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118> <Type: SHOW> <Head: NIGHTLY BUSINESS REPORT for August 8, 2013, PBS> <Sect: News; Domestic> <Byline: Susie Gharib, Tyler Mathisen, Jackie DeAngelis, Hampton Pearson, Diana Olick, Julia Boorstin, Courtney Reagan> <Guest: Francis Gaskin> <Spec: Abuse; Banking; Government; Policies; Automotive Industry; Consumers; Safety; Business; Economy; Trade> <Time: 18:30:00>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you by --
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: The heat is on. The government ramping up investigations into some of the world`s biggest banks. At issue: securities that led to the financial meltdown. But what
happens next and what might it mean for bank shareholders?
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Crash test a dummy. An influential highway safety group puts small cars to the test. And the results are prompting new concerns for automakers and drivers.
MATHISEN: And the United States of imports. Why bringing in goods from overseas may be the only way for some small businesses to survive and thrive. We`ll meet one owner whose putting the "Made in America" slogan to the test as our special series continues -- tonight on NIGHTLY BUSINESS REPORT for Thursday, August 8th.
GHARIB: Good evening, everyone.
Our top story tonight: banks under fire. Remember those controversial financial products that were at the center of the financial crisis? Well, they are back in the spotlight, and so is JPMorgan (NYSE:JPM) Chase. The bank revealed it`s facing two investigations by the Department of Justice, both criminal and civil involving the sale of mortgage backed securities.
And as Jackie DeAngelis reports, JPMorgan (NYSE:JPM) isn`t the only one under scrutiny as government regulators ramp up investigations of the nation`s largest banks.
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voiceover): The government is turning up the heat on banks about their dealings with mortgage-backed securities leading up to the financial crisis. JPMorgan (NYSE:JPM) said in a filing yesterday, it`s the target of parallel, civil and criminal investigations being conducted by the U.S. Attorneys Office for the eastern district of California.
The probe relates to low quality mortgages that were packaged and sold in securities between 2005 and 2007.
(on camera): The California prosecutor came to a preliminary conclusion that JPMorgan (NYSE:JPM) had violated certain federal securities laws in connection with its products. But it`s too soon to say if these will result in either criminal or civil charges.
(voice-over): JPMorgan (NYSE:JPM) shares today fell on the news. Investors like Charlie Bobrinskoy of Ariel Investments saying lawsuits are a fact of life for the bank.
CHARLIE BOBRINSKOY, ARIEL INVESTMENTS VICE CHAIRMAN: There is no doubt about it the share price for JPMorgan (NYSE:JPM) is lower than it would, otherwise be if all of a sudden, magically, all of these lawsuits went away, but they`re not going to go away. And investors know that they`re not going to go away.
DEANGELIS: CEO Jamie Dimond warned investors that legal charges would rise on the bank`s first and second quarter earnings calls. One possible addition to legal costs, "The New York Times (NYSE:NYT)" reporting an investigation of JPMorgan (NYSE:JPM) securities by the U.S. Attorneys Office in Philadelphia. Neither JPMorgan (NYSE:JPM) nor federal prosecutors would comment.
That would make four different U.S. attorneys offices now investigating the bank`s mortgage-backed business.
In addition, New York`s attorney general is suing the bank, alleging investors lost $22 billion on JPMorgan (NYSE:JPM) mortgage securities. JPMorgan (NYSE:JPM) isn`t the only bank on the federal hot seat. Today, Pennsylvania`s PNC Bank (NYSE:PNC) reported investigations of its mortgage pricing and foreclosure expenses.
On Tuesday, Bank of America (NYSE:BAC) reported a probe of $850 million in mortgage-backed securities.
Rockdale Securities analyst Dick Bove says the impact on bank stocks is unfair.
DICK BOVE, ROCKDALE SECURITIES ANALYST: When you`re suing these banks, you`re suing the individual Americans who own their stocks and they
don`t deserve to be sued.
DEANGELIS: But it seems unlikely that the Department of Justice is done.
For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.
MATHISEN: The Dow and the S&P 500 brushed off today`s declines in JPMorgan (NYSE:JPM) shares and snapped their three-day losing streaks. Microsoft (NASDAQ:MSFT) and Caterpillar (NYSE:CAT) contributed to the gains, bought up more 2 percent, making them the best performing stocks on the Dow blue chip index.
Optimism crept into the market tonight when China reported strong trade data and the positive news continues here at home. Jobless claims rose slightly last week, but the four-week average of claims hit the lowest level since 2007.
At the close, the Dow was up 27, the S&P 500 gained six and NASDAQ was higher by 15.
GHARIB: Over in the bond market, an important message today from Bill Gross, founder of PIMCO, the world`s largest bond fund company. In a new
note to investors, he said bond investors are in a, quote, "bloody war right now". In a message laced with references to the World War I Battle of the Somme, Gross defended bonds as a critical asset class for investors, something he emphasized in an interview earlier today.
(BEGIN VIDEO CLIP)
BILL GROSS, PIMCO CO-FOUNDER: Going forward, what we`re talking about is a substantial universal of investors that need fixed income. It`s fair to say that the boomers require fixed income. It`s fair to say that pension funds, insurance companies, you know, all with the liabilities going forward for 10, 20, or 30 years, they require fixed income. So, this isn`t a universe that is going to disappear.
(END VIDEO CLIP)
GHARIB: Gross also says that smart bond fund managers, presumably including himself can protect capital and grow it in a world of rising interest rates.
It`s been a rough couple months for bond investors and for PIMCO. Its flagship Total Return Fund is down about 4 percent since May 1st and according to "Morning Star", since then, investors have pulled out more than $18 billion from the fund.
MATHISEN: The fight over the fate of JCPenney takes a twist. The troubled retailer is reportedly starting a new CEO search. Activist investor and big JCPenney shareholder Bill Ackman sent a letter to the company`s board saying the process should be sped up and he wants a chief executive named within 30 to 45 days.
And there`s former CEO Allen Questrom who ran the retailer from 2000 to 2004. He`s considering coming back to the company to help turn it around, not as CEO but as chairman. The board has responded by saying the company has made progress under current interim CEO Mike Ullman. The stock jumped 6 percent on the news. Yesterday, the stock was trading at its lowest level in more than 12 years.
GHARIB: Shares at McDonald`s were down today, even though people were eating more Big Macs last month. McDonald`s says a key sales figure rose more than expected in July, powered by its monopoly game, strong sales from its chicken menu options, and McWraps. Positive results in the U.S. offset weaker international sales, especially in Europe.
MATHISEN: And Toyota (NYSE:TM) recalling more than 340,000 Tacoma pickup trucks for faulty seat belts in the 2004 to 2011 models. It`s just the latest issue for Toyota (NYSE:TM) involving that Tacoma truck.
Last fall, the truck was part of a recall of more than 7.4 million Toyotas for faulty window switches that could cause a fire.
GHARIB: From big trucks to small cars, and a new concern for drivers, a report from the influential safety group, the Insurance Institute for Highway Safety, shows that half of the cars tested performed poorly in new crash tests.
Hampton Pearson takes a look at which small cars scored well and the ones that didn`t.
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voiceover): The collision test for 12 small cars were designed to simulate crashing into a utility car or tree at 40 miles per hour on the side of the vehicle.
When the Insurance Institute for Highway Safety evaluated the results, only six of the 12 cars performed well. Two Honda Civic models got the insurance institute top rating of good. The Dodge Dart, Ford Focus, Hyundai Elantra got an acceptable rating. But popular model, like the Chevrolet Sonic (NASDAQ:SONC), the Volkswagen Beetle and Chevrolet Cruze were judge marginal. While the Nissan Sentra and two Kia models were rated poor.
DAVID ZUBY, INSURANCE INSTITUTE FOR HIGHWAY SAFETY: This particular crash is a big challenge for the vehicle`s structure. Those vehicles that
did poorly, we saw a collapse compartment where people sit in a car. Those cars that are performing better, the occupant compartment held up.
PEARSON: The results are important because the small car market is one of the fastest growing. Americans had bought 1.8 million new small cars this year, a 12 percent boost from a year ago.
(on camera): The insurance industry research says new cars have gotten safer in recent years, but these tests are designed to raise the bar and lower the estimated 9,000 fatalities per year associated with front wheel accidents.
For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.
MATHISEN: Fannie Mae has suddenly become a cash cow. The company that was once synonymous with bailouts made a profit of more than $10 billion in its latest quarter and will write a check to the government for the same amount. Just yesterday, Freddie Mac reported its second best quarter ever.
Diana Olick has been reporting on the story for us.
So, Diana, what is driving the profits at Fannie and Freddie?
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it`s two things, really, Tyler. Number one, the current book of business is pristine. It is performing incredibly well and that`s because mortgage underwriting has been so stringent in the last couple of years. So, all of these borrowers who got loans recently backed by Fannie and Freddie are paying up, unlike the loans from the previous several years during the crash.
Secondly, Fannie and Freddie raised their guarantee fees. That is, the fees they charge the banks to guarantee these loans and the banks, of course, will pass that on to borrowers. So, in that sense, they`re making more money from the bank for making loans and the loans are better, performing better. So, that`s where the billions of dollars in profit are coming from.
GHARIB: You know, it`s puzzling, Diana. If things are going so well, they`re making so much money, and they`re returning so much to the government, why is it President Obama the other day wants to phase out Fannie and Freddie?
OLICK: Well, because, really, their profitability means nothing to the administration right now because administration believes government should get out of the mortgage market, that there should be some kind of limited back stuff but they want to get private capital back into the
And when you look at it now, Fannie, Freddie, and the FHA currently back more than 90 percent of all new loans that are made, and that`s just not the way the market should be, or at least according to administration. They want to phase it out. It`s going to take a lot of time, but they don`t want to be in the situation that we were in back in 2009 when the government did have to bailout the mortgage market.
MATHISEN: You know, Diana, this Congress has not gotten much done, certainly not in -- on important issues. Will it get this one done? Will it reform mortgage finance?
OLICK: Well, I can`t answer that. But I do know that there is one very strong bill up on the Hill right now, the Corker-Warner bill that the president seems to have not exactly endorsed that particular bill, but the things that he`s putting forth are very similar to what is in that bill and that`s why you saw him this week out in Phoenix, making the push again, because this fall would be the time, this is kind of the make it or break it time to get the legislation through.
But again, it`s not like it`s going to happen overnight. We`re not going to suddenly see Fannie Mae and Freddie Mac close their doors. This is a long-term phase-out but we need at least to get the plan in place.
Will it happen? You know, you`ve been to Washington before, guys, right?
MATHISEN: Yes, you bet.
Diana, thanks very much. Diana Olick reporting for us.
GHARIB: And still ahead, Wall Street is warming up to IPOs again. Names like Hilton, possibly Twitter, are getting ready to sale shares to the public. We`ll give you a list of other names that should be on your radar.
But, first, let`s get a quick check on how the international markets closed today.
MATHISEN: We begin our "Market Focus" tonight with Priceline and some strong earnings that came out after the market close. The online travel agency said that earnings surged 24 percent and that`s thanks to improved hotel and car rental reservations. International booking growth was also especially strong up 44 percent. The stock closed at $933 and change in the regular session and then rose as much as 3.5 percent in after hours.
Groupon (NASDAQ:GRPN), the daily deals Web site, surprising investors
with strong second quarter sales and a $300 million stock buyback. The company`s new CEO says his focus now is on mobile and pushing more into ecommerce. Shares soared more than 21 percent to $10.60. This is its biggest one-day gain ever.
MATHISEN: Dean Foods (NYSE:DF), the country`s largest dairy producer, coming out of pressure after saying increased competition is causing it to close 15 percent of its factories. The company warned the current quarter would be the most challenged this year, citing falling milk sales. The stock ended the day at $10.20. That`s down 7 percent.
And it was not a good day for shareholders of Fusion-io. That`s data storage company, that reported a fourth quarter loss, issued a weak revenue forecast, was hit with multiple downgrades. The firm citing an increase in competition. The stock plunged closing down 23 percent to $11.39.
And it was a big debut for the biotech company Intrexon. Shares soared on its, their first day of trading as investors made a big bet on the new field of synthetic biology, which some say could revolutionize the way drugs and chemicals are made. The stock priced at $16 a share and closed at $24.73. That`s a 54 percent increase.
GHARIB: And Hilton may also start trading soon. Blackstone, the private equity firm which bought the Hilton Hotel chain six years, it`s prepping for an initial public offering. Initial reports say the stock
could price as early as the first quarter of next year, though it`s still too early to say what the evaluation will be. Blackstone bought Hilton for $28 billion back in 2007.
MATHISEN: And Hilton isn`t the only well-known name that`s getting ready to IPO, probably.
According to reports, Twitter, the online social networking service, is quietly preparing to go public. But if it`s looking to attract investor interest, it will have to explain how it makes money given that millions of people use Twitter every day for free.
Julia Boorstin has more.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voiceover): Twitter`s business model is built on ads -- ads designed to be subtle and integrated with tweets so they feel like content, not distraction. First up, promoted tweets like this one from Staples (NASDAQ:SPLS) for back-toschool shopping. Advertisers say how much they are willing to pay to reach a certain number of people and their target audience, say moms of tweens in the Midwest.
But marketers only pay when users click "retweet" or give a thumbs up
favorite to tweets like this one from Nokia (NYSE:NOK), and they pay less the more the engaging the ad is, designed to push advertisers to make their messages compelling.
NATE ELLIOTT, FORRESTER, VP PRINCIPAL ANALYST: Anytime you get a quarter of the population doing something, marketers are going to have a look and try to figure out if they can leverage that kind of site and that kind of behavior, and Twitter is in that position right now.
BOORSTIN: A second ad revenue stream is promoted profiles. Twitter users including brands like Chase and FedEx (NYSE:FDX) can pay to promote their accounts to draw new followers. A third ad business promoted trends like this one for the new Moto-X, a flat fee based on the audience size that grabs this real estate above the list of trending topics.
Though anyone can sift through tweets, Twitter sells its data through analytics companies that like Datasift, which mine for insight into customers and information on brand perception and Bing and Yahoo (NASDAQ:YHOO) pay Twitter to include its fire hose of tweets and search results. No comment on how much money changes hands.
(on camera): Now, Twitter which is valued at around $10 billion, is expected to file its preliminary documents to go public this year for an IPO in 2014.
(voice-over): Twitter will generate nearly $600 million in revenue this year and $1 billion next year, according to E-Marketer. But those numbers could be even larger depending on partnerships like the one it has with ESPN, which embeds clips with ads inside them.
ELLIOTT: Twitter is only a little bit of the way into realizing the social advertising opportunities that exist today online.
BOORSTIN: The company won`t say how much it will make from the partnerships with ESPN, Viacom (NYSE:VIA) and others, but driving millions of viewers to Twitter where they`ll see ads is certainly valuable.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin, in Los Angeles.
GHARIB: Meanwhile, investors are atwitter over the IPO market in general, which has been very active in recent months. According to the firm Deal Logic, 123 companies have gone public so far this year. That`s the highest number since 2007.
Here with his take on upcoming offerings, as well as what investors should look for, Francis Gaskins. He`s president and editor of IPOdesktop.com.
Francis, let me start with Twitter because there is so much talk about it. We don`t know when it will go public. We don`t have the numbers yet, although Julia gave us some idea of what to expect in revenues and we don`t know what the evaluation will be.
But is this the kind of IPO that investors should take a serious look and put money in it?
FRANCIS GASKINS, IPODESKTOP.COM: Well, definitely. If the projections are billion dollars in revenue, it would come public at the $10 billion evaluation at 10 times revenue, which is definitely smaller than some of these Cloud companies that have gone public. They have integral probably position in the market and it would be impossible to displace them.
And I think what they`ve done is waited -- they are waiting until their business model shows revenue and probably profit so it would be fascinating to look at their income statement. So, it`s kind of -Facebook (NASDAQ:FB) went public too soon and they were screwed up in the mobile area and I think Twitter is probably timing it about right.
I do understand that they have been talking to the New York Stock Exchange for two years about an IPO so it will definitely happen.
MATHISEN: And Facebook (NASDAQ:FB) came out at a multiple much
greater in terms of revenue than what you just described for Twitter. But my rule of thumb, Francis, is the sexier the IPO sounds, the farther I want to get away from it.
GASKINS: Well, that`s true. When it comes at it, it will probably -it could -- it will probably gap at the opening. Now, when the social media companies were going public a couple years ago, what would happen, you know, Groupon (NASDAQ:GRPN) is one of them. It became public in 2008 and there are about other ones, including Facebook (NASDAQ:FB). What they did is they achieved their peak price in the first 15 to 30 minutes and never saw it again.
So, I mean, it will be an interesting company, definitely not buy it in the first 15 minutes.
GHARIB: Are there any other companies that are coming, that are in the pipeline that are coming up, that maybe, as Tyler says, don`t have such a sexy product line or name that you are looking at and you think would be really good investments for first-time investors?
GASKINS: Well, there`s one called Franks International. It`s a boring 75-year-old company that provides tubular products and services to the worldwide oil industry and that one is coming -- if you annualize the June quarter, the midpoint, the price range for tomorrow is at $14, and that`s an example of a boring company that could be interesting. However,
it will probably come above the range and a lot of the institutions are going to go for it right now.
MATHISEN: You know, Francis, we talked a minute ago about the possibility of Hilton being IPO`ed by its private equity owner, Blackstone Group, maybe sometime next year. What should I make if that comes public to the extent you can analyze it at this point and more broadly when a private equity company brings a company public, they are, quote, "smart money".
So, I`m figuring they make the money and I don`t.
GASKINS: Well, certainly that`s what we look at. Blackstone has a reasonable reputation, pretty good reputation with their IPO. What they do is they bring -- they don`t bring all the stock public. They bring a little bit. They might in this case come public with 10 percent or 15 percent of the market cap.
So, what they really want to do is have the stock go up so their remaining shares go up. Hilton is a good example to look for. What you want to look for is a brand and that has a brand. You want look at top line revenue. You want visibility, which you certainly have, and you want to look at the price earnings multiple. And there is enough companies in the category that we`ll be able to see when they file financials in the price range, whether it`s going to be over priced or reasonably priced.
GHARIB: OK. A lot of good tips there. Thanks so much. Francis Gaskins of IPO Desktop.
MATHISEN: Coming up, what`s a small business owner to do when purchasing made in America materials isn`t enough? He looks overseas and imports. We`ll meet him as our special series, "Made n America", continues.
But, first, how commodities, treasuries, and currencies performed today.
GHARIB: Made in the USA. For some small businesses, that`s a tough rule to follow. Supplies are seasonable or just unavailable in the U.S.
So to keep the companies growing, they have to look elsewhere and import. As Courtney Reagan reports in our special series, "Made in America" that could also be good for the economy and jobs.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voiceover): Stavis Seafoods in Boston relies on imports. The company shipped more than 36 million pounds of seafood every year and most of that is sourced overseas.
RICHARD STAVIS, STAVIS SEAFOODS CEO: When I started in the business full-time in 1985, about 80 percent of what we did was domestic and 20 percent was imported. At this point, it`s flipped. We`ve seen that importing seafood really helped us grow our businesses.
REAGAN: Eighty-four-year-old Stavis Seafoods has grown eight-fold to 126 employees in the last three decades. Consumers now want their fish year round and that supply isn`t available 365 days a year domestically.
LAURA BAUGHMAN, ECONOMIST: Producers, American consumers, part of a global supply chain.
REAGAN: Laura Baughman, who does research for the National Retail Federation and dozens of other companies and trade organizations, is fighting what she calls an outdated perception that exports are good and imports are bad.
BAUGHMAN: More imports, equals more jobs, more growth, more connection with the global economy in the 21st century because we`re a 21st century economy today that is interconnected around the world.
REAGAN: Baughman says 16 million American jobs exist solely because of imports and more than half the firms involved in importing are small American businesses, like Stavis Seafoods.
STAVIS: You`ve got shrimps out of Indonesia and India. On the other side over there, you have tilapia, which is coming out of China. We also have some domestic shrimp over here.
REAGAN (on camera): This freezer holds over a million pounds of fish, 200 different species from 35 separate countries. Without imports, this business would look a lot different.
STAVIS: We would have a smaller business. The whole industry would be smaller. It would be a negative impact.
REAGAN (voice-over): For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Boston.
MATHISEN: Six little numbers, three big winners. Those lucky people woke up a whole lot richer after last night`s Powerball drawing. They will splint the $484 million jackpot. Minnesota winner Paul White was introduced to the press conference today where he told reporters he used to
joke with his family about winning the lottery one day.
(BEGIN VIDEO CLIP)
PAUL WHITE, POWERBALL WINNER: We were playing this game, I don`t remember the gist of it exactly, but you had to pick who in the crowd would match this description and the description was, their financial plan consists of playing the lottery. Well everybody picked my name, and they thought it was funny then.
WHITE: Who is right now?
(END VIDEO CLIP)
MATHISEN: He gets the last layoff there. The other two winning tickets sold in New Jersey though their owners haven`t been identified. Maybe one of us in New Jersey?
GHARIB: Obviously not.
MATHISEN: The three winners will each take home about $86 million before taxes. That`s not a bad return on their investment.
GHARIB: Eighty-six million richer this morning.
MATHISEN: Yes, pretty good.
GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. Thanks for watching and remember, support your public television station if you`re not a lottery winner.
MATHISEN: That`s right. On behalf of your public TV station, thank you so much for your support.
Good night everybody and we hope to see you back here tomorrow night.
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