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Pearson, Brian Sullivan, Eamon Javers, Dina Gusovsky>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Friday fumble. Stocks take a dive. The Dow plunges almost 400 points. Crude crumbles, gold sinks. What triggers the first selloff in months and what could come next?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT: Bank behaving badly. What you need to know about those illegal sales practices at Wells Fargo (NYSE:WFC).
HERERA: Risk management. Our market monitor has three unheralded stock picks that he says are great choices for a volatile market.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Friday, September 9th.
MATHISEN: Good evening, everyone, and welcome.
True, it is still summer. It was after all 90 degrees in New York today. But a chill wind blew on Wall Street. Stocks plunged, the market all snug and warm for months turned icy, at least for a day. The Dow and S&P 500 had their worst day since the Brexit vote aftermath at the end of June.
The reason today, a Fed official hinted an interest rate hike is not far off. Now, that`s not necessarily a bad thing. It suggests the Federal Reserve thinks the economy is getting strong enough to shrug off a rate increase, but it did spook investors who have become accustomed to easy money policies and it spooked them doubly because the Fed official that spoke is normally in the easy money camp.
Here are closing numbers for a bruising Friday. Dow Jones Industrial Average tumbled 394 points to 18,085, NASDAQ dropped 133, the S&P 500 slid 53. All of the major indexes fell more than 2 percent for the week -- the biggest weekly drop for the Dow since first week of the year.
Bob Pisani has more.
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BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it`s about time. Even by summer doldrums standards, this has been a long period of below average volatility. The last time the Dow moved 1 percent or more was July 8th. It was two months ago.
So, the Fed`s Eric Rosengren, he`s a dove, has reminded everyone that the markets aren`t not positioned for a rate hike in September and he has made a case that it could well happen. So, now, you are seeing a scramble.
First, the traders sell interest rate sensitive stocks, which is why utilities and telecom and home-building stocks were down today. Second, with the stepping yield curve, you buy financials like insurance companies and banks which benefit from higher rates and which have already been rising going into events today. Third, you bid up the dollar which hurts commodities and commodities stocks like steel and iron ore, and copper names which were all down about 3 percent today, like Freeport McMoRan.
So, who wins? Well, Main Street is not a fan of down days like today, obviously, but this is great news for the professional trading community. Wall Street has been miserable all summer because the trading volumes have been awful. This kind of activity, this kind of volume is a godsend to them.
The problem is this. If the Fed does nothing in September, all of this gets unwound again. We`ll go back to where we were just a few days ago.
So, what`s going to happen? Will the Federal Reserve actually do anything? Are they going to raise interest rates?
Well, if the Fed really is data dependent. Data hasn`t been that good recently so you don`t hike. And yet, Rosengren and friends seem to really, really want to hike rates.
What`s going on? It may be that the Fed is not worried about data, that they`re more worried about losing credibility if they do nothing. So, we`re in a hole. All we can do is maintain a heightened state of alert until September 21st Fed meeting.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
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HERERA: While the Fed`s Eric Rosengren thinks a rate hike could be near, not everybody agrees. Fed Governor Daniel Tarullo says he needs to see more evidence that the economy is ready.
Steve Liesman spoke to him.
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STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fed Governor Dan Tarullo in an exclusive CNBC interview saying he has substantial questions about the momentum of the economy that would appear some pause about raising rates as soon as this month.
DANIEL TARULLO, FEDERAL RESERVE BOARD OF GOVERNORS: I have been characterized of being in the "show me" camp, which is to say I`d like to see some more tangible evidence of inflation given background context of unemployment continuing to increase without unemployment rate going down. The fact we are not running a hot economy. The fact that we don`t have as many tools to respond to a potential recession as we would if growth were to pick up.
LIESMAN: Tarullo would not say specifically if it would hike at the Fed`s meeting in less than two weeks time. He did say a rate hike this year is possible, but recent weak data, they raised questions about the economy`s momentum. Several Fed officials, they suggest that a hike remains on the table but that recent weak economic reports, they have the market believing it is unlikely this month.
Tarullo`s comments, they appear to support the skeptical view.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Washington.
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MATHISEN: In that same interview, Fed Governor Tarullo said that bank behavior has not changed enough since the 2008 crisis. He`s referring to the fine Wells Fargo (NYSE:WFC) paid for opening up unauthorized accounts, something we reported on last night.
And at least one analyst says Wells Fargo (NYSE:WFC) has a lot of work to do to win back its reputation.
Hampton Pearson has our story.
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HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: One day after Wells Fargo (NYSE:WFC) was hit with a $185 million fine for opening as many as 2 million deposit and credit accounts without customers` knowledge, job one for Wells Fargo (NYSE:WFC) is winning back the trust of its estimated 40 million customers. That`s according to a leading Wall Street analyst who today downgraded the bank stock.
DICK BOVE, RAFFERTY CAPITAL: I think Wells Fargo (NYSE:WFC) to right this thing has to do something dramatic for consumers. It has to show in some fashion that it believes in its customers, it wants its customers, and it`s going to help its customers by giving them something to offset what they`ve done here.
PEARSON: The bank says it has already refunded 2.6 million to customers, averaging about $25 per account. And 5,300 employees have been fired over a five-year period. Its total workforce is closer to 270,000.
The settlement with government regulators involved only fines and no admission of wrongdoing. A top Federal Reserve official says individuals should be also held accountable.
TARULLO: There is a need I think for a focus on individuals as well as the fines put on institutions. In inappropriate cases, I that think fines for individuals, prohibition orders, obviously, this is a much higher standard, but for Justice Department prosecutions are things that do need to be pursued.
PEARSON: On Wall Street, some analysts are questioning if revenues from those fake accounts may have helped them Wells Fargo (NYSE:WFC) post better returns than some of its rivals.
BOVE: When Wells Fargo (NYSE:WFC) made these presentations to analysts about the number of accounts it was opening, about the cross selling ratio it was giving. If all of those numbers were incorrect, if revenue was seeping into these numbers, then there`s real questions about numbers of Wells Fargo (NYSE:WFC) itself.
PEARSON: Here in Washington, there`s bipartisan criticism of the Wells Fargo (NYSE:WFC) settlement. A leading Republican says it`s another example of big government propping up a mega bank at the expense of community banks, while a leading Democrat sees echoes of the foreclosure crisis.
For NIGHTLY BUSINESS REPORT, Hampton Pearson in Washington.
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HERERA: So, in the face of Wells Fargo (NYSE:WFC) secretly opening millions of unauthorized deposit or credit card accounts, what do you need to know to protect yourself?
Joe Ridout is a spokesperson for consumer advocacy group Consumer Action and he joins us now.
Joe, nice to have you here.
JOE RIDOUT, CONSUMER ACTION: Thanks for having me on.
HERERA: You know, up selling, cross selling, however you want to call, it`s a common practice in banking. Wells Fargo (NYSE:WFC) obviously took that too far. But what are red flags consumers should look for to alert them to the fact that perhaps they`re falling victim to this?
RIDOUT: Well, for one, you can check your credit report as everybody should do. This is a reminder checking that credit report can determine whether or not there may be a new credit card or other loan in your name you may not have solicited. People who have credit cards opened by employees would likely find out on their credit reports.
The problem is for those consumers with credit reports opened in their names, that may be pushing down their credit score due to extra inquiry in their report. This may be the difference between those consumers obtaining the best available rate or a less advantageous car loan or mortgage. For those consumers, they`re facing damages way beyond the 25 bucks on average Wells Fargo (NYSE:WFC) expecting to pay.
MATHISEN: They were apparently opening different kinds of accounts, including checking and savings accounts for customers. Wouldn`t you know from different or altered statements that they had done something like that? That`s question one. Question two is, do you suspect other banks are doing similar things that might be not necessarily illegal but pushing the bounds of propriety?
RIDOUT: Well, that`s a good question. There`s a lot that`s going to come out of it hopefully. You know, if the bank was not sending statements for extra accounts, which is probably the case more often than not, the consumer might not know about this. If you checked the specialty report, a check systems report, you might find evidence of extra accounts being opened, but very few people do that.
But as far as other banks doing it, I`m not sure. Wells Fargo (NYSE:WFC) has been more aggressive than any bank trying to upsell its customers. They would upsell people ironically with a product, identity theft protection service, expensive and almost worthless.
It bears mentioning it wouldn`t have prevented any of these accounts being opened even if they had that. But, I mean, you can barely take 40 bucks out of the Wells Fargo (NYSE:WFC) ATM without being up-sold a couple of extra products and services you may not want.
HERERA: Yes, they`re known for being aggressive for that.
What about the arbitration clause that is in Wells Fargo`s agreement, but are also common not only in the banking industry but in other industries as well, where you can`t take them to court, you have to arbitrate.
RIDOUT: Yes, this is an interesting wrinkle to the problem. I think basically binding mandatory arbitration takes away your right to take them to court, bind together as class action. It forces you into courts that they`re paid effectively by people that have wronged the consumers in most cases and they rule for over 95 percent of the time in favor of the corporations.
So, if you lose your legal and constitutional rights, the right, your Seventh Amendment rights, and, you know, it is worth checking if you were a consumer concerned about this to find out whether your bank has a binding mandatory arbitration clause or not, because if it does, this Wells Fargo (NYSE:WFC) case shows that many times banks or other institutions have very good reasons for taking away your legal rights, because they may be violating them and want to shield themselves from liability.
HERERA: Joe, we have to leave it there. Thank you very much.
RIDOUT: My pleasure.
HERERA: Joe Ridout with Consumer Action.
MATHISEN: A North Dakota tribe to stop construction of an oil pipeline was denied. The pipeline was opposed by Native Americans who say it would pollute nearby rivers and desecrate their sacred land. The nearly $4 billion pipeline would be the first to allow movement of crude from the Bakken shale. Meantime, oil prices fell 4 percent today, big drop there on continued supply concerns and a rising dollar.
HERERA: While the Bakken is well known in the energy markets, there`s another region not as well known and where drilling costs are low.
Brian Sullivan reports from Oklahoma City, Oklahoma.
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BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Texas may get most of the attention in the oil world, but it is its northern rival which may be America`s most promising oil producer right now. The Oklahoma region`s known as the SCOOP and the STACK. Scoop short for South Central Oklahoma Oil Province. Stack stands for the even more unwieldy Sooner Trend Anadarko Basin Canadian and Kingfisher Counties. Wow.
Unusual names aside, those areas some of the best and lowest cost oil and gas regions right now.
The area is hot for a few reasons. One, it is a relatively new oil and gas place. So, two, land prices never spiraled out of control. Three, oil people got what they call good rock. A lot of oil and gas that`s relatively easy and inexpensive to get to.
The big companies operating here, Devon Energy (NYSE:DVN), Continental Resources (NYSE:CLR), Newfield Exploration (NYSE:NFX), Marathon Oil (NYSE:MRO), and Cimarex Energy (NYSE:XEC). The CEO of Devon Energy (NYSE:DVN) told us how they can still make money in Oklahoma even with $40 to $50 oil.
DAVID HAGER, DEVON ENERGY CEO: We are blessed as a company to be involved in some of the best places for the unconventional play on shore North America. STACK is one of those places. We certainly can there. We`re doing the same out of the Permian Basin. Not all you can make money at $40 a barrel.
So, we`re, we think, in pretty good shape, but there are still a lot of challenges for the industry.
SULLIVAN: The economics look good, but there may be one risk to the region that has little to do with money, earthquakes. Oklahoma was recently hit by the biggest ever quake and the state has gone from an average of a few a year to more than 900 earthquakes last year.
Scientists are pointing the finger at oil and gas fracking. Changes to the industry will likely come, but as a geologist tells us, the state is unlikely to simply shut the industry down.
TODD HALIHAN, OKLAHOMA STATE UNIVERISTY PROFESSOR: I don`t think the state wants to shut it down and the industry doesn`t want to be shut down, and people that stayed worked for the industry. So, they don`t necessarily want it to be shut down.
SULLIVAN: But you can`t have earthquakes all the time.
HALIHAN: They can`t have earthquakes all the time. And so, that comes to knowing enough to manage it.
SULLIVAN: For now, the drilling continues. And Oklahoma optimism is high.
And as long as oil prices don`t fall $40 a barrel, the Sooner State oil boom may roll on.
For NIGHTLY BUSINESS REPORT in Oklahoma City, Oklahoma, I`m Brian Sullivan.
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MATHISEN: An update now on a story we have been following. A judge today said he will grant Hanjin shipping provisional protection from creditors in the U.S. That will enable some of Hanjin`s vessels which have been stranded at sea to dock and unload at U.S. ports. Hanjin is the world`s seventh largest container shipping line and unexpectedly filed for bankruptcy last week.
HERERA: Still ahead, why safety regulators want consumers to stop using some popular devices immediately.
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HERERA: The House of Representatives passed by voice vote a bill that would let families of victims of the September 11 attacks sue Saudi Arabia. The Senate passed that measure last May. The White House says -- it has threatened to veto that measure saying it could harm diplomatic relations with a key ally. The vote comes just days before the 15th anniversary of the attacks.
And today, New York stock exchange and NASDAQ observed moments of silence to remember those who lost their lives.
MATHISEN: Ahead of the anniversary of the attacks, former Homeland Security secretary earlier this week wrote an alarming op-ed in "USA Today". Tom Ridge said there are gaping hole emergency preparedness which are being ignored. And the threat comes from the Postal Service but there`s more to it than that.
Eamon Javers has the details from Washington.
Fascinating story here, Eamon.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes. Hi, Tyler.
Here`s a small story that will tell you a lot how Washington works these days. On Wednesday, an alarming headline appeared on the website of USAToday.com, a top -- an opinion column written by former Homeland Security Secretary Tom Ridge. Fifteen years after 9/11, a gaping security gap, it said. Ridge wrote that there remains a gaping hole in our national security preparedness coming from a largely ignored source, the global postal system.
In the column, Ridge said he was joining up with a new nonprofit group called Americans for Securing All Packages because the Postal Service is not doing enough to screen mail coming into the country.
So, what this group, Americans for Securing All Packages? It`s hard to say. The firm is nonprofit, that does not have to reveal donors. The website for the group doesn`t include an e-mail address or a physical address. A spokeswoman said she couldn`t say who was financing it.
But we did some digging. And it turns out that UPS, private mail carrier, financed a trade association which in turn has financed Americans for Securing All Packages. There may be other large corporate donors, too.
And the point Ridge made in his op-ed column is exactly the point that UPS lobbyists have been making on Capitol Hill, the security imbalance is a competitive advantage to private mail companies which are eating a lot of these costs.
And one more thing, Tom Ridge did not write this as a volunteer. He was paid by Americans for Securing All Packages for his time and talking about the issue. People involved would not tell us how much he was paid.
A spokesman for Ridge said he is proud to serve as an adviser to the new group. "He is a risk management consultant, that`s h job and is paid for his expertise but doesn`t take work he doesn`t believe in. He is sincerely concerned about this issue and believes it is important to speak up, the spokesman said.
So, guys, the lesson here is, when you see an op-ed in Washington written by a big name, it`s often useful to ask yourself just how much money is changing hands behind the scenes.
Back over to you.
MATHISEN: So, Eamon, let me understand this. UPS, I assume, has to or does elect to search all packages in its system, something that the USPS does not do --
JAVERS: That`s right.
MATHISEN: -- and UPS thinks is a disadvantage.
JAVERS: That`s right. The private carriers employ these enhanced security measures to their own packages. And they say the U.S. postal service isn`t do that because of delays following the law that was written back in 2002 on this. That transposes costs for the private carriers that the government-run agency doesn`t pay.
MATHISEN: It sounds like they`ve got a point there.
Do we know whether Mr. Ridge even wrote the op-ed?
JAVERS: We don`t know the answer to that. We asked the spokesman. He would not say that Ridge wrote the op-ed, but he said that these are Ridge`s views.
MATHISEN: All right. Eamon, thanks very much. Eamon Javers reporting from Washington.
JAVERS: You bet.
MATHISEN: You can read more about this story on our website at NBR.com.
HERERA: The Consumer Product Safety Commission says owners of Samsung Galaxy Note 7 should power them down and do not use them or charge them. That statement follows a warning from the Federal Aviation Administration which said the device is a safety hazard, especially on planes. The agency says the phones should not be operated or charged while flying or even checked in luggage.
Dina Gusovsky has more.
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DINA GUSOVSKY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The warning about the devices comes after 35 reported incidents of phones around the world exploding or catching fire. The main concern: the lithium ion battery.
GREG FEITH, FORMER NTSB INVESTIGATOR: The FAA has taken a new look at lithium ion batteries, looking at it from a safety perspective. Any time a lithium ion battery, especially because it is in a particular phone now, they`re advising caution. If it is the battery, that becomes the ignition source, and if that is the problem, they need to correct that.
GUSOVSKY: Instead of an outright ban, the FAA has issued warnings to fliers.
JERRY BEILINSON, DEPUTY ELECTRONICS EDITOR CONSUMER REPORTS: And in fact, if you go to the hack safe website, which is the place where they tell you not to bring legers on the plane and tell you not to bring, you know, long knives on the plane, there`s a note telling people not to bring this phone on the plane.
GUSOVSKY: Consumer Reports believes the FAA should have gone further.
BEILINSON: We think there should be an official recall which could allow the FAA to ban the phones which they haven`t done now from flights. It would also make it illegal to sell one of the phones.
GUSOVSKY: Samsung is replacing all of the Galaxy Note 7s across the world. The company told NIGHTLY BUSINESS REPORT that it plans to expedite shipments this week in order to alleviate any safety concerns. As far as whether or not they will replace that battery, Samsung did not respond to that specific question.
For NIGHTLY BUSINESS REPORT, I`m Dina Gusovsky.
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MATHISEN: The ongoing slump in food prices prompts Kroger (NYSE:KR) to slash its outlook, and that is where we begin tonight`s "Market Focus".
After disappointing quarterly sales, the nation`s largest supermarket chain said it would cut its earnings and revenue guidance for the year, saying it doesn`t expecting deflation to improve any time soon. The company also reported the decline in profit and attributed those results to restructuring charges. Investors apparently expect worse news on this downer of the day. Shares were actually up 20 cents, one of the few, at $31.51.
The homebuilder Hovnanian also lowered its guidance for the year, despite an uptick in deliveries. The move was prompted by a surprised quarterly loss by the company which saw results impacted by write-offs. The company did report a rise in revenue, but also missed analyst estimates. Shares down more than 1.5 percent.
HERERA: Investors had a chance to react today to Finisar`s earnings after the bell. Yesterday, the fiber optic company said profit and revenue rose. Both of those metrics surpassed expectations. The company also gave better than expected sales guidance after which MKM Partners upgraded the stock today to buy from hold. Shares rose 12 percent to $26.20.
Shares of Zumiez (NASDAQ:ZUMZ) continued to surge today after reporting results late yesterday. The specialty clothing chain posted a loss but the result still managed to beat street targets. Zumiez (NASDAQ:ZUMZ) said it continues to underperform its long term expectations but is working on managing expense structure. Shares popped 4 percent to $17.39.
MATHISEN: Coming up, looking for some stock picks for a volatile market? Our market monitor has some recommendations.
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MATHISEN: Our market monitor tonight has some small cap names he says will help you ride out stock market volatility that may be about. Last time he was on back in November, he recommended Steve Madden, which is up 4 percent, the Buckle (NYSE:BKE), which gained 18 percent, and GIII apparel, it is unfortunately 30 percent lower.
Jay Kaplan, portfolio manager of Royce Small Cap Value Fund. A fund, by the way, I used to be a shareholder in.
JAY KAPLAN, ROYCE SMALL CAP VALUE FUND PORTFOLIO MANAGER: Used to be.
MATHISEN: Used to be. Not anymore. Just --
KAPLAN: We`ll get you back.
MATHISEN: All right. Do you like the GIII Apparel? What happened there?
KAPLAN: I`m not an owner of GIII today. They announced a big acquisition a month or so ago. They paid a lot of money. It doesn`t earn any money right now. It`s a really good business, well run, but there`s going to be some digestions. So, we are on the sidelines right now.
HERERA: All right. Let`s get to your stock picks, Moelis and Company. Ken Moelis is the head of the firm. He`s the consummate banker, relationship builder. Is that one of the reasons why you like it?
KAPLAN: Well, it is. They`re in two businesses, independent investment bank, and those are working out well, taking market share, a few of them. M and A business has been a driver It was , very good in 2015. Weaker in `16 but still OK.
Their genesis is in restructuring. They have a vibrant restructuring practice. As we have gone through volatility and some agita in the junk bond market and in the energy patch, that business is starting to pick up steam. It`s closely held by partners of the firm.
So, they`re owner, operators, they pay a big dividend the past couple years since they`ve been public. They paid a special divided at the end of every year. So, good growth business, giving the money back, very well run.
MATHISEN: Another sort of value play is PC Connection (NASDAQ:PCCC).
KAPLAN: It is. They just changed their name this morning to Connection. They dropped the PC. But they`re in the technology distribution business.
They help small and medium size businesses, the federal government, school districts, acquire technology, learn to do cyber security, learn how to do cloud computing. If a small company doesn`t have the staff to do that, they consult and they`ll provide all the equipment. It is a very good cash flow-generating business in the last couple of years. Again, at the end of the year, they paid a special dividend to owners.
HERERA: All right. Camden national corporation, it`s a bank.
KAPLAN: It`s a bank.
HERERA: But it`s in the far northeast, Maine, right?
KAPLAN: It`s in Maine. It`s a beautiful part of the country. I was just there, in fact.
HERERA: I think everybody went to Maine this summer.
KAPLAN: The global world headquarters in Camden, Maine, it`s lovely on the water.
But they bought one of their biggest competitors, the Bank of Maine, which was really dominant, in the southern part of Maine. They have a good statewide presence, 2.5 percent yield. It`s only about 12 times earnings, well-managed. And someday, if a bigger regional bank wants to have a big presence in Maine, Camden, would be a place to look.
MATHISEN: Very big thought on today`s volatility, do you think it presages more volatility in the weeks ahead?
