarponey. joining now to analyze the numbers, moshe orenbuch,ank analyst at credit isse. moshe, wcome to "nightly siness report". thanks,. >> sus: i. >> susie: wh you look j. p. morgan's results a what the bank said today about the outlook, wt's your take on this? >> basicly the investmen bank ened about aime more an we were looking for and th's very strong rurn on eqty. d credit quality continued to wsen partularly on the commercial side. but they had to add less in

reserves because they stted the quarter with a strong serve. >> susie: so the c.e.o. sd today he doesn expect the credit card buness to make money this yr or in 20. and also there's a lot of these nonperforming loans that theyhave on the books. so when youdd it all up,hat kindf shape is p. morgan in? >> it has anxtremely strong balae sheet in capital and reserbs, a it is profitable, so 's adding to both of those, sit quite strong despite theosses that yore refering to. susie: goldman sachs reported strong earnings on tuesday, todaye hav these numbers from j. p. morn. when you add up whate've ard so far, ho would you characterize the financial health of the bking system, from these two tfits? >> well, tre's certain the revenue si of the equation ich remained quite strong in the send quarter, got little weaker in the third quarter as tngs slowed down. but the fixed inme markets and equi markets ve been

relatively healthy. >> susie: we have some bank reports coming u we have bank of ameca tomorrow, ao citi tomorroand next wed wells fargo. wh should we expect those firms rept? well, tomorrow's report, ba of america and citi also both have strg capital markets,so we'reikely to see those toe relatively strong on those les. bank of ameca's case they addeabout 13 billion to their reserve in each of the la two quarter sotheir operating relts will be a little wear, they d somewhat higher credcosts than their peers. wells shou have a strong quarter on t mortgagefront next wednesday >> susie: how about citi? >> we're looking for their quarter to be on an erating basis, little above bak even, whichs betterhan last quarter. and theye got a bunchof ins in there, so their reported numbecould be quite large. >> susie: i understand that you're recmending the stock of j. p. morgan, but none of

the other banks. te us your analysis on that. >> basally what we like abouj. p. mgan is diversified, each of the business appears to be well managed, despite the lses you refer to in the credit rd business. and think it's onef the banks that will be, its best posion given its capal se, the fact that it's reid the tarp money to take advaage of thi curnt environmt and make another assisted acquisition sometime later this year during 2010 given the fact that its washington mutl acquisitio is fairly close to being fully integrated >> susie: can y give us your disclosure oj. p.organ, do you own the sto or does the firm have any rationship? >> i did do not anthey do not. >> susie: you her o report been c.. t.,e wereooking at the impact on small businesses if t c. i. t. n't come up with the financing. but wh would be thempact the financial system? everybody alwa talks about

systemic risk. what's the risk here? >> i think the ds purely o at basis ihink was correct. c. i. t. does not present a systemic risk to t financial system. you're going to have some hurting retailersand one should reay question whether this was the time in the ecomic cycle to make this stand, if you wil, on the o bi to fail and systemic rk doctnes, because you wil ve economic pacts that will be negative. >> susie: thk you for coming on the programnd sharing your tughts with us,we apeciate it. >> tha you. susie: my guest tonht, moshe onbuch, bank analyst at credisuisse. >> paul:avish executive pay packages left investors happy as the financial crisis unfoed. now the obama administtion wants to beef up sharehold input. the treasury sent congress legiation today that would let sharehders vote on executive pay. the votes uldn't be binding and they wouldn't pua dollar limits osalaries. t, the new rules would give

compensation comttees more independence avoidg conflicts of intert with management. >> susie: google says it second-quarter earngs jumped 19% despite slowing ad ses. excluding its, google earned $5.36 a share sily beating wa street expectations. revenues rose 3% to $5.5 billion. it's slowest sales groh rate since e company went public. that drop is due to thoverall decline in snding on online advertising. but its sear engines are still going strong.

two out of every three oine searches, ul, are done on google. >> paul: gooe shares closed up $4.43 to $442.62. but ter hours, they were down almost 3%. now let's ke a look at some stocks in the news tonight. @

>> susie: it looks le china's efforts to stimulate i economy are working. itaid today growth accelerated about 8% in the send quarter. the auto industry a big beneficiary of china's stimus spending and automakers expe

post record sales this year as nick mackieeports, chinese investors aren't the onlones benefiting from the boom >> rorter: company boss yin mingan got a shot in the arm just before e financial meltdo, by selling 13.5% of his motorbikto auto mafacturing lifan group to none other than a.g. for a cool $90 million. then, as a conseence of a.i.g.'s bail-out,he american taxpers became, effectively, this chine carmakers second largest shareholder, afterim. now with china's smulus measures bearing fruit, bullish mr. yin is tottling up producon. and he expects more strategic investments to follo >> ( translated i think that after experienci this financial crisis, pecially the al with lifan, they will invest more in china eithewith other companies orf they are willing and lifan ages, they can have more ares in us.

>> reporte in the first five mohs of 2009, china's auto industry sold almost fe million vehicles-- a milli re than in america. attractive subsidies forirst time buys, promotions across the countryside, a 50% salesax cut on smaller vehicles and slashed showroom pricehave helpedeturn the industry to growth. but that's not to y everyone has a model balance sheet. e fact is, china's auto instry is badly in need of consolidation. of the coury's 150 registered manufacters, just 20 account for 95% of all sales. the big nners, are the foreign brands with their state-ned joint venture partners they produce the carof choice- - commanding ovetwo thirds of the market. ina appears to offer the global badge makers a future while e u.s. sorts out its own structuring. ford's chinaased car sales in ju were up 55% year on year. while general motors pns to uble its china productn to

er two million units by 2014 stefan kracht is ecutive director of the china maet intelligence consultancy fidua. >> those w are successfully opating in china, i believe, weill see further investments. and ther than being new investments, they ardeeper investments to joint ventures that ty have already set up or thin the value chain: mponent manufacturers or suppliers. >> reporter:his positive outlook reston the governme's continued auto industry sport plus, at the operional level, maintaining low wages. he at lifan, xu yanping works ni hours a day with an hour off for nch, six days a week. holidays amount to 16 days p year. her monthly take he pay is $190. in new chinaan assembly line couple wou be hard pressed to y an apartment or own a car. >> ( translated ): ihe's an

engineer or in managemt, i think we could afford e. if hhas the same salary as me, i'm afraid wcouldn't. >> reporter: the u.s. au unions may sdder at this hard reality but, for the b brands that build in china,t's their liline. although theovernment is efctively driving growth and the nsumer class is expanding, shop-floor wage hikes uld slam on the brakes. and china's communist party, won't let th happen. which promising news for those link or linking-up with china. take the case of lifan: april, mr. yin paia.i.g. a dividend. nick mace, "nightly business report," chongng. >> pau tomorrow, our friday rket monitor guest is gary motyl chief investment offic at temeton global equity. susie: u.s. homebuilders ar starting to feel better abt the housing mark. the national aociation of homebuilders said today it

confidence index ihed up slightly from june to ju. that's due in rt to low interest rates and incenves boosng sales of new single mily homes. july's readi of "17" is the highest since last septemb. but it'still well below "50," which ows market conditions as favorable for sales. paul: meanwhile, home foreclosures are sti hitting record levels, despite the adminstratn's $75 billion plan to help homeownerst risk. over the last six months, e in 84 households got a reclosure- reted notice, a 15% rise from last year. that's accordingo foreclosure listing service alty-trac.

>> susie: wi the failure of sml business lende c.i.t. group on thhorizon, many people are wondering y talks for additional feder helpailed. tonight's "twoays to play" has two takeon whether c.i.t. is too small to save. here's kev depew of "minyanville" and "minyanvil's" kevin depew. c.i.t. group, one of the tions largest commercial lenders,s on therink of failure after beg unable to secure additnal government backing. the obvious question is y n't c.i.t., with more than a million small business customers, too bigo fail?

well, the leon in all of this is you can save one bank, ors many as 10, even 20, but evitably there will come a point when the lifeline just won't ach any farther, and that's what's happened to i.t. it's unfortunate, but not ery bank can be o big to fail. >> no, no, that's not e lesson at all. let's t something straight. on one side you have a firlike goldman sachwhere executives sold $700 billioworth of stock even as they were taking in 0 biion in tarp money; on the other side the small busines lender c.i.t which needed just $4 bilon to keep the doors open. one firm, thanks ta little governmentelp, just posted the richest quarterly prit in its 140-year historythe other is now doomed to failur does tt make sense? not at all. so what's the real lesson re? o big to fail has been reaced by too connected to fail >> susie: that'snightly businesseport" for thursday, july 16. i'susie gharib goodnight, everyone. and good night to you ul. >> paul: gooight susie. i'm ul kangas wishing all of you the best of good buys. "night business report" is

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