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118> <Type: SHOW> <Head: NIGHTLY BUSINESS REPORT for June 26, 2013, PBS> <Sect: News; International> <Byline: Tyler Mathisen, Sue Herera, Hampton Pearson, Diana Olick, Jane Wells, Scott Cohn> <Guest: James Klein> <Spec: Business; Justice; Homosexuality; Policies; Supreme Court; Consumers; Financial Services; Housing; Real Estate; Abuse; Crime; Internet> <Time: 18:30>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you by --
SUSIE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Watershed moment. The Supreme Court rules on gay marriage and the impact on business big and small may be far reaching.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: A call to arms. Why adjustable rate mortgages popular during the housing boom may be on the verge of a come back.
HERERA: And financial fraud. Why today it`s being fought by everyone, from the Manhattan U.S. attorney to a former Enron fraudster.
All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, June 26th.
MATHISEN: Good evening, everyone. Along with Sue Herera, I`m Tyler Mathisen. Susie Gharib has the night off.
Well, the Supreme Court ruled in two cases involving gay rights today in the historic decisions could have a massive impact on, among other things, what businesses pay in benefit costs and what the federal government collects in taxes and pays out in certain entitlements. One ruling upheld a lower court`s decision striking down a ban on gay marriage in California. The other declared the 1996 Defense of Marriage Act unconstitutional. That law effectively denied federal benefits to gay couples married under state laws.
Hampton Pearson was at the Supreme Court today and has more on today`s rulings and what they mean.
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voiceover): The two landmark rulings from the Supreme Court were greeted by cheers from the huge crowd of mostly gay marriage supporters who gathered. The justices giving new legal options to same sex couples. It`s forcing the federal government to recognize same-sex marriage in the 12 states and District of Columbia, where it is legal. In a 5-4 decision, the justices overturned the Defense of Marriage Act, DOMA, that denied benefits to same- sex couples.
Speaking for the court`s majority, Justice Anthony Kennedy said, "DOMA writes inequality into the entire United States Code." But on a blistering dissent, Justice Antonin Scalia said, "It`s one thing for a society to elect change, it`s another for a court of law to impose change by judging those who oppose it as enemies of the human race."
President Obama while in route to Africa released a statement applauding the court`s DOMA decision and directed Attorney General Eric Holder to review all relevant federal laws related to today`s ruling.
Constitutional law experts say that`s just the beginning of impact in the real world.
JUDITH SCHAEFFER, CONSTITUTIONAL ACCOUNTABILITY CENTER V.P.: Not so much in the workplace. I mean, for employers but their employees who will now benefit in terms of Social Security, health insurance, state taxes. There are more than 1,000 federal laws that affect spouses and now gay and lesbian couples who are legally married will be able to take advantage of those protections for their families, as well.
PEARSON: A second ruling clear the way for California to become the 13th state to legalize gay marriage, much to the delight of cheering crowds on the streets of San Francisco and Sacramento, the state capital.
The justices let stand a lower court ruling that has struck down Proposition 8, which banned gay marriage in California back in 2008. The effect is to let California and other states set their own policy on same- sex marriage.
That California couple that brought the marriage ban to the high court had quite a moment -a congratulatory phone call from President Obama outside the court just moments after the landmark decision.
UNIDENTIFIED MALE: Thank you, Mr. President.
PEARSON (on camera): The impact of the two cases, a giant step forward for marriage equity at the state level, but the high court stopped far short of declaring same-sex marriage to be a fundamental constitutional right.
For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson at the Supreme Court.
HERERA: And for more on how that ruling will impact the business community, James Klein joins us. He`s president of the American Benefits Council.
Welcome, Mr. Klein. Pleasure to have you here.
JAMES KLEIN, AMERICAN BENEFITS COUNCIL PRESIDENT: Thank you for having me.
HERERA: We heard a little bit in Hampton`s report of some of the broader issues facing American businesses as a result of this decision, but tell me what you think the biggest impact will be.
KLEIN: Well, we praise the court`s decision. We had actually filed a friend of the court brief. I think we were the only national business organization to join that friend of the court brief, asking the court to strike down section 3 of the Defense of Marriage Act, because it puts -it put employers in the position of having to treat some of their legally married employees differently than other of their legally married employees in those states that recognize same-sex marriage.
It also created various administrative burdens on the employer.
MATHISEN: What will the biggest effect of striking down of DOMA, the Defense of Marriage Act, be for American companies? I understand what it`s going to do for federal benefits and taxes and so forth, but how would companies be effected by this?
KLEIN: Well, for example, companies have to have different payroll functions, and administrative matters in the same state to treat some of their legally married employees differently than others. That problem is not, by the way, totally done away with now because of course, the situation remains essentially the same in those 38 other states that don`t recognize same-sex marriage.
There are a number of administrative challenges now facing employees as a result of this change, even though, you know, the vast majority of the very large employers who we represent were in favor, obviously, of our asking the court to strike down the Defense of Marriage Act.
But, you know, there are issues related to making changes in employee benefit plans now. Do they have to go back and -- and ask for spousal consent in various instances where that`s a requirement? To what extent will any of this be retroactive? Do both employers and the employees have the right to ask the IRS to refund the payroll taxes and the tax incomes on employer provided healthcare coverage that until today did not enjoy the same tax free treatment accorded to opposite sex couples?
HERERA: So, obviously, it`s very complicated. But if I`m hearing you correctly, the result of this decision will make it easier for most American companies to be in compliance with the law, which then would make them less likely to be open to lawsuits by employees that perhaps under DOMA might have felt, as though, they were treated unfairly?
KLEIN: No, I mean, employees were in compliance with the law as it stood prior to today. The issue was it created some inconsistencies and inequities for some of their employees and employers didn`t like that. They sponsored benefit plans in order to serve their employees and their family members, and DOMA in many respects impeded that ability.
MATHISEN: In those states, I believe there are 13, that recognize same-sex marriage, what has the experience been of companies with respect to their benefit costs when those laws went into effect? Did their benefit cost increase? And if so, by how much? Do you know?
KLEIN: They didn`t really increase amongst the employers who we represent, who already are providing this coverage. You know, obviously, that was a voluntary decision on the part of the employers. Now arguably, employers in those states that recognize same-sex marriage would be required to provide the same degree of benefits, but most of our member companies were doing that.
So, it`s not so much that when the states recognized same-sex marriage that it increased their cost, other than some of those administrative costs that I mentioned earlier, whereby there had to be separate payroll functions and things of that nature.
HERERA: All right. Mr. Klein, thank you very much for trying to clarify a complicated situation -- James Klein.
KLEIN: My pleasure.
MATHISEN: And to the markets now. Stocks moved higher for a second straight session, despite a downward revision in first product. The economy grew at a pace of just 1.8 percent in the first three months in the year, a third below forecast, and it was because of lower spending by consumers and businesses and a sharp drop in government spending because of those mandatory budget cuts known as the sequester.
But that slower growth appeared to convince investors, for today at least, that the Federal Reserve could delay pulling back on stimulus. So, many plowed into equities and bonds as treasury yields fell.
In the end, the Dow was up 150 points, the NASDAQ gained 28, the S&P 500 added 15 to close back above the 1,600 mark.
Another tough session, though, for gold, which fell $46 an ounce today -- a fresh three-year low. Gold is now down 26 percent this year as the dollar strengthened and investor fears about inflation have fizzled.
HERERA: The Federal Reserve needs to be more clear about what it intends to do. That`s when the Minneapolis Fed president said today. He also expressed surprise about the recent turmoil in the markets and the run-up in bond yields, after Fed Chief Ben Bernanke announced plans to pull back on the Central Bank`s asset-buying plans.
(BEGIN VIDEO CLIP)
NARAYANA KOCHERLAKOTA, FEDERAL RESERVE BANK OF MINNEAPOLIS PRESIDENT: As the economy improves, people should expect interest rates to go up because the Feds should grow as the economy improves. And that`s as I say a good thing, but I think a lot of the movement and this is where I think we have to do a better job of communicating our intentions, a lot of the move, in fact, is due to people thinking we`re going to be having a higher path of the Feds fund rate, then they thought for a given set of economic conditions.
(END VIDEO CLIP)
HERERA: And as for treasuries, they made some gains today after a recent slump to yields to 2-year highs in the first few weeks. The benchmark 10-year treasury note was up 11.32 in price, which puts the yield at 2.569 percent.
MATHISEN: And meantime, Bill Gross` PIMCO, that`s the world`s largest manager bond fund, is seeing a lot of investor money leave on worries about the Fed`s plans to taper its asset buying program. Net outflows so far in June at PIMCO`s total exchange traded fund are triple what were they in May, $387 million yanked out so far this month. Now the ETF is down 2.7 percent year to date but it still has more than $4.5 billion in assets under management.
HERERA: Another kind of interest rate looks to be doubling in just a few days. That after lawmakers failed to make a compromise on rates for new subsidized Stafford student loans, which are set to double from the current 3.4 percent, to 6.8 percent on July 1st. Now, it looked like a bipartisan group of senators were close to a deal linking that rate on all new Stafford loans to the 10-year treasury note until they hit a roadblock.
MATHISEN: Mortgage applications fell by 3 percent last week as mortgage rates edged higher just a bit. Request for new home loans rose slightly. But applications to refinance existing loans -- well, they were much lower.
HERERA: Last night, NIGHTLY BUSINESS REPORT introduced you to a home buyer racing against those rising mortgage rates, eager to buy a home quickly, she`s considering now turning to a riskier type of loan -- one that was popular during the housing boom and she`s not alone.
Diana Olick has more on this new move in mortgages.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Alicia Dieterichs has been frantically touring homes with her realtor, eager to get her family out of the cramped temporary rental they`ve been living in since her job transfer, she`s running out of time as both home prices and mortgage rates rise.
ALICIA DIETERICHS, PROSPECTIVE HOME BUYER: I feel like we`re going to be priced out of buying.
OLICK: Since every penny counts for this family of five, Alicia is now considering a riskier adjustable rate mortgage.
DIETERICHS: Ideally, we would do a 30-year fixed but it`s all going to be depending on the end mortgage payment of what we can afford. So, we would have to look at an ARM potentially if rates continue to rise.
OLICK: Record low fixed rates over the past several years pushed ARMs out of favor. During the housing boom in 2006, they accounted for 36 percent of origination. Today, just around 4 1/2 percent, according to Lender Processing Services (NYSE:LPS).
But in just the past week, the rate on the 30-year fixed surged to around 4 1/2 percent and lenders like Quicken Loans say they are suddenly getting more requests for ARM.
BILL EMERSON, QUICKEN LOANS CEO: Over the last week or two we seen our ARM production double because folks are actually looking at it and saying to themselves, I have a 30year fixed rate that`s gone up maybe to 4 1/2 percent range and I can look at a seven-year or ten-year adjustable that would have a half to 3/4 of a percent lower interest rate.
OLICK: Adjustable rate loans have been often blamed for the housing crash. Their lower teaser rates were based on the assumption that home prices would only go up. Their delinquency rate is still more than twice that of fixed rate loans.
But Quicken CEO says the loan product is fine especially now that it`s much harder to qualify.
EMERSON: It really does give you certainly, as well as a lower rate and it has nothing to do with what took place in the `07, `08 time frame.
OLICK (on camera): While some borrowers are considering ARMs, others are being forced into them, in order to save deals and process. They signed contracts to buy homes before rates spiked and now need that lower rate in order to close.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
HERERA: And for more on the move into adjustable rate mortgages, log on to our Web site NBR.com.
MATHISEN: Coming up: are U.S. defense companies losing their edge to foreign competition? We have the results of a new report.
But first, a look at how some of those widely held stocks closed today.
MATHISEN: Microsoft (NASDAQ:MSFT) unveiling Windows 8.1. It introduced the free update to its much criticized Windows 8 operating system, acknowledging that the company pushed too hard to get users to buy its more modern looking interface which worked well on mobile devices but not so well for desktop users.
CEO Steve Ballmer thinks customers are going to be happy this time.
(BEGIN VIDEO CLIP)
STEVE BALLMER, MICROSOFT CEO: What you`ll see and what we will show you as we demonstrate Windows 8.1 to you is you see a heck of a lot of movement, a heck of a lot of innovation, a heck of a lot of responsiveness, all coming to the market in a rapid, rapid time frame.
(END VIDEO CLIP)
MATHISEN: Microsoft (NASDAQ:MSFT) was one of the best performers on the Dow today. It was up about 2 percent at $34.35.
HERERA: Media and retail are some of the companies in tonight`s "Market Focus".
Amazon (NASDAQ:AMZN) expanded its licensing deal with PBS subscribers, to Amazon`s prime rewards. They will be able to stream past seasons of children`s programming from PBS. Amazon (NASDAQ:AMZN) shares gained more than 2 percent, closing at $277.57 up 23 percent over the past year.
Apollo Group (NASDAQ:APOL), the for-profit education company, was a bottom dweller today, despite increasing its full year profit guidance. Investors sold off the company because of enrollment declines and other problems. Apollo lost 10.75 percent today to close at $17.39, on five times its normal volume. Shares dropped 51 percent in the past year.
MATHISEN: And, Sue, Bed Bath & Beyond (NASDAQ:BBBY) reported a gain in profits of 4 1/2 percent. That matched what analysts have been looking for. The company said it`s comparable stores sales increased 3.4 percent and it restated its guidance for the year. Shares had gained 1.7 percent during the day to close at $70 on the button and they moved up in after hours trading.
Paychex (NASDAQ:PAYX), the payroll company for smaller businesses, reported a flat quarter after the bill and missed estimates because of a charge to settle a tax issue. Revenues up 6 percent, and the company is looking for 8 percent to 9 percent profit growth in its new fiscal year.
Shares had gained almost a percent in the regular session but they did drop off after that report was released.
And earlier today, General Mills (NYSE:GIS) posted a 13 percent increase in profits and increase in revenue, as well, but gross margins shrank because of raw materials cost and the company did trim its profit outlook of the future.
Shares of General Mills (NYSE:GIS) traded in a narrow range. They closed a half percent lower at $48.10.
HERERA: Yesterday, we showed the American CEO of the medical supply maker held hostage by his workers at a plant in Beijing, China. They say they haven`t been paid in months and that the company is moving their jobs to India. Today, that executive, Chip Starnes of Florida-based Specialty Medical Supplies, says he`s not planning on pulling up stakes even after his ordeal is over.
(BEGIN VIDEO CLIP)
CHIP STARNES, SPECIALTY MEDICAL SUPPLIES CO-FOUNDER & PRES.: I got a lot of machinery. I`ve got about 100,000 square feet of facility. You know, so I`m stuck here and, you know, I think it`s in the best interest of the local area here. It`s definitely in the best interest of the people that I employ. For us, it`s come to some sort of solution.
(END VIDEO CLIP)
HERERA: Well, Starnes says that he hopes the, quote, "pretty good negotiations", end quote, that are underway right now, will bring his six days of captivity to an end.
MATHISEN: U.S. Defense companies have long been the envy of the world. Our technology was the best. Our manufacturing prowess, second to none. But now, there is rising concern that international competitors are closing the gap fast.
Jane Wells has more.
JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: U.S. defense companies remain the 800-pound military gorilla in global arms trade. But look out, the east is rising both in spending and selling. That`s the bottom line from an exhaustive study by IHS (NYSE:IHS) Jane`s Defence which says global defense trade has risen much more than previously thought, now reaching $73 billion, a number it expects will more than double by 2020.
Defense is seeing, quote, "the biggest explosion in global trade the world has ever seen."
Now, the number one category for trade is jet aircraft. It`s the hardest segment for most to develop domestically, so they need to buy from the outside. This is why the number one exporter by company is Lockheed Martin (NYSE:LMT), where sales to other countries grew 64 percent in four years, to $6.4 billion. Boeing (NYSE:BA) is in second at $5.6 billion, followed by Russia`s United Aircraft.
Up and comers include Israel. Jane`s Defence says Israel UAV manufacturers will be exporting more unmanned aircraft than the United States by the end of the year.
Brazil is also on the rise, selling trainer aircraft to several countries and building new markets in Africa.
South Korea is, quote, "one to watch". While still a relatively small player, it is growing quickly and as for China, a huge player. The report says, nevertheless, the outlook isn`t as rosy as you might expect.
China does well selling products to countries like Pakistan, like these jet fighters, also Venezuela and Bangladesh. But Jane`s Defence says it does not do well in markets where it has to compete with the west. In fact, the report says some Chinese surveillance systems sold to South American companies had been returned.
For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.
HERERA: Still ahead, remember this guy? Why Enron`s former chief financial officer Andy Fastow is now talking about the big business of fighting fraud?
But first, how commodities, treasuries and currencies all fared today.
HERERA: Well, it looks like there is finally something to smile about over at Kodak. A bankruptcy judge has approved the photography pioneer`s plan to restructure itself into a commercial imaging business, bringing it a big step closer to coming out of Chapter 11 bankruptcy protection.
Kodak`s creditors will vote on that proposal in just the next few weeks.
MATHISEN: And there is likely nothing but smiles coming from John Hammergren, the CEO of the drug distributor McKesson (NYSE:MCK) Corp. That`s because regulatory filings showed he had secured a staggering $159 million pension, which by the way, is far and away the largest pension package on record, more than double the $74 million package for News Corp`s CEO Rupert Murdoch.
Since Mr. Hammergren began running the company in 1999, the results have been good. McKesson (NYSE:MCK) stock price has more than tripled, easily out-performing the overall market.
HERERA: And with that kind of money, let`s Mr. Hammergren is a good tipper, which would be good news for Starbucks (NASDAQ:SBUX) employees in New York state. A court there ruled today that Starbucks (NASDAQ:SBUX) baristas have to share any tips they get with their shift supervisors. The New York state court of appeals ruled that supervisors do much of the same duties as those coffee servers and that both jobs are part time and those workers deserve that extra money. The panel also ruled that full-time assistant managers of those Starbucks (NASDAQ:SBUX) will unfortunately get nothing.
MATHISEN: A new report by the Council on Foreign Relations says U.S.
oil and natural gas companies are increasingly at risk of cyber attacks and those malware hackings can lead to costly outages at pipelines, refineries, drilling platforms. The CFR says that the energy industry was hit by more targeted attacks from April to September last year than any other industry.
HERERA: Vicious malware and computer viruses aren`t the only attacks computer companies have to worry about these days. Financial fraud is a constant worry for businesses and it`s even worse when those firms don`t have much money to lose and that could explain the record attendance this week at a convention of fraud examiners in Los Angeles.
Scott Cohn was there and has this report.
SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): There`s the latest technology for spotting fraud.
UNIDENTIFIED FEMALE: So these are all the cables you need.
COHN: Workshops on how to detect it.
UNIDENTIFIED FEMALE: Fifty percent of all crimes are uncovered by tips or by accidents.
COHN: A famous fraud fighter, Manhattan U.S. Attorney Preet Bharara.
PREET BHARARA, MANHATTAN`S U.S. ATTORNEY: The job of the fraud fighter is more difficult I think that`s ever been.
COHN: And famous fraudster, former Enron chief financial officer, Andy Fastow, whose speech was closed to cameras. This wasn`t to glorify him, the group says, but to get into his head.
JAMES RATLEY, ASSOC. OF CERTIFIED FRAUD EXAMINERS PRES.: What he is limited to doing is coming in front of our people and talking about his thought process that led him to commit the fraud.
COHN: Formed in the wake of the 1987 stock market crash, the Association of Certified Fraud Examiners is now a global organization, and it`s annual conference, a big attraction.
RATLEY: In effect, if an organization has assets, they have a fraud problem.
COHN: No wonder, the organization says, attendance this year set a record.
(on camera): Business is good?
MICHAEL HANSEN, H-11 DIGITAL FORENSICS: Yes. So business is great. Business is booming. And that`s sad.
COHN (voice-over): Inside the exhibit hall, companies are selling tools to scrape data from smart phones.
TATIANA PANKOVA, OXYGEN FORENSICS: (INAUDIBLE) the data, all applications, Skype, delete these messages, delete face time calls.
COHN: These guys will send your company phony invoices to put your account`s payable department to the test.
UNIDENTIFIED MALE: We`re hoping to save a lot of money and cut some of the waste.
COHN (on camera): And to put everything in prospective, there is this traveling fraud museum, with everything from a 1940s chain letter to this, a promotional cigar box that was given away to clients of Bernie Madoff.
(voice-over): For attendees that come from all types of businesses and companies their goal, compare notes.
MIKE TIMONEY, BANK OF AMERICA: My goal is to protect our customers and make sure they aren`t defrauded. So, anything I know what is going on in the industry helps better prepare myself.
COHN: And with fraudsters getting smarter all the time, fraud fighters will never run out of things to talk about.
For NIGHTLY BUSINESS REPORT, I`m Scott Cohn in Las Vegas.
MATHISEN: Pope Francis has named a new commission to look into the Vatican Bank`s governing structure, amid charges of corruption, and a new investigation into a money laundering ring there. The Vatican Bank not only handles millions of dollars to run the Vatican`s operations and finance charitable works, it also manages the pension system for thousands of Vatican employees.
HERERA: And finally tonight, Christie`s Auction House in London sold Elizabeth Taylor`s very first wedding dress to an anonymous buyer for more than twice its original estimate, $187,000. The Oscar winning actress wore the dress which included 25 yards of satin and a 20inch waste at her 1950 wedding to the hotel magnate Conrad Nicky Hilton, Jr.
MATHISEN: That`s a beautiful dress.
HERERA: It is a beautiful dress.
MATHISEN: And congratulations to our Susie Gharib, who today received a Gracie Award for outstanding interview or feature for her profile sometime ago of Harvard University`s first woman president. Congratulations. Makes you proud of her.
HERERA: And so well-deserved, right?
MATHISEN: Absolutely, yes.
HERERA: She does a fantastic interview every time.
HERERA: All right. That will do it for us on NIGHTLY BUSINESS REPORT. I`m Susie Herera. Susie will be back here tomorrow. Thanks so much for watching.
MATHISEN: And I`m Tyler Mathisen. Great to be with you, Sue.
Thank you all for watching. Have a great evening everybody. We`ll see you back here tomorrow.
Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2013 CNBC, Inc.
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